<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FAXSAV INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4822 11-3025769
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of
Incorporation or Organization) Classification Code) Identification
Number)
</TABLE>
399 THORNALL STREET, EDISON, NEW JERSEY 08837
(908) 906-2000
(Address, including Zip Code, and Telephone Number, including Area Code,
of Registrant's Principal Executive Offices)
--------------------------
THOMAS F. MURAWSKI
President and Chief Executive Officer
FaxSav Incorporated
399 Thornall Street
Edison, New Jersey 08837
(908) 906-2000
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD R. PLUMRIDGE, Esq. GORDON H. HAYES, JR., Esq.
MICHAEL A. CONZA, Esq. Testa, Hurwitz & Thibeault, LLP
Brobeck, Phleger & Harrison LLP High Street Tower, 125 High Street
1301 Avenue of the Americas Boston, Massachusetts 02110
New York, New York 10019 (617) 248-7575
(212) 581-1600
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE (1) REGISTRATION FEE (2)
<S> <C> <C>
Common stock, par value $0.01 per share.................. $30,360,000 $10,469
<FN>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(2) Calculated pursuant to Rule 457(a) based on an estimate of the maximum
offering price.
</TABLE>
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to the registration or qualification under the securities laws of any such
State.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 6, 1996
PROSPECTUS
2,200,000 SHARES
[LOGO]
COMMON STOCK
------------------
All of the 2,200,000 shares of Common Stock offered hereby are being sold by
FaxSav Incorporated ("FaxSav" or the "Company"). Prior to this offering, there
has been no public market for the Common Stock. It is currently estimated that
the initial public offering price will be between $10.00 and $12.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied for
inclusion of the Common Stock on The Nasdaq National Market under the symbol
"FAXX."
------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 6.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts Proceeds to
Public and Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share......................
Total(3).......................
</TABLE>
(1) The Company and a certain stockholder of the Company (the "Selling
Stockholder") have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of $900,000 payable by the Company.
(3) The Selling Stockholder has granted the Underwriters a 30-day option to
purchase up to an aggregate of 330,000 additional shares of Common Stock on
the same terms and conditions as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public and Underwriting Discounts and Commissions will be $ and
$ , respectively, and the proceeds to the Selling Stockholder will
be $ . The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholder. See "Principal Stockholders" and
"Underwriting."
------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain other conditions. It is expected that delivery of the
certificates for the shares of Common Stock will be made at the offices of
Lehman Brothers Inc., New York, New York on or about , 1996.
------------------------
LEHMAN BROTHERS ALEX. BROWN & SONS
INCORPORATED
, 1996
<PAGE>
[GRAPHIC REPRESENTATION OF ICONS REPRESENTING EACH OF THE COMPANY'S SERVICE
OFFERINGS.]
------------------------
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and an opinion thereon expressed by an
independent public accounting firm and with quarterly reports for the first
three quarters of each year containing unaudited interim financial information.
"faxSAV" and "faxSAV Assured" are registered trademarks of the Company. The
Company has filed trademark registration applications for "faxLauncher,"
"faxMailer" and "faxScan." This Prospectus also includes trademarks and trade
names of companies other than FaxSav Incorporated.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION
CONTAINED IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT
OPTION GRANTED TO THE UNDERWRITERS, (II) GIVES EFFECT TO A ONE-FOR-NINE REVERSE
STOCK SPLIT OF THE COMMON STOCK TO BE EFFECTED PRIOR TO THE CLOSING OF THIS
OFFERING, (III) REFLECTS THE FILING IMMEDIATELY PRIOR TO THE CLOSING OF THIS
OFFERING OF THE SIXTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE
COMPANY, WHICH AMONG OTHER THINGS, CHANGES THE AUTHORIZED NUMBER OF SHARES OF
CAPITAL STOCK OF THE COMPANY, AND (IV) REFLECTS, UPON THE CLOSING OF THE
OFFERING, THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF ALL SERIES OF
THE COMPANY'S PREFERRED STOCK INTO AN AGGREGATE OF 7,790,489 SHARES OF COMMON
STOCK.
THE COMPANY
FaxSav Incorporated ("FaxSav" or the "Company") designs, develops and
markets a variety of business-to-business facsimile transmission services,
including fax-to-fax, desktop-to-fax, enhanced fax and broadcast fax services.
FaxSav's services are designed to reduce the cost of sending an international
fax while making the process of sending an international fax easier and less
time-consuming. Through the use of its integrated Internet-based and
telephony-based network and its proprietary software, the Company enables its
customers to send documents and images to fax machines worldwide at rates
substantially below the international rates charged by traditional long distance
carriers. Customers are offered Internet advantaged pricing for facsimile
transmissions to targeted markets worldwide while continuing to use their
traditional fax machines. In addition, the Company has developed easy to use
software enabling customers to transmit documents directly from their computer
desktops. FaxSav has built a customer base consisting of over 7,200 small to
medium sized businesses with international fax needs. In addition, there
currently are more than 1,300 registered users of the Company's desktop
software. In 1995, the Company transmitted more than 20.4 million minutes of
facsimile messages yielding revenues of $11.6 million. During the first six
months of 1996, FaxSav transmitted 13.8 million minutes of facsimile messages
yielding revenues of $7.4 million, as compared to 9.0 million minutes and $5.0
million in revenue for the same six month period in 1995.
The Company historically has provided low cost facsimile services by
utilizing pre-negotiated volume based arrangements with various telephony common
carriers. To significantly enhance the cost effectiveness of the Company's
transmission services, in early 1996 FaxSav began to deploy a global
Internet-based network of nodes that enable it to bypass the long distance
carriers' networks when sending faxes to or from international areas serviced by
these nodes. In June 1996, FaxSav began to utilize this integrated network for
commercial transmission of faxes over the Internet. FaxSav has deployed Internet
nodes in France, Hong Kong and the United Kingdom and plans to deploy additional
Internet nodes in key international telecommunications markets by the end of
1997 to enable the Company to route a majority of its customers' traffic through
the Internet. The Company believes that this planned global Internet
infrastructure, which is designed to integrate seamlessly with its existing
telephony-based network, will enable the Company to bypass long distance carrier
networks for transmissions originating and terminating in countries where such
nodes have been deployed, thereby reducing its customers' international
transmission costs. FaxSav believes that this integrated global network will
enable the Company to emerge as a leading supplier of comprehensive, low cost
global facsimile services.
The Company's services are targeted to customers with international
facsimile transmission requirements. FaxSav offers a variety of services
designed to meet the individual business requirements of its customers,
including real-time, "virtual real-time" (immediate delivery attempt following
receipt of the customer's document by the FaxSav network) and broadcast
services. Specifically, customers may utilize: FAXSAV, a real-time fax
transmission through FaxSav's telephony-based network; FAXSAV ASSURED, a
"virtual real-time" enhanced delivery service option which shifts the
responsibility for repetitive completion attempts to the FaxSav network; FAXSAV
EZ-LIST, a fax-to-fax broadcast service which allows a message to be faxed to
multiple recipients by a single transmission to the FaxSav network; FAXSAV PLUS,
the Company's new "virtual real-time" service which utilizes a combination of
FaxSav's traditional telephony-based network and
3
<PAGE>
its growing Internet-based network; and, FAXSAV FOR INTERNET, a suite of
services enabling customers to send faxes directly from their computer desktops
(either through e-mail or a Windows software application) to fax machines
worldwide. FaxSav also provides customized solutions designed for high volume
fax applications.
Access to the FaxSav network is accomplished easily and does not require any
initial investment, installation expense or change in business practices by the
customer. Customers connect to the FaxSav network by simply plugging the FAXSAV
CONNECTOR, a small proprietary device, between their fax machine and the
telephone jack. In the first half of 1996, FaxSav further expanded customer
access options by introducing desktop software which can easily be installed on
Internet-connected personal computers and which enables customers to send
documents and images directly to fax machines worldwide. Customers can deploy
FaxSav's services at individual fax machines or desktop locations, across
departments or throughout organizations using this modular installation
approach. The Company sells its services through multiple sales channels,
including direct mail and telemarketing programs, a direct field sales force, an
agent and dealer distribution network and promotional activities.
FaxSav was incorporated in Delaware on November 29, 1989 under the name
Digitran Corporation and changed its name to FaxSav Incorporated on February 28,
1996. The Company's executive offices are located at 399 Thornall Street,
Edison, New Jersey 08837 and its telephone number is (908) 906-2000. The
Company's Internet address is http://www.faxsav.com.
THE OFFERING
<TABLE>
<CAPTION>
Common Stock offered by the
Company......................... 2,200,000 shares
<S> <C>
Common Stock to be outstanding
after the offering.............. 10,368,998 shares(1)
Use of proceeds................... Expansion of Internet network infrastructure, repayment
of existing short-term indebtedness and for general
corporate purposes, including working capital. The
Company may use a portion of the net proceeds to acquire
businesses, services, products or technologies
complementary to the Company's current business. See
"Use of Proceeds."
Proposed Nasdaq National Market
symbol.......................... FAXX
</TABLE>
- ---------
(1) Excludes 1,238,619 shares of Common Stock issuable upon the exercise of
stock options outstanding at June 30, 1996 with a weighted average exercise
price of $0.58 per share. Excludes 555,556 shares of Common Stock available
for issuance as of June 30, 1996 pursuant to the Company's 1996 Stock
Option/Stock Issuance Plan of which stock options exercisable for 22,222
shares of Common Stock were granted subsequent to June 30, 1996, with an
exercise price equal to the initial public offering price. Also excludes
139,877 shares of Common Stock issuable upon exercise of warrants with a
weighted average exercise price of $2.80 per share. See "Management--1996
Stock Option/Stock Issuance Plan," and Notes 7 and 8 of Notes to Financial
Statements.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 2,580 $ 3,449 $ 11,649 $ 5,017 $ 7,445
Operating loss........................................... (3,298) (3,552) (4,127) (1,983) (3,469)
Net loss................................................. (3,260) (3,493) (4,085) (1,885) (3,432)
Net loss per common and equivalent share................. $ (6.62) $ (7.06) $ (8.24) $ (3.80) $ (6.80)
Weighted average common and equivalent shares
outstanding(1)......................................... 492,388 494,935 495,879 495,879 504,358
Pro forma net loss per common and equivalent share(1).... $ (0.44) $(0.40)
--------- ------------
--------- ------------
Shares used in computing pro forma net loss per common
and equivalent share(1)................................ 9,248,091 8,615,421
--------- ------------
--------- ------------
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................................... $ 793 $ 22,399
Total assets.......................................................................... 7,916 29,022
Total long-term debt.................................................................. 569 569
Total stockholders' equity............................................................ 3,058 24,664
</TABLE>
- ---------
(1) See Note 2 of Notes to Financial Statements: "Summary Of Significant
Accounting Policies -- Pro Forma Net Loss Per Common and Equivalent Share"
and "-- Net Loss Per Common and Equivalent Share."
(2) Adjusted to give effect to the sale of 2,200,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $11.00 per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."
-------------------
THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS
AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH
STATEMENTS, PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS
FACTORS IDENTIFIED IN THIS PROSPECTUS, INCLUDING THE MATTERS SET FORTH UNDER THE
CAPTION "RISK FACTORS," WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED HEREBY.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT. From its inception in
1989 through the six-month period ended June 30, 1996, the Company has
experienced significant operating losses. The Company incurred operating losses
of $3.3 million, $3.6 million and $4.1 million during the years ended December
31, 1993, 1994 and 1995, respectively, and $3.5 million during the six months
ended June 30, 1996. The Company currently anticipates incurring further
operating losses as it attempts to expand its business and there can be no
assurance that its future operations will generate positive operating income. As
of June 30, 1996, the Company had an accumulated deficit of $21.0 million.
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; QUARTERLY FLUCTUATIONS; POSSIBLE
VOLATILITY OF STOCK PRICE. Prior to this offering, there has been no public
market for the Common Stock, and there can be no assurance that an active public
market for the Common Stock will develop or be sustained after the offering. The
initial public offering price will be determined by negotiations between the
Company and the representatives of the Underwriters. See "Underwriting" for a
discussion of the factors considered in determining the initial public offering
price. The Company may in the future experience significant quarter to quarter
fluctuations in its results of operations. Such fluctuations may result in
volatility in the price of the Company's Common Stock. Quarterly results of
operations may fluctuate as a result of a variety of factors, including demand
for the Company's services, the introduction of new services and service
enhancements by the Company or its competitors, market acceptance of new
services, the mix of revenues between Internet-based versus telephony-based
deliveries, the timing of significant marketing programs, the number and timing
of the hiring of additional personnel, competitive conditions in the industry
and general economic conditions. The Company's revenues are difficult to
forecast. Shortfalls in revenues may adversely and disproportionately affect the
Company's results of operations because a high percentage of the Company's
operating expenses are relatively fixed, and planned expenditures, such as the
anticipated expansion of the Company's Internet infrastructure, are based
primarily on sales forecasts. In addition, the stock market in general has
experienced extreme price and volume fluctuations, as evidenced by the
fluctuations in the Nasdaq National Market in July 1996, which have affected the
market price of securities of many companies in the telecommunications and
technology industries and which have been unrelated to the operating performance
of such companies. These market fluctuations may adversely affect the market
price of the Company's Common Stock. Accordingly, the Company believes that
period to period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as an indication of future results of
operations. There can be no assurance that the Company will be profitable in any
future quarter. Due to the foregoing factors, it is likely that in one or more
future quarters the Company's operating results will be below the expectations
of public market analysts and investors. Such an event would have a material
adverse effect on the price of the Company's Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results."
DEPENDENCE ON NETWORK INFRASTRUCTURE; NO ASSURANCE OF SUCCESSFUL
INTERNET-CAPABLE NODE DEPLOYMENT. The Company's future success will depend in
part upon the capacity, reliability and security of its network infrastructure
and in particular upon its ability to successfully deploy an international
network of Internet-capable facsimile nodes. The Company must continue to expand
and adapt its network infrastructure as the number of customers and the volume
of traffic they wish to transmit increases. The expansion and adaptation of the
Company's network infrastructure will require substantial financial, operational
and management resources. There can be no assurance that the Company will be
able to expand or adapt its network infrastructure to meet any additional demand
on a timely basis, at a commercially reasonable cost, or at all. In addition,
the Company anticipates that implementation of its price leadership strategy
generally will cause its overall gross profit margin to be reduced until a
sufficient number of key international telecommunications markets are serviced
by its Internet-capable facsimile nodes. There can be no assurance that the
Company will be able to deploy the contemplated Internet-capable facsimile node
expansion on a timely basis, at a commercially reasonable cost, or at all. Any
failure of the Company to expand its network
6
<PAGE>
infrastructure on a timely basis, to adapt it to changing customer requirements
or evolving industry standards or to deploy the contemplated Internet-capable
facsimile node infrastructure on a timely basis, or at all, would have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, there can be no assurance that the Company will
be able to satisfy the regulatory requirements in each of the countries
currently targeted for node deployment, which may prevent the Company from
installing Internet-capable facsimile nodes in such countries and may have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business--The FaxSav Network" and "--Government
Regulation."
DEPENDENCE ON THE INTERNET AS A FACSIMILE TRANSMISSION MEDIUM. The Company
believes that its future success will depend in part upon its ability to
significantly expand its base of Internet-capable nodes and route more of its
customers' traffic through the Internet. The Company's success is therefore
largely dependent upon the viability of the Internet as a medium for the
transmission of documents. To date, the Company has transmitted a limited amount
of customer traffic over the Internet, and there can be no assurance that the
Internet will prove to be a viable communications medium, that document
transmission over the Internet will be reliable or that Internet capacity
constraints will not develop which inhibit efficient document transmission.
Further, there can be no assurance that the current pricing structure for access
to and use of the Internet will not change unfavorably. If the Internet proves
to be an impractical or unreliable medium for document transmissions, if
material capacity constraints develop on the Internet or the current Internet
pricing structure changes unfavorably, the Company's business, financial
condition and results of operations would be materially and adversely affected.
NO ASSURANCE OF MARKET ACCEPTANCE. The Company's ability to route existing
customers' traffic through the Internet and to sell its FAXSAV PLUS service to
new customers may be inhibited by, among other factors, the reluctance of some
customers to switch from real-time fax delivery to "virtual real-time" delivery
and by widespread concerns over the adequacy of security in the exchange of
information over the Internet. The Company currently relies on RSA Data Security
Inc. ("RSA") standard encryption technology to enable the secure transfer of
customer documents over the Internet. There can be no assurance that advances in
computer capabilities, new discoveries in the field of cryptography or other
events or developments will not result in a compromise or breach of the RSA
encryption technology or other algorithms used by the Company to protect
customer data. If the Company's existing and potential customers do not accept
"virtual real-time" delivery through the Internet as a means of sending and
receiving documents via fax, or if any compromise of the Company's security were
to occur, the Company's business, financial condition and results of operations
would be materially and adversely affected.
INTENSE COMPETITION. The market for facsimile transmission services is
intensely competitive and there are limited barriers to entry. The Company
expects that competition will intensify in the future. The Company believes that
its ability to compete successfully will depend upon a number of factors,
including market presence; the capacity, reliability and security of its network
infrastructure; the pricing policies of its competitors and suppliers; the
timing of introductions of new services and service enhancements by the Company
and its competitors; and industry and general economic trends.
The Company's current and prospective competitors generally fall into the
following groups: (i) telecommunication companies, such as AT&T Corp. ("AT&T"),
MCI Communications Corp., Inc. ("MCI"), Sprint Corp. ("Sprint"), LDDS WorldCom
Inc. ("LDDS WorldCom") and the regional Bell operating companies; (ii)
telecommunications resellers, such as Frontier Corporation, Biztel Corporation
and Eastern Telecom Corporation; (iii) Internet service providers, such as Uunet
Technologies, Inc. and NETCOM On-Line Communications Services, Inc., (iv)
on-line services providers, such as America Online, Inc. and CompuServe
Incorporated and (v) direct fax delivery competitors, including Xpedite Systems,
Inc. and Fax International, Inc. Many of these competitors have greater market
presence, engineering and marketing capabilities, and financial, technological
and personnel resources than those available to the Company. As a result, they
may be able to develop and expand their communications and network
infrastructures more quickly, adapt more swiftly to new or emerging technologies
and changes in customer requirements, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products and services than can the Company. Further, the
7
<PAGE>
foundation of the Company's telephony network infrastructure consists of the
right to use the telecommunications lines of several of the above-mentioned long
distance carriers, including LDDS WorldCom and MCI. There can be no assurance
that these companies will not discontinue or otherwise alter their relationships
with the Company in a manner that would have a material adverse effect upon the
Company's business, financial condition and results of operations. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their services to address the needs of the Company's current and prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. In addition
to direct competitors, many of the Company's larger potential customers may seek
to internally fulfill their fax communication needs through the deployment of
their own computerized fax communications systems or network infrastructures for
intra-company faxing.
Increased competition is likely to result in price reductions and could
result in reduced gross margins and erosion of the Company's market share, any
of which would have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, financial condition and results of operations.
NO ASSURANCE OF SUCCESSFUL MANAGEMENT OF GROWTH. The Company has rapidly
and significantly expanded its operations and anticipates that significant
expansion will continue to be required in order to address potential market
opportunities. The Company anticipates significantly increasing the size of its
sales and marketing efforts following the completion of this offering, and the
Company also will be required to increase its customer support staff. There can
be no assurance that such expansion will be successfully completed or that it
will generate sufficient revenues to cover the Company's expenses. The inability
of the Company to promptly address and respond to these circumstances could have
a material adverse effect on the Company's business, financial condition and
results of operations.
RAPID INDUSTRY CHANGE. The telecommunications industry in general, and the
facsimile transmission business in particular, are characterized by rapid and
continuous technological change. Future technological advances in the
telecommunications industry may result in the availability of new services or
products that could compete with the facsimile transmission services provided by
the Company or reduce the cost of existing products or services, any of which
could enable the Company's existing or potential customers to fulfill their fax
communications needs more cost efficiently. There can be no assurance that the
Company will be successful in developing and introducing new services that meet
changing customer needs and respond to technological changes or evolving
industry standards in a timely manner, if at all, or that services or
technologies developed by others will not render the Company's services
noncompetitive. The inability of the Company to respond to changing market
conditions, technological developments, evolving industry standards or changing
customer requirements, or the development of competing technology or products
that render the Company's services noncompetitive would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Services."
RISK OF SYSTEM FAILURE; SECURITY RISKS. The Company's operations are
dependent on its ability to protect its network from interruption by damage from
fire, earthquake, power loss, telecommunications failure, unauthorized entry,
computer viruses or other events beyond the Company's control. Most of the
Company's current computer hardware and switching equipment, including its
processing equipment, is currently located at two sites. There can be no
assurance that the Company's existing and planned precautions of backup systems,
regular data backups and other procedures will be adequate to prevent
significant damage, system failure or data loss. Despite the implementation of
security measures, the Company's infrastructure may also be vulnerable to
computer viruses, hackers or similar disruptive problems caused by its customers
or other Internet users. Persistent problems continue to affect public and
private data networks, including computer break-ins and the misappropriation of
confidential information. Such computer break-ins and other disruptions may
jeopardize the security of information stored in and transmitted through the
computer systems of the individuals, businesses and financial institutions
utilizing the Company's services, which may result in significant liability to
the Company and also may deter potential customers from using the
8
<PAGE>
Company's services. Any damage, failure or security breach that causes
interruptions or data loss in the Company's operations or in the computer
systems of its customers could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE UPON SUPPLIERS; SOLE AND LIMITED SOURCES OF SUPPLY. The Company
relies on third parties to supply key components of its network infrastructure,
including long distance telecommunications services and telecommunications node
equipment, many of which are available only from sole or limited sources. LDDS
WorldCom, MCI and Telstra Corporation Limited ("Telstra") are the primary
providers of long distance telecommunications services to the Company. For the
six months ended June 30, 1996, approximately 94% of the Company's
telecommunications traffic passed through LDDS WorldCom communications lines.
The Company has from time-to-time experienced interruptions of service from its
telecommunications carriers, and there can be no assurance that the Company will
not experience such interruptions in the future. The Company's contract with
LDDS WorldCom is a short-term contract. There can be no assurance that such
telecommunications providers will continue to provide long distance services to
the Company at attractive rates, or at all, or that the Company will be able to
obtain such services in the future from these or other long distance providers
on the scale and within the time frames required by the Company. Any failure to
obtain such services on a timely basis at an affordable cost, or any significant
delays or interruptions of service from such carriers, would have a material
adverse effect on the Company's business, financial condition and results of
operations.
All of the faxboards used in the Company's telecommunications nodes are
supplied by Brooktrout Technology, Inc. ("Brooktrout"). The Company purchases
Brooktrout faxboards on a non-exclusive basis pursuant to purchase orders placed
from time-to-time, carries a limited inventory of faxboards and has no
guaranteed supply arrangement with Brooktrout. In addition to faxboards, many of
the routers, switches and other hardware components used in the Company's
network infrastructure are supplied by sole or limited sources on a
non-exclusive, purchase order basis. There can be no assurance that Brooktrout
or the Company's other suppliers will not enter into exclusive arrangements with
the Company's competitors, or cease selling these components to the Company at
commercially reasonable prices, or at all. The anticipated expansion of the
Company's network infrastructure is expected to place a significant demand on
the Company's suppliers, some of which have limited resources and production
capacity. In addition, certain of the Company's suppliers, in turn, rely on sole
or limited sources of supply for components included in their products. Failure
of the Company's suppliers to adjust to meet such increasing demand may prevent
them from continuing to supply components and products in the quantities and
quality and at the times required by the Company, or at all. The Company's
inability to obtain sufficient quantities of sole or limited source components
or to develop alternative sources if required could result in delays and
increased costs in the expansion of the Company's network infrastructure or in
the inability of the Company to properly maintain the existing network
infrastructure, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY RIGHTS; RISK OF THIRD PARTY
CLAIMS OF INFRINGEMENT. The Company's success is dependent upon its proprietary
technology. The Company relies primarily on a combination of contract, copyright
and trademark law, trade secrets, confidentiality agreements and contractual
provisions to protect its proprietary rights. The Company has patent
applications pending for its FAXSAV CONNECTOR and for its "e-mail Stamps"
security technology incorporated into its FAXMAILER service. There can be no
assurance that patents will issue from such applications or that present or
future patents will provide sufficient protection to the Company's present or
future technologies, services and processes. In addition, there can be no
assurance that others will not independently develop substantially equivalent
proprietary information or obtain access to the Company's know-how. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's services or to obtain and use
information that the Company regards as proprietary. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. There can be no assurance that
the steps taken by the Company to protect its proprietary rights will be
adequate or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technologies.
9
<PAGE>
The Company is not aware that any of its services, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
the Company received a letter in the third quarter of 1995 stating that the
Company's FAXSAV CONNECTOR may be utilizing a call diversion methodology
patented by such correspondent. To the Company's knowledge, such third party has
not initiated a suit, action, proceeding or investigation relating to any
alleged infringement by the Company of such patent. There can be no assurance
that this or other third parties will not assert infringement claims against the
Company in the future. Patents have been granted recently on fundamental
technologies in the communications and desktop software areas, and patents may
issue which relate to fundamental technologies incorporated in the Company's
services. As patent applications in the United States are not publicly disclosed
until the patent issues, applications may have been filed which, if issued as
patents, could relate to the Company's services. The Company could incur
substantial costs and diversion of management resources with respect to the
defense of any claims that the Company has infringed upon the proprietary rights
of others, which costs and diversion could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
parties making such claims could secure a judgment awarding substantial damages,
as well as injunctive or other equitable relief which could effectively block
the Company's ability to license and sell its services in the United States or
abroad. Any such judgment could have a material adverse effect on the Company's
business, financial condition and results of operations. In the event a claim
relating to proprietary technology or information is asserted against the
Company, the Company may seek licenses to such intellectual property. There can
be no assurance, however, that licenses could be obtained on terms acceptable to
the Company, or at all. The failure to obtain any necessary licenses or other
rights could have a material adverse effect on the Company's business, financial
condition and results of operations.
RISK OF SOFTWARE DEFECTS OR DEVELOPMENT DELAYS. Software-based services and
equipment, such as the Company's FAXSAV FOR INTERNET suite of services and the
FAXSAV CONNECTOR, may contain undetected errors or failures when introduced or
when new versions are released. There can be no assurance that, despite testing
by the Company and by current and potential customers, errors will not be found
in such software or other releases after commencement of commercial shipments,
or that the Company will not experience development delays, resulting in delays
in the shipment of software and a loss of or delay in market acceptance, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON KEY PERSONNEL. The Company's future performance depends in
significant part upon the continued service of its key technical, sales and
senior management personnel, none of whom is bound by an employment agreement.
The loss of the services of one or more of the Company's executive officers or
other key employees could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's future
success also depends on its continuing ability to attract and retain highly
qualified technical, sales and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company can retain
its key technical, sales and managerial employees or that it can attract,
assimilate or retain other highly qualified technical, sales and managerial
personnel in the future. See "Management."
RISKS RELATED TO POTENTIAL ACQUISITIONS. The Company may in the future
pursue acquisitions of complementary services or product lines, technologies or
businesses, although the Company has no present understandings, commitments or
agreements with respect to any such acquisitions. Future acquisitions by the
Company could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, which could materially adversely affect
the Company's business, financial condition and results of operations. In
addition, acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies, services and products of the
acquired companies and the diversion of management's attention from other
business concerns. In the event that any such acquisition were to occur, there
can be no assurance that the Company's business, financial condition and results
of operations would not be materially adversely affected.
RELIANCE ON INTERNATIONAL STRATEGIC ALLIANCES. The Company intends to
establish and build an international customer base by forming strategic sales
and marketing alliances with foreign Internet service
10
<PAGE>
providers, telecommunications companies and resellers. There can be no assurance
that the Company will be able to form or, if formed, maintain any such strategic
alliances. The Company's success in developing an international customer base
depends not only on the formation of such alliances but also on the success of
these partners and their ability to successfully market the Company's services.
The failure to form and maintain such strategic alliances or the failure of
these partners to successfully develop and sustain a market for the Company's
service will have a material adverse effect on the Company's ability to
establish and build an international customer base, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
GOVERNMENT REGULATION. The Company is subject to regulation by the Federal
Communications Commission (the "FCC"), by various state public service and
public utility commissions and by various international regulatory authorities.
FaxSav is licensed by the FCC as an authorized telecommunications company
and is classified as a "non-dominant interexchange carrier." Generally, the FCC
has chosen not to exercise its statutory power to closely regulate the charges
or practices of non-dominant carriers. Nevertheless, the FCC acts upon
complaints against such carriers for failure to comply with statutory
obligations or with the FCC's rules, regulations and policies. The FCC also has
the power to impose more stringent regulatory requirements on the Company and to
change its regulatory classification. There can be no assurance that the FCC
will not change the Company's regulatory classification or otherwise subject the
Company to more burdensome regulatory requirements.
In connection with the anticipated deployment of Internet-capable nodes in
countries throughout the world, the Company will be required to satisfy a
variety of foreign regulatory requirements. The Company intends to explore and
seek to comply with these requirements on a country-by-country basis as the
deployment of Internet-capable facsimile nodes continues. There can be no
assurance that the Company will be able to satisfy the regulatory requirements
in each of the countries currently targeted for node deployment, and the failure
to satisfy such requirements may prevent the Company from installing Internet-
capable facsimile nodes in such countries. The failure to deploy a number of
such nodes could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company's nodes utilize RSA encryption technology in connection with the
routing of customer documents through the Internet. The export of such
encryption technology is regulated by the United States government. The
Company's licensor has obtained authority for the export of such encryption
technology. This authority may be revoked or modified at any time, however, for
any particular jurisdiction or in general. In addition, there can be no
assurance that such export controls, either in their current form or as may be
subsequently enacted, will not limit the Company's ability to distribute its
services outside of the United States or electronically. While the Company takes
precautions against unlawful exportation of its software, the global nature of
the Internet makes it virtually impossible to effectively control the
distribution of its services. Moreover, future Federal or state legislation or
regulation may further limit levels of encryption or authentication technology.
Any such export restrictions, the unlawful exportation of the Company's
services, or new legislation or regulation could have a material adverse effect
on the Company's business, financial condition and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial numbers of shares of
Common Stock in the public market after this offering could adversely affect the
market price of the Common Stock. Upon completion of this offering, the Company
will have outstanding 10,368,998 shares of Common Stock. In addition to the
2,200,000 shares of Common Stock offered hereby, as of the effective date of the
Registration Statement of which this Prospectus forms a part (the "Effective
Date"), there will be 8,168,998 shares of Common Stock outstanding, all of which
are "restricted securities" under the Securities Act. Certain stockholders of
the Company are subject to lock-up agreements providing generally that they will
not offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock or any securities convertible or exchangeable into Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Lehman Brothers Inc., which may be given at any time, without notice,
with respect to all or any portion of such shares. Certain other stockholders of
the Company are subject to similar restrictions contained in an
11
<PAGE>
Investor Rights Agreement. Taking into account the lock-up agreements and
notwithstanding possible earlier eligibility for resale under the provisions of
Rules 144 and 701, the numbers of shares that will be available for sale in the
public market will be as follows. Beginning 90 days after the Effective Date,
approximately 70,000 shares of restricted securities will become eligible for
resale in the public market. Beginning 180 days after the Effective Date,
approximately 5,950,000 additional shares of restricted securities will become
eligible for sale in the public market upon expiration of certain lock-up
agreements pursuant to Rule 144 and, as of that date, approximately 5,300,000 of
such shares will be subject to certain volume and other resale restrictions
pursuant to Rules 144 and 701. The Securities and Exchange Commission has
proposed certain amendments to Rule 144 which would reduce the holding period
required before shares subject to Rule 144 become eligible for resale in the
public market. This proposal, if adopted, would significantly increase the
number of shares of the Company's Common Stock eligible for immediate resale
following the expiration of the lock-up agreements.
The holders of approximately 8,016,000 shares of Common Stock and the
holders of warrants to purchase an additional 139,877 shares of Common Stock
have the right in certain circumstances to require the Company to register their
shares under the Securities Act for resale to the public. If such holders, by
exercising their demand registration rights, cause a large number of shares to
be registered and sold in the public market, such sales could have an adverse
effect on the market price for the Company's Common Stock. If the Company were
required to include in a Company-initiated registration shares held by such
holders pursuant to the exercise of their piggyback registration rights and
shares held by the holders of an additional 83,741 shares of Common Stock with
piggyback registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital. The Company intends to file a
registration statement on Form S-8 on or shortly after the date of this
Prospectus registering a total of approximately 1,794,000 shares of Common Stock
subject to outstanding stock options or reserved for issuance under the
Company's stock option plans. Shares issued after the effective date of the S-8
will be eligible for resale by non-affiliates in the public market without
limitation and by affiliates subject to the requirements set forth in Rule 144,
except for the holding period limitation of Rule 144. See "Management--1996
Stock Option/Stock Issuance Plan," "Description of Capital Stock--Registration
Rights of Certain Holders," "Shares Eligible for Future Sale" and
"Underwriting."
ANTITAKEOVER CONSIDERATIONS. The Company's Sixth Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") authorizes the
Board of Directors to issue, without stockholder approval, up to 1,000,000
shares of Preferred Stock with voting, conversion and other rights and
preferences that could adversely affect the voting power or other rights of the
holders of Common Stock. The Certificate of Incorporation also provides for
staggered terms for the members of the Board of Directors. In addition, the
Company has adopted a stockholder rights plan (the "Rights Plan") which could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a significant percentage of the
outstanding Common Stock. Further, the Company will be subject to the provisions
of Section 203 of the Delaware General Corporation Law, which will generally
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The foregoing and other
provisions of the Certificate of Incorporation and the Company's By-laws, as
amended (the "By-laws"), the Rights Plan and the application of Section 203 of
the Delaware General Corporation Law could have the effect of deterring certain
takeovers or delaying or preventing certain changes in control or management of
the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices. See
"Description of Capital Stock--Preferred Stock," "--Delaware Law and Certain
Provisions of the Company's Restated Certificate of Incorporation and By-laws"
and "--Stockholder Rights Plan."
SUBSTANTIAL DILUTION. Purchasers of shares of Common Stock offered hereby
will experience immediate and substantial dilution in the net tangible book
value of their investment from the initial public offering price. Additional
dilution will occur upon exercise of outstanding options and warrants. See
"Dilution."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered by the Company are estimated to be approximately
$21,606,000 at an assumed initial public offering price of $11.00 per share,
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company. The Company will not receive any
proceeds from the exercise, if any, of the Underwriters' over-allotment option.
The Company currently anticipates that approximately $7.0 million of the net
proceeds will be used to fund capital expenditures associated with the planned
expansion of its Internet network infrastructure through the end of 1997,
however there can be no assurance that actual capital expenditures will not
exceed that amount. The remainder of the net proceeds are anticipated to be used
for working capital requirements, including increased selling and marketing and
research and development efforts, for the repayment of short-term indebtedness
as described below and for general corporate purposes. The Company may also use
a portion of the net proceeds to fund acquisitions of complementary businesses,
products or technologies, although there are no current agreements or
negotiations with respect to any such transaction. The Company will use
approximately $0.5 million of the net proceeds to repay the outstanding
principal amount of, plus accrued interest on, the Company's working capital
line of credit. In addition, a portion of the net proceeds will be used to repay
the $0.3 million outstanding principal amount of the Company's term loan
facility, together with accrued interest, as it comes due. This indebtedness
bears interest at the bank's prime rate plus 0.5% (8.75% at June 30, 1996). The
working capital line, which matures in full on April 14, 1997, was utilized for
working capital purposes. The term loan facility, which is repayable in equal
monthly installments over a three-year period commencing on October 14, 1996,
was utilized to finance capital expenditures. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Pending use of the net proceeds for the above purposes, the Company intends
to invest the net proceeds in short-term debt instruments, certificates of
deposit or direct or guaranteed obligations of the United States.
DIVIDEND POLICY
The Company to date has not declared or paid dividends on its capital stock.
In addition, the Company's credit facility with Silicon Valley Bank (the "Bank")
prohibits the Company from paying dividends without the Bank's consent. The
Company intends to retain any earnings to fund future growth and the operation
of its business and, therefore, does not anticipate paying any cash dividends in
the foreseeable future. The payment of any future dividends will be at the
discretion of the Company's Board of Directors and will be based on the
Company's future earnings, financial condition, capital requirements and other
relevant factors.
13
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996 was
approximately $3.1 million or $0.37 per share. "Pro forma net tangible book
value per share" is determined by dividing the tangible net worth of the Company
(total tangible assets less total liabilities), by the number of shares of pro
forma Common Stock outstanding. Without taking into account any of the changes
in such pro forma net tangible book value after June 30, 1996, other than to
give effect to the sale of 2,200,000 shares of Common Stock by the Company in
this offering (at an assumed initial public offering price of $11.00 per share,
and after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company), the pro forma net tangible book value
of the Company as of June 30, 1996 would have been approximately $24.7 million
or $2.38 per share. This represents an immediate increase in pro forma net
tangible book value of $2.01 per share to existing stockholders and immediate
dilution in pro forma net tangible book value of $8.62 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................. $ 11.00
Pro forma net tangible book value before the offering........... $ 0.37
Increase attributable to new investors.......................... 2.01
---------
Pro forma net tangible book value after the offering.............. 2.38
---------
Dilution to new investors......................................... $ 8.62
---------
---------
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 1996, the
differences between the existing stockholders and the new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid (based on
an assumed initial public offering price of $11.00 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION(1)
------------------------ ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)........... 8,168,998 78.78% $ 24,069,350 49.86% $ 2.95
New investors...................... 2,200,000 21.22% 24,200,000 50.14% $ 11.00
------------ ---------- ------------- ----------
Total.......................... 10,368,998 100.00% $ 48,269,350 100.00%
------------ ---------- ------------- ----------
------------ ---------- ------------- ----------
</TABLE>
- ---------
(1) Sales by the Selling Stockholder in this offering, if the Underwriters'
over-allotment option is exercised in full, will reduce the number of shares
held by existing stockholders to 7,838,998, or approximately 75.60% of the
total number of shares of Common Stock to be outstanding after this
offering, and will increase the number of shares held by new investors to
2,530,000 or approximately 24.40% of the total number of shares of Common
Stock to be outstanding after this offering. See "Principal Stockholders."
(2) Excludes (i) 1,238,619 shares issuable upon the exercise of stock options
outstanding as of June 30, 1996 with a weighted average exercise price of
$0.58 per share, (ii) 555,556 shares of Common Stock available for issuance
as of June 30, 1996 pursuant to the Company's 1996 Stock Option/Stock
Issuance Plan and (iii) 139,877 shares of Common Stock issuable upon
exercise of warrants with a weighted average exercise price of $2.80. See
"Management--1996 Stock Option/Stock Issuance Plan" and Notes 7 and 8 of
Notes to Financial Statements.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996, and as adjusted to give effect to the sale by the Company of 2,200,000
shares of Common Stock at an assumed initial public offering price of $11.00 per
share, after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company, and the application of the estimated
net proceeds therefrom. The financial data in the following table should be read
in conjunction with the Company's financial statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996(1)
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Short-term debt, including current portion of long-term debt.................... $ 780 $ 280
---------- -----------
---------- -----------
Long-term debt.................................................................. $ 569 $ 569
---------- -----------
Stockholders' equity(1):
Preferred Stock, $0.01 par value, 1,000,000 authorized; none issued and
outstanding................................................................. -- --
Common Stock, $0.01 par value, 40,000,000 authorized; 8,168,998 shares issued
and outstanding on an actual basis and 10,368,998 shares issued and
outstanding on an as adjusted basis(2)...................................... 20 26
Additional paid-in capital...................................................... 24,049 45,650
Accumulated deficit............................................................. (21,011) (21,011)
---------- -----------
Total stockholders' equity.................................................. 3,058 24,665
---------- -----------
Total capitalization...................................................... $ 3,627 $ 25,234
---------- -----------
---------- -----------
</TABLE>
- ---------
(1) Gives effect to the Company's Sixth Amended and Restated Certificate of
Incorporation to be filed prior to the closing of the offering. Also gives
effect to the automatic conversion, upon the closing of the offering, of all
of the outstanding shares of all series of Preferred Stock of the Company.
(2) Excludes 1,238,619 shares of Common Stock issuable upon the exercise of
stock options outstanding at June 30, 1996 with a weighted average exercise
price of $0.58 per share, 22,222 shares of Common Stock issuable upon the
exercise of stock options granted after that date at a price equal to the
initial public offering price and 139,877 shares of Common Stock issuable
upon exercise of warrants with a weighted average exercise price of $2.80
per share. See "Management--1996 Stock Option/Stock Issuance Plan" and Notes
7 and 8 of Notes to Financial Statements.
15
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
The following selected financial data should be read in conjunction with the
Financial Statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus. The statement of operations data for the years ended December 31,
1993, 1994 and 1995 and the balance sheet data at December 31, 1994 and 1995 are
derived from, and are qualified by reference to, the audited financial
statements and the related notes thereto included elsewhere in this Prospectus.
The statement of operations data for the years ended December 31, 1991 and 1992
and the balance sheet data at December 31, 1991, 1992 and 1993 have been derived
from audited financial statements of the Company which are not included in this
Prospectus. The selected financial data for the six months ended June 30, 1996
and 1995 is derived from unaudited financial statements of the Company, which
are included elsewhere in this Prospectus. The unaudited financial data includes
all adjustments (consisting only of normal recurring adjustments) which in the
opinion of management of the Company are necessary for a fair presentation of
the information set forth therein. The results of operations for the six months
ended June 30, 1996 are not necessarily indicative of the results for any future
period or for the full year.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 651 $ 2,421 $ 2,580 $ 3,449 $ 11,649 $ 5,017 $ 7,445
Cost of service......................... 688 2,041 1,856 2,297 7,021 3,107 4,280
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin............................ (37) 380 724 1,152 4,628 1,910 3,165
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Network operations and support........ 281 783 742 851 1,183 566 868
Research and development.............. 232 397 628 613 840 399 781
Sales and marketing................... 1,337 993 1,597 2,337 4,238 2,037 3,023
General and administrative............ 1,445 1,187 953 1,031 2,237 844 1,375
Depreciation and amortization......... 31 83 102 181 698 253 587
Other................................. -- -- -- (309) (441) (206) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses............ 3,326 3,443 4,022 4,704 8,755 3,893 6,634
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating loss.......................... (3,363) (3,063) (3,298) (3,552) (4,127) (1,983) (3,469)
Interest income (expense), net.......... 22 58 23 45 46 72 (8)
Other income (expense), net............. 4 21 15 14 (4) 26 45
---------- ---------- ---------- ---------- ---------- ---------- ----------
Loss before income taxes................ (3,337) (2,984) (3,260) (3,493) (4,085) (1,885) (3,432)
Provision for income taxes.............. -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss................................ $ (3,337) $ (2,984) $ (3,260) $ (3,493) $ (4,085) $ (1,885) $ (3,432)
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss per common and equivalent
share................................. $ (9.31) $ (6.21) $ (6.62) $ (7.06) $ (8.24) $ (3.80) $ (6.80)
Weighted average common and equivalent
shares outstanding (1)................ 357,066 480,311 492,388 494,935 495,879 495,879 504,358
Pro forma net loss per common and
equivalent share (1).................. $ (0.44) $ (0.40)
Shares used in computing pro forma net
loss per common and equivalent share
(1)................................... 9,248,091 8,615,421
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............... $ 596 $ 2,601 $ (354) $ (447) $ (1,141) $ 793
Total assets............................ 1,605 3,535 989 2,492 5,132 7,916
Total long-term debt.................... -- -- 321 -- 326 569
Total stockholders' equity (deficit).... 937 2,922 (336) 621 687 3,058
</TABLE>
- ---------
(1) See Note 2 of Notes to Financial Statements: "Summary Of Significant
Accounting Policies -- Pro Forma Net Loss Per Common and Equivalent Share"
and "-- Net Loss Per Common and Equivalent Share."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company derives its revenues from the provision of a variety of
facsimile services largely to small to medium sized businesses and professionals
involved in international commerce. Through the end of 1995, the Company offered
its services exclusively to customers located in the United States. In the first
quarter of 1996, the Company began to focus on the broader worldwide market for
facsimile services through the introduction of client software to enable faxing
from the computer desktop using the Internet as the means to access the FaxSav
network. The Company's network in the United States includes interconnection
with the existing worldwide telephony network, enabling delivery of facsimile
transmissions to virtually any domestic or international destination. The
Company has deployed Internet fax nodes in France, Hong Kong and the United
Kingdom and plans to install additional Internet nodes in key international
telecommunications markets to enable the Company ultimately to route a majority
of its customers' traffic through the Internet.
The Company charges customers monthly for its services based upon the actual
duration (number of minutes) for transmissions originating on facsimile machines
or individual facsimile transmission size (number of pages) for transmissions
originating on computer desktops. Although the Company does not require its
customers to enter into long-term contractual agreements, once customers begin
to use the services regularly, they often continue to use the services on a
recurring basis. Accordingly, the Company believes that its operating results
benefit from the recurring monthly revenue stream from such customers.
The Company's revenue and expense levels have continued to increase,
particularly in 1995 and through the six months ended June 30, 1996, as the
Company's customer base has expanded and the Company has invested in the design,
development and marketing of its newer services, including FAXSAV EZ-LIST, a
fax-to-fax broadcast service, and the FAXSAV FOR INTERNET suite of services. On
an annual basis, cost of service, general and administrative expenses, network
operations and support expenses and sales and marketing expenses decreased as a
percentage of revenues in 1995 in comparison to 1994. In the first six months of
1996, cost of service further decreased as a percentage of revenues from the
same period in 1995 but operating expenses increased in the 1996 period as a
result of the development, promotion and marketing of new services.
A key element of the Company's current business strategy is to offer its fax
delivery services at prices based on the economics of delivery through an
Internet backbone, even to destinations where the Company has not yet deployed
Internet-capable nodes. It is anticipated that this pricing strategy, which the
Company introduced in the third quarter of 1996, will generally reduce the
Company's overall gross profit margin until a sufficient number of
telecommunications markets are serviced by the Company's Internet-capable nodes.
There can be no assurance that the Company will be able to deploy the additional
Internet-capable nodes on a timely basis, at a commercially reasonable cost, or
at all. Any failure of the Company to deploy the contemplated Internet-capable
node infrastructure on a timely basis could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company has incurred operating losses since its inception in 1989. Based
on the Company's anticipated increases in expenses for new product development,
deployment of Internet-capable nodes and sales and marketing programs, the
Company expects to incur a net operating loss for the year ended December 31,
1996, and it expects to incur losses in the future.
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under the
caption "Risk Factors," which could cause actual results to differ materially
from those indicated by such forward-looking statements.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenues for the periods indicated (subtotals not adjusted for rounding):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PERCENTAGES OF REVENUES:
Revenues.......................................... 100.0% 100.0 % 100.0 % 100.0 % 100.0 %
Cost of service................................... 71.9 66.6 60.3 61.9 57.5
------ ------ ----- ----- -----
Gross margin...................................... 28.1 33.4 39.7 38.1 42.5
------ ------ ----- ----- -----
Operating expenses:
Network operations and support.................. 28.8 24.7 10.2 11.3 11.7
Research and development........................ 24.3 17.8 7.2 8.0 10.5
Sales and marketing............................. 61.9 67.8 36.4 40.6 40.6
General and administrative...................... 36.9 29.9 19.2 16.8 18.5
Depreciation and amortization................... 3.9 5.2 6.0 5.0 7.9
Other........................................... -- (9.0 ) (3.8 ) (4.1 ) --
------ ------ ----- ----- -----
Total operating expenses...................... 155.8 136.4 75.2 77.6 89.2
------ ------ ----- ----- -----
Operating loss.................................... (127.7 ) (103.0 ) (35.5 ) (39.5 ) (46.7 )
Interest income (expense), net.................... 0.9 1.3 0.4 1.4 (0.1 )
Other income (expense), net....................... 0.6 0.4 (0.0 ) 0.5 0.6
------ ------ ----- ----- -----
Loss before income taxes.......................... (126.2 ) (101.3 ) (35.1 ) (37.6 ) (46.2 )
Provision for income taxes........................ -- -- -- -- --
------ ------ ----- ----- -----
Net loss.......................................... (126.2 )% (101.3 )% (35.1 )% (37.6 )% (46.2 )%
------ ------ ----- ----- -----
------ ------ ----- ----- -----
</TABLE>
SIX MONTHS ENDED JUNE 30, 1995 AND 1996.
REVENUES. Revenues, which consist primarily of customer usage charges, grew
48.4% to $7.4 million in the six months ended June 30, 1996 from $5.0 million in
the six months ended June 30, 1995 primarily as a result of the continued
expansion of the Company's customer base. Commercial introduction of the
Company's FAXSAV EZ-LIST broadcast service and FAXSAV FOR INTERNET suite of
services was begun in the first quarter of 1996, but the revenues for these
services were not significant. In total, revenues from international fax
deliveries increased to 86.5% of revenues in the six months ended June 30, 1996
from 82.4% in the same period in 1995.
COST OF SERVICE. Cost of service consists of local access charges, leased
network backbone circuit costs and long distance domestic and international
termination charges. These are primarily variable costs based on actual
facsimile volume. Cost of service increased as a result of the increase in
facsimile volume for the period but decreased as a percentage of revenues in the
six months ended June 30, 1996 to 57.5% from 61.9% in the six months ended June
30, 1995. The Company's costs for international termination charges in the 1996
period were lower as a percentage of revenue as a result of the Company's volume
commitment to its major telephony common carrier.
NETWORK OPERATIONS AND SUPPORT. Network operations and support costs
consist primarily of the expenses of operating and expanding the network
infrastructure, monitoring network traffic and quality of service and providing
customer support in service installations, fax deliveries and message reporting
and billing. Network operations and support costs increased to $0.9 million in
the six months ended June 30, 1996 from $0.6 million in the six months ended
June 30, 1995 as a result of hiring additional personnel to implement the
Internet fax node deployment plan and to support the Company's expanding
customer base. These costs increased as a percentage of revenues to 11.7% in the
six months ended June 30, 1996 from 11.3% in the same period in 1995.
18
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and consulting fees paid to software engineers and
development personnel. Research and development expenses increased by 95.9% in
the six months ended June 30, 1996 in comparison to the six months ended June
30, 1995 due to the continuing development efforts for enhancements to the
Company's Internet desktop-to-fax services both in client software and network
enhancements and the continuing development of the Company's FAXSAV EZ-LIST
broadcast service. As a percentage of revenues, these expenses increased to
10.5% in the six months ended June 30, 1996 from 8.0% in the six months ended
June 30, 1995.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries and commissions for sales and marketing staffs, promotional material
preparation and mailing costs, third party telemarketing charges and agent and
dealer commissions. Sales and marketing expenses increased to $3.0 million for
the six months ended June 30, 1996 in comparison to $2.0 million in the six
months ended June 30, 1995. As a percentage of revenues, these costs were 40.6%
in both the 1996 and 1995 periods. During 1996, the Company initiated a program
of presenting its FAXSAV FOR INTERNET suite of services at trade shows in the
United States and in foreign countries where it plans to deploy Internet fax
nodes. The Company also initiated an advertising and promotion campaign to
promote its new services and expanded its sales and marketing staff.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of
expenses associated with the Company's management, accounting, finance, billing
and administrative functions. General and administrative expenses increased to
$1.4 million and 18.5% of revenues in the six months ended June 30, 1996 from
$0.8 million and 16.8% of revenues in the six months ended June 30, 1995. The
increase in total general and administrative expenses and the increase of these
expenses as a percentage of revenues result from personnel increases to support
the increased customer base, expenses incurred for management information system
improvements and management recruiting fees.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization amounted to
$0.6 million in the six months ended June 30, 1996 in comparison to $0.3 million
in the six months ended June 30, 1995, primarily reflecting depreciation of the
Company's increased investment in FAXSAV CONNECTORS installed at customer
premises to allow access to the FaxSav network.
OTHER. Other operating income of $0.2 million for the six months ended June
30, 1995 represents service fees received under a Service Agreement with Telstra
which offset various operating expenses incurred in support of the development
of Telstra's "WorldFax" service in the U.S. The Agreement expired in 1995.
PROVISION FOR INCOME TAXES. The Company had losses for income tax purposes
for the six months ended June 30, 1995 and 1996. Accordingly, there was no
provision or credit for income taxes for those periods. Any income tax benefits
at the Company's expected effective tax rate for these losses has been offset by
an expected increase in valuation allowance for deferred tax assets.
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
REVENUES. Revenues grew 33.7% from $2.6 million in 1993 to $3.4 million in
1994 and 237.8% to $11.6 million in 1995 primarily as a result of increases in
the number of the Company's customers. This growth in the customer base resulted
from the introduction in the second quarter of 1994 of the Company's core
fax-to-fax service, FAXSAV; the initiation in the second quarter of 1994 of a
direct mail and telemarketing program conducted through third party
telemarketing firms, which was expanded through the end of 1994 and in 1995; the
development in the third quarter of 1994 of a network of independent agents and
dealers selling FaxSav services in addition to other products and services; and
an increase in the number of the Company's sales and marketing personnel,
particularly in 1995.
COST OF SERVICE. Cost of service increased in 1994 and 1995 in comparison
to the previous years because of the increased customer base but, as a
percentage of revenues, cost of service decreased from 71.9% of
19
<PAGE>
revenues in 1993 to 66.6% in 1994 and to 60.3% in 1995. Cost savings from volume
discounts on long distance termination charges and more efficient network
operations through least cost routing were the significant factors in reducing
this cost as a percentage of revenues.
NETWORK OPERATIONS AND SUPPORT. Network operations and support costs were
$0.7 million and $0.9 million in 1993 and 1994 and increased to $1.2 million in
1995 as a result of hiring additional personnel to support the Company's
expanding customer base. Due to increased revenues these costs decreased as a
percentage of revenues from 28.8% in 1993 to 24.7% in 1994 and decreased further
to 10.2% in 1995.
RESEARCH AND DEVELOPMENT. Research and development costs were $0.6 million,
$0.6 million, and $0.8 million in 1993, 1994 and 1995, respectively. The
increase in 1995 was due to (i) the development efforts for the Company's FAXSAV
FOR INTERNET suite of services client software and network enhancements; (ii)
the development of the Company's FAXSAV EZ-LIST broadcast service; and (iii)
software enhancements to the Company's FAXSAV CONNECTOR. Due to increased
revenues, research and development expenses have decreased as a percentage of
revenues from 24.3% in 1993 to 17.8% in 1994 and 7.2% in 1995.
SALES AND MARKETING. These expenses increased in 1994 to $2.3 million in
comparison to $1.6 million in 1993 in connection with the rollout in the United
States of the Company's core business service, FAXSAV, beginning in the second
quarter of 1994. In 1995, sales and marketing expenses increased to $4.2 million
but decreased as a percentage of revenues to 36.4% from 67.8% in 1994 due to
increased revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $2.2 million in 1995 from $1.0 million in 1994 and 1993, but on a percentage
of revenue basis these costs decreased to 19.2% in 1995 from 29.9% in 1994 and
36.9% in 1993 due to increased revenues. The increase in 1995 was due primarily
to the hiring of additional personnel to support the Company's expanding
customer base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization amounted to
$0.1 million in 1993, $0.2 million in 1994 and $0.7 million in 1995. The most
significant item causing these increases was depreciation on the Company's
increased investment in FAXSAV CONNECTORS which are installed at customer
premises to access the FaxSav network.
OTHER. Other operating income of $0.3 million in 1994 and $0.4 million in
1995, represents service fees received under a Service Agreement with Telstra
which expired in 1995.
PROVISION FOR INCOME TAXES. The Company had losses for income tax purposes
for the years ended December 31, 1993, 1994 and 1995. Accordingly, there was no
provision for income taxes in those years. Any income tax benefits for the
Company's operating losses have been offset by an increase in a valuation
allowance for deferred tax assets.
20
<PAGE>
QUARTERLY RESULTS
The following tables set forth certain unaudited quarterly financial
information for each of the six quarters ended June 30, 1996. The Company
believes that this information has been presented on the same basis as the
audited financial statements appearing elsewhere in this Prospectus and in the
opinion of management all necessary adjustments (consisting only of normal
recurring adjustments) have been included in the amounts stated below to present
fairly the unaudited quarterly results when read in conjunction with the audited
financial statements of the Company and related notes thereto included elsewhere
in this Prospectus. The operating results for any quarter are not necessarily
indicative of the operating results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
------------- ----------- ----------- ----------- ------------ -----------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 2,272 $ 2,745 $ 3,300 $ 3,332 $ 3,614 $ 3,831
Cost of service............................. 1,386 1,721 1,975 1,939 2,114 2,166
------ ----------- ----------- ----------- ------------ -----------
Gross margin................................ 886 1,024 1,325 1,393 1,500 1,665
------ ----------- ----------- ----------- ------------ -----------
OPERATING EXPENSES:
Network operations and support............ 267 299 332 285 397 471
Research and development.................. 212 188 249 192 315 466
Sales and marketing....................... 871 1,166 1,116 1,084 1,348 1,675
General and administrative................ 410 433 494 900 686 689
Depreciation and amortization............. 103 151 190 255 272 314
Other..................................... (103) (103) (134) (100) -- --
------ ----------- ----------- ----------- ------------ -----------
Total operating expenses................ 1,760 2,134 2,247 2,616 3,018 3,615
------ ----------- ----------- ----------- ------------ -----------
Operating loss.............................. (874) (1,110) (922) (1,223) (1,518) (1,950)
Interest income (expense), net.............. 36 36 8 (34) (18) 10
Other income (expense), net................. 11 15 20 (51) 18 26
------ ----------- ----------- ----------- ------------ -----------
Loss before income taxes.................... (827) (1,059) (894) (1,308) (1,518) (1,914)
Provision for income taxes.................. -- -- -- -- -- --
------ ----------- ----------- ----------- ------------ -----------
Net loss.................................... $ (827) $ (1,059) $ (894) $ (1,308) $ (1,518) $ (1,914)
------ ----------- ----------- ----------- ------------ -----------
------ ----------- ----------- ----------- ------------ -----------
PERCENTAGE OF TOTAL REVENUES:
Revenues.................................... 100.0% 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of service............................. 61.0 62.7 59.8 58.1 58.5 56.5
------ ----------- ----------- ----------- ------------ -----------
Gross margin................................ 39.0 37.3 40.2 41.9 41.5 43.5
------ ----------- ----------- ----------- ------------ -----------
Operating expenses:
Network operations and support............ 11.8 10.9 10.1 8.6 11.0 12.3
Research and development.................. 9.3 6.8 7.6 5.8 8.7 12.2
Sales and marketing....................... 38.3 42.5 33.8 32.5 37.3 43.7
General and administrative................ 18.1 15.8 15.0 27.0 19.0 18.0
Depreciation and amortization............. 4.5 5.5 5.8 7.7 7.5 8.2
Other..................................... (4.5 ) (3.8 ) (4.1 ) (3.0 ) -- --
------ ----------- ----------- ----------- ------------ -----------
Total operating expenses................ 77.5 77.7 68.2 78.6 83.5 94.4
------ ----------- ----------- ----------- ------------ -----------
Operating loss.............................. (38.5 ) (40.4 ) (28.0 ) (36.7 ) (42.0 ) (50.9 )
Interest income (expense), net.............. 1.6 1.3 0.2 (1.0 ) (0.5 ) 0.3
Other income (expense), net................. 0.5 0.5 0.6 (1.5 ) 0.5 0.7
------ ----------- ----------- ----------- ------------ -----------
Loss before income taxes.................... (36.4 ) (38.6 ) (27.2 ) (39.2 ) (42.0 ) (49.9 )
Provision for income taxes.................. -- -- -- -- -- --
------ ----------- ----------- ----------- ------------ -----------
Net loss.................................... (36.4 )% (38.6 )% (27.2 )% (39.2 )% (42.0 )% (49.9 )%
------ ----------- ----------- ----------- ------------ -----------
------ ----------- ----------- ----------- ------------ -----------
</TABLE>
The Company may in the future experience significant quarter to quarter
fluctuations in its results of operations. Such fluctuations may result in
volatility in the price of the Company's Common Stock. Quarterly results of
operations may fluctuate as a result of a variety of factors, including demand
for the Company's services, the introduction of new services and service
enhancements by the Company or its
21
<PAGE>
competitors, market acceptance of new services, the mix of revenues between
Internet-based versus telephony-based delivery, the timing of significant
marketing programs, the number and timing of the hiring of additional personnel,
competitive conditions in the industry and general economic conditions. The
Company's revenues are difficult to forecast. Shortfalls in revenues may
adversely and disproportionately affect the Company's results of operations
because a high percentage of the Company's operating expenses are relatively
fixed, and planned expenditures, such as the anticipated expansion of the
Company's Internet infrastructure, are based primarily on sales forecasts. In
addition, the stock market in general has experienced extreme price and volume
fluctuations, as evidenced by the fluctuations in the Nasdaq National Market in
July 1996, which have affected the market price of securities of many companies
in the telecommunications and technology industries. These market fluctuations
may adversely affect the market price of the Company's Common Stock.
Accordingly, the Company believes that period to period comparisons of results
of operations are not necessarily meaningful and should not be relied upon as an
indication of future results of operations. There can be no assurance that the
Company will be profitable in any future quarter. Due to the foregoing factors,
it is likely that in one or more future quarters the Company's operating results
will be below the expectations of public market analysts and investors. Such an
event could have a material adverse effect on the price of the Company's Common
Stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through private sales of equity
securities, bank borrowings and capital lease financing. Cash flows from the
sales of equity securities amounted to $7.9 million in the six months ended June
30, 1996, net of issuance costs, $2.2 million of which were used to repurchase
shares of the Company's Series D Preferred Stock from a major stockholder
pursuant to a pre-existing option. Cash flows from the sales of equity
securities amounted to $4.2 million and $4.1 million in 1995 and 1994,
respectively, net of issuance costs. Cash flows associated with bank borrowings
amounted to a net repayment of $0.3 million in the six months ended June 30,
1996 and net borrowings of $1.0 million in 1995.
Cash flows used in investing activities have largely consisted of the
purchase of equipment amounting to $0.9 million in the six months ended June 30,
1996 and $1.3 million, $0.7 million and $0.2 million in 1995, 1994 and 1993,
respectively. Beginning in 1994, this equipment primarily consisted of FAXSAV
CONNECTORS purchased by the Company. In addition, network and computer
equipment, amounting to $0.6 million and $0.1 million in 1995 and 1994,
respectively, was financed under capital leases.
The Company's principal sources of liquidity at June 30, 1996 included cash
and cash equivalents of $2.8 million, available bank financing of approximately
$0.7 million and available lease financing of $0.4 million. In April 1996, the
Company amended the bank credit facility to consist of a working capital credit
line of $1.0 million and a term facility of $0.8 million to finance capital
expenditures. The bank credit facility is limited to a borrowing base determined
by the Company's eligible receivables, with approximately $1.3 available for
borrowing thereunder as of June 30, 1996. The term loan facility becomes due and
payable in monthly installments over a three-year period, commencing on October
14, 1996, and the working capital credit line becomes due and payable in full on
April 14, 1997. The bank credit facility bears interest at the bank's prime rate
plus 0.5%.
The Company anticipates that its capital expenditures will increase
significantly for investment in network facilities and to a lesser extent FAXSAV
CONNECTORS. As of June 30, 1996, the Company had equipment lease commitments
totaling $0.7 million. Through October 1996, the Company is obligated to LDDS
WorldCom for a minimum monthly usage commitment of $0.25 million for
international long distance service, and through April 1999, is obligated to MCI
for a minimum monthly usage commitment for domestic interstate and intra-state
service ranging from an average of $0.1 million per month for the first eight
months to $0.2 million per month thereafter.
22
<PAGE>
Through December 31, 1995, the Company, for income tax purposes, has
generated net operating loss carryforwards of approximately $16.1 million which
will expire in the years 2005 through 2010. Use of the net operating losses to
offset future taxable income of the Company, if any, will be subject to
limitation due to the ownership change provisions of Section 382 of the Internal
Revenue Code of 1986, as amended. Additional sales of the Company's equity
securities may result in further limitations on the use of operating loss
carryforwards against taxable income in future years.
The Company currently believes that the net proceeds from this offering,
together with its current cash and cash equivalents and available bank and lease
financing facilities, will be sufficient to meet its anticipated cash needs for
working capital and capital expenditure requirements through at least the end of
1997. Thereafter, if the Company does not begin to generate positive cash flows
from operations in amounts that are sufficient to satisfy the Company's
liquidity requirements, it will be necessary for the Company to raise additional
funds through bank facilities, debt or equity offerings or other sources of
capital. Additional funding may not be available when needed or on terms
acceptable to the Company, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
23
<PAGE>
BUSINESS
GENERAL
FaxSav designs, develops and markets a variety of business-to-business
facsimile transmission services, including real-time fax-to-fax, desktop-to-fax,
enhanced fax and broadcast fax services. The Company has developed proprietary
software which enables its customers to specify on a call-by-call basis whether
a facsimile transmission will be delivered through FaxSav's real-time, "virtual
real-time" or broadcast services. This software, coupled with FaxSav's fax-only
network of two interconnected switching nodes in the United States and a growing
base of Internet-capable facsimile nodes overseas, automatically delivers each
outgoing transmission through the route that provides the lowest cost and the
highest transmission quality available on the FaxSav network. Pre-negotiated
volume-based arrangements with several telephony common carriers (including LDDS
WorldCom, MCI and Telstra) and the cost savings available for transmission
through the Internet enable FaxSav to transmit its customers' documents and
images to fax machines worldwide at rates that are significantly below the
international rates charged by long distance voice carriers. While FaxSav
generates cost savings primarily for United States customers transmitting faxes
to international destinations, many FaxSav customers also use the Company's
services for domestic transmissions where ease of use, rather than cost savings,
is the principal motivation.
The Company is deploying Internet-capable facsimile nodes in key
international telecommunications markets ultimately to enable it to migrate the
majority of its customers' traffic off of its telephony-based network and to
route it over the Internet. The Company believes that this global Internet
backbone, which is designed to seamlessly integrate with FaxSav's existing
telephony-based network, will enable the Company to bypass long distance common
carriers for transmissions originating and terminating in countries where such
nodes have been deployed, thereby further reducing its customers' international
transmission costs. FaxSav believes that the combination of its telephony-based
network and its growing Internet-based network will enable it to emerge as a
leading supplier of comprehensive, low-cost global faxing services. The Company
has added Internet capability to its switching nodes in the United States and
has deployed one Internet-capable facsimile node in each of France, Hong Kong
and the United Kingdom. FaxSav anticipates deploying a sufficient number of
additional nodes in key telecommunications markets worldwide by the end of 1997
to enable it to route a majority of its customers' traffic through the Internet.
The Company's customer base, revenues and facsimile transmission volume have
grown substantially in recent periods. The Company's customer base, which
primarily consists of United States businesses in a broad range of industries,
has grown from approximately 3,300 customers at December 31, 1994 to
approximately 7,200 customers at June 30, 1996, plus over 1,300 registered users
of the Company's desktop-to-fax services. The following chart illustrates the
Company's revenue growth from the quarter ended June 30, 1994, in which the
FAXSAV service was first introduced, through the quarter ended June 30, 1996,
separately identifying the domestic and international destination components:
[A BAR CHART REPRESENTING THE COMPANY'S REVENUE GROWTH (DOMESTICALLY AND
INTERNATIONALLY) FROM JUNE 1994 THROUGH JUNE 1996.]
24
<PAGE>
The Company's revenues have increased from $3.4 million for the year ended
December 31, 1994 to $11.6 million for the year ended December 31, 1995 and from
$5.0 million for the six months ended June 30, 1995 to $7.4 million for the six
months ended June 30, 1996. In addition, the minutes of facsimile messages
transmitted by FaxSav increased from 6.1 million for the year ended December 31,
1994 to 20.4 million for the year ended December 31, 1995, and from 9.0 million
for the six months ended June 30, 1995 to 13.8 million for the six months ended
June 30, 1996.
INDUSTRY BACKGROUND
THE MARKET FOR FACSIMILE SERVICES
Technological advances over the past decade have improved the speed and
quality of facsimile transmissions and reduced the cost of fax machines to
consumers, resulting in a large and increasing worldwide installed base of fax
machines. According to industry sources, worldwide sales of new facsimile
machines reached approximately 11 million in 1994 and approximately 12.5 million
in 1995, and the 1995 worldwide installed base of facsimile machines was
approximately 30.5 million. In addition, there recently has been a rapid
increase in the installed base of fax-capable personal computers. The
proliferation of fax machines and fax capable computers, and improvements in the
transmission quality of domestic and international telephone networks, have
resulted in facsimile transmission being the preferred means of immediate
business-to-business document delivery.
TRADITIONAL INTERNATIONAL FACSIMILE TRANSMISSION
A facsimile message typically is transmitted by means of a telephone call
from one fax machine to another over the voice telephony network. Once a
connection has been established between the two machines, the scanned image from
the originating fax machine is electronically transmitted to the destination fax
machine. Facsimile transmissions historically have been, and substantially all
of such transmissions continue to be, implemented on a real-time continuous
connection basis using the voice telephony network as a transmission medium.
An international facsimile transmission from the United States typically is
routed as follows: (i) the sending fax machine accesses the local exchange
carrier (an "LEC"), which then routes the fax to the customer's long distance
carrier; (ii) the long distance carrier then routes the fax via its voice
telephony network to the telephone company of the destination country; and (iii)
the foreign telephone company then routes the fax to a local telephone number to
which the destination fax machine is attached. In this example, the long
distance company will bill the customer to cover the LEC access fee, the fee for
use of its voice telephony network and the fee for the connection between the
long distance carrier's network and the foreign telephone company, which
includes the fee for delivery to the destination fax machine. The average retail
price for a minute of international transmission from the United States to an
overseas destination was approximately $1.20 in 1994, with a majority of this
amount being attributable to the average inter-country connection fee. The
Company believes that such prices have not significantly decreased.
DOCUMENT DELIVERY OVER THE INTERNET
Substantially all inter-country facsimile traffic worldwide is transmitted
through voice telephony networks at rates which are largely dictated by the
inter-country connection fees. Unlike traditional public and private
telecommunications networks, which are individually managed, the Internet is a
cooperative interconnection of many such public and private networks which
enables businesses, educational institutions, government agencies and
individuals to transmit data internationally without incurring inter-country
voice telephony connection fees.
Although the Internet has been used for a number of years as a medium for
the international delivery of documents from computer to computer, substantially
all facsimile traffic worldwide continues to originate and terminate on fax
machines. The ability to effectively capture the savings enabled by Internet
document delivery in the international facsimile market therefore requires the
deployment, on a global basis, of a network of Internet-capable facsimile nodes
to bridge the gap between the Internet and the fax machine.
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THE FAXSAV SOLUTION
FaxSav is deploying an international network of Internet-capable facsimile
nodes designed to provide a reliable means to deliver facsimile transmissions to
fax machines worldwide at substantially reduced costs. This planned global
Internet backbone, which is designed to seamlessly integrate with FaxSav's
existing telephony-based network, will enable the Company to bypass expensive
inter-country connection fees for transmissions originating and terminating in
countries where such nodes have been deployed. The Company has added Internet
capability to its switching nodes in the United States and has deployed one
Internet-capable facsimile node in each of France, Hong Kong and the United
Kingdom. FaxSav anticipates deploying a sufficient number of additional nodes in
key telecommunications markets worldwide by the end of 1997 to enable it to
route a majority of its customers' traffic through the Internet.
FaxSav, through its integrated Internet and telephony network, provides a
comprehensive range of services for the global transmission of documents and
images, including real-time fax-to-fax, enhanced fax and broadcast fax services.
In addition, to position itself in the emerging desktop-to-fax market, the
Company recently introduced several proprietary software products which enable
the transmission of documents or images created in any Windows or e-mail
application to be routed directly from an Internet-connected computer desktop
through the FaxSav network to fax machines worldwide.
The FaxSav solution provides substantial ease of use to the customer.
Customers may begin transmitting faxes at substantially reduced costs without
any upfront investment or complex system installation. FaxSav is quickly and
easily installed by the customer and does not require any changes in customer
business practices. Customers connect to the FaxSav network by simply installing
a FAXSAV CONNECTOR, a small proprietary device that easily plugs between the
customer's fax machine and the wall jack, or by simply installing FaxSav's
proprietary desktop software on an Internet-connected personal computer.
FaxSav's proprietary routing algorithms then automatically deliver each
facsimile transmission, through either FaxSav's telephony network or Internet
backbone in order to optimize the lowest cost and the highest transmission
quality available on the FaxSav network. Additionally, the FaxSav solution is
both modular and scalable to meet customer business needs in that it can be
easily deployed across multiple fax machines or personal computers within an
organization on an unlimited basis.
THE FAXSAV STRATEGY
FaxSav's objective is to be the leading supplier of low-cost, high quality,
reliable business-to-business global faxing services utilizing the Internet as a
key transmission medium. FaxSav intends to achieve this position by focusing on
the following key elements:
DEPLOY GLOBAL INTERNET INFRASTRUCTURE. FaxSav recently began to deploy
a network of Internet-capable facsimile nodes in order to capture the cost
savings enabled by the Internet for international facsimile transmissions.
The Company intends to rapidly deploy this network infrastructure in key
telecommunications markets worldwide to capture these cost savings for
facsimile traffic both to and from such markets. FaxSav has added Internet
capability to its switching nodes in the United States and has deployed one
Internet-capable facsimile node in each of France, Hong Kong and the United
Kingdom, and anticipates deploying a sufficient number of additional nodes
in key telecommunications markets worldwide by the end of 1997 to enable it
to route a majority of its customers' traffic through the Internet.
ESTABLISH PRICE LEADERSHIP POSITION. FaxSav intends to increase its
customer base by offering fax delivery services both in the United States
and overseas at substantial savings to traditional telephony pricing.
Beginning in the third quarter of 1996, the Company introduced FAXSAV PLUS,
a new "virtual real-time" service with pricing based on the economics of
delivery through its planned Internet backbone to markets where the Company
has not yet deployed Internet-capable facsimile nodes. Pricing for delivery
to other destinations worldwide are based on the economics of delivery
through the Company's telephony-based network, which prices may or may not
be reduced in the event that the Company deploys Internet-capable facsimile
nodes in such markets. See "--Services--FAXSAV PLUS." Although
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this pricing structure will generally reduce the Company's overall gross
profit margin until a sufficient number of Internet-capable nodes are
deployed, the Company anticipates that this strategy will enable it to
rapidly expand its worldwide market presence.
RAPIDLY EXPAND WORLDWIDE CUSTOMER BASE. The Company intends to rapidly
expand its worldwide customer base by leveraging its price leadership
strategy both domestically and internationally.
- DOMESTICALLY. FaxSav will intensify its sales and marketing efforts in
the United States, including increased direct mail and telemarketing
activities and hiring additional personnel in its direct sales group.
FaxSav will continually monitor the market response to its price
leadership strategy and refine its sales and marketing programs
accordingly.
- INTERNATIONALLY. The Company intends to establish and build an
international customer base by forming strategic sales and marketing
alliances with foreign Internet service providers, telecommunications
companies and resellers. The Company anticipates that these organizations
will use their knowledge of the local market, language, customs and
regulations, as well as their existing distribution, customer support and
billing infrastructures, to establish, grow and properly service an
international FaxSav customer base.
MAINTAIN TECHNOLOGY LEADERSHIP. The Company has developed significant
technological expertise in all key aspects of the facsimile transmission
business, including global network design, routing and transmission
completion algorithms, database programming and desktop software. The
Company intends to maintain its position as a technological leader in the
facsimile transmission market. The Company continues to place significant
emphasis on the ongoing development of advanced features for its FAXSAV FOR
INTERNET suite of services, including the development of client software for
faxing from the desktop. The Company's development efforts are focused on
new services and applications which are intended to provide easy to use,
cost-efficient and reliable business-to-business facsimile transmission
services on a worldwide basis.
THE FAXSAV NETWORK
OVERVIEW
TRADITIONAL INTERNATIONAL FACSIMILE TRANSMISSION. Traditional international
facsimile transmission (see Figure 1) begins when the originating fax machine
places a call over the local telephone network. Because the number dialed has an
international prefix, the LEC switches the call to the sender's long distance
carrier (typically AT&T, MCI or Sprint). The long distance carrier delivers the
call to the corresponding long distance company (the "PTT") in the country of
destination, which in turn completes the call by providing a connection through
the local telephone network to the receiving fax machine. Thus a real-time
connection is established over the traditional telephony networks, and the
originating fax machine sends a data stream, comprising a scanned image, to the
receiving fax machine.
[GRAPHIC REPRESENTATION OF TRADITIONAL INTERNATIONAL FACSIMILE TRANSMISSION
FROM ORIGINATION THROUGH LOCAL AND LONG DISTANCE NETWORKS TO THE
POINT OF DELIVERY.]
FIGURE 1. TRADITIONAL INTERNATIONAL FACSIMILE TRANSMISSION
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FACSIMILE TRANSMISSION VIA FAXSAV'S NETWORK. FaxSav's services, which are
targeted at businesses and professionals engaged in international facsimile
messaging, are designed to reduce the cost of sending international faxes, and
to make the process of sending such faxes easier and less time-consuming. The
FaxSav network offers its customers the benefits of increased savings and
convenience by bypassing parts or all of the traditional network described
above. For example, as shown in Figure 2, an international fax-to-fax message
delivered through FaxSav's Internet-based network utilizes the Internet as a
delivery medium, bypassing the long distance carriers and thereby avoiding
expensive inter-country connection fees. In addition, a customer using the
FAXSAV FOR INTERNET suite of services accesses the FaxSav network through its
Internet service provider (an "ISP") rather than through the local telephone
network; the Company's proprietary software then either routes the call over
FaxSav's telephony network or bypasses the long distance carriers and the
associated inter-country connection fees by routing the call through FaxSav's
Internet-based network.
[GRAPHIC REPRESENTATION OF FACSIMILE TRANSMISSION AND DELIVERY THROUGH
FAXSAV'S SWITCHING/INTERNET NODE INFRASTRUCTURE FOR FACSIMILES ORIGINATED
FROM BOTH THE FAXSAV CONNECTOR AND DESKTOP FAXSAV FOR INTERNET ENVIRONMENTS.]
FIGURE 2. FACSIMILE TRANSMISSION VIA THE FAXSAV NETWORK
THE FAXSAV NETWORK
The FaxSav network is designed to minimize the cost of sending faxes
internationally by selecting the optimal route and carrier for each facsimile
transmission. Currently FaxSav provides its customers with the ability to reach
fax machines worldwide via its telephony-based network. FaxSav's telephony-based
services are competitively priced and, on faxes to most international
destinations, FaxSav customers are expected to realize substantial savings as
compared to the rates charged by traditional long distance carriers.
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In addition to its telephony-based network, FaxSav is deploying an
Internet-based network which is intended to connect the key telecommunications
markets worldwide (see Figure 3). FaxSav expects this Internet-based network to
complement its telephony-based network and provide the Company with the
opportunity to further lower the retail price of its customers' international
facsimile transmissions while increasing its market share and, over time, its
gross margin. As FaxSav continues to deploy its Internet nodes internationally,
it will be able to route an increasing portion of its customers' traffic over
the Internet, and by the end of 1997 the Company expects to use its
Internet-based network to deliver a majority of such traffic.
[A GRAPHIC REPRESENTATION OF THE COMPANY'S PLANNED INTERNET-BASED NETWORK ON
A WORLD MAP WITH SYMBOLS DEMONSTRATING THE SITES OF EXISTING AND
PLANNED INTERNET NODES]
FIGURE 3. THE PLANNED FAXSAV NETWORK
- ------------
* There can be no assurance that the indicated Internet nodes will be deployed
by the Company on a timely basis, or at all. See "Risk Factors--Dependence on
Network Infrastructure; No Assurance of Successful Internet-Capable Node
Deployment."
FaxSav believes that the combination of its telephony-based network and its
growing Internet-based network is critical to achieving its objective of
emerging as the leading provider of comprehensive low-cost global faxing
solutions. Therefore FaxSav intends to maintain both a telephony-based and an
Internet-based network, and expects to eventually route a majority of its
customers' traffic through the Internet. The following example, illustrates the
functioning of the planned two-tiered FaxSav network:
- A fax originating in New York would access the FaxSav network either
through the local telephone company (if the customer uses a fax machine
with a FAXSAV CONNECTOR) or the local ISP (if the customer uses an
Internet-enabled personal computer with FAXLAUNCHER, FAXSCAN or
FAXMAILER).
- If the customer has pre-selected FaxSav's real-time delivery service
option for faxes to the indicated destination (for example, a fax machine
in Germany), FaxSav's switching node in New York would automatically
deliver the fax through the most economical route available in FaxSav's
telephony-based network.
- If the customer has pre-selected one of FaxSav's "virtual real-time"
delivery service options for faxes to the indicated destination (for
example, a fax machine in Hong Kong where an Internet node is already
operational), FaxSav's switching node in New York would automatically
deliver the fax through the Internet as the least-cost route to transmit
the message. From FaxSav's Hong Kong Internet node, delivery to the
ultimate destination would be achieved through the local PTT.
- If the customer has pre-selected one of FaxSav's "virtual real-time"
delivery service options for faxes to an indicated destination where a
FaxSav Internet node has not yet been deployed (for example, a fax machine
in Tokyo), FaxSav's switching node in New York would automatically deliver
the fax through the most economical route available in FaxSav's two-tiered
network. This route may be
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through the Internet to the Company's Internet node in Hong Kong and from
there through a PTT to Tokyo or, alternatively, from FaxSav's switching
node in New York directly through the most economical route available in
FaxSav's telephony-based network. Once an Internet node is deployed in
Japan, the Company's switching node would automatically deliver the fax
through the Internet as the least-cost route.
NETWORK INFRASTRUCTURE
At the core of the FaxSav network are two main switching nodes, installed in
New York and Washington, D.C. These switching nodes utilize FaxSav's proprietary
messaging software to provide the full range of the Company's service offerings,
including real-time and "virtual real-time" fax delivery, least cost fax
routing, e-mail to fax conversion, Internet access, broadcast delivery, customer
registration and customer query capabilities. Each switching node employs
switch-to-host architecture and fully redundant hardware and software, and is
interconnected to the other through a private intranet utilizing T1 links. A
backup connection is also provided through separate T1 links to the Internet via
firewalls. Both switching nodes are installed in secure locations and are
supported by uninterruptible power supplies with emergency power generators as
further backup. The main switching nodes are connected through the Internet to
three separate Internet facsimile nodes overseas, extending access to the
Company's service in the markets where such nodes are located. Internet nodes
provide "virtual real-time" fax delivery, least-cost fax routing via the best
node, e-mail to fax conversion and broadcast delivery capabilities. FaxSav has
designed a network-wide redundancy into its nodes, such that if any particular
node fails for any reason to complete a transmission, an alternative route
through the FaxSav network will automatically be selected. In addition, in the
event of an Internet failure, the Internet nodes have a spanning (multiple
simultaneous calling) dial backup capability to connect via telephony lines to
the nearest node. This node-based and network wide redundancy is designed to
allow FaxSav to reliably provide service to its customers without interruption.
Additionally, RSA encryption is provided in each Internet node such that each
file delivered through FaxSav's Internet nodes is encrypted, addressing security
concerns of its customers. All nodes are designed for unattended operation,
provide a full range of system monitoring and control capability and can be
upgraded and maintained remotely.
SERVICES
FAXSAV
FAXSAV, the core fax-to-fax service provided by the Company, is a real-time
fax transmission service that is delivered through the Company's telephony-based
network. The FAXSAV service is accessed by customers through the installation of
a FAXSAV CONNECTOR, a small proprietary device which is plugged between the fax
machine and the telephone jack. The FAXSAV CONNECTOR, which is programmable
directly from FaxSav headquarters based on the customer's specified needs,
automatically identifies each outgoing call which the customer has pre-selected
for delivery by the Company and routes the call to the FaxSav network. The
FAXSAV CONNECTOR is provided by FaxSav free of charge with no installation cost
to the customer. The Company believes that, depending on the volume and
destinations of the customer's traffic, the FAXSAV service provides significant
savings to customers on fax usage costs in comparison to the international rates
charged by the major long distance carriers. FAXSAV customers are charged on a
per-minute basis for the transmission time to the destination fax machine, and
are billed monthly. The Company also offers customized pricing plans based on
the customer's volume of traffic to individual countries.
FAXSAV ASSURED
FAXSAV ASSURED is a "virtual real-time" enhanced delivery option available
to all FAXSAV customers through the FAXSAV CONNECTOR which may be selected for
all of the customer's traffic or on a call by call basis. FAXSAV ASSURED shifts
the responsibility for repetitive completion attempts to the FaxSav network,
thereby reducing indirect costs and increasing the reliability, timeliness and
predictability of difficult facsimile deliveries. The standard FAXSAV ASSURED
service immediately begins to attempt delivery, and makes multiple attempts for
a period of one hour. If the fax has not been successfully completed within that
time, the customer is sent a "Non-Delivery" notice. The Company also offers
customized FAXSAV ASSURED services to meet customer-specific delivery schedules.
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FAXSAV EZ-LIST
FAXSAV EZ-LIST is an easy to use fax-to-fax broadcast service which utilizes
the capabilities of the FAXSAV CONNECTOR to capture the fax message and the
customer's list identification number in a single transmission. FAXSAV EZ-LIST
enables customers to send the same fax message to multiple recipients by
transmitting a single fax message to the FaxSav network and identifying a
specific list of fax addresses previously stored in the Company's customer
database. FAXSAV EZ-LIST customers are charged on a per-minute basis for the
transmission time to each destination fax machine, and are billed monthly. The
Company also offers customized pricing plans based on the customer's volume of
traffic to individual countries.
FAXSAV PLUS
In the third quarter of 1996 the Company introduced FAXSAV PLUS, a new
"virtual real-time" service which is designed to provide reliable delivery of
facsimile transmissions at substantially reduced costs. The Company utilizes a
combination of its traditional telephony-based network and its growing
Internet-based network to deliver FAXSAV PLUS transmissions to fax machines
worldwide. The Company is currently implementing the FAXSAV PLUS service with a
two-tiered pricing structure. Pricing for delivery to the key telecommunications
markets currently targeted for Internet node deployment is based on the
economics of delivery through a planned Internet backbone, even if the Company
has not yet deployed Internet-capable facsimile nodes in such markets. Pricing
for delivery to other destinations worldwide continues to be based on the
economics of delivery through the Company's telephony-based network, which
prices may or may not be reduced in the event that the Company deploys
Internet-capable facsimile nodes in such markets. The Company estimates that
this pricing structure enables reductions of approximately 60% to 70% in the
international fax bills of FAXSAV PLUS customers. FAXSAV PLUS customers are
charged on a per-minute basis for the transmission time to the destination fax
machine, and are billed monthly.
FAXSAV FOR INTERNET SUITE OF SERVICES
The FAXSAV FOR INTERNET suite of services, introduced in stages during the
first half of 1996, enables Internet-connected customers to send faxes directly
from their computer desktops, either from their e-mail package or from a Windows
software application, through the Internet to fax machines worldwide via the
FaxSav network. As of June 30, 1996, there were more than 1,300 registered users
of the FAXSAV FOR INTERNET suite of services. The Company's World Wide Web site
includes a detailed explanation of these services, installation instructions and
service registration forms. Customers are charged on a per-page basis for the
FAXSAV FOR INTERNET suite of services and generally are billed in advance of
use. The FAXSAV FOR INTERNET suite of services includes the following discrete
services:
- FAXLAUNCHER enables customers to fax documents created in any Windows
application directly from an Internet-connected computer desktop to fax
machines worldwide. FAXLAUNCHER also supports documents scanned through
sheet-fed scanners manufactured by Visioneer, Inc., Hewlett-Packard Co. or
Compaq Computer Corporation. FAXLAUNCHER software is provided to customers
in diskette form or it may be downloaded from the Company's World Wide Web
site.
- FAXMAILER enables customers to transmit messages from e-mail packages over
the Internet to the FaxSav network for delivery to fax machines worldwide.
FAXMAILER provides the desktop e-mail customer with the ability to reach
the fax machine of anyone not yet connected to the Internet without the
necessity of creating hard copy and manually sending a fax. Customers may
register for the FAXMAILER service through the Company's World Wide Web
site.
- FAXSCAN enables customers to send documents scanned in any TWAIN-compliant
scanner over the Internet to the FaxSav network for delivery to fax
machines worldwide. The combination of a scanner and FAXSCAN software puts
a virtual fax machine at the desktop for the customer. FAXSCAN software is
provided to customers in diskette form.
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FAXSAV CUSTOM CORPORATE SOLUTIONS
FAXSAV CUSTOM CORPORATE SOLUTIONS are specialized services developed by the
Company to meet customer needs for specific volume fax applications. FaxSav will
custom tailor a software, networking and telecommunications solution designed to
provide the customer with additional savings in time and money.
CUSTOMER SUPPORT SERVICES
The Company believes that customer support is important in differentiating
its facsimile delivery services from other delivery approaches. The customer
support services provided by the Company include installation assistance on an
as-requested basis, facilitation of international fax completion and monitoring
the performance of FAXSAV CONNECTORS. The Company currently provides customer
support and network/ FAXSAV CONNECTOR monitoring functions 12 hours per day and,
beginning in the fourth quarter of 1996, intends to provide such services 24
hours per day, seven days per week. The Company's support personnel respond to
telephone inquiries and e-mail inquiries. The Company also provides information
about its services and new desktop software upgrades on its World Wide Web site.
To provide immediate response to customer inquiries, the Company has
developed a wide area network that provides a real-time fax tracking system and
allows network operations and customer service personnel to redirect, reschedule
or repair fax transmissions that are experiencing completion difficulty. The
system accesses fax traffic information via an Oracle database that is updated
from the Company's two switching nodes in the United States and provides an
on-line connectivity to the Company's master customer database.
SALES AND MARKETING
DOMESTIC SALES AND MARKETING
The Company offers its services in the United States through multiple sales
channels which include direct mail and direct response programs, a direct field
sales force, an agent and dealer distribution network, and promotional
activities at trade shows and on the FaxSav World Wide Web site.
The Company's direct mail and direct response efforts are supported by
multiple telemarketing firms. The Company compensates its telemarketing firms
based on a combination of the number of work-hours dedicated to FaxSav and the
number of sales generated.
During 1995 the Company increased its sales efforts by creating a direct
field sales force to address the specialized faxing needs of major accounts and
to manage and support the Company's agent channel. The Company's agent and
dealer distribution network consists of organizations which sell office
equipment, office supplies and telephony services, as well as independent
marketing companies. These agents offer FaxSav services as a companion offering
to their other products lines. The Company is also exploring relationships for
bundling FAXSAV FOR INTERNET suite of services with the products of computer
hardware, software and Internet services companies.
The Company has used computer and Internet trade shows as forums to
introduce the FAXSAV FOR INTERNET suite of services to prospective customers and
partners. The Company's promotions have included the distribution of free
software to access its services and free faxing during a trial period. The
Company has promoted its FAXLAUNCHER software on the World Wide Web since
February 1996. Since that time, more than 2,500 copies of the FAXSAV FOR
INTERNET suite of services have been downloaded and more than 1,300 users have
registered with the Company.
As of June 30, 1996, FaxSav employed 23 sales and marketing representatives,
all in the United States. In connection with its price leadership strategy, the
Company intends to intensify all aspects of its domestic sales and marketing
efforts, including increased direct mail and telemarketing activities and hiring
additional direct sales representatives. See "--The FaxSav Strategy."
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INTERNATIONAL ALLIANCES
In connection with the installation of Internet-capable facsimile nodes in
foreign countries, the Company is seeking to form strategic sales and marketing
alliances with local Internet service providers, telecommunications companies
and resellers. The Company anticipates that these organizations will use their
knowledge of the local market, language, customs and regulations, as well as
their existing distribution, customer support and billing infrastructures, to
establish, grow and properly service an international FaxSav customer base. To
date the Company has formed preliminary strategic alliances with companies in
Bermuda, Hong Kong, Korea, Lebanon, the Philippines, Singapore and Taiwan. In
addition, the Company has formed a preliminary strategic alliance with a United
States corporation regarding activities in Mexico.
CUSTOMERS
The Company sells its services primarily to small and medium sized
businesses with international document transmission needs and, to a lesser
extent, to international departments and divisions of larger companies.
Customers can install FaxSav's services at individual fax machine or desktop
locations, across departments or throughout organizations by simply plugging the
FAXSAV CONNECTOR, a small proprietary device, between their fax machine and the
telephone jack or by simply installing FaxSav's desktop software on an Internet
connected personal computer. Through 1995, all of the Company's customers were
located in the United States, and their fax messages to international and
domestic destinations accounted for approximately 85% and 15%, respectively, of
the Company's total 1995 revenues. In 1996, with the introduction of the FAXSAV
FOR INTERNET suite of services, the Company began to expand its customer base to
include foreign customers. As of June 30, 1996, the Company had approximately
7,200 customers utilizing its traditional services and more than 1,300
registered users of the Company's desktop services. No single customer accounted
for more than 1% of the Company's revenues in 1995 or in the six months ended
June 30, 1996. The following is a sampling of the Company's customers, separated
into representative industry groups:
MANUFACTURING
Diasonics Ultrasound, Inc.
Enron Oil & Gas Company
Integrated Device Technology Inc.
International Business Machines Corp.
Komatsu America Corp.
LSI Logic Corp.
Solar Turbines, Inc.
Sun Chemical Corp.
SHIPPING
American Vanpac Carriers
Argents Air Express Ltd.
Chemical Tankers of America Inc.
International Forwarders Incorporated
Msas Cargo International Inc.
NYK Line (N.A.), Inc.
Sea Broker's
RETAIL
Baskin-Robbins International Co.
Chevron Services
K Mart Corp.
L.A. Gear California, Inc.
May Merchandising Company
MCA Inc.
Warner-Lambert Company
OTHER
The Echo Design Group, Inc.
Electronic Distribution Services Incorporated
Environmental Systems Research Institute
International Union for Conservation
The Long-Term Credit Bank of Japan
West Deutsche Landesbank
COMPETITION
The market for facsimile transmission services is intensely competitive and
there are limited barriers to entry. The Company expects that competition will
intensify in the future. The Company believes that its ability to compete
successfully will depend upon a number of factors, including market presence;
the capacity, reliability and security of its network infrastructure; the
pricing policies of its competitors and suppliers; the timing of introductions
of new services and service enhancements by the Company and its competitors; and
industry and general economic trends.
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The Company's current and prospective competitors generally fall into the
following groups: (i) telecommunication companies, such as AT&T, MCI, Sprint,
LDDS WorldCom and the regional Bell operating companies; (ii) telecommunications
resellers, such as Frontier Corporation, Biztel Corporation and Eastern Telecom
Corporation; (iii) Internet service providers, such as Uunet Technologies, Inc.
and NETCOM On-Line Communications Services, Inc.; (iv) on-line services
providers, such as America Online, Inc. and CompuServe Incorporated and (v)
direct fax delivery competitors, including Xpedite Systems, Inc. and Fax
International, Inc. Many of these competitors have greater market presence,
engineering and marketing capabilities, and financial, technological and
personnel resources than those available to the Company. As a result, they may
be able to develop and expand their communications and network infrastructures
more quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily, and devote greater resources to the marketing and sale of their
products and services than can the Company. Further, the foundation of the
Company's telephony network infrastructure consists of the right to use the
telecommunications lines of several of the above-mentioned long distance
carriers, including LDDS WorldCom and MCI. There can be no assurance that these
companies will not discontinue or otherwise alter their relationships with the
Company in a manner that would have a material adverse effect upon the Company's
business, financial condition and results of operations. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their services to address the needs of the Company's current and prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. In addition
to direct competitors, many of the Company's larger potential customers may seek
to internally fulfill their fax communication needs through the deployment of
their own computerized fax communications systems or network infrastructures for
intra-company faxing.
Increased competition is likely to result in price reductions and could
result in reduced gross margins and erosion of the Company's market share, any
of which would have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, financial condition and results of operations.
INTELLECTUAL PROPERTY
The Company's success is dependent upon its proprietary technology. The
Company relies primarily on a combination of contract, copyright and trademark
law, trade secrets, confidentiality agreements and contractual provisions to
protect its proprietary rights. The Company has patent applications pending for
its FAXSAV CONNECTOR and for its "e-mail Stamps" security technology
incorporated into its FAXMAILER service. There can be no assurance that patents
will issue from such applications or that present or future patents will provide
sufficient protection to the Company's present or future technologies, products
and processes. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary information or obtain
access to the Company's know-how. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's services or to obtain and use information that the Company regards as
proprietary. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. There can be no assurance that the steps taken by the Company to protect
its proprietary rights will be adequate or that the Company's competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's technologies.
The Company is not aware that any of its services, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
the Company received a letter in the third quarter of 1995 stating that the
Company's FAXSAV CONNECTOR may be utilizing a call diversion methodology
patented by a third party. To the Company's knowledge, such third party has not
initiated any suit, action, proceeding or investigation relating to alleged
infringement by the Company of such patent. There can be no assurance that third
parties will not assert infringement claims against the Company in the future.
Patents have been granted recently on fundamental technologies in the
communications and desktop software areas, and
34
<PAGE>
patents may issue which relate to fundamental technologies incorporated in the
Company's services. As patent applications in the United States are not publicly
disclosed until the patent issues, applications may have been filed which, if
issued as patents, could relate to the Company's services. The Company could
incur substantial costs and diversion of management resources with respect to
the defense of any claims that the Company has infringed upon the proprietary
rights of others, which costs and diversion could have a material adverse effect
on the Company's business, financial condition and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief which could
effectively block the Company's ability to license and sell its services in the
United States or abroad. Any such judgment could have a material adverse effect
on the Company's business, financial condition and results of operations. In the
event a claim relating to proprietary technology or information is asserted
against the Company, the Company may seek licenses to such intellectual
property. There can be no assurance, however, that licenses could be obtained on
terms acceptable to the Company, or at all. The failure to obtain any necessary
licenses or other rights could have a material adverse effect on the Company's
business, financial condition and results of operations.
GOVERNMENT REGULATION
The Company is subject to regulation by the FCC, by various state public
service and public utility commissions and by various international regulatory
authorities.
FaxSav is licensed by the FCC as an authorized telecommunications company
and is classified as a "non-dominant interexchange carrier." Generally, the FCC
has chosen not to exercise its statutory power to closely regulate the charges
or practices of non-dominant carriers. Nevertheless, the FCC acts upon
complaints against such carriers for failure to comply with statutory
obligations or with the FCC's rules, regulations and policies. The FCC also has
the power to impose more stringent regulatory requirements on the Company and to
change its regulatory classification. There can be no assurance that the FCC
will not change the Company's regulatory classification or otherwise subject the
Company to more burdensome regulatory requirements.
In order to provide intrastate service, the Company is required to obtain
various certifications from the public service or public utility commissions of
each state, or to register or be found exempt from registration by such
commissions. The Company has made the filings and taken the actions it believes
are necessary to allow the limited intrastate services that it currently
provides.
In connection with the anticipated deployment of Internet-capable nodes in
countries throughout the world, the Company will be required to satisfy a
variety of foreign regulatory requirements. The Company intends to explore and
seek to comply with these requirements on a country-by-country basis as the
deployment of Internet-capable facsimile nodes continues. There can be no
assurance that the Company will be able to satisfy the regulatory requirements
in each of the countries currently targeted for node deployment, and the failure
to satisfy such requirements may prevent the Company from installing Internet-
capable facsimile nodes in such countries. The failure to deploy a number of
such nodes could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company's nodes utilize RSA encryption technology in connection with the
routing of customer documents through the Internet. The export of such
encryption technology is regulated by the United States government. The
Company's licensor has obtained authority for the export of such encryption
technology. This authority may be revoked or modified at any time, however, for
any particular jurisdiction or in general. In addition, there can be no
assurance that such export controls, either in their current form or as may be
subsequently enacted, will not limit the Company's ability to distribute its
services outside of the United States or electronically. While the Company takes
precautions against unlawful exportation of its software, the global nature of
the Internet makes it virtually impossible to effectively control the
distribution of its services. Moreover, future Federal or state legislation or
regulation may further limit levels of encryption or authentication technology.
Any such export restrictions, the unlawful exportation of the Company's
services, new legislation or regulation could have a material adverse effect on
the Company's business, financial condition and results of operations.
35
<PAGE>
EMPLOYEES
As of June 30, 1996, the Company had 74 full-time employees, including 11 in
research and development, 26 in network operations and support, 23 in sales and
marketing and 14 in finance and administration. In addition, at June 30, 1996,
the Company was utilizing the services of 4 software engineer consultants. The
Company's employees are not covered by any collective bargaining agreements. The
Company believes that its relations with its employees are good.
FACILITIES
The Company's corporate headquarters are located in Edison, New Jersey in
facilities consisting of approximately 8,400 square feet of office space
occupied under a lease expiring in July 1998. In addition, the Company leases
sales offices in the San Francisco and Dallas metropolitan areas. While it
believes that these facilities are adequate for its present needs, the Company
is continually reviewing its needs and may add facilities in the future. The
Company believes that any required additional space would be available on
commercially reasonable terms. Finally, in connection with its deployment of
Internet-capable facsimile nodes, the Company has entered into, and will
continue to enter into, short-term leases in telehousing facilities worldwide.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings. The initiation
of any litigation, including any action claiming infringement by the Company of
intellectual property rights, could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors-- Limited Protection of Intellectual Property Rights; Risk of Third
Party Claims of Infringement."
36
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- --------------------------------------------------
<S> <C> <C>
Thomas F. Murawski 51 Chief Executive Officer, President and Chairman of
the Board of Directors
Thomas C. Mullaney 51 Vice President, Sales and President, Facsimile
Services Division
Peter S. Macaluso 50 Vice President and Chief Financial Officer
George Frylinck 49 Vice President, Marketing
James C. Kaufeld 45 Vice President, Engineering
Frank Perno 50 Vice President, Operations
Jeffrey M. Drazan(1)(2) 37 Director
Peter A. Howley(2) 56 Director
Gregory Dunfield(1) 49 Director
Robert Labant 50 Director
</TABLE>
- ---------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
THOMAS F. MURAWSKI joined FaxSav in November 1991, after serving as
Executive Vice President of Western Union Corporation, a global
telecommunications and financial services company ("Western Union"), where he
was President of its Network Services Group. Prior to joining Western Union, Mr.
Murawski served twenty-three years with ITT Corporation, a diversified
manufacturing and services company ("ITT"). He has held operating
responsibilities in the areas of subsidiary and product line management,
engineering, sales and marketing for both voice and data-oriented businesses.
Mr. Murawski's last position with ITT was President and General Manager of ITT
World Communications Inc., an international telecommunications services company.
THOMAS C. MULLANEY joined FaxSav in June 1994 after serving from February
1994 to June 1994 as the Chief Operating Officer of Athena Design, Inc., a
start-up software company. From January 1991 through February 1994, Mr. Mullaney
was self-employed as a marketing consultant to telecommunications companies.
Prior to working as a consultant, Mr. Mullaney served eighteen years at MCI, a
diversified telecommunications services company. He served MCI as Regional Vice
President of Sales and Operations, Vice President of National Sales and Customer
Service, Division Vice President Sales and Marketing, as well as Vice President
of Carrier and Special Account Sales.
PETER S. MACALUSO has been employed by FaxSav since February 1991. From
August 1989 to February 1991, he was Vice President of Operations for Century
Cellular Corp., a cellular subsidiary of Cellular Communications Inc., a cable
television services and cellular phone company. He was employed by Metro Mobile
CTS Inc., an independent cellular telephone company ("Metro Mobile"), from May
1985 to December 1988, where his position was Chief Financial Officer. Mr.
Macaluso is a certified public accountant and, prior to his employment at Metro
Mobile, he was employed by Coopers & Lybrand, an international accounting and
management consulting firm. His last position with Coopers & Lybrand was as an
Audit Manager.
GEORGE FRYLINCK joined FaxSav in November 1992. From November 1990 until Mr.
Frylinck joined the Company, he acted as an independent consultant to various
telecommunications industry clients. From 1976 to November 1990, he was Senior
Vice President of Marketing, Sales and International Operations, at World
Communications Inc., a communications services company that was a subsidiary of
the Swiss-based TeleColumbus Incorporated. Prior to his experience at World
Communications Inc., Mr. Frylinck was the
37
<PAGE>
Vice President responsible for establishing and directing marketing and sales
functions for International Private Line Services (IPLS) at Western Union and
served at ITT, where he held such key management positions as Director of
Product Management, International Leased Lines with ITT.
JAMES C. KAUFELD joined FaxSav in April 1993 and has over twenty years
experience in the design, development and management of telecommunications
systems. From January 1989 to April 1993, Mr. Kaufeld was General Manager and
Regional Vice President of IEX (a telecommunications consulting firm), with
responsibility for sales and product management for the carrier market. Prior to
January 1989, Mr. Kaufeld worked at AT&T Bell Laboratories, where he held a
variety of management positions and assignments ranging from research into
multi-processor operating systems, to the design and development of interactive
systems for real-time control of AT&T's long distance network.
FRANK PERNO first became employed by FaxSav in January, 1996. From November
1992 to January 1996, he worked at FDC Western Union, where he was responsible
for a variety of systems, data and voice communications, Help Desks and field
services, along with facility management and database maintenance organizations.
From January 1992 to November 1992, Mr. Perno was employed at the Advertising
Checking Bureau, Inc., a warranty claims processing company. From 1989 to
January 1992, he was employed by Sperry Hutchinson Co., Inc., a consumer
promotions company.
JEFFREY M. DRAZAN has been a director of the Company since August 1990. Mr.
Drazan has been a general partner of Sierra Ventures, a venture capital firm,
since 1987. Mr. Drazan also serves as a director of Stratacom Inc., a
telecommunications equipment company, Retix, a telecommunications equipment
company, and Digital Generation Systems Inc., a multimedia network services
company. Mr. Drazan was elected to the Board of Directors in August 1990
pursuant to the terms of a Warrant Purchase Agreement.
PETER A. HOWLEY has been a director of the Company since January 1992. Since
August 1995, Mr. Howley has served as President, Chief Executive Officer, and
Chairman of the Board of Directors of Air Power Communications, Inc., a start-up
wireless communications company. From August, 1985 until May, 1994, Mr. Howley
served as President, Chief Executive Officer, and Chairman of the Board of
Directors of Centex Telemanagement, Inc., a telecommunications management
services company.
GREGORY DUNFIELD has been a member of the Board of Directors of the Company
since February 1994. Since February 1987, Mr. Dunfield has held various
management positions with first and second tier U.S. subsidiary companies of
Telstra. Currently, Mr. Dunfield serves as Vice President of Telstra
Incorporated (USA).
ROBERT LABANT has been a director of the Company since June 1996. Since July
1996, Mr. Labant has served as President and Chief Operating Officer of Candle
Software Services Corporation, a systems management software company. From
February 1995 until July 1996, Mr. Labant worked as a self-employed independent
consultant to software companies. For twenty-eight years, until February 1995,
Mr. Labant served in various capacities at International Business Machines Corp.
("IBM"). Mr. Labant's last position at IBM was as Senior Vice President and
General Manager of North American Operations, and previously he served as Vice
President and General Manager of the AS 400 Product Manufacturing and
Development Division. Mr. Labant also serves on the Board of Directors of
Arkwright Insurance, a mutual insurance company, and on the Board of Overseers
of the Amos Tuck School of Business at Dartmouth College.
In accordance with the terms of the Company's Certificate of Incorporation,
the Board of Directors has been divided into three classes, denominated Class I,
Class II and Class III, with members of each Class holding office for staggered
three-year terms. Gregg Dunfield is a Class I Director whose term expires at the
1997 annual meeting of stockholders, Robert Labant and Peter A. Howley are Class
II Directors whose terms expire at the 1998 annual meeting, and Thomas F.
Murawski and Jeffrey M. Drazan are Class III Directors whose terms expire at the
1999 annual meeting (in all cases subject to the election and qualification of
their successors or to their earlier death, resignation or removal). At each
annual stockholder meeting commencing with the 1997 annual meeting, the
successors to the Directors whose terms expire are
38
<PAGE>
elected to serve from the time of their election and qualification until the
third annual meeting of stockholders following their election and until a
successor has been duly elected and qualified. There are no family relationships
among any of the directors and executive officers of the Company.
The Audit Committee of the Board of Directors reviews, acts on and reports
to the Board of Directors with respect to various auditing and accounting
matters, including the selection of the Company's auditors, the scope of the
annual audits, fees to be paid to the auditors, the performance of the Company's
independent auditors and the accounting practices of the Company.
The Compensation Committee of the Board of Directors determines the salaries
and incentive compensation of the officers of the Company and provides
recommendations for the salaries and incentive compensation of the other
employees and the consultants of the Company. The Compensation Committee also
administers various incentive compensation, stock and benefit plans.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during 1995 by (i)
the Company's Chief Executive Officer and (ii) the four other most highly
compensated executive officers who received compensation in excess of $100,000
(together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(1)
ANNUAL ----------------
COMPENSATION(1) SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY BONUS OPTIONS
- ------------------------------------------------------------------------- ---------- --------- ----------------
<S> <C> <C> <C>
Thomas F. Murawski,
Chief Executive Officer and President.................................. $ 149,220 $ 45,000 253,763
Thomas C. Mullaney,
Vice President, Sales and President, Facsimile Services Division....... $ 114,572 $ 37,500 113,334
Peter S. Macaluso,
Vice President and Chief Financial Officer............................. $ 99,220 $ 18,750 39,250
George Frylinck,
Vice President, Marketing.............................................. $ 99,220 $ 18,750 37,583
James C. Kaufeld,
Vice President, Engineering............................................ $ 139,220 $ 15,000 22,238
</TABLE>
- ---------
(1) Other compensation in the form of perquisites and other personal benefits
has been omitted as the aggregate amount of such perquisites and other
personal benefits constituted the lesser of $50,000 or 10% of the total
annual salary and bonus of the Named Executive Officer for such year.
39
<PAGE>
STOCK OPTION INFORMATION
The following table sets forth certain information regarding the option
grants made pursuant to the Company's 1990 Stock Option Plan during 1995 to each
of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF APPRECIATION FOR
SECURITIES PERCENTAGE OF OPTION TERM(2)
UNDERLYING OPTIONS TOTAL OPTIONS EXERCISE EXPIRATION --------------------
NAME GRANTED GRANTED(1) PRICE DATE 5% 10%
- ----------------------------------- ------------------ --------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas F. Murawski................. 253,763 46.7% .225 3/1/05 $ 35,907 $ 91,000
Thomas C. Mullaney................. 35,556 6.5 .225 3/1/05 5,031 12,750
77,778 14.3 .225 5/22/05 11,005 27,890
Peter S. Macaluso.................. 39,250 7.2 .225 3/1/05 5,554 14,075
George Frylinck.................... 37,583 6.9 .225 3/1/05 5,318 13,477
James C. Kaufeld................... 22,238 4.1 .225 3/1/05 3,147 7,975
</TABLE>
- ---------
(1) Based on an aggregate of 543,012 options granted to employees in fiscal
1995, including options granted to the Named Executive Officers.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the ten-year option term. The assumed 5%
and 10% rates of stock appreciation are mandated by rules of the Securities
and Exchange Commission and do not represent the Company's estimate of the
future market price of the Common Stock. These amounts do not take into
account any other appreciation in the price of the Common Stock from the
date of grant to the current date.
No options were exercised by the Named Executive Officers in 1995. The
following table sets forth for each of the Named Executive Officers, certain
information concerning the value of unexercised options at the end of 1995:
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED NET VALUES OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS(1)
-------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Thomas F. Murawski........................................ 121,292 279,597 $ 0 $ 171,290
Thomas C. Mullaney........................................ 13,333 144,444 0 76,500
Peter S. Macaluso......................................... 40,093 40,018 0 26,494
George Frylinck........................................... 38,269 41,842 0 25,369
James C. Kaufeld.......................................... 55,465 32,979 0 15,011
</TABLE>
- ---------
(1) Based on the estimated fair value of the Company's Common Stock at the end
of 1995 ($.90 per share), as determined by the Company's Board of Directors,
less the exercise price payable for such shares.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's 1996 Stock Option/Stock Issuance Plan (the "1996 Plan") is
intended to serve as the successor equity incentive program to the Company's
1990 Stock Option Plan (the "Predecessor Plan"). The 1996 Plan was adopted by
the Board of Directors, effective June 30, 1996, and will be submitted to
stockholders for approval prior to the consummation of the offering. Of the
555,556 shares of Common Stock authorized for issuance under the 1996 Plan,
533,334 are currently available for grant. In no event may any one participant
in the 1996 Plan receive option grants or direct stock issuances for more than
300,000 shares in the aggregate. All 1,238,619 options to purchase shares of
Common Stock outstanding under the Predecessor Plan have been incorporated into
the 1996 Plan and approximately 31,000 shares available for issuance under the
Predecessor Plan have been eliminated and withdrawn.
40
<PAGE>
The 1996 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock at an exercise price not less than 85% of their fair market value
on the grant date, (ii) the Stock Issuance Program under which such individuals
may, in the Plan Administrator's discretion, be issued shares of Common Stock
directly, through the purchase of such shares at a price not less than 85% of
their fair market value at the time of issuance or as a bonus tied to the
performance of services and (iii) the Automatic Option Grant Program under which
option grants will automatically be made at periodic intervals to eligible
non-employee Board members to purchase shares of Common Stock at an exercise
price equal to 100% of their fair market value on the grant date.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances, the time or times
when such option grants or stock issuances are to be made, the number of shares
subject to each such grant or issuance, the status of any granted option as
either an incentive stock option or a non-statutory stock option under the
Federal tax laws, the vesting schedule to be in effect for the option grant or
stock issuance and the maximum term for which any granted option is to remain
outstanding.
Upon an acquisition of the Company by merger or asset sale, each outstanding
option and unvested stock issuance will be subject to accelerated vesting under
certain circumstances.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made, at
the sole direction of the Plan Administrator, in cash or in shares of Common
Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member on or after the date the Underwriting Agreement for
this offering is executed will receive a 22,222 share option grant on the date
such individual joins the Board, provided such individual has not been in the
prior employ of the Company. In addition, at each Annual Stockholders Meeting,
beginning with the 1997 Annual Meeting, each individual who is to continue to
serve as a non-employee Board after the meeting will receive an additional
option grant to purchase 4,444 shares of Common Stock whether or not such
individual has been in the prior employ of the Company.
Each automatic grant will have a term of 10 years, subject to earlier
termination following the optionee's cessation of Board service. Each automatic
option will be immediately exercisable; however, any shares purchased upon
exercise of the option will be subject to repurchase should the optionee's
service as a non-employee Board member cease prior to vesting in the shares. The
initial 22,222 share grant will vest in four equal and successive annual
installments over the optionee's period of Board service. Each additional 4,444
share grant will vest upon the optionee's completion of one year of Board
service measured from the grant date. However, each outstanding option will
immediately vest upon (i) certain changes in the ownership or control of the
Company or (ii) the death or disability of the optionee while serving as a Board
member.
The Board may amend or modify the 1996 Plan at any time. The 1996 Plan will
terminate on June 30, 2006, unless sooner terminated by the Board.
41
<PAGE>
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company does not presently have any employment contracts in effect with
the Chief Executive Officer or any of the other Named Executive Officers.
The Compensation Committee as Plan Administrator of the 1996 Plan will have
the authority to provide for the accelerated vesting of the shares of Common
Stock subject to outstanding options held by the Chief Executive Officer and any
other executive officer or the shares of Common Stock subject to direct
issuances held by such individual, in connection with certain changes in control
of the Company or the subsequent termination of the officer's employment
following the change in control event.
Each of the Company's directors and officers, with the exception of Mr.
Dunfield and Mr. Labant, is party to an agreement with the Company providing for
the acceleration of the vesting of options to purchase Common Stock held by such
director and officer in the event of the involuntary removal or dismissal (as
defined in such agreement) of such director or officer in connection with an
acquisition (as defined in such agreement) of the Company. Such agreements may
have the effect of delaying or preventing a change in control of the Company,
and therefore, could adversely affect the price of the Company's Common Stock.
The Company has also agreed to pay Mr. Murawski $12,500 per month, plus all
benefits, for up to three months after the termination of his employment without
cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of two outside directors,
Jeffrey Drazan and Peter Howley. Certain members of the Company's Board of
Directors have been parties to transactions with the Company. See "Certain
Transactions." Although neither Mr. Drazan nor Mr. Howley was an officer or
executive of the Company in fiscal year 1995, from October 1991 to November
1991, Mr. Drazan served as interim president of the Company until a successor
was found for the individual previously serving in that position.
401(K) PLAN
The Company participates in a tax-qualified employee savings and retirement
plan (the "401(k) Plan") which covers all of the Company's employees with three
months of service who are at least 21 years of age. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan permits additional matching
contributions by the Company on behalf of all participants in the 401(k) Plan,
although as of the date of this Prospectus, the Company has elected not to match
participant contributions. The 401(k) Plan is intended to qualify under Section
401 of the Internal Revenue Code of 1986, as amended, so that contributions by
employees or by the Company to the 401(k) Plan, and income earned on plan
contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by the Company, if any, will be deductible by
the Company when made. The trustee under the 401(k) Plan, at the direction of
each participant, invests the assets of the 401(k) Plan in a number of
investment options.
KEY-PERSON LIFE INSURANCE
The Company does not maintain key-person life insurance policies on the
lives of any of its executive officers.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that, except to the
extent prohibited by the Delaware General Corporation Law, its directors shall
not be personally liable to the Company or its stockholders for monetary damages
for any breach of fiduciary duty as directors of the Company. Under Delaware
law, the directors have a fiduciary duty to the Company which is not eliminated
by this provision of the Certificate of Incorporation and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available. In addition, each director will
continue to be subject to liability under Delaware law for breach of the
director's duty of loyalty to the Company, for acts or omissions which are found
by a court of competent jurisdiction to be not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the
42
<PAGE>
director, and for payment of dividends or approval of stock repurchases or
redemptions that are prohibited by Delaware law. This provision also does not
affect the directors' responsibilities under any other laws, such as the Federal
securities laws or state or Federal environmental laws. If commercially
feasible, the Company intends to obtain liability insurance for its officers and
directors.
The Certificate of Incorporation also provides that the Company may
indemnify, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, all of its present and former officers and directors,
and any party agreeing to serve as an officer, director or trustee of any entity
at the Company's request, in connection with any civil or criminal proceeding
threatened or instituted against such party by reason of actions or omissions
while serving in such capacity. Indemnification by the Company includes payment
of expenses in defense of the indemnified party in advance of any proceeding or
final disposition thereof. The rights to indemnification provided in this
provision do not preclude the exercise of any other indemnification rights by
any party pursuant to any law, agreement or vote of the stockholders or the
disinterested directors of the Company.
Section 145 of the Delaware General Corporation Law generally allows the
Company to indemnify the parties described in the preceding paragraph for all
expenses, judgments, fines and amounts in settlement actually paid and
reasonably incurred in connection with any proceedings so long as such party
acted in good faith and in a manner reasonably believed to be in or not opposed
to the Company's best interests and, with respect to any criminal proceedings,
if such party had no reasonable cause to believe his or her conduct to be
unlawful. Indemnification may only be made by the Company if the applicable
standard of conduct set forth in Section 145 has been met by the indemnified
party upon a determination made (1) by the Board of Directors by a majority vote
of the directors who are not parties to such proceedings (even though less than
a quorum), or (2) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
43
<PAGE>
CERTAIN TRANSACTIONS
SECURITIES ISSUANCES AND PURCHASES
In May 1992, the Company issued an aggregate of 8,329,528 shares of Series C
Preferred Stock to investors at a price of $0.60 per share. In January 1994, the
Company issued an aggregate of 17,311,021 shares of Series D Preferred Stock to
an investor at a price of $0.1733 per share and 1,880,529 shares of Series D
Preferred Stock to investors upon conversion of the Company's promissory notes
issued in October 1993. In November 1994, the Company issued an aggregate of
7,241,343 shares of Series D Preferred Stock to investors at a price of $0.1733
per share. In January 1995, the Company issued an aggregate of 19,090,900 shares
of Series E Preferred Stock to investors at a price of $0.22 per share. In
February 1996, the Company issued an aggregate of 15,000,000 shares of Series F
Preferred Stock to investors at a price of $0.40 per share. In March 1996, the
Company issued an aggregate of 4,999,988 shares of Series F Preferred Stock at a
price of $0.40 per share. Each nine shares of Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock will be
converted into one share of Common Stock upon the consummation of this offering.
The purchasers of the Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock included the following 5%
stockholders, executive officers, directors and entities affiliated with
directors:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK ON
AN AS CONVERTED
BASIS
--------------------
<S> <C>
Sierra Ventures (Jeffrey Drazan)(1)..................................... 1,550,599
Telstra Incorporated (Gregory Dunfield)(2).............................. 961,724
Menlo Ventures(3)....................................................... 845,833
Sutter Hill Ventures, a California Limited Partnership.................. 688,497
Battery Ventures II, L.P................................................ 569,233
Coral Partners II, a limited partnership................................ 416,546
Peter Howley............................................................ 124,424
Robert Labant........................................................... 6,944
</TABLE>
- ---------
(1) Includes 1,128,399 shares of Common Stock held by Sierra Ventures, III
("Sierra III"), a California limited partnership, 5,534 shares of Common
Stock held by Sierra Ventures III International L.P. ("Sierra III
International"), and 416,667 shares of Common Stock held by Sierra Ventures
V ("Sierra V"), a California limited partnership. SV Associates III, L.P. is
the General Partner of Sierra III and Sierra III International. SV
Associates V, L.P. is the General Partner of Sierra V. Mr. Drazan is a
General Partner of SV Associates III, L.P. and SV Associates V, L.P.
(2) Does not include 8,655,510 shares of Series D Preferred Stock repurchased
from Telstra Incorporated by the Company for an aggregate amount equal to
$2,163,877.50.
(3) Includes 833,333 shares of Common Stock held by Menlo Ventures VI, L.P.
("Menlo VI") and 12,500 shares of Common Stock held by Menlo Entrepreneurs
Fund VI, L.P. ("Menlo Entrepreneurs"). MV Management VI, L.P. is the General
Partner of Menlo VI and Menlo Entrepreneurs.
In October and November 1993, the Company issued warrants to purchase an
aggregate of 21,082 shares of Common Stock with an exercise price of $5.40 per
share to Sierra Ventures III (12,905 shares), Sierra International (263 shares),
Battery Ventures II, L.P. (6,916 shares) and Peter Howley (998 shares).
From June 30, 1993 through June 30, 1996, the Company granted executive
officers and directors, or in the case of Telstra Incorporated director
nominees, to Telstra Incorporated, a total of 897,889 stock options with
exercise prices ranging from $0.225 per share to $3.60 per share.
EMPLOYMENT SEVERANCE AGREEMENTS
For information regarding employment agreements and severance agreements
with executive officers and directors, see "Management--Employment Contracts and
Change of Control Arrangements."
44
<PAGE>
AGREEMENTS WITH TELSTRA INCORPORATED
In March 1996, the Company repurchased 8,655,510 shares of Series D
Preferred Stock held by Telstra Incorporated ("Telstra Incorporated"), an
indirect wholly-owned subsidiary of Telstra, at a price of $0.25 per share. As a
result of such repurchase, certain covenants in favor of Telstra Incorporated
contained in the Series D Preferred Stock Purchase Agreement (as amended, the
"Telstra Purchase Agreement"), were eliminated, although Telstra Incorporated
retained the right to designate one member of FaxSav's Board of Directors
(currently, Mr. Dunfield). Such designation right, and all other rights of
Telstra Incorporated under the Telstra Purchase Agreement, shall terminate upon
the consummation of this offering. In March 1996, Telstra Incorporated and the
Company entered into an agreement providing for the acceleration of vesting of
all Common Stock options granted to Telstra Incorporated for the participation
of its designees on the Company's Board of Directors that are scheduled to vest
and become exercisable during the 24-month period following the involuntary
removal without cause (as defined in such agreement) of any such director in
connection with an acquisition (as defined in such agreement) of the Company.
The Company and Telstra Incorporated are parties to a Traffic Agreement,
effective November 1994 (the "Traffic Agreement"). Under the terms of the
Traffic Agreement, the Company will exclusively use Telstra's (or its nominees)
"WorldFax" service for the Company's outbound telephony traffic from the United
States provided that such service is offered at the Company's lowest cost. The
Traffic Agreement has a five year term beginning in late 1995, upon the
commercial commencement of Telstra's "WorldFax" service in the United States.
45
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of June 30, 1996, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, by (i) each
person (or group of affiliated persons) who is known by the Company to own
beneficially five percent or more of the outstanding shares of Common Stock,
(ii) each director of the Company, (iii) each Named Executive Officer, (iv) each
current executive officer and (v) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE OF
COMMON STOCK OUTSTANDING SHARES
BENEFICIALLY ----------------------------------
OWNED(1) BEFORE OFFERING AFTER OFFERING
-------------- ----------------- ---------------
<S> <C> <C> <C>
Entities affiliated with Sierra Ventures (2)...................... 1,995,355 24.3% 19.2%
Building 4, Suite 210
3000 Sand Hill Road
Menlo Park, California 94025
Telstra Incorporated c/o FaxSav Incorporated (3).................. 973,760 11.9 9.4
399 Thornall Street
Edison, NJ
Entities affiliated with Menlo Ventures (4)....................... 845,833 10.4 8.2
3000 Sand Hill Road
Menlo Park, CA 94025
Battery Ventures II, L.P (5)...................................... 796,847 9.8 7.7
200 Portland Street
Boston, MA 02114
Sutter Hill Ventures, a California Limited Partnership (6)........ 688,497 8.4 6.6
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304-1005
Coral Partners II, a limited partnership (7)...................... 684,403 8.4 6.6
60 South Sixth Street
Suite 3510
Minneapolis, MN 55402
Thomas F. Murawski (8)............................................ 206,525 2.5 2.0
Jeffrey Drazan (2)................................................ 1,995,355 24.3 19.2
Gregory Dunfield (3).............................................. 973,760 11.9 9.4
Peter A. Howley (9)............................................... 163,667 2.0 1.6
Robert Labant..................................................... 6,944 * *
Thomas C. Mullaney (10)........................................... 48,778 * *
Peter S. Macaluso (11)............................................ 51,862 * *
George Frylinck (12).............................................. 52,621 * *
James C. Kaufeld (13)............................................. 64,729 * *
All current directors and executive officers as a group (9
persons)........................................................ 3,564,241(14) 41.0 32.8
</TABLE>
- ---------
* Less than one percent.
(1)Gives effect to the shares of Common Stock issuable within 60 days of June
30, 1996 upon the exercise of all options and other rights beneficially
owned by the indicated stockholders on that date. Unless otherwise
indicated, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect to
shares.
46
<PAGE>
(2)Includes (i) 1,535,022 shares of Common Stock held by Sierra III, (ii)
13,832 shares of Common Stock held by Sierra III International and (iii)
416,667 shares of Common Stock held by Sierra V. Also, includes warrants to
purchase 12,905 shares of Common Stock held by Sierra III and warrants to
purchase 263 shares of Common Stock held by Sierra III International. Mr.
Drazan, a Director of the Company, is a general partner of an affiliate of
Sierra III, Sierra III International and Sierra V and, as such, may be
deemed to share voting and investment power with respect to such shares. Mr.
Drazan disclaims beneficial ownership of such shares except to the extent of
his interest in such shares arising from his interest in Sierra III, Sierra
III International and Sierra V. Also includes 16,667 shares of Common Stock
issuable to Mr. Drazan upon exercise of stock options.
(3)Mr. Dunfield, who is a director of the Company, is the President of Telstra
Incorporated. Telstra Holdings Pty. (the "Selling Stockholder"), the direct
parent of Telstra Incorporated, has an immediately exercisable option to
purchase 8,655,511 shares of Series D Preferred Stock beneficially owned by
Telstra Incorporated, which shares will be converted into 961,723 shares of
Common Stock upon consummation of this offering. The Selling Stockholder has
informed the Company that it will exercise this option prior to the
consummation of this offering. The Selling Stockholder has granted to the
Underwriters an option to purchase up to 330,000 shares of Common Stock at
the public offering price less underwriting discounts and commissions shown
on the cover page of this Prospectus, solely to cover over-allotments, if
any. See "Underwriting." If the over-allotment option is exercised in full,
the Selling Stockholder will own 643,760 shares, representing 6.1% of the
outstanding Common Stock. Includes 12,037 shares of Common Stock issuable to
Telstra Incorporated upon exercise of stock options. Mr. Dunfield disclaims
beneficial ownership of such shares.
(4)Includes (i) 833,333 shares of Common Stock held by Menlo VI and (ii) 12,500
shares of Common Stock held by Menlo Entrepreneurs. MV Management VI, L.P.
is the General Partner of Menlo VI and Menlo Entrepreneurs.
(5)Includes warrants to purchase 6,916 shares of Common Stock. ABF Partners II,
L.P. is the General Partner of Battery Ventures II, L.P.
(6)Excludes an aggregate of 390,497 shares of Common Stock held, in their
individual capacity, by the five general partners of the general partner of
Sutter Hill Ventures, a California Limited Partnership ("Sutter Hill"). The
five general partners share voting and investment power with respect to the
shares held by Sutter Hill. Each of these individuals disclaims beneficial
ownership of the shares held by Sutter Hill except as to their proportionate
interest therein, and disclaims beneficial ownership of the shares held by
the other four individuals.
(7)Coral Management Partners II, Limited Partnership ("Coral Management"), is
the General Partner of Coral Partners II. Excludes an aggregate of 5,626
shares of Common Stock and warrants to purchase an aggregate of 5,741 shares
of Common Stock held, in their individual capacity, by three general
partners of Coral Management who share investment and voting power with
respect to the shares of Common Stock held by Coral Partners II. The general
partners disclaim beneficial ownership of the shares held by Coral Partners
II, except as to their proportionate interest therein.
(8)Includes 206,525 shares of Common Stock issuable upon exercise of stock
options.
(9)Includes 19,444 shares of Common Stock issuable upon exercise of stock
options and 998 shares of Common Stock issuable upon exercise of warrants.
(10)Includes 48,778 shares of Common Stock issuable upon exercise of stock
options.
(11)Includes 51,862 shares of Common Stock issuable upon exercise of stock
options.
(12)Includes 52,621 shares of Common Stock issuable upon exercise of stock
options.
(13)Includes 64,729 shares of Common Stock issuable upon exercise of stock
options.
(14)See Notes (2) through (13).
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.01 par value, and
1,000,000 shares of Preferred Stock, $0.01 par value.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held.
Following this offering, the holders of Common Stock, voting as a single class,
will be entitled to elect all of the directors of the Company. In all matters
other than the election of directors, when a quorum is present at any
stockholders' meeting, the affirmative vote of the majority of shares present in
person or represented by proxy shall decide any question before such meeting.
Directors are elected by a plurality of the votes of the shares present in
person or represented by proxy at a stockholders' meeting. The holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
would be entitled to share in the Company's assets remaining after the payment
of liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of Preferred Stock. Holders of Common Stock
have no preemptive or other subscription rights, except pursuant to the
Company's Stockholder Rights Plan. See "--Stockholder Rights Plan." The shares
of Common Stock are not convertible into any other security. The outstanding
shares of Common Stock are, and the shares being offered hereby will be, upon
issuance and sale, fully paid and nonassessable.
At June 30, 1996, there were 8,168,998 shares of Common Stock outstanding
(after giving effect to the conversion of all outstanding shares of Preferred
Stock into Common Stock) and held of record by 120 stockholders, and options to
purchase an aggregate of 1,238,619 shares of Common Stock were also outstanding.
See "Management--1996 Stock Option/Stock Issuance Plan." In addition, as of June
30, 1996, warrants to purchase an aggregate of 139,877 shares of Common Stock
were outstanding.
PREFERRED STOCK
Upon the consummation of this offering, the Company will be authorized to
issue 1,000,000 shares of Preferred Stock with such voting rights, designations,
preferences and rights, and such qualifications, limitations or restrictions
thereof, as may be determined by the Board of Directors providing for such
series. Although the Company has no current plans to issue any shares of
Preferred Stock, the issuance of Preferred Stock or of rights to purchase
Preferred Stock could be used to discourage an unsolicited acquisition proposal.
See "--Stockholder Rights Plan." In addition, the possible issuance of Preferred
Stock could discourage a proxy contest, make more difficult the acquisition of a
substantial block of the Company's Common Stock or limit the price that
investors might be willing to pay in the future for shares of the Company's
Common Stock.
The Company believes that the Preferred Stock will provide the Company with
increased flexibility in structuring possible future financing and acquisitions,
and in meeting other corporate needs that might arise. Having such authorized
shares available for issuance will allow the Company to issue shares of
Preferred Stock without the expense and delay of a special stockholders'
meeting. The authorized shares of Preferred Stock, as well as shares of Common
Stock, will be available for issuance without further action by stockholders,
unless such action is required by applicable law or the rules of any stock
exchange on which the Company's securities may be listed.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
After this offering, the holders of approximately 8,016,000 shares of Common
Stock, and the holders of warrants to purchase an additional 139,877 shares of
Common Stock (the "Registrable Securities") will be entitled to certain demand
rights with respect to the registration of the Registrable Securities under the
Securities Act. Under the terms of the agreement between the Company and the
holders of the Registrable Securities, subject to certain restrictions, at any
time (a) after the earlier of (i) three (3) months after the effective date of
the Registration Statement of which this Prospectus forms a part or (ii)
February 1, 1997, the holders of more than 50% of the Registrable Securities,
and (b) after this offering is complete, holders
48
<PAGE>
proposing to sell Registrable Securities at a reasonably anticipated aggregate
offering price to the public (net of any underwriter's discount or commissions)
of $10,000,000, are entitled to demand that the Company register their
Registrable Securities under the Securities Act. The Company is not required to
effect more than two such registrations pursuant to such demand registration
rights. In addition, under such agreement, if the Company proposes to register
any of its securities under the Securities Act, either for its own account or
for the account of other security holders exercising registration rights,
subject to certain restrictions, such holders of the Registrable Securities and
the holders of 83,741 shares of Common Stock (the "Founders Registrable
Securities") are entitled to notice of such registration and are entitled to
include their registrable securities therein. The Company is required to include
any Registrable Securities or Founders Registrable Securities in an unlimited
number of such registrations. Once the Company is eligible to use a Form S-3
registration statement to register shares of Common Stock, subject to certain
restrictions, holders of 20% of the Registrable Securities are also entitled to
require the Company on two separate occasions in any twelve month period to file
a Form S-3 registration statement under the Act at the Company's expense with
respect to their Registrable Securities. Registration of Registrable Securities
or Founders Registrable Securities pursuant to such rights would result in such
shares becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of such registration. In connection with this
offering, the holders of the Registrable Securities and the Founders Registrable
Securities will agree to waive their rights until 180 days after the date of
this Prospectus.
DELAWARE LAW AND CERTAIN PROVISIONS OF THE COMPANY'S RESTATED CERTIFICATE
OF INCORPORATION AND BY-LAWS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, assets sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within the past three years has owned, 15% or more of the
corporation's voting stock.
The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." The staggered terms could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, control of the Company.
The By-laws also provide that any action required or permitted to be taken
by the stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The By-laws further
provide that special meetings of the stockholders may only be called by the
President of the Company, by the Board of Directors or by stockholders owning a
majority of the issued and outstanding capital stock of the Company. The
foregoing provisions could have the effect of delaying until the next
stockholders meeting stockholder actions which are favored by the holders of a
majority of the outstanding voting securities of the Company. These provisions
may also discourage another person or entity from making a tender offer for the
Company's Common Stock, because such person or entity, even if it acquired a
majority of the outstanding voting securities of the Company, would be able to
take action as a stockholder (such as electing new directors or approving a
merger) only at a duly called stockholders meeting, and not by written consent.
The Restated Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by the Delaware law. Delaware law provides that
a director of a corporation will not be personally liable for monetary damages
for breach of such individual's fiduciary duties as a director except for
liability (i) for any breach of such director's duty of loyalty to the
corporation, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which a director derives an improper personal benefit.
49
<PAGE>
Further, the Restated Certificate of Incorporation contains provisions to
indemnify the Company's directors and officers to the fullest extent permitted
by Delaware law. The Company believes that indemnification under its Restated
Certificate of Incorporation covers at least negligence and gross negligence on
the part of an indemnified party and permits the Company to advance expenses
incurred by an indemnified party in connection with the defense of any action or
proceeding arising out of such party's status or service as a director, officer,
employee or other agent of the Company upon an undertaking by such party to
repay such advances if it is ultimately determined that such party is not
entitled to indemnification. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.
At present, the Company is not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of the Company, where
indemnification will be required or permitted. The Company is not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
STOCKHOLDER RIGHTS PLAN
On August , 1996, the Board of Directors of the Company adopted a
stockholder rights plan (the "Rights Plan"). The purpose of the Rights Plan is
to give adequate time for stockholders of the Company to properly assess the
merits of a take-over bid without undue pressure and to allow competing bids to
emerge. The Rights Plan is designed to give the Board of Directors of the
Company time to consider alternatives to enhance the prospect that all
stockholders will receive full and fair value for their shares of Common Stock.
Pursuant to the terms of the Rights Plan, on , 1996 (the "Record
Date") one Right was issued and attached to each outstanding share of Common
Stock. One Right will also attach to any subsequently issued share of Common
Stock including the shares of Common Stock to be issued by the Company pursuant
to this offering. Each Right entitles a holder to purchase 1/100th of a share of
new preferred stock at a specified price only after specified acquisition events
on a Distribution Date (as defined below). The issuance of Rights is not of
itself dilutive, does not affect reported earnings per share and does not change
the way in which stockholders of the Company otherwise trade shares of Common
Stock. However, the Rights will separate from the shares of Common Stock to
which they are attached and will become exercisable at the time (the
"Distribution Date") that is business days after the earlier of (i) a
person having acquired, or (ii) the commencement or announcement date or such
later date as may be determined by the Board of Directors of the Company in
respect of a take-over bid to acquire, 15% or more of the shares of Common Stock
of the Company.
The acquisition by a person (an "Acquiring Person"), including several
persons acting in concert, of 15% or more of the Common Stock of the Company, is
referred to as a "Flip-in Event." business days after the occurrence of
the Flip-in Event, the Rights (other than those held by the Acquiring Person,
all of which become void) will permit the holder to purchase that number of
shares of Common Stock having an aggregate market price on the day of the
Flip-in Event equal to twice the purchase price. At any time before the
acquisition by a person or group of beneficial ownership of 15% or more of the
outstanding Common Stock of the Company (an "Acquisition"), the Board of
Directors may redeem the Rights, in whole or in part, at a price of $.001 per
Right, subject to adjustment (such exchange, the "Redemption Date"). The
acquisition of the Company pursuant to a merger or the transfer of 50% or more
of the Company's assets or earning power to an acquiror is referred to as a
"Flip-over Event." In the event of a Flip-over Event, Rights can be exercised to
acquire shares of common stock of the acquiring company with a total market
value of two times the purchase price. The Rights Plan will expire on the
earlier to occur of , 2006 or the Redemption Date.
TRANSFER AGENT AND REGISTRAR
will act as transfer agent and registrar for the Company's
Common Stock.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time. Sales
of substantial amounts of Common Stock of the Company in the public market after
the lapse of existing resale restrictions could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future.
Upon completion of this offering, the Company will have outstanding
10,368,998 shares of Common Stock, assuming no exercise of currently outstanding
options. In addition to the 2,200,000 shares of Common Stock offered hereby
(assuming no exercise of the Underwriters' over-allotment option), as of the
Effective Date, there will be 8,168,998 shares of Common Stock outstanding, all
of which are "restricted securities" under the Securities Act. Certain
stockholders of the Company, holding in the aggregate approximately 6,086,000
shares of Common Stock, are subject to lock-up agreements providing generally
that they will not offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible or exchangeable into Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Lehman Brothers Inc., which may be given at any time,
without notice, with respect to all or any portion of such shares. Holders of
approximately 2,013,000 additional shares of Common Stock are subject to similar
restrictions contained in an Investor Rights Agreement. Taking into account the
lock-up agreements and restrictions notwithstanding possible earlier eligibility
for resale under the provisions of Rules 144 and 701, the numbers of shares that
will be available for sale in the public market will be as follows. Beginning 90
days after the Effective Date, approximately 70,000 shares of restricted
securities will become eligible for resale in the public market, subject to
compliance with Rules 144 and 701. Beginning 180 days after the Effective Date,
approximately 5,950,000 additional shares of restricted securities will become
eligible for sale in the public market upon expiration of certain lock-up
agreements pursuant to Rule 144 and, as of that date, approximately 5,300,000 of
such shares will be subject to certain volume and other resale restrictions
pursuant to Rules 144 and 701.
In general, under Rule 144, as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned his or her restricted
securities (as that term is defined in Rule 144) for at least two years is
entitled to sell, within any three-month period, a number of such securities
that does not exceed the greater of 1% of the then outstanding shares of the
Company's Common Stock (approximately 104,000 shares immediately after this
offering) or the average weekly trading volume during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. A person who is not an
affiliate, has not been an affiliate within three months prior to the sale and
has beneficially owned the restricted securities for at least three years is
entitled to sell such shares under Rule 144(k) without regard to any of the
limitations described above. In meeting the two-year and three-year holding
periods described above, a holder of Restricted Shares may include under certain
circumstances the holding period of a prior owner.
The Securities and Exchange Commission has proposed certain amendments to
Rule 144 that would reduce by one year the holding periods required for shares
subject to Rule 144 to become eligible for resale in the public market. This
proposal, if adopted, would increase the number of shares of Common Stock
eligible for immediate resale following the expiration of the lock-up agreements
described above. No assurance can be given concerning whether or when the
proposal will be adopted by the Securities and Exchange Commission.
Any employee or director of or consultant to the Company who has been
granted options to purchase shares or who has purchased shares pursuant to a
written compensatory plan or written contract prior to the effective date of
this offering pursuant to Rule 701 will be entitled to rely on the resale
provisions of Rule 701, which permits non-affiliates to sell their Rule 701
shares without having to comply with the public information, holding-period,
volume-limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
Prospectus.
51
<PAGE>
The Company intends to file, on or shortly after the date of the Prospectus,
a registration statement on Form S-8 under the Securities Act to register shares
of Common Stock reserved for issuance under the Predecessor Plan and the 1996
Stock Option/Issuance Plan. Shares issued after the effective date of the S-8
will be eligible for resale by non-affiliates in the public market without
limitation and by affiliates subject to the requirements set forth in Rule 144,
except for the holding period limitation of Rule 144. Such registration
statement will become effective immediately upon filing. As of June 30, 1996, an
aggregate of 1,238,619 shares of Common Stock are reserved for issuance under
the Predecessor Plan and an additional 555,556 shares of Common Stock were
available for future grants under the Company's 1996 Stock Option/Stock Issuance
Plan.
The holders of approximately 8,016,000 shares of Common Stock and the
holders of warrants to purchase an additional 139,877 shares of Common Stock
have the right in certain circumstances to require the Company to register their
shares under the Securities Act for resale to the public. If such holders, by
exercising their demand registration rights, cause a large number of shares to
be registered and sold in the public market, such sales could have an adverse
effect on the market price for the Company's Common Stock. If the Company were
required to include in a Company-initiated registration shares held by such
holders pursuant to the exercise of their piggyback registration rights, such
sales may have an adverse effect on the Company's ability to raise needed
capital. See "Description of Capital Stock--Registration Rights of Certain
Holders."
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely effect the market price of the Common Stock.
52
<PAGE>
UNDERWRITING
Under the terms of, and subject to the conditions contained in, an
Underwriting Agreement (the "Underwriting Agreement"), the form of which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part, the underwriters named below (the "Underwriters"), for whom Lehman
Brothers Inc. and Alex. Brown & Sons Incorporated are acting as Representatives
(the "Representatives"), have severally agreed to purchase from the Company, and
the Company has agreed to sell to the Underwriters, the aggregate number of
shares of Common Stock set forth opposite the name of each Underwriter below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc..............................................................
Alex. Brown & Sons Incorporated..................................................
----------
Total........................................................................ 2,200,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase shares of Common Stock are subject to certain conditions, and that
if any of the shares of Common Stock are purchased by the Underwriters pursuant
to the Underwriting Agreement, all shares of Common Stock agreed to be purchased
by the Underwriters pursuant to the Underwriting Agreement must be purchased.
The Company has been advised that the Underwriters initially propose to
offer the shares of Common Stock directly to the public at the public offering
price set forth on the cover page of this Prospectus and to certain selected
dealers (who may include the Underwriters) at such public offering price less a
selling concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other Underwriters or to certain other brokers or dealers.
After the initial public offering, the public offering price, the concession to
selected dealers and the reallowance to other dealers may be changed by the
Underwriters.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, and to contribute to payments that the
Underwriters may be required to make in respect thereof.
The Selling Stockholder has granted to the Underwriters an option to
purchase up to an additional 330,000 shares of Common Stock at the public
offering price less the underwriting discounts and commissions shown on the
cover page of this Prospectus, solely to cover over-allotments, if any. Such
option may be exercised at any time until 30 days after the date of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will be committed, subject to certain conditions, to purchase a
number of option shares proportionate to such Underwriter's initial commitment.
The Representatives of the Underwriters have informed the Company and the
Selling Stockholder that the Underwriters do not intend to confirm sales to
accounts over which they exercise discretionary authority.
The Company, the Selling Stockholder, the directors and officers and certain
other stockholders of the Company have agreed, with certain limitations and
except for the shares of Common Stock to be sold in the offering, not to,
directly or indirectly, offer, sell or contract to sell, or otherwise dispose of
shares of Common Stock of the Company, or any securities convertible into, or
exchangeable for, or any rights to acquire, shares of Common Stock for a period
of 180 days after the date of this Prospectus without the prior written consent
of Lehman Brothers on behalf of the Representatives.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation among
the Company and the Representatives of the Underwriters.
53
<PAGE>
Among the factors to be considered in determining the initial public offering
price, in addition to prevailing market conditions, will be the Company's
historical performance, capital structure, estimates of the business potential
and earnings prospects of the Company, an overall assessment of the Company, an
assessment of the Company's management, and the consideration of the above
factors in relation to market valuation of companies in related businesses.
In February 1996, the Company sold 2,000,000 shares of Series F Preferred
Stock to Lehman Brothers Inc., or approximately 10% of all shares of Series F
Preferred Stock issued, for a purchase price of $0.40 per share. The Company
granted certain registration rights to Lehman Brothers Inc. in connection with
that transaction. In addition, a Senior Vice President of Lehman Brothers Inc.
purchased 22,727 shares of Series E Preferred Stock in January 1995 for a
purchase price of $0.22 per share and 502,612 shares of Series F Preferred Stock
of the Company in February and March 1996 for a purchase price of $0.40 per
share, and has been granted certain registration rights by the Company. Each
nine shares of Series E Preferred Stock and Series F Preferred Stock will be
converted to one share of Common Stock upon the consummation of the offering.
See "Description of Capital Stock--Registration Rights of Certain Holders."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, New York, New York. A member of
Brobeck, Phleger & Harrison LLP is the beneficial owner of 6,199 shares of
Common Stock. Certain legal matters in connection with the offering will be
passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The balance sheets as of December 31, 1995 and 1994 and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1995, included in this
Prospectus and Registration Statement, have been included herein in reliance on
the report of Coopers and Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1, including
amendments thereto, under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and such Common Stock, reference
is made to the Registration Statement and the exhibits and schedules filed as a
part thereof. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and, in
each instance, if such contract or document is filed as an exhibit, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference to such exhibit. The Registration Statement, including exhibits
and schedules thereto, may be inspected without charge at the Commission's
Public Reference Section, Room 1024, 450 Fifth Street, N.W., Washington, D.C.
Copies of all or any part of such material may be obtained from such office at
prescribed rates.
54
<PAGE>
FAXSAV INCORPORATED
(FORMERLY DIGITRAN CORPORATION)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Report of Independent Accountants................................................................... F-2
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (Unaudited)....................... F-3
Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and for the six months
ended June 30, 1995 and 1996 (Unaudited).......................................................... F-4
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and for the six months
ended June 30, 1995 and 1996 (Unaudited).......................................................... F-5
Statements of Stockholders' Equity (Deficit) from January 1, 1993 to December 31, 1995 and for the
six months ended June 30, 1996 (Unaudited)........................................................ F-6
Notes to Financial Statements (Including Data Applicable to Unaudited Periods)...................... F-7 - F-18
</TABLE>
F-1
<PAGE>
The following opinion is in the form which will be signed by Coopers &
Lybrand L.L.P. upon consummation of the one-for-nine reverse stock split as
described in Note 14 to the financial statements assuming that from March 29,
1996 to the date of such reverse split, no other events shall have occurred that
would affect the accompanying financial statements and notes thereto.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
March 29, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of FaxSav Incorporated:
We have audited the accompanying balance sheets of FaxSav Incorporated
(formerly Digitran Corporation) as of December 31, 1994 and 1995, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FaxSav Incorporated as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Parsippany, New Jersey
March 29, 1996
F-2
<PAGE>
FAXSAV INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
------------ ------------ JUNE 30, PRO FORMA
1996 NOTES 2 AND 14
------------ JUNE 30, 1996
(UNAUDITED) --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 311,592 $ 552,370 $ 2,788,659
Accounts receivable, less allowances of $90,193,
$174,737 and $271,605 (unaudited) as of December 31,
1994, 1995 and June 30, 1996, respectively............ 1,112,726 2,358,052 2,136,651
Prepaid expenses and other current assets............... -- 67,306 156,089
------------ ------------ ------------
Total current assets.................................. 1,424,318 2,977,728 5,081,399
PROPERTY AND EQUIPMENT, NET............................... 981,895 2,035,779 2,661,678
OTHER ASSETS, NET......................................... 85,879 118,071 172,830
------------ ------------ ------------
TOTAL..................................................... $ 2,492,092 $ 5,131,578 $ 7,915,907
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 567,504 $ 304,407 $ 481,004
Accrued expenses and other liabilities.................. 1,258,976 2,661,308 3,027,695
Obligation under capital lease.......................... 45,000 152,593 238,658
Amount outstanding under line of credit................. -- 1,000,000 541,466
------------ ------------ ------------
Total current liabilities............................. 1,871,480 4,118,308 4,288,823
OBLIGATION UNDER CAPITAL LEASE............................ -- 326,242 444,940
AMOUNT OUTSTANDING UNDER LINE OF CREDIT................... -- -- 124,320
------------ ------------ ------------
Total liabilities..................................... 1,871,480 4,444,550 4,858,083
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $0.001 par value; aggregate
liquidation preference of $31,845,128; Series A, B, C,
D, E and F, 80,200,000 shares authorized; 39,679,021;
58,769,921 and 78,769,909 (unaudited) shares issued as
of December 31, 1994, 1995 and June 30, 1996,
respectively, and 39,679,021; 58,769,921 and
70,114,399 (unaudited) shares outstanding as of
December 31, 1994, 1995 and June 30, 1996,
respectively, and none issued and outstanding on a pro
forma basis........................................... 39,679 58,770 78,770 --
Common stock, $0.01 par value; 40,000,000 shares
authorized; 344,076; 344,076; 395,232 (unaudited) and
8,168,998 (unaudited) shares issued as of December 31,
1994, 1995, June 30, 1996 and pro forma, respectively,
and 327,353; 327,353; 378,509 (unaudited) and
8,152,276 (unaudited) shares outstanding as of
December 31, 1994, 1995, June 30, 1996 and pro forma,
respectively.......................................... 3,274 3,274 3,786 $ 81,691
Additional paid-in capital.............................. 14,071,681 18,204,453 23,995,466 23,987,675
Accumulated deficit..................................... (13,494,007) (17,579,454) (21,011,527) (21,011,527)
Treasury stock, at cost--16,722 common shares as of
December 31, 1994 and 1995 and June 30, 1996 and
8,655,510 (unaudited) preferred shares as of June 30,
1996 and no preferred shares on a pro forma basis..... (15) (15) (8,671) (15)
------------ ------------ ------------ --------------
Total stockholders' equity............................ 620,612 687,028 3,057,824 $ 3,057,824
------------ ------------ ------------ --------------
--------------
TOTAL..................................................... $ 2,492,092 $ 5,131,578 $ 7,915,907
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
FAXSAV INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------------
1993 1994 1995
------------- ------------- ------------- FOR THE SIX MONTHS ENDED
JUNE 30,
----------------------------
1995 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES.............................. $ 2,580,008 $ 3,449,454 $ 11,649,499 $ 5,016,935 $ 7,445,166
COST OF SERVICE....................... 1,855,688 2,297,442 7,020,659 3,106,881 4,280,482
------------- ------------- ------------- ------------- -------------
GROSS MARGIN.......................... 724,320 1,152,012 4,628,840 1,910,054 3,164,684
OPERATING EXPENSES:
Network operations and support...... 742,734 851,281 1,183,119 566,122 867,779
Research and development............ 628,020 613,355 840,083 398,686 780,865
Sales and marketing................. 1,597,527 2,337,089 4,237,787 2,037,127 3,023,302
General and administrative.......... 952,717 1,030,647 2,237,317 844,002 1,375,312
Depreciation and amortization....... 101,662 180,532 698,236 253,438 586,848
Other............................... -- (309,375) (440,625) (206,250) --
------------- ------------- ------------- ------------- -------------
OPERATING LOSS........................ (3,298,340) (3,551,517) (4,127,077) (1,983,071) (3,469,422)
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income..................... 31,100 47,717 98,408 73,277 59,450
Interest expense.................... (7,899) (2,461) (52,727) (1,322) (67,385)
Other............................... 14,772 13,559 (4,051) 25,651 45,284
------------- ------------- ------------- ------------- -------------
37,973 58,815 41,630 97,606 37,349
------------- ------------- ------------- ------------- -------------
NET LOSS.............................. $ (3,260,367) $ (3,492,702) $ (4,085,447) $ (1,885,465) $ (3,432,073)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net loss per common and equivalent
share............................... $ (6.62) $ (7.06) $ (8.24) $ (3.80) $ (6.80)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average common and equivalent
shares outstanding.................. 492,388 494,935 495,879 495,879 504,358
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Unaudited pro forma data (Note 2):
Pro forma net loss per common and
equivalent share.................. $ (0.44) $ (0.40)
------------- -------------
------------- -------------
Shares used in computing pro-forma
net loss per common and equivalent
share............................. 9,248,091 8,615,421
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
FAXSAV INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- ----------- FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1995
----------- 1996
(UNAUDITED) -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $(3,260,367) $(3,492,702) $(4,085,447) $(1,885,465) $(3,432,073)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization expense............. 101,662 180,532 698,236 261,247 586,848
Interest to be paid in Series D preferred stock... 4,809 -- -- -- --
Provision for doubtful accounts................... 32,524 38,721 194,720 145,337 156,300
Provision for unrecoverable equipment............. -- 61,559 230,416 68,236 150,000
Gain on sale of property and equipment............ (412) -- -- -- --
Changes in assets and liabilities:
Accounts receivable............................... (164,631) (681,161) (1,440,046) (875,721) 65,101
Prepaid expenses and other current assets......... 91,881 (71,688) 48,363 (77,115) (88,783)
Other assets...................................... 9,565 (6,851) (63,584) (39,940) (85,731)
Accounts payable.................................. 54,372 392,289 (263,097) (3,634) 176,597
Accrued expenses and other liabilities............ 332,291 373,110 1,171,916 511,545 258,478
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities........... (2,798,306) (3,206,191) (3,508,523) (1,895,510) (2,213,263)
----------- ----------- ----------- ----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment.................. (247,847) (727,288) (1,267,219) (769,276) (875,703)
Proceeds from sale of equipment..................... 4,245 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities........... (243,602) (727,288) (1,267,219) (769,276) (875,703)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments made under capital lease
obligation........................................ -- (15,000) (135,343) (11,279) (101,309)
Borrowings under line of credit..................... -- -- 1,000,000 -- 665,786
Repayments under line of credit..................... -- -- -- -- (1,000,000)
Proceeds from issuance of notes payable with
warrants.......................................... 321,085 -- -- -- --
Proceeds from issuance of preferred stock, net...... -- 4,121,223 4,151,863 4,151,863 7,924,656
Proceeds from issuance of common stock and exercise
of stock options.................................. 1,905 2,584 -- -- --
Treasury stock acquired--preferred.................. -- -- -- -- (2,163,878)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities....... 322,990 4,108,807 5,016,520 4,140,584 5,325,255
----------- ----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH....................... (2,718,918) 175,328 240,778 1,475,798 2,236,289
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...... 2,855,182 136,264 311,592 311,592 552,370
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $ 136,264 $ 311,592 $ 552,370 $ 1,787,390 $ 2,788,659
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest.............................. $ 3,090 $ 2,461 $ 41,685 $ 1,322 $ 62,663
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital lease.............. $ -- $ 60,000 $ 569,178 $ -- $ 306,072
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Conversion of bridge financing...................... $ -- $ 325,894 $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Issuance of common stock under option pursuant to
severance agreement............................... $ -- $ -- $ -- $ -- $ 42,091
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
FAXSAV INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- -------------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK
----------- --------- --------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992......... 13,246,128 $ 13,246 322,366 $ 3,224 $ 9,646,558 $ (6,740,938) $ (15)
Issuance of common stock............. 370 4 329
Exercise of stock options............ 1,747 17 1,555
Net loss............................. (3,260,367)
----------- --------- --------- --------- ------------ ------------- -----------
Balance at December 31, 1993......... 13,246,128 13,246 324,483 3,245 9,648,442 (10,001,305) (15)
Conversion of bridge financing....... 1,880,529 1,881 324,013
Issuance of Series D preferred
stock.............................. 17,311,021 17,311 2,982,689
Issuance of Series D preferred
stock.............................. 7,241,343 7,241 1,247,685
Exercise of stock options............ 2,870 29 2,555
Expense in connection with stock
issuances.......................... (133,703)
Net loss............................. (3,492,702)
----------- --------- --------- --------- ------------ ------------- -----------
Balance at December 31, 1994......... 39,679,021 39,679 327,353 3,274 14,071,681 (13,494,007) (15)
Issuance of Series E preferred
stock.............................. 19,090,900 19,091 4,180,828
Expense in connection with stock
issuance........................... (48,056)
Net loss............................. (4,085,447)
----------- --------- --------- --------- ------------ ------------- -----------
Balance at December 31, 1995......... 58,769,921 58,770 327,353 3,274 18,204,453 (17,579,454) (15)
Issuance of Series F preferred stock
(unaudited)........................ 19,999,988 20,000 7,979,998
Exercise of stock options
(unaudited)........................ 51,156 512 41,579
Treasury stock acquired--Series D
preferred stock (unaudited)........ (8,655,510) (2,155,222) (8,656)
Expense in connection with stock
issuance (unaudited)............... (75,342)
Net loss (unaudited)................. (3,432,073)
----------- --------- --------- --------- ------------ ------------- -----------
Balance at June 30, 1996
(unaudited)........................ 70,114,399 78,770 378,509 3,786 23,995,466 (21,011,527) (8,671)
Pro forma adjustments (unaudited).... (70,114,399) (78,770) 7,790,489 77,905 (7,791) 8,656
----------- --------- --------- --------- ------------ ------------- -----------
Pro forma balance, June 30, 1996
(unaudited)........................ -- $ -- 8,168,998 $ 81,691 $ 23,987,675 $ (21,011,527) $ (15)
----------- --------- --------- --------- ------------ ------------- -----------
----------- --------- --------- --------- ------------ ------------- -----------
<CAPTION>
TOTAL
-----------
<S> <C>
Balance at December 31, 1992......... $ 2,922,075
Issuance of common stock............. 333
Exercise of stock options............ 1,572
Net loss............................. (3,260,367)
-----------
Balance at December 31, 1993......... (336,387)
Conversion of bridge financing....... 325,894
Issuance of Series D preferred
stock.............................. 3,000,000
Issuance of Series D preferred
stock.............................. 1,254,926
Exercise of stock options............ 2,584
Expense in connection with stock
issuances.......................... (133,703)
Net loss............................. (3,492,702)
-----------
Balance at December 31, 1994......... 620,612
Issuance of Series E preferred
stock.............................. 4,199,919
Expense in connection with stock
issuance........................... (48,056)
Net loss............................. (4,085,447)
-----------
Balance at December 31, 1995......... 687,028
Issuance of Series F preferred stock
(unaudited)........................ 7,999,998
Exercise of stock options
(unaudited)........................ 42,091
Treasury stock acquired--Series D
preferred stock (unaudited)........ (2,163,878)
Expense in connection with stock
issuance (unaudited)............... (75,342)
Net loss (unaudited)................. (3,432,073)
-----------
Balance at June 30, 1996
(unaudited)........................ 3,057,824
Pro forma adjustments (unaudited)....
-----------
Pro forma balance, June 30, 1996
(unaudited)........................ $ 3,057,824
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
FAXSAV INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1. ORGANIZATION AND NATURE OF OPERATIONS:
FaxSav Incorporated, formerly known as Digitran Corporation (the "Company"),
was formed in November 1989 to engage in the sale of customized facsimile
transmission services. In February 1996, the Company changed its name to FaxSav
Incorporated.
The Company designs, develops and markets a variety of business-to-business
facsimile transmission services, including fax-to-fax, desktop to fax, enhanced
fax and broadcast fax services. Through the use of its integrated Internet-based
and telephony-based network and its proprietary software, the Company enables
its customers to send documents and images to fax machines world wide. In early
1996, the Company began to deploy a global Internet-based network of nodes that
enable it to bypass the long distance carriers' networks when sending faxes to
or from international areas serviced by these nodes. Most of the Company's
revenues to date have been derived from delivering facsimile transmissions to
locations outside the United States from customers located throughout the United
States. The Company operates in one business segment.
The Company is subject to risks common to rapidly growing technology-based
companies, including limited operating history, dependence on key personnel,
raising equity capital, rapid technological change, competition from substitute
products and larger companies, and the successful development and marketing of
commercial products and services. The Company requires additional equity capital
or financing in the near term to carry out its planned network expansion and to
fund anticipated operating losses. In the event the offering contemplated by
this Prospectus is not completed, without such additional capital, management
believes that the Company's current sources of liquidity are sufficient for it
to continue operations through September 30, 1997 after limiting its network
expansion and reducing operating expenses.
Fax boards used in the Company's telecommunication network are supplied by
one vendor on a non-exclusive basis. Other components of the Company's operating
network are supplied by a limited number of vendors, also on a non-exclusive
basis. Management believes that other suppliers could be identified to provide
this equipment at a competitive price if these suppliers were unable or
unwilling to provide such equipment.
Operation of the Company's network to date has been dependent upon long
distance telecommunication companies transmitting information for the Company.
The Company has typically utilized only a limited number of these providers to
generate volume discounts. The Company's business strategy is also dependent
upon providing this service at the lowest possible cost which is greatly
affected by the cost of long distance transmission service. Management believes
that its long-distance transmissions could be made at competitive rates with any
number of companies providing long distance service.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. REVENUE RECOGNITION AND COST OF SERVICE:
The Company recognizes revenue as services are provided to customers and
records the related cost of service as incurred. Cost of service consists of
local access charges, leased network backbone circuit costs and long distance
domestic and international termination charges.
B. ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
FAXSAV INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Significant estimates made by management and included in the financial
statements are the allowance for bad debts, valuation allowance for deferred tax
assets, provision for FAXSAV CONNECTORS and accrual for legal defense.
C. INTERIM FINANCIAL INFORMATION (UNAUDITED):
The financial statements as of June 30, 1996 and for the six months ended
June 30, 1995 and 1996 are unaudited. In the opinion of management of the
Company, such unaudited financial statements include all adjustments necessary
to present fairly the information set forth therein. Results for the interim
periods are not necessarily indicative of the results for any other interim
period or the full year.
D. UNAUDITED PRO FORMA INFORMATION:
All of the Company's convertible preferred stock outstanding as of the
closing date of an initial public offering will be converted into shares of the
Company's common stock at the consent of the holders of the preferred stock. A
pro forma balance sheet as of June 30, 1996 would reflect the conversion of all
outstanding preferred stock into 7,790,489 (unaudited) shares of common stock
with a par value of $0.01, assuming a reverse stock split for common shares of
one-for-nine shares.
E. NET LOSS PER COMMON AND EQUIVALENT SHARE:
Net loss per common and equivalent share is computed using the weighted
average number of shares of common stock outstanding. Common equivalent shares
from stock options, warrants and preferred stock (except as required by SAB 83
referred to below) are excluded from the computation as the effect is anti-
dilutive. Historical earnings per share data do not assume the conversion of the
preferred stock into common stock described above which would materially change
the Company's capitalization. Fully diluted loss per share is not presented as
it would not materially differ from the primary loss per share data.
F. PRO FORMA NET LOSS PER COMMON AND EQUIVALENT SHARE:
Pro forma net loss per common and equivalent share is based on the weighted
average number of shares outstanding during the periods presented, including the
effect of a reverse stock split for common shares of one-for-nine shares to take
effect prior to the effective date of this registration statement and conversion
of all outstanding preferred stock into 7,790,489 shares of common stock (see
Note 14). Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83 ("SAB 83"), all shares, options and warrants issued during the
twelve months immediately preceding the initial public offering were treated as
if they had been outstanding for all periods, using the treasury stock method
and assuming a per share price of $11.00, the proposed initial public offering
price. Common stock equivalents (i.e., convertible preferred stock and certain
stock options and warrants) issued in earlier periods have not been included
since the effect would be antidilutive.
G. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation of furniture and equipment, except enhanced fax
equipment, is calculated using the straight-line method over their estimated
useful lives of five years. Enhanced fax equipment is included in equipment and
is depreciated over its estimated life of 30 months. Leasehold improvements are
amortized using the straight-line method over the lesser of the lease term or
the estimated useful life of the related asset. Repairs and maintenance costs
are expensed as incurred; major renewals and betterments are capitalized. When
assets are sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss on the
disposition is reflected in current operations.
F-8
<PAGE>
FAXSAV INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
H. CASH FLOWS:
For purposes of the statement of cash flows, the Company considers
short-term investments with a maturity at date of purchase of three months or
less to be cash equivalents.
I. INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "ACCOUNTING FOR INCOME TAXES". This
statement provides an asset and liability approach for deferred taxes that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns.
J. CONCENTRATION OF CREDIT RISK:
Statement of Financial Accounting Standards No. 105, "DISCLOSURE OF
INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT RISK," requires disclosure of
any significant off-balance-sheet and credit risk concentrations. Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash, cash equivalents and accounts receivable. From
time to time, the Company had concentrations of cash in several banks in the
form of demand deposits and money market accounts. The Company believes that
concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base.
K. FINANCIAL INSTRUMENTS:
The estimated fair value of the Company's financial instruments, which
include cash, cash equivalents, accounts receivable, obligations under capital
lease and amounts outstanding under line of credit, approximates their carrying
value.
The fair value of cash, cash equivalents and accounts receivable
approximates their carrying value because their maturity is generally less than
one year in duration. The fair value of obligations under capital lease and
amounts outstanding under the line of credit was determined using valuation
techniques that considered cash flow discounted at current rates.
L. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
For the year ended December 31, 1996, the Company will adopt Statement of
Financial Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF". This standard
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used for long-lived assets and certain identifiable intangibles to be
disposed of.
The Company will adopt the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "ACCOUNTING FOR STOCK BASED COMPENSATION" for the
year ending December 31, 1996.
Management does not expect the adoption of these standards to have a
material effect on the Company's financial position or results of operations.
M. LEGAL DEFENSE:
The Company accrues the estimated future cost of defending itself against
lawsuits or other claims when management has determined, in consultation with
its legal counsel, that these matters are probable of assertion against the
Company.
F-9
<PAGE>
FAXSAV INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
N. UNRECOVERABLE EQUIPMENT:
The Company provides for the estimated book value of FAXSAV CONNECTORS held
by former or inactive customers that are considered unrecoverable. It is
reasonably possible that the Company's estimate of the book value of
unrecoverable equipment would change in the near future due to increases in the
number of former or inactive customers.
3. PROPERTY AND EQUIPMENT:
Property and equipment, net is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
Equipment..................................................... $ 1,128,428 $ 2,725,245 $ 3,852,897
Computer software............................................. 108,370 126,250 174,724
Furniture and fixtures........................................ 17,182 38,962 44,611
Leasehold improvements........................................ 57,153 127,506 127,506
------------ ------------ ------------
1,311,133 3,017,963 4,199,738
Less, accumulated depreciation and amortization............... 329,238 982,184 1,538,060
------------ ------------ ------------
$ 981,895 $ 2,035,779 $ 2,661,678
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Certain equipment under capital leases of approximately $60,000, $629,178
and $935,250 (unaudited) at December 31, 1994, 1995 and June 30, 1996,
respectively, are included in equipment. At December 31, 1994, 1995 and June 30,
1996, accumulated amortization on equipment under capital leases approximated
$2,000, $63,092 and $136,653 (unaudited), respectively. Depreciation and
amortization expense for the years ended December 31, 1993, 1994, 1995 and for
the six months ended June 30, 1996 amounted to $85,531, $164,908, $666,844 and
$555,876 (unaudited).
4. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
Provision for FAXSAV CONNECTORS............................... $ 61,559 $ 291,975 $ 441,975
Accrual for legal defense..................................... -- 400,000 395,000
Accrued carrier charges....................................... 851,909 1,253,820 1,508,979
Accrued salaries, bonuses and commissions..................... 118,000 180,219 140,498
Other......................................................... 227,508 535,294 541,243
------------ ------------ ------------
$ 1,258,976 $ 2,661,308 $ 3,027,695
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
5. NOTES PAYABLE:
In October and November 1993, the preferred stockholders were issued
promissory notes for cash, due and payable on December 31, 1993, bearing
interest at 8% per annum, for an aggregate amount of $321,085 with warrants for
an equivalent number of Series C Preferred Stock for which no value was
ascribed. Coincident with the investment in January 1994 by Telstra (See Note
13), the promissory notes and the accrued interest thereon were converted to
1,880,529 shares of Series D Preferred Stock.
F-10
<PAGE>
FAXSAV INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
6. COMMITMENTS:
TELECOMMUNICATIONS LINES
The Company has committed to minimum monthly usage levels with certain
telecommunications carriers. The commitments require minimum monthly payments up
to $400,000, exclusive of usage discounts, through October 1996, $150,000
through December 1996 and $200,000 a month thereafter through July 1998. The
Company also leases space under co-locate agreements for certain of its
telecommunications equipment.
LEASES
Total rent expense for office facilities for the years ended December 31,
1993, 1994, 1995 and for the six months ended June 30, 1996 amounted to
$171,410, $185,829, $147,516 and $86,727 (unaudited), respectively.
The Company leases certain computer equipment pursuant to operating leases
which expire through 2000. Rent expense related to these leases for the years
ended December 31, 1993, 1994, 1995 and for the six months ended June 30, 1996
amounted to $319,865, $321,474, $247,167 and $96,052 (unaudited), respectively.
The Company acquired equipment for $60,000, $569,178 and $306,072
(unaudited) under capital lease obligations during the years ended December 31,
1994, 1995 and during the six months ended June 30, 1996, respectively. Interest
paid for capital lease obligations during the year ended December 31, 1995 and
the six months ended June 30, 1996 was $20,796 and $27,637, respectively.
In February 1995, the Company entered into a Master Equipment Lease ("Master
Lease") which provides for the leasing of certain equipment up to $500,000
through December 1995. In February 1996, the Company extended the term of the
Master Lease through December 31, 1996 and increased the equipment lease line
limit to $1 million. As of December 31, 1995 and June 30, 1996, $486,202 and
$616,385, respectively, was outstanding under the equipment lease line.
The Company was obligated under these agreements to make the following
payments:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
---------------------- ------------------------
OPERATING CAPITAL OPERATING CAPITAL
LEASES LEASES LEASES LEASES
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
1996................................................. $ 131,775 $ 197,694 $ 73,597 $ 150,681
1997................................................. 81,120 191,067 100,891 301,362
1998................................................. 36,504 171,516 38,260 313,143
1999................................................. 6,895 -- 25,567 27,162
Thereafter........................................... -- -- 6,224 --
---------- ---------- ----------- -----------
Total minimum lease payments......................... $ 256,294 560,277 $ 244,539 792,348
---------- -----------
---------- -----------
Less, amount representing interest................... 81,442 108,750
Less, current principal maturities of obligation
under capital lease................................ 152,593 238,658
---------- -----------
Long-term lease obligation........................... $ 326,242 $ 444,940
---------- -----------
---------- -----------
</TABLE>
F-11
<PAGE>
FAXSAV INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
7. CAPITAL STOCK AND WARRANTS (SEE ALSO NOTES 13 AND 14):
PREFERRED STOCK
As of June 30, 1996, the Company is authorized to issue 1,400,000 shares of
Series A Preferred Stock, 4,000,000 shares of Series B Preferred Stock,
8,700,000 shares of Series C Preferred stock, 26,600,000 shares of Series D
Preferred Stock, 19,500,000 shares of Series E Preferred Stock and 20,000,000
(unaudited) shares of Series F Preferred Stock (collectively, the Preferred
Stock). Holders of the Preferred Stock are entitled to dividends at the rate of
$0.075 per share for Series A, $0.10 per share for Series B, $0.06 per share for
Series C, $0.01733 per share for Series D, $0.022 per share for Series E and
$0.04 (unaudited) per share for Series F when and if declared by the Company's
Board of Directors. Such dividends are not cumulative. Holders of the Series A,
B, C, D, E and F Preferred Stock are entitled to a liquidation preference per
share of $0.75, $1.00, $0.60, $0.1733, $0.22 and $0.40 (unaudited),
respectively. Each share of Series A, B, C, D, E and F Preferred Stock may be
converted into common stock of the Company as determined by dividing the
original issue price of the preferred stock by the conversion price, as defined,
and subject to certain adjustments. These preferred shares are subject to
automatic conversion upon the earlier of (a) an initial public offering at a
price greater than $3.00 per share or (b) the consent of a majority of the then
outstanding shares of Preferred Stock. No dividends have been declared on the
Preferred Stock to date.
During 1991, the Company issued 400,000 shares of Series A Preferred Stock,
3,066,600 shares of Series B Preferred Stock and 182,483 shares of common stock
at an aggregate purchase price of $300,000, $3,068,384 and $162,198,
respectively. Costs incurred in connection with the issuance of the Series B
Preferred Stock amounted to $23,202.
During 1992, the Company issued 8,329,528 shares of Series C Preferred Stock
at an aggregate purchase price of $4,997,716. Costs incurred in connection with
the issuance of the Series C Preferred Stock amounted to $43,810.
In January 1994, the Company issued 17,311,021 shares of Series D Preferred
Stock to Telstra Incorporated ("Telstra") for an aggregate purchase price of
$3,000,000 and 1,880,529 shares of Series D Preferred Stock to certain preferred
stockholders upon conversion of the Company's promissory notes (and accrued
interest thereon) which were due and payable on December 31, 1993.
In November 1994, the Company issued 7,241,343 shares of Series D Preferred
Stock for an aggregate purchase price of $1,254,926. The shares were issued to
certain existing preferred stockholders in several separate transactions. Costs
incurred in connection with the issuance of the Series D Preferred Stock
amounted to $133,703.
In January 1995, the Company issued 19,090,900 shares of Series E Preferred
Stock for an aggregate purchase price of $4,199,919. The shares were issued to
certain existing as well as new investors. Costs incurred in connection with the
issuance of the Series E Preferred Stock amounted to $48,056.
In February and March 1996, the Company issued 19,999,988 (unaudited) shares
of Series F Preferred Stock for an aggregate purchase price of $7,999,998
(unaudited) to certain existing as well as other new investors in the Company.
The Company repurchased 8,655,510 (unaudited) shares of Series D Preferred Stock
held by Telstra for $0.25 (unaudited) per share for a total of $2,163,878
(unaudited) on March 18, 1996 from the aforementioned proceeds and will use the
remaining funds for working capital purposes. Costs incurred in connection with
the issuance of the Series F Preferred Stock amounted to $75,342 (unaudited).
F-12
<PAGE>
FAXSAV INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
7. CAPITAL STOCK AND WARRANTS (SEE ALSO NOTES 13 AND 14): (CONTINUED)
Preferred stock is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1994 1995 JUNE 30, 1996
----------------------- ----------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ --------- ------------ --------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Series A Convertible
Preferred Stock, $.001 par value;
preference in liquidation of
$.75 per share, $1,050,000 in
the aggregate................... 1,400,000 $ 1,400 1,400,000 $ 1,400 1,400,000 $ 1,400
Series B Convertible
Preferred Stock, $.001 par value;
preference in liquidation of
$1.00 per share, $3,516,600 in
the aggregate................... 3,516,600 3,516 3,516,600 3,516 3,516,600 3,516
Series C Convertible
Preferred Stock, $.001 par value;
preference in liquidation of
$.60 per share, $4,997,717 in
the aggregate................... 8,329,528 8,330 8,329,528 8,330 8,329,528 8,330
Series D Convertible
Preferred Stock, $.001 par value;
preference in liquidation of
$.1733 per share, $3,080,820.... 26,432,893 26,433 26,432,893 26,433 26,432,893 26,433
Series E Convertible
Preferred Stock, $.001 par value;
preference in liquidation of
$.22 per share, $4,199,998 in
the aggregate................... -- -- 19,090,900 19,091 19,090,900 19,091
Series F Convertible
Preferred Stock, $.001 par value;
preference in liquidation of
$.40 per share, $14,999,993 in
the aggregate (unaudited) -- -- -- -- 19,999,988 20,000
Treasury stock at cost:
Series D Convertible Preferred
Stock (unaudited) -- -- -- -- (8,655,510) --
------------ --------- ------------ --------- ------------ -----------
Total............................... 39,679,021 $ 39,679 58,769,921 $ 58,770 70,114,399 $ 78,770
------------ --------- ------------ --------- ------------ -----------
------------ --------- ------------ --------- ------------ -----------
</TABLE>
F-13
<PAGE>
FAXSAV INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
7. CAPITAL STOCK AND WARRANTS (SEE ALSO NOTES 13 AND 14): (CONTINUED)
WARRANTS
The Company initially granted warrants to purchase 78,200 shares of Series B
Preferred Stock to a firm that had provided the Company with equipment pursuant
to a lease agreement. These warrants expire ten years from the date of grant and
have an exercise price of $1.00 per share. On October 28, 1993, the Company
granted additional warrants, which expire ten years from the date of grant, to
this firm to purchase 87,570 shares of Series D Preferred Shares at a price of
$0.1733 per share in consideration of the deferral of all payments under the
lease agreement in excess of $5,000 per month through January 31, 1994.
On July 8, 1993, the Company agreed to grant warrants to purchase 5,556
shares of common stock to another firm providing equipment to the Company under
a Master Lease Agreement. The exercise price is $5.40 per share and the warrants
expire ten years from the date of grant. On May 5, 1994, the Company granted
additional warrants, which expire ten years from the date of grant, to purchase
9,889 shares of common stock at $1.80 per share to this firm in connection with
an increase in the equipment covered by the Master Lease Agreement.
During October and November 1993, warrants were issued to preferred
stockholders to acquire 321,086 shares of Series C Preferred Stock in connection
with the issuance of promissory notes for cash by the Company. The exercise
price is $0.60 per share and the warrants expire ten years from the date of
grant.
On July 7, 1995, the Company granted warrants to purchase 28,889 shares of
common stock to a bank in connection with the issuance of the working capital
line of credit. The exercise price is $1.98 per share and the warrants expire
five years from the date of grant.
The number and purchase price of the shares may be adjusted by the
occurrence of certain events, as defined in the warrant agreements. Upon the
conversion of the preferred stock into common stock as described in Note 14,
each warrant to acquire shares of preferred stock will be adjusted for the
conversion of preferred stock into common stock.
8. STOCK OPTIONS (SEE ALSO NOTE 14):
The Company has a stock option plan which, as amended, authorizes up to
12,000,000 shares of common stock to be issued. Under the stock option plan, the
Company may grant incentive stock options or nonqualified stock options. The
option exercise price of stock options may not be less than 85% of the fair
value of a share of common stock on the date of the option grant. The shares
issuable upon the exercise of incentive stock options, and any nonqualified
options granted to employees, generally vest 20% upon completion by the optionee
of one year of service and the remaining 80% over 48 equal monthly installments
thereafter based on continued service. The shares issuable upon the exercise of
nonqualified options except for those granted to employees as noted above, vest
over two years from the date of grant.
Effective October 1, 1993, the Company was authorized to grant options to
purchase up to 411,111 shares of common stock to certain employees under a key
employee retention program. On October 1, 1993, the Company granted options to
purchase 139,778 shares of common stock at $0.90 per share to employees who
elected to participate in the program. Coincident with the January 1994 sale of
stock, employees in the program were granted options to purchase an additional
135,667 shares of common stock at $0.90 per share. The aforementioned options
vested on October 31, 1994 unless the employee was no longer with the Company.
The balance of available shares (172,060 as of December 31, 1994), including
forfeitures, were to be granted upon a sale or merger of the Company. In March
1995, the Company granted the remaining options available to the eligible
employees and granted other options to certain key executives.
F-14
<PAGE>
FAXSAV INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
8. STOCK OPTIONS (SEE ALSO NOTE 14): (CONTINUED)
Stock option transactions under the plan are as follows:
<TABLE>
<CAPTION>
INCENTIVE OPTION
NONQUALIFIED STOCK AVAILABLE PRICE
OPTIONS OPTIONS FOR GRANT PER SHARE
------------ --------- ----------- -------------
<S> <C> <C> <C> <C>
December 31, 1992........................................... 15,000 157,661 25,082 $0.72-0.90
Available for Grant....................................... 411,111
Granted................................................... 12,136 162,975 (175,111) 0.90
Exercised................................................. (1,458) (289) -- 0.90
Canceled.................................................. (2,431) (20,128) 22,558 0.72-0.90
------------ --------- -----------
December 31, 1993........................................... 23,247 300,219 283,640 0.72-0.90
Available for Grant....................................... 188,889
Granted................................................... 23,878 184,566 (208,444) 0.90
Exercised................................................. (2,778) (93) -- 0.90
Canceled.................................................. (43,989) 43,989 0.90
------------ --------- -----------
December 31, 1994........................................... 44,347 440,703 308,074 0.72-0.90
Available for Grant....................................... 455,556
Granted................................................... 320,430 290,360 (610,790) 0.225-0.90
Exercised................................................. -- -- -- --
Canceled.................................................. -- (28,955) 28,955 0.225-0.90
------------ --------- -----------
December 31, 1995........................................... 364,777 702,108 181,795 0.225-0.90
Available for Grant--(unaudited).......................... 72,224
Granted--(unaudited)...................................... 111,112 111,778 (222,890) 0.90-3.60
Exercised--(unaudited).................................... -- (51,156) -- 0.225-0.90
Canceled--(unaudited)..................................... -- -- -- --
------------ --------- -----------
June 30, 1996--(unaudited).................................. 475,889 762,730 31,129 0.225-3.60
------------ --------- -----------
------------ --------- -----------
</TABLE>
At December 31, 1994, 1995 and June 30, 1996, options for 328,869, 404,833
and 508,747 (unaudited) shares, respectively, were vested and exercisable.
Nonqualified options to acquire 367,556 common shares were granted to employees.
9. LINE OF CREDIT:
In July 1995, the Company entered into a Credit Agreement (Agreement) with a
bank (the Bank). As of December 31, 1995, this Agreement, as amended, comprises
a $1,000,000 working capital line of credit which includes a $500,000 sublimit
for the issuance of letters of credit. The Agreement provides for certain
restrictions and covenants, including the payment of dividends on the Company's
common stock and incurring additional indebtedness. As of December 31, 1995, the
Company was in default of certain financial covenants, which included
requirements with respect to liquidity, net worth, leverage and profitability;
however, the Bank waived these defaults. In connection with the Agreement, the
Company issued warrants (see Note 8) to the Bank.
In April 1996, the Company accepted a revised commitment which renewed the
$1,000,000 working capital line of credit and extended a $750,000 equipment line
of credit (collectively referred to as line of credit). Under the revised
Agreement, the working capital line of credit expires in April 1997. Any amounts
borrowed under the equipment line of credit are payable in monthly installments
over a three-year period commencing in October 1996. The revised Agreement
contains the same basic covenants as discussed above. As of June 30, 1996, the
Company was in default of certain financial covenants contained in the revised
F-15
<PAGE>
FAXSAV INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
9. LINE OF CREDIT: (CONTINUED)
Agreement; however, the Bank waived these defaults and revised the covenants for
the period July 31, 1996 until December 31, 1996. The revised agreement limits
the total amount outstanding under the line of credit to $1 million until the
Company raises additional equity.
At December 31, 1995 and June 30, 1996, $1,000,000 and $500,000 (unaudited)
were outstanding under the working capital line of credit. At June 30, 1996,
$165,796 (unaudited) was outstanding under the equipment line of credit. The
amounts outstanding under the facilities approximates its fair value due to the
short-term nature of the obligations. Interest on advances, if any, are at the
Bank's prime rate plus an applicable margin, as defined in the credit agreement,
which resulted in a borrowing rate of 10.5% and 8.75% at December 31, 1995 and
June 30, 1996, respectively.
10. INCOME TAXES:
Inasmuch as the Company continues to incur operating losses and currently
pays no income taxes, no provision or benefit for income taxes has been
recorded.
The income tax benefit at the United States federal statutory rate on the
Company's operating loss, for all periods presented, has been eliminated by an
increase in the valuation allowance for deferred tax assets and operating losses
not recognized.
Through December 31, 1995, the Company has generated net operating loss
carryforwards for income tax purposes of approximately $16,104,000, which expire
through 2010. Net operating loss carryforwards are subject to review and
possible adjustment by the Internal Revenue Service and may be limited in the
event of certain cumulative changes in the ownership interests of significant
stockholders over a three-year period in excess of 50%. The Company believes it
has experienced changes in ownership in excess of 50% and that these changes in
ownership will affect the Company's ability to utilize its net operating loss
carryforwards to offset future taxable income, if any.
The components of the Company's deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Operating loss carryforwards................................. $ 3,842,831 $ 5,225,595
Temporary differences........................................ 191,068 436,498
------------- -------------
4,033,899 5,662,093
Less--valuation allowance.................................... (4,033,899) (5,662,093)
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
</TABLE>
In evaluating the realizability of these deferred tax assets, management has
considered the market in which the Company operates, the operating losses
incurred to date and the operating losses anticipated for the future, and
believes that given the significance of this evidence, a full valuation
allowance against its deferred tax assets is required as of December 31, 1994
and 1995.
11. 401(K) RETIREMENT PLAN:
Effective January 1, 1993, the Company offered a 401(k) retirement plan to
its employees. Employees who are at least 21 years of age may become a
participant after three months of service. Contributions to the Plan are made on
a pre-tax basis through payroll deductions. The Company did not make any
matching contributions to the Plan during the years ended December 31, 1994,
1995 and the six months ended June 30, 1996.
F-16
<PAGE>
FAXSAV INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
12. CONTINGENCIES:
The Company is involved in various disputes, claims or legal proceedings and
may be included in future actions including infringement on intellectual
property rights, related to its normal course of business. In the opinion of
management, all such matters are without merit or involve amounts, if disposed
of unfavorably, which would not have a material adverse effect on the financial
position or results of operations of the Company.
13. TELSTRA AGREEMENTS:
On January 18, 1994, the Company and Telstra Incorporated ("Telstra"), a
wholly-owned subsidiary of Telstra Holding -Pty Limited, entered into a
Preferred Stock Purchase Agreement which provided for, among other things: (a)
the sale and issuance of 17,311,021 shares of Series D Preferred Stock for a
purchase price of $3,000,000 ($.1733 per share); (b) the grant of an option, on
a one-time basis between January 1, 1996 and December 31, 1996, to acquire 100%
of the fully diluted shares of the Company's outstanding common stock not owned
by Telstra; (c) Telstra's designation of two of the five numbers of the
Company's Board of Directors, whose size may not be increased without Telstra's
approval; (d) Telstra's prior approval on certain business decisions of the
Company, including business plans, annual budgets, issuance of securities and
certain indebtedness; (e) an additional equity investment through the purchase
of Series D Preferred Stock at $0.1733 per share of up to $1,250,000, if
required by the Company, to be made by the current Preferred Stockholders
(exclusive of Telstra) on a pro rata basis no later than January 31, 1995; and
(f) under the terms of an amended stockholders agreement, the holders of a
majority of the Registerable Securities, as defined, may request, after May 1,
1994, that the Company file a registration statement under the Securities Act of
1933.
The proceeds from the issuance of the shares to Telstra were used for
working capital and capital expenditures for the purpose of sustaining or
expanding the Company's market share. Costs incurred in connection with the
issuance of the Series D Preferred Stock amounted to approximately $134,000.
On February 1, 1994, the Company and Telstra entered into a Service
Agreement whereby the Company will provide management, technical and other
services in support of Telstra's "WorldFax" service in the U.S. for a period of
18 months. In consideration for these services, Telstra paid the Company total
consideration of $750,000. The Company received $309,375 and $440,625 in 1994
and 1995, respectively, in accordance with the Service Agreement which has been
included as other revenue to offset operating expenses incurred in the
accompanying statements of operations.
On October 31, 1994, the Preferred Stock Purchase Agreement referred to
above was amended in connection with the Company's intent to raise additional
equity funds. The amended agreement provided for, among other things: (a)
termination of Telstra's option to acquire 100% of the fully diluted shares of
the Company's common stock; (b) an increase in the size of the Company's Board
of Directors to six members upon the closing of additional equity financing of
$2 million; (c) Telstra to designate one of the five original members of the
Company's Board of Directors if Telstra's ownership were to fall below 20%,
subject to adjustments with the approval of Telstra; and (d) if the Company
completes an initial public offering of its common stock, it will no longer be
subject to certain covenants and agreements with Telstra and Telstra will
relinquish approval of the Company's business decisions.
In December 1995, the Company and Telstra entered into a Stock Option
Agreement which provided for, among other things, an option for the Company to
purchase from Telstra, 8,655,510 shares of Series D Preferred Stock at an
exercise price of $0.25 per share. Upon exercise of the option Telstra could
designate one of the six members of the Company's Board of Directors until the
earlier of (a) Telstra's equity ownership in the Company falls below 5% on a
fully diluted basis or (b) an initial public offering of the Company's common
stock, at which time they will no longer have Board representation.
F-17
<PAGE>
FAXSAV INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
13. TELSTRA AGREEMENTS: (CONTINUED)
In March 1996, the Company exercised its option to acquire 8,655,510
(unaudited) shares of Series D Preferred Stock at an aggregate purchase price of
$2,163,878 (unaudited).
14. OTHER EVENTS (UNAUDITED):
In connection with the anticipated public offering of securities, the
Company is expected to file an amendment to its Fifth Amended and Restated
Certificate of Incorporation which will effect a one-for-nine reverse stock
split at a par value of $0.01 and change the authorized number of common shares
to 40,000,000 prior to the effective date of this Registration Statement. All
share and per share amounts in the financial statements have been retroactively
restated to reflect the reverse stock split.
The Company is also expected to file immediately prior to the closing of the
offering its Sixth Amended and Restated Certificate of Incorporation which will
change the authorized number of preferred stock. All outstanding shares of
preferred stock will convert at the consent of the holders into an aggregate of
7,790,489 shares of common stock. The effect of this conversion has been
presented in the accompanying balance sheets and statements of stockholders
equity (deficit) on a pro forma basis as of June 30, 1996.
F-18
<PAGE>
[A GRAPHIC REPRESENTATION OF THE COMPANY'S PLANNED INTERNET-BASED NETWORK ON A
WORLD MAP WITH SYMBOLS DEMONSTRATING THE SITES OF EXISTING AND PLANNED INTERNET
NODES]
* There can be no assurance that the indicated Internet nodes will be
deployed by the Company on a timely basis, or at all. See "Risk Factors --
Dependence on Network Infrastructure; No Assurance of Successful Internet --
Capable Node Deployment" in this Prospectus.
<PAGE>
- --------------------------------------------------
--------------------------------------------------
- --------------------------------------------------
--------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---
<S> <C>
Prospectus Summary................................. 3
Risk Factors....................................... 6
Use of Proceeds.................................... 13
Dividend Policy.................................... 13
Dilution........................................... 14
Capitalization..................................... 15
Selected Financial Data............................ 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 17
Business........................................... 24
Management......................................... 38
Certain Transactions............................... 44
Principal Stockholders............................. 46
Description of Capital Stock....................... 48
Shares Eligible for Future Sale.................... 51
Underwriting....................................... 53
Legal Matters...................................... 54
Experts............................................ 54
Additional Information............................. 54
Index to Financial Statements...................... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,200,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
, 1996
---------------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
- --------------------------------------------------
--------------------------------------------------
- --------------------------------------------------
--------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee.............................................................. $ 10,469
NASD filing fee................................................................... 3,536
Nasdaq National Market listing fee................................................ 38,425
Printing and engraving............................................................ *
Legal fees and expenses........................................................... *
Accounting fees and expenses...................................................... *
Blue sky fees and expenses........................................................ 15,000
Directors and officers liability insurance........................................ 300,000
Transfer agent fees............................................................... *
Miscellaneous..................................................................... *
----------
Total......................................................................... $ 900,000
----------
----------
</TABLE>
- ---------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). Article IX of the Registrant's Sixth Amended and
Restated Certificate of Incorporation provides for indemnification of its
directors and officers and permissible indemnification of employees and other
agents to the maximum extent permitted by the Delaware General Corporation Law.
Reference is also made to Section 10 of the Underwriting Agreement contained in
Exhibit 1.1 hereto, which sets forth certain indemnification provisions. The
Registrant plans to obtain liability insurance for its officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities during the past
three years:
In October 1993, the Registrant issued warrants to purchase 87,570 shares of
Series D Preferred Stock at an exercise price of $0.1733 per share to an
equipment lessor.
In October and November 1993, warrants expiring ten years from the date of
grant were issued to certain existing preferred stockholders to acquire 321,086
shares of Series C Preferred Stock with an exercise price of $0.60 per share.
In January 1994, the Registrant issued 19,191,550 shares of Series D
Preferred Stock to 45 investors at a price of $0.1733 per share.
In May 1994, the Registrant issued warrants to purchase 89,000 shares of
Common Stock (before giving effect to the one-for-nine reverse stock split to be
effected prior to the closing of this offering at an exercise price of $0.20 to
an equipment lessor.
In November 1994, the Registrant issued 7,241,343 shares of Series D
Preferred Stock to 47 investors at a price of $0.1733 per share.
II-1
<PAGE>
In January 1995, the Registrant issued 19,090,900 shares of Series E
Preferred Stock to 45 investors at a price of $0.22 per share.
In July 1995, the Company granted warrants to purchase 176,667 shares of
Common Stock (before giving effect to the one-for-nine reverse stock split to be
effected prior to the closing of this offering), exercisable for five years from
the date of grant at a price of $0.22 per share, to a bank in connection with
the issuance of a working capital line of credit.
In February and March 1996, the Registrant issued 19,999,988 shares of
Series F Preferred Stock to 68 investors at a price of $0.40 per share.
The Registrant from time to time has granted stock options to purchase
shares of Common Stock to employees, directors and consultants. The following
table sets forth certain information regarding such grants:
<TABLE>
<CAPTION>
RANGE OF
NO. OF EXERCISE
SHARES PRICES
------------ --------------
<S> <C> <C>
1993 (from June 30, 1993)............................................. 142,555 $0.90
1994.................................................................. 208,444 0.90
1995.................................................................. 610,790 0.225 - 0.90
1996 (through June 30, 1996).......................................... 222,889 0.90 - 3.60
</TABLE>
The Registrant from time to time has issued Common Stock to employees,
directors and consultants who have exercised their stock options. The following
table sets forth certain information regarding such issuances
<TABLE>
<CAPTION>
RANGE OF
NO. OF EXERCISE
SHARES PRICES
------------ --------------
<S> <C> <C>
1993 (from June 30, 1993)............................................. 48 $0.90
1994.................................................................. 2,978 0.90
1995.................................................................. -- --
1996 (through June 30, 1996).......................................... 51,156 0.225 - 0.90
</TABLE>
The above securities were offered and sold by the Registrant in reliance
upon an exemption from registration under either (i) Section 4(2) of the
Securities Act as transactions not involving any public offering or (ii) Rule
701 under the Securities Act. No underwriters were involved in connection with
the sales of securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------------
<C> <S>
.1*1 Form of Underwriting Agreement.
3.1 Fifth Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Form of Amendment to Fifth Amended and Restated Certificate of Incorporation of the Registrant to be
filed prior to the consummation of the public offering.
3.3* Form of Sixth Amended and Restated Certificate of Incorporation of the Registrant to be filed upon
the consummation of the public offering.
3.4 By-laws of the Registrant.
3.5* Form of Amendment to By-laws of the Registrant to be in effect upon the consummation of the public
offering.
4.1* Specimen Common Stock Certificate.
4.2 See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the Certificate of Incorporation and Bylaws
of the Registrant defining rights of holders of Common Stock of the Registrant.
4.3* Form of Stockholder Rights Plan.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------------
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
<C> <S>
10.1 Fifth Amended and Restated Investor Rights Agreement.
10.2* Amendment to Fifth Amended and Restated Investor Rights Agreement.
10.3 1990 Stock Option Plan.
10.4* 1996 Stock Option/Stock Issuance Plan.
10.5 Form of Officer Severance Agreement.
10.6 Form of Director Severance Agreement.
10.7 Telstra Severance Agreement.
10.8+ Telecommunications Services Agreement, between Wiltel, Inc. and the Registrant, dated April 4, 1994.
10.9+ Agreement between MCI Telecommunications Corporation and the Registrant, effective March 1, 1996.
10.10 Lease Agreement, dated May 28, 1992, between Metro Four Associates Limited Partnership, Thornall
Associates and the Registrant, as extended and amended to date.
10.11 Credit Agreement, dated July 7, 1995, between the Company and Silicon Valley Bank, as amended to
date.
10.12 Letter Agreement, dated November 1, 1994 between Telstra Incorporated and the Registrant.
10.13* Form of Series C Warrant.
10.14* Series B Preferred Stock Warrant between the Registrant and Comdisio, Inc., dated May 30, 1991.
10.15* Series B Preferred Stock Warrant between the Registrant and Comdisio, Inc., dated September 16, 1992.
10.16* Series D Preferred Stock Warrant between the Registrant and Comdisio, Inc., dated October 28, 1993.
10.17* Common Stock Warrant between LTI Ventures Leasing Corp., dated February 15, 1993.
10.18* Common Stock Warrant between LTI Ventures Leasing Corp., dated May 5, 1994.
10.19* Common Stock Warrant between Silicon Valley Bancshares, dated April 6, 1992.
10.20* Common Stock Warrant between Silicon Valley Bancshares, dated July 7, 1995.
11.1 Statement re Computation of Per Share Earnings.
23.1 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24. Power of Attorney.
27. Financial Data Schedule.
</TABLE>
- ---------
* To be supplied by amendment.
+ Confidential treatment requested
(b) Financial Statement Schedule
Schedule II--Valuation of Qualifying Accounts
Report of Independent Accountants
II-3
<PAGE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in Financial
Statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation of the Registrant, the Underwriting Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424 (b) (1) or (4), or 497
(h) under the Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) That for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in The City of Edison, State of New
Jersey, on this 6th day of August, 1996.
FAXSAV INCORPORATED
By: /s/ PETER S. MACALUSO
-----------------------------------
Peter S. Macaluso
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 6, 1996:
<TABLE>
<S> <C>
SIGNATURE TITLE(S)
- ------------------------------------------------------ ------------------------------------------------------
By: *
- --------------------------------------- Chief Executive Officer, President and Chairman of the
Thomas F. Murawski Board (Principal Executive Officer and Director)
By: /s/ PETER S.
MACALUSO Vice President and Chief Financial Officer (Principal
- --------------------------------------- Financial Officer and Principal Accounting Officer)
Peter S. Macaluso
By: *
- --------------------------------------- Director
Jeffrey M. Drazan
By: *
- --------------------------------------- Director
Peter A. Howley
By: *
- --------------------------------------- Director
Gregory Dunfield
By: *
- --------------------------------------- Director
Robert Labant
*By: /s/ PETER S.
MACALUSO
- --------------------------------------
Peter S. Macaluso
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
FAXSAV INCORPORATED
SUPPLEMENTAL SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT CHARGES TO CHARGES TO BALANCE AT
BEGINNING COST AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------ ----------- ------------ ----------- ------------
YEAR ENDED DECEMBER 31, 1993
Provisions for bad debts................ $ 18,948 $ 32,524 $ 37,542(a) $ 37,542(b) $ 51,472
Provision for FAXSAV CONNECTORS......... -- -- -- -- --
Accrual for legal defense............... -- -- -- -- --
Deferred tax asset valuation
allowance............................. 1,039,269 -- 1,335,396 -- 2,374,665
------------ ----------- ------------ ----------- ------------
$ 1,058,217 $ 32,524 $ 1,372,938 $ 37,542 $ 2,426,137
------------ ----------- ------------ ----------- ------------
------------ ----------- ------------ ----------- ------------
YEAR ENDED DECEMBER 31, 1994
Provisions for bad debts................ $ 51,472 $ 38,721 $ 45,252(a) $ 45,252(b) $ 90,193
Provision for FAXSAV CONNECTORS......... -- 61,559 -- -- 61,559
Accrual for legal defense............... -- -- -- -- --
Deferred tax asset valuation
allowance............................. 2,374,665 -- 1,659,234 -- 4,033,899
------------ ----------- ------------ ----------- ------------
$ 2,426,137 $ 100,280 $ 1,704,486 $ 45,252 $ 4,185,651
------------ ----------- ------------ ----------- ------------
------------ ----------- ------------ ----------- ------------
YEAR ENDED DECEMBER 31, 1995
Provisions for bad debts................ $ 90,193 $ 194,720 $ 20,397(a) $ 130,573(b) $ 174,737
Provision for FAXSAV CONNECTORS......... 61,559 230,416 -- -- 291,975
Accrual for legal defense............... -- 400,000 -- 5,000 395,000
Deferred tax asset valuation
allowance............................. 4,033,899 -- 1,628,194 -- 5,662,093
------------ ----------- ------------ ----------- ------------
$ 4,185,651 $ 825,136 $ 1,648,591 $ 135,573 $ 6,523,805
------------ ----------- ------------ ----------- ------------
------------ ----------- ------------ ----------- ------------
</TABLE>
- ---------
(a) Accounts receivable recoveries
(b) Write-offs
<PAGE>
The following opinion is in the form which will be signed by Coopers &
Lybrand L.L.P. upon consummation of the one-for-nine reverse stock split as
described in Note 14 to the financial statements assuming that from March 29,
1996 to the date of such reverse split, no other events shall have occurred that
would affect the accompanying financial statements and notes thereto.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
March 29, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of FaxSav Incorporated:
In connection with our audits of the financial statements of FaxSav
Incorporated (formerly Digitran Corporation) as of December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995, which are
included in this Registration Statement, we have also audited the related
financial statement schedule listed under Item 16(b) of this Registration
Statement.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Parsippany, New Jersey
March 29, 1996
<PAGE>
EXHIBIT 3.1
FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF DIGITRAN CORPORATION
Digitran Corporation, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
FIRST: That the corporation was originally incorporated under the
name Digitran Corporation, and the date of filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was November
29, 1989. Amended and Restated Certificates of Incorporation were filed with
the Secretary of State of the State of Delaware on August 14, 1990, May 21,
1992, January 7, 1994 and January 12, 1995, respectively.
SECOND: The Board of Directors of the corporation, by written consent
of the Board of Directors dated as of February 16, 1996, duly adopted
resolutions setting forth the Fifth Amended and Restated Certificate of
Incorporation herein contained, declaring its advisability and directing that
such Fifth Amended and Restated Certificate of Incorporation be submitted to the
holders of the issued and outstanding Common Stock, $0.0025 par value, and
Preferred Stock, $0.001 par value, of the corporation, for approval in
accordance with the applicable provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware and the corporation's Fourth Amended
and Restated Certificate of Incorporation, as currently in effect. The Fifth
Amended and Restated Certificate of Incorporation was duly adopted, after having
been declared advisable by the Board of Directors of the corporation, by written
consent, dated as of February 16, 1995, of the holders of greater than a
majority of the Common Stock, $0.0025 par value, and the holders of greater than
a majority of the Preferred Stock, $0.001 par value, of the corporation, voting
as a single class, all in accordance with the applicable provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware and the
corporation's Fourth Amended and Restated Certificate of Incorporation, as
currently in effect, and written notice of the written consent of the holders of
a majority of Common Stock has been given to those stockholders who have not
consented in writing as provided in Section 228(d) of the General Corporation
Law of the State of Delaware.
THIRD: The text of the Fifth Amended and Restated Certificate of
Incorporation, as hereby restated and amended hereby, shall read in its entirety
as follows:
<PAGE>
ARTICLE I
The name of this corporation shall be FAXSAV INCORPORATED (the
"corporation").
ARTICLE II
The address of the registered office of the corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The purpose or purposes of the corporation shall be to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
A. CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares of all classes of stock which the
corporation shall have authority to issue is One Hundred Ninety Five Million,
Two Hundred Thousand (195,200,000) shares. One Hundred Fifteen Million
(115,000,000) shares shall be Common Stock and Eighty Million, Two Hundred
Thousand (80,200,000) shares shall be Preferred Stock. The Common Stock shall
have a par value of $0.0025 and the Preferred Stock shall have a par value of
$0.001. The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the corporation.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock authorized by this Fifth Amended and Restated Certificate of
Incorporation may be issued from time to time in series. Subject to the rights
of series of Preferred Stock which may from time to time come into existence,
the rights, preferences, privileges, and restrictions granted to and imposed on
the Series A Preferred Stock, which series shall consist of One Million, Four
Hundred Thousand (1,400,000) shares, the Series B Preferred Stock, which series
shall consist of Four Million (4,000,000) shares, the Series C Preferred Stock,
which series shall consist of Eight Million, Seven Hundred Thousand (8,700,000)
shares, the Series D Preferred Stock, which Series shall consist of Twenty-Six
Million, Six Hundred Thousand (26,600,000) shares, the Series E Preferred Stock,
which Series shall consist of Nineteen Million Five Hundred Thousand
(19,500,000) shares and the Series F Preferred Stock, which
-2-
<PAGE>
Series shall consist of Twenty Million (20,000,000) shares, are as set forth
below in this Article IV B. The Board of Directors is hereby authorized to fix
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon additional series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or of any of them.
Subject to compliance with applicable protective voting rights which have been
or may be granted to the Preferred Stock or series thereof in Certificates of
Incorporation ("Protective Provisions"), but notwithstanding any other rights of
the Preferred Stock or any series thereof, the rights, privileges, preferences
and restrictions of any such additional series may be subordinated to, PARI
PASSU with (including, without limitation, inclusion in provisions with respect
to liquidation and acquisition preferences, redemption and/or approval of
matters by vote or written consent), or senior to any of those of any present or
future class or series of Preferred or Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series (other than the Series
A, Series B, Series C, Series D, Series E or Series F Preferred Stock), prior or
subsequent to the issue of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall resume the status
which they had prior to adoption of the resolution originally fixing the number
of shares of such series.
1. DIVIDEND PROVISIONS. The holders of shares of Series A, Series
B, Series C, Series D, Series E and Series F Preferred Stock shall be entitled
to receive dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of this corporation) on the Common Stock of this corporation, at the rate
of $0.075 per share of Series A Preferred Stock per annum, $0.10 per share of
Series B Preferred Stock per annum, $0.06 per share of Series C Preferred Stock
per annum, $0.01733 per share of Series D Preferred Stock per annum, $0.022 per
share of Series E Preferred Stock per annum, $.04 per share of Series F
Preferred Stock per annum, or, if greater (as determined on a per annum basis
and an as converted basis for the Series A, Series B, Series C, Series D, Series
E or Series F Preferred Stock), an amount equal to that paid on any other
outstanding shares of this corporation, payable quarterly when, as and if
declared by the Board of Directors. Such dividends shall not be cumulative.
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2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, the holders of Series A,
Series B, Series C, Series D, Series E and Series F Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of this corporation to the holders of Common Stock by reason of their
ownership thereof, an amount per share equal to the sum of
(i) $0.75 for each outstanding share of Series A Preferred Stock (the "Original
Series A Issue Price"), $1.00 for each outstanding share of Series B Preferred
Stock (the "Original Series B Issue Price"), $0.60 for each outstanding share of
Series C Preferred Stock (the "Original Series C Issue Price"), $0.1733 for each
outstanding share of Series D Preferred Stock (the "Original Series D Issue
Price"), $0.22 for each outstanding share of Series E Preferred Stock (the
"Original Series E Issue Price") and $0.40 for each outstanding share of Series
F Preferred Stock (the "Original Series F Issue Price"), and (ii) an amount
equal to declared but unpaid dividends on such share (such amount of declared
but unpaid dividends being referred to herein as the "Premium"). If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then, subject to the rights of series
of Preferred Stock which may from time to time come into existence, the entire
assets and funds of the corporation legally available for distribution shall be
distributed ratably among the holders of the Series A, Series B, Series C,
Series D, Series E and Series F Preferred Stock in proportion to the aggregate
full aforesaid preferential amounts to which each such holder would otherwise be
entitled.
(b) After the distribution described in subsection (a) above has been
paid, the remaining assets of the corporation available for distribution to
shareholders shall be distributed among the holders of Series A, Series B,
Series C, Series D, Series E and Series F Preferred Stock and Common Stock pro
rata based on the number of shares of Common Stock held by each (assuming full
conversion of all such Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock).
(c) A consolidation or merger of this corporation with or into any
other corporation or corporations, or a sale, conveyance or disposition of all
or substantially all of the assets of this corporation or the effectuation by
the corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the corporation is disposed of, shall not be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2, but shall instead be treated pursuant to Section 4 hereof.
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3. CONVERSION. The holders of the Series A, Series B, Series C,
Series D, Series E and Series F Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT; AUTOMATIC CONVERSION.
(i) Subject to subsection (c), each share of Series A, Series B,
Series C, Series D, Series E and Series F Preferred Stock shall be convertible,
at the option of the holder thereof, at any time after the date of issuance of
such share at the office of this corporation or any transfer agent for the
Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Original Series A, Series B, Series C, Series D,
Series E or Series F Issue Price, as applicable, by the Conversion Price at the
time in effect for such share. The initial Conversion Price per share for
shares of Series A Preferred Stock shall be the Original Series A Issue Price,
the initial Conversion Price per share for shares of Series B Preferred Stock
shall be the Original Series B Issue Price, the initial Conversion Price per
share for shares of Series C Preferred Stock shall be the Original Series C
Issue Price, the initial Conversion Price per share for shares of Series D
Preferred Stock shall be the Original Series D Issue Price, the initial
Conversion Price per share of the shares of Series E Preferred Stock shall be
the Original Series E Issue Price and the initial Conversion Price per share of
the shares of Series F Preferred Stock shall be the Original Series F Issue
Price; provided, however, that the Conversion Price for the Series A, Series B,
Series C, Series D, Series E and Series F Preferred Stock shall be subject to
adjustment as set forth in subsection 3(c).
(ii) Each share of Series A, Series B, Series C, Series D and
Series E Preferred Stock shall automatically be converted into shares of
Common Stock at the Conversion Price at the time in effect for such Preferred
Stock immediately upon the earlier of (A) the consummation of the
corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement on Form S-1 under the
Securities Act of 1933, as amended, the public offering price of which was
not less than $3.00 per share (adjusted to reflect subsequent stock
dividends, stock splits or recapitalization) and $10,000,000 in the
aggregate, or (B) the date upon which the corporation obtains the consent of
the holders of a majority of the then outstanding shares of Series A, Series
B, Series C, Series D and Series E Preferred Stock, voting together as a
single class.
(iii) Each share of Series F Preferred Stock shall automatically
be converted into shares of Common Stock at the
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Conversion Price at the time in effect for such Preferred Stock immediately upon
the earlier of (A) the consummation of the corporation's sale of its Common
Stock in a bona fide, firm commitment underwriting pursuant to a registration
statement on Form S-1 under the Securities Act of 1933, as amended, the public
offering price of which was not less than $1.20 per share (adjusted to reflect
subsequent stock dividends, stock splits or recapitalization) and $10,000,000 in
the aggregate, or (B) the date upon which the corporation obtains the consent of
the holders of a majority of the then outstanding shares of Series F Preferred
Stock, voting together as a single series.
(b) MECHANICS OF CONVERSION. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he, she or it
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of this corporation or of any transfer agent for the Preferred Stock, and
shall give written notice by mail, postage prepaid, to this corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of the Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The Conversion
Price of the Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock shall be subject to adjustment from time to time as follows:
(i) (A) If the corporation shall issue, after the date upon
which any shares of Series A, Series B, Series C, Series D, Series E or Series F
Preferred Stock were first issued (the "Purchase Date" with respect to each of
such series of Preferred Stock, which is April 10, 1991, for the Series A, April
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15, 1991 for the Series B, May 26, 1992 for the Series C, January 18, 1994 for
the Series D, January 12, 1995 for the Series E and February 27, 1996 the Series
F), any Additional Stock (as defined below) without consideration or for a
consideration per share less than the respective Conversion Price for the Series
A, Series B, Series C, Series D, Series E or Series F Preferred Stock in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such series of Preferred Stock in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this clause (i)) be
adjusted to a price equal to the quotient obtained by dividing the total
computed under clause (x) below by the total computed under clause (y) below as
follows (for purposes of the formula below, the series of which Conversion Price
is being adjusted is referred to as the "Applicable Series"):
(x) an amount equal to the sum of
(1) the aggregate purchase price of the shares of the Applicable
Series sold prior to the date such Additional Stock is issued, plus
(2) the aggregate consideration, if any, received by the
corporation for all Additional Stock issued on or after the Purchase
Date for the Applicable Series;
(y) an amount equal to the sum of
(1) the aggregate purchase price of the shares of such
Applicable Series being adjusted prior to the date such Additional
Stock is issued, divided by the Conversion Price for such shares in
effect at the Purchase Date for the Applicable Series (or such higher
or lower Conversion Price for such series as results from the
application of subsections 3(c)(iii) and (iv) and assuming that this
Certificate was in effect as of the Purchase Date for the Applicable
Series), plus
(2) the number of shares of Additional Stock issued since the
Purchase Date for the Applicable Series (increased or decreased to the
extent that the number of such shares of Additional Stock shall have
been increased or decreased as the result of the application of
subsections 3(c)(iii) and (iv)).
(B) No adjustment of the Conversion Price for Preferred Stock
shall be made in an amount less than one cent ($.01) per share, provided that
any adjustments which are not required to be made by reason of this sentence
shall be carried forward and shall be either taken into account in any
subsequent adjustment made prior to three (3) years from the date of the
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event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant
to this subsection 3(c)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or after the
Purchase Date for the Applicable Series) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 3(c)(i) and subsection 3(c)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions
to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Common Stock shall
be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined
in the manner provided in subsections 3(c)(i)(C) and (c)(i)(D)), if
any, received by the corporation upon the issuance of such options or
rights plus the minimum exercise price provided in such options or
rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability,
including,
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without limitation, the passage of time, but without taking into
account potential antidilution adjustments) for any such convertible
or exchangeable securities or upon the exercise of options to purchase
or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration,
if any, received by the corporation for any such securities and
related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the corporation (without
taking into account potential antidilution adjustments) upon the
conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be
determined in the manner provided in subsections 3(c)(i)(C) and
(c)(i)(D)).
(3) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion
of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the Series A,
Series B, Series C, Series D, Series E and Series F Preferred Stock,
to the extent in any way affected by or computed using such options,
rights or securities, shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual issuance of Common
Stock or any payment of such consideration upon the exercise of any
such options or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A, Series
B, Series C, Series D, Series E and Series F Preferred Stock, to the
extent in any way affected by or computed using such options, rights
or securities or options or rights related to such securities, shall
be recomputed to reflect the issuance of only the number of shares of
Common Stock (and convertible or exchangeable securities which remain
in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such
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securities or upon the exercise of the options or rights related to
such securities.
(5) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefor pursuant to subsections
3(c)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either
subsection 3(c)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 3(c)(i)(E)) by this
corporation after the Purchase Date for the Applicable Series other than
(A) Common Stock issued pursuant to a transaction described
in subsection 3(c)(iii) hereof,
(B) shares of Common Stock issuable or issued to employees,
consultants, directors of this corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board of Directors of this
corporation at any time, including the 7,138,134 shares of Common Stock reserved
prior to January 1, 1995, for issuance pursuant to the Company's stock option
plan (including the incentive program approved by the Board of Directors on
October 14, 1993),
(C) up to 1,400,000 shares of Common Stock issuable or
issued upon conversion of the Series A Preferred Stock sold pursuant to the
Series A Stock Purchase Agreement dated April 10, 1991,
(D) up to 1,555,000 shares of Common Stock issuable or
issued upon conversion of the Series B Preferred Stock sold pursuant to the
Series B Stock Purchase and Warrant Exercise Agreement dated April 15, 1991,
(E) up to 1,961,600 shares of Common Stock issuable or
issued upon conversion of the Series B Preferred Stock sold pursuant to the Unit
Purchase Agreement dated as of October 25, 1991 (the "Unit Purchase Agreement"),
(F) up to 1,634,013 shares of Common Stock sold pursuant to
the Unit Purchase Agreement,
(G) up to 83,333 shares of Common Stock issuable or issued
upon exercise of the warrant, dated April 6, 1992, issued to Silicon Valley
Bank ("SVB"), and up
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to 176,667 shares of Common Stock issuable or issued upon exercise of the
warrant dated July 7, 1995, issued to SVB,
(H) up to 451,240 shares of Common Stock issuable or issued
upon conversion of the Series B Preferred Stock issued or issuable upon
exercise of the warrants, dated as of May 30, 1991 and September 16, 1992,
respectively, issued to Comdisco, Inc.,
(I) up to 8,333,333 shares of Common Stock issuable or
issued upon conversion of the Series C Preferred Stock sold pursuant to the
Purchase Agreement dated as of May 26, 1992,
(J) up to 139,000 shares of Common Stock issuable or issued
upon exercise of two warrants issued to LTI Venture Leasing Corp. in
connection with a Master Lease Agreement dated July 8, 1993,
(K) up to 321,086 shares of Common Stock issuable or issued
upon conversion of the Series C Preferred Stock issued or issuable upon
exercise of the warrants issued to certain investors of the corporation
during the period from October 15, 1993 through November 16, 1993 in
connection with a bridge financing,
(L) up to 1,880,529 shares of Common Stock issuable or
issued upon conversion of the Series D Preferred Stock issued upon
conversion of the bridge notes issued to certain investors of the
corporation during the period from October 15, 1993 through November 16,
1993,
(M) up to 87,570 Shares of Common Stock issuable or issued
upon conversion of the Series D Preferred Stock issuable upon exercise of
warrants issued to Comdisco, Inc. pursuant to the terms of the Forbearance
Agreement dated October 28, 1993 between the corporation and Comdisco,
Inc.,
(N) up to 17,311,021 shares of Common Stock issuable or
issued upon conversion of the Series D Preferred Stock sold pursuant to the
Preferred Stock Purchase Agreement dated as of January 18, 1994,
(O) up to 7,241,352 shares of Common Stock issuable or
issued upon conversion of the Series D Preferred Stock sold pursuant to the
Preferred Stock Purchase Agreement dated November 1, 1994, and
(P) up to 19,318,181 shares of Common Stock issuable or
issued upon conversion of the Series E Preferred
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Stock sold pursuant to the Preferred Stock Purchase Agreement dated on or
about January 12, 1995.
(Q) up to 20,000,000 shares of Common Stock issuable or
issued upon conversion of the Series F Preferred Stock sold pursuant to the
Preferred Stock Purchase Agreement dated on or about February 28, 1996.
(iii) In the event the corporation should at any time or from time
to time after the Purchase Date for the Applicable Series fix a record date for
the effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share of such series shall
be increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in subsection 3(c)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date for the Applicable Series is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Series A, Series
B, Series C, Series D, Series E and Series F Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(d) OTHER DISTRIBUTIONS. In the event this corporation shall declare
a distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 3(c)(iii), then, in each such
case for the purpose of this subsection 3(d), the holders of the Series A,
Series B, Series C, Series D, Series
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E and Series F Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares of
Common Stock of the corporation into which their shares of Series A, Series B,
Series C, Series D, Series E and Series F Preferred Stock are convertible as of
the record date fixed for the determination of the holders of Common Stock of
the corporation entitled to receive such distribution.
(e) RECAPITALIZATIONS. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3 or Section 4), provision shall be made so that the holders of the
Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock
shall thereafter be entitled to receive upon conversion of such Preferred Stock
the number of shares of stock or other securities or property of the Company or
otherwise, to which a holder of Common Stock deliverable upon conversion would
have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 3
with respect to the rights of the holders of such Preferred Stock after the
recapitalization to the end that the provisions of this Section 3 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of such Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable.
(f) NO IMPAIRMENT. This corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock against impairment.
(g) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon conversion of the
Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock,
and the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series A, Series B, Series C, Series D, Series E
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and Series F Preferred Stock the holder is at the time converting into Common
Stock and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock pursuant to this Section 3, this corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of such Preferred
Stock a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. This
corporation shall, upon the written request at any time of any holder of such
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series A, Series B, Series C, Series
D, Series E and Series F Preferred Stock.
(h) NOTICES OF RECORD DATE. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A, Series B, Series C, Series D,
Series E and Series F Preferred Stock, at least twenty (20) days prior to the
date specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of such
Preferred Stock and shares of such Preferred Stock issuable upon exercise of the
Warrants; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of such Preferred Stock and shares of such Preferred Stock
issuable upon exercise of the Warrants, in addition to such other remedies as
shall be available to the holder of such Preferred Stock, this corporation will
take such
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corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
(j) NOTICES. Any notice required by the provisions of this Section 3
to be given to the holders of shares of Series A, Series B, Series C, Series D,
Series E or Series F Preferred Stock shall be deemed given if deposited in the
United States mail, postage prepaid, and addressed to each holder of record at
his address appearing on the books of this corporation.
4. MERGER, CONSOLIDATION.
(a) At any time, in the event of:
(i) any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
which will result in the corporation's shareholders immediately prior to such
transaction not holding (by virtue of such shares or securities issued solely
with respect thereto) at least fifty percent (50%) of the voting power of the
surviving or continuing entity, or
(ii) a sale of all or substantially all of the assets of the
corporation, unless the corporation's shareholders immediately prior to such
sale will, as a result of such sale, hold (by virtue of securities issued as
consideration for the corporation's sale) at least fifty percent (50%) of the
voting power of the purchasing entity,
then the documents effecting such transaction shall provide that the holders of
the Series A, Series B, Series C, Series D, Series E and Series F Preferred
Stock shall receive for each share of such stock in cash or in securities
received from such surviving, continuing or purchasing entity (an "Acquiring
Entity"), at the closing of any such transaction, an amount equal to the
Original Series A Issue Price, Original Series B Issue Price, the Original
Series C Issue Price, Original Series D Issue Price, Original Series E Issue
Price and Original Series F Issue Price, respectively, plus an amount equal to
the Premium as of the date of closing of such transaction, and the remaining
proceeds of such transaction shall be distributed as a Shared Allocation (as
defined in subsection 4(b)). Such payments (including the Shared Allocation)
shall be made with respect to the Preferred Stock by purchase of such shares of
Preferred Stock by the Acquiring Entity or by this corporation. In the event
the proceeds of the transaction are not sufficient to make full payment of the
aforesaid preferential amounts to the holders of the Series A, Series B, Series
C, Series D, Series E and Series F Preferred Stock in accordance herewith, then,
subject to the rights of series of Preferred Stock which may from time to time
come into
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existence, the entire amount payable in respect of the proposed transaction
shall be distributed among the holders of the Series A, Series B, Series C,
Series D, Series E and Series F Preferred Stock in proportion to the aforesaid
aggregate amount to which each such holder would otherwise be entitled.
(b) The term "Shared Allocation" shall mean that subject to the
rights of series of Preferred Stock which may from time to time come into
existence, the holders of Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock and Common Stock of this corporation shall share the
remaining consideration to be paid by the Acquiring Entity in such transaction
in the same proportion as the number of shares of outstanding Common Stock and
Common Stock issuable upon the conversion of outstanding Series A, Series B,
Series C, Series D, Series E and Series F Preferred Stock then held by each of
them bears to the total number of shares of outstanding Common Stock and Common
Stock issuable upon conversion of outstanding Series A, Series B, Series C,
Series D, Series E and Series F Preferred Stock.
(c) Any securities to be delivered to the holders of the Series A,
Series B, Series C, Series D, Series E and Series F Preferred Stock pursuant to
subsection 4(a) above shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability covered by (ii) below:
(A) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the thirty-day period ending three (3) days prior to the
closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever are
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the corporation
and the holders of Preferred Stock which would be entitled to receive such
securities or the same type of securities and which Preferred Stock
represents at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a shareholder's status as an affiliate or former
affiliate) shall
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be to make an appropriate discount from the market value determined as above in
(i) (A), (B) or (C) to reflect the approximate fair market value thereof, as
mutually determined by the corporation and the holders of Preferred Stock which
would be entitled to receive such securities or the same type of securities and
which represent at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
(d) In the event the requirements of subsection 4(a) are not complied
with, the corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of this Section 4 have been complied with, or
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A, Series B, Series C,
Series D, Series E and Series F Preferred Stock shall revert to and be the same
as such rights, preferences and privileges existing immediately prior to the
date of the first notice referred to in subsection 4(e) hereof.
(e) The corporation shall give each holder of record of Series A,
Series B, Series C, Series D, Series E and Series F Preferred Stock written
notice of such impending transaction not later than twenty (20) days prior to
the stockholders' meeting called to approve such transaction, or twenty (20)
days prior to the closing of such transaction, whichever is earlier, and shall
also notify such holders in writing of the final approval of such transaction.
The first of such notices shall describe the material terms and conditions of
the impending transaction and the provisions of this Section 4, and the
corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than twenty (20)
days after the corporation has given the first notice provided for herein or
sooner than ten (10) days after the corporation has given notice of any material
changes provided for herein; provided, however, that such periods may be
shortened upon the written consent of the holders of Preferred Stock which is
entitled to such notice rights or similar notice rights and which represents at
least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
(f) The provisions of this Section 4 are in addition to the
protective provisions of Section 6 hereof.
5. VOTING RIGHTS. The holder of each share of Series A, Series B,
Series C, Series D, Series E and Series F Preferred Stock shall have the right
to one vote for each share of Common Stock into which such Preferred Stock could
then be converted (with any fractional share determined on an aggregate
conversion basis being rounded to the nearest whole share), and with respect
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to such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote.
6. PROTECTIVE PROVISIONS. (a) Subject to the rights of series of
Preferred Stock which may from time to time come into existence, so long as
shares of Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A,
Series B, Series C, Series D, Series E and Series F Preferred Stock, voting
together as a single class:
(i) liquidate, dissolve or wind up the corporation, or sell,
convey, or otherwise dispose of or encumber all or substantially all of its
property or business or merge into or consolidate with any other corporation
(other than a wholly owned subsidiary corporation) or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the corporation is disposed of;
(ii) alter or change the rights, preferences or privileges of the
shares of Series A, Series B, Series C, Series D, Series E or Series F Preferred
Stock so as to affect adversely the shares; or
(iii) increase the authorized number of shares of Series A, Series
B, Series C, Series D, Series E or Series F Preferred Stock;
(iv) create any new class or series of stock or any other
securities convertible into equity securities of the corporation (i) having a
preference over, or being on a parity with, the Series A, Series B, Series C,
Series D, Series E or Series F Preferred Stock with respect to voting, dividends
or upon liquidation, or (ii) having rights similar to any of the rights of the
Series A, Series B, Series C, Series D, Series E or Series F Preferred Stock
under this Section 6;
(v) redeem or repurchase any class of security of the
corporation except for repurchases of Common Stock held by employees,
consultants or directors of the corporation pursuant to contractual repurchase
rights or rights of first refusal; or
(vi) amend the corporation's Certificate of Incorporation or
Bylaws.
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(b) Subject to the rights of series of Preferred Stock which may come
into existence, so long as Series F Preferred Stock shall be outstanding, this
corporation shall not without first obtaining approval (by vote or written
consent, as provided by law) of the holders of a majority of the outstanding
shares of Series F Preferred Stock, voting together as a single series:
(i) Increase the authorized number of shares of Series F
Preferred Stock;
(ii) materially and adversely alter or change the rights,
preferences or privileges of the outstanding shares of Series F Preferred Stock
if such series is adversely affected in a different manner than the other series
of Preferred Stock, or materially and beneficially change the rights,
preferences, and privileges of the Series A, Series B, Series C, Series D and
Series E Preferred Stock if such series of Preferred Stock are materially
benefitted in a different manner than the Series F Preferred Stock.
7. STATUS OF CONVERTED STOCK. In the event any shares of Series A,
Series B, Series C, Series D, Series E or Series F Preferred Stock shall be
converted pursuant to Section 3 hereof, the shares so converted or redeemed
shall be cancelled and shall not be issuable by the corporation. This Fifth
Amended and Restated Certificate of Incorporation shall be appropriately amended
to effect the corresponding reduction in the corporation's authorized capital
stock.
C. COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding
up of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV hereof.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
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ARTICLE V
Except as otherwise provided in this Fifth Amended and Restated
Certificate of Incorporation, in furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
repeal, alter, amend and rescind any or all of the Bylaws of the corporation.
ARTICLE VI
The number of directors of the corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE IX
To the fullest extent permitted by Delaware statutory or decisional
law, as amended or interpreted, no director of this corporation shall be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director. This Article IX does not affect the
availability of equitable remedies for breach of fiduciary duties.
ARTICLE X
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Fifth Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE XI
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this
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corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for this corporation under the provision of
Section 291 of Title 8 of the of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
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IN WITNESS WHEREOF, the undersigned has executed and acknowledged this
Fifth Amended and Restated Certificate of Incorporation this 22nd day of
February 1996.
FaxSAV Incorporated
By: /s/ Thomas Murawski
--------------------------
Thomas Murawski, President
ATTEST:
/s/ Peter Macaluso
- -----------------------------
Peter Macaluso, Secretary
<PAGE>
Exhibit 3.4
BYLAWS
OF
DIGITRAN CORPORATION
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
shall be held in the District of Columbia, at such place as may be fixed from
time to time by the Board of Directors, or at such other place either within or
without the State of Delaware as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year 1990,
shall be held on May 7 if not a legal holiday, and, if a legal holiday, then on
the next secular day following, at 10:00 A.M., or such other date and time as
shall be designated from
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time to time by the Board of Directors and stated in the notice of the meeting,
at which they shall elect by a plurality vote a board of directors, and transact
such other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request
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in writing of stockholders owning a majority in amount of the entire capital
stock of the corporation issued and outstanding and entitled to vote. Such
request shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders, for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be
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given to each stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of incorporation
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
At all elections of directors of the corporation each stockholder having
voting power shall be entitled to exercise the right of cumulative voting as
provided in the certificate of incorporation.
Section 11. Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of stockholders
of the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would
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be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall not be less than five (5) nor more than nine (9). The first board shall
consist of five (5) directors. Thereafter, within the limits above specified,
the number of directors shall be determined by resolution of the Board of
Directors or by the stockholders at the annual meeting of the stockholders,
except as provided in Section 2 of this Article, and each director elected shall
hold office until his successor is elected and qualified. Directors need not be
stockholders.
Section 2. Vacancies and new created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
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application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of
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Directors, or as shall be specified in a written waiver signed by all of the
directors.
Section 6. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 7. Special meetings of the board may be called by the president on
four (4) days' notice to each director by mail or forty-eight (48) days' notice
to each director either personally or by telegram; special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of two directors unless the board consists of only one director,
in which case special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of incorporation
of these bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of
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the board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings office of the
board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a majority
of the whole board, designate one or more committees, each committee to consist
of one or more of the directors of the corporation. The board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of
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the business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving
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compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a president and a secretary.
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The Board of Directors may elect from among its members a Chairman of the Board
and a Vice Chairman of the Board. The Board of Directors may also choose one or
more vice presidents, assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a president and a secretary and may choose
a vice president and a treasurer.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the Board and as may be provided by law.
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Section 7. In the absence of the Chairman of the Board, the Vice Chairman
of the Board, if any, shall preside at all meetings of the Board of Directors
and of the stockholders at which he shall be present. He shall have and may
exercise such powers as are, from time to time, assigned to him by the Board and
as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENT
Section 8. The president shall be the chief executive officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of Directors;
he shall have general and active management of the business of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
Section 9. He shall execute bonds, mortgages and other contracts requiring
a seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other
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duties and have such other powers as the Board of Directors may from time to
time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of tile secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
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THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 16. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the treasurer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the treasurer and
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shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
chairman or vice- chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon the
face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement
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that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
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TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order,that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholder or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books
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as the owner of shares and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
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FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall indemnify its officers, directors,
employees and agents to the full extent permitted by the General Corporation Law
of Delaware.
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new bylaws
may be adopted by the stockholders or by the Board of Directors, when such power
is conferred upon the Board of Directors by the certificate of incorporation at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal bylaws
is conferred upon the Board of Directors by the certificate or incorporation it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
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Exhibit 10.1
EXECUTION COPY
FIFTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This FIFTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "Fifth
Investor Rights Agreement") is entered into and made effective as of February
28, 1996, by and among FAXSAV INCORPORATED, a Delaware corporation (the
"Company"), previously named Digitran Corporation, and the undersigned investors
(collectively, the "Investors" and individually, an "Investor"). All
capitalized terms used but not defined herein shall have the meanings ascribed
to them in that certain Series F Preferred Stock Purchase Agreement (the
"Purchase Agreement"), dated as of February 28, 1996 by and between the Company
and certain Investors.
R E C I T A L S
A. The Company and certain Investors entered into a Fourth Investor
Rights Agreement, dated as of January 12, 1995, and amended as of July 7, 1995
(as amended, the "Investor Rights Agreement"), under which such Investors were
granted certain rights, including registration rights.
B. Contemporaneously herewith, the Company and certain Investors
have entered into the Purchase Agreement, which provides, among other things,
for the sale and issuance of up to 20,000,000 shares of Series F Preferred
Stock, $.001 par value per share, of the Company (the "Additional Shares") to
certain Investors, for a purchase price of $0.40 per share.
C. Pursuant to Section 6.5 of the Investor Rights Agreement, the
Company must obtain the approval of the holders of at least two-thirds of the
"Registrable Securities" (as defined as Section 3.1(b) of the Investor Rights
Agreement), and at least two-thirds of the holders of the Common Stock of the
Company issued or issuable upon conversion of the Preferred Stock held by the
parties to the Investor Rights Agreement, not including Common Stock held by
Martin Ellis, Jeffrey Kurland, Jerrold Siegan and Marshall Ellis, in order to
grant registration rights and certain other investor rights with respect to the
Additional Shares or in order to amend any provision of the Investor Rights
Agreement.
D. Certain of the Investors are holders of at least two-thirds of
the currently outstanding Registrable Securities (as defined in Section 3.1(b)
of the Investor Rights Agreement) and holders of at least two-thirds of the
Common Stock of the Company issued or issuable upon conversion of the Preferred
Stock held by the parties to the Investor Rights Agreement, not including Common
Stock held by Martin Ellis, Jeffrey Kurland, Jerrold Siegan and Marshall Ellis.
E. The Company, pursuant to a Stock Option Agreement, dated December
22, 1995, between the Company and Telstra Incorporated ("Telstra"), has the
option (the
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"Telstra Option") to purchase 8,655,510 shares of Series D Preferred Stock owned
by Telstra (the "Telstra Shares").
F. The Company and the Investors desire to waive the Investors'
anti-dilution rights and the Right of First Offer in connection with the
issuance of the Additional Shares (and conversion of the Additional Shares into
Common Stock) and the exercise by the Company of the Telstra Option.
G. In connection with the transactions contemplated by the Purchase
Agreement, the Investor Rights Agreement is being amended and restated in its
entirety by the parties hereto to (i) grant certain registration and other
rights with respect to the Additional Shares and the Common Stock issuable upon
conversion of the Additional Shares, (ii) to amend the provisions regarding the
requirements for demand registration and S-3 registration and (iii) to grant to
the holders of the Additional Shares (the "Series F Holders"), the right of
first refusal to include their Series F Registrable Securities (as defined in
Section 3.1(c)) in any underwriter's over-allotment in connection with the
Company's initial public offering of capital stock.
NOW, THEREFORE, in consideration of good and valuable consideration,
the receipt of which is hereby acknowledged, the undersigned hereby agree as
follows:
1. WAIVER AND CONSENT. Pursuant to Section 6.5 of the Investor
Rights Agreement and Section 6.5 of this Fifth Investor Rights Agreement, the
undersigned Investors, being the holders of at least two-thirds of the currently
outstanding Registrable Securities (as defined in Section 3.1(b) of the Investor
Rights Agreement), in connection with the issuance by the Company of the
Additional Shares (and conversion of the Additional Shares into Common Stock)
and the exercise by the Company of the Telstra Option (and purchase of the
Telstra Shares) hereby (i) consent to the issuance of the Additional Shares (and
the conversion of the Additional Shares into Common Stock), (ii) consent to the
exercise by the Company of the Telstra Option (and purchase of the Telstra
Shares), (iii) waive any and all antidilution rights set forth in the Company's
Certificate of Incorporation, as amended, or elsewhere, (iv) waive the Right of
First Offer set forth in Section 4.4 of the Investor Rights Agreement and this
Fifth Investor Rights Agreement, (v) consent to the granting of the registration
rights set forth in Section 3 hereof with respect to the Additional Shares,
(vi) consent to the amendments to Section 3 hereto with respect to the
requirements for demand registration and S-3 registration and (vii) consent to
the granting to the Series F Holders the right of first refusal to include their
Series F Registrable Securities in any underwriter's over-allotment in
connection with the Company's initial public offering of capital stock.
2. AMENDMENT AND RESTATEMENT OF FIFTH INVESTOR RIGHTS AGREEMENT.
Effective upon the issuance and sale of the Additional Shares, the Investor
Rights Agreement shall be terminated and of no further force and effect and the
Investors agree to be bound by the provisions of this Fifth Investor Rights
Agreement.
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3. REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
3.1 DEFINITIONS. For purposes of this Section 3:
a. The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and the declaration or ordering of effectiveness of such registration or
document by the Securities and Exchange Commission (the "SEC");
b. The term "Registrable Securities" means (1) the Common Stock
issuable or issued upon conversion of the outstanding Series A Preferred Stock,
(2) the Common Stock issuable or issued upon conversion of the outstanding
Series B Preferred Stock, (3) the Common Stock issuable or issued upon
conversion of the outstanding Series C Preferred Stock, (4) the Common Stock
issuable or issued upon conversion of the outstanding Series D Preferred Stock,
(5) the Common Stock issuable or issued upon conversion of the outstanding
Series E Preferred Stock, (6) the Common Stock issuable or issued upon
conversion of the Additional Shares sold pursuant to the Purchase Agreement, (7)
the Common Stock sold pursuant to the Unit Purchase Agreement, (8) the Common
Stock issuable or which may be issued pursuant to the Guarantee Agreement, (9)
the Common Stock issuable or issued upon conversion of the Preferred Stock which
may be issued pursuant to the Guarantee Agreement, (10) the Common Stock
issuable or issued upon conversion of the Series B Preferred Stock and Series D
Preferred Stock issuable pursuant to the Comdisco Warrants, (11) the Common
Stock issued or issuable upon exercise of the LTI Warrants, (12) only for
purposes of Sections 3.3, 3.7 and 3.10, the Founders Stock (as defined below),
(13) the Common Stock issued or issuable upon conversion of the Series C
Preferred Stock issued upon exercise of the Bridge Warrants, (14) the Common
Stock issuable pursuant to the 1992 Bank Warrant and the 1995 Bank Warrant, and
(15) any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any other warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of such Preferred Stock, Warrants, Founders Stock or Common Stock,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which his, her or its rights under this Section 3 are not
assigned;
c. The term "Series F Registrable Securities" means the Common
Stock issuable or issued upon conversion of the Additional Shares sold pursuant
to the Purchase Agreement.
d. The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
e. The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 3.13 hereof; and
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f. The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
g. The term "Founders Stock" shall mean the shares of Common
Stock held by the individuals as set forth on Schedule 1 to this Investors
Rights Agreement.
h. The term "Unit Purchase Agreement" shall mean the Unit
Purchase Agreement dated as of October 25, 1991 among the Company and the
Investors (as defined therein) providing for the sale to such Investors of units
consisting of .833 shares of Common Stock of the Company and one (1) share of
Series B Preferred Stock of the Company.
i. The term "1992 Bank Warrant" shall mean the Warrant, dated as
of April 6, 1992, as amended, between the Company and the Silicon Valley Bank
providing for the issuance of 83,333 shares (subject to adjustment as provided
therein) of Common Stock of the Company and the term "1995 Bank Warrant" shall
mean the Warrant, dated as of July 7, 1995, between the Company and the Silicon
Valley Bank providing for the issuance of 176,667 shares (subject to adjustment
as provided therein) of Common Stock of the Company.
j. The form "Guarantee Agreement" shall mean the agreement,
dated as of April 6, 1992, by and among the Company and Sierra Ventures III, a
California limited partnership and Battery Ventures II, L.P. (the "Guarantors")
pursuant to which the Company shall (a) issue to the Guarantors 384,450 shares
of Common Stock, and (b) grant to the Guarantors under certain circumstances the
right to purchase a certain number of shares of Preferred Stock of the Company.
k. The term "Comdisco Warrants" shall mean the Warrants dated
as of May 30, 1991 and September 16, 1992, respectively, between the Company and
Comdisco, Inc. providing for the issuance of 451,240 shares of Series B
Preferred Stock of the Company, and the Warrants dated as of October 28, 1993
providing for the issuance of 87,570 shares of Series D Preferred Stock of the
Company pursuant to the terms of that certain Forbearance Agreement dated
October 28, 1993 between the Company and Comdisco, Inc.
l. The term "LTI Warrants" shall mean the Warrants dated July
8, 1993 and May 5, 1994 between the Company and LTI Venture Leasing Corp.
providing future issuance of an aggregate of 139,000 shares of Common Stock.
m. The term "Bridge Warrants" shall mean the Warrants dated as
of October 15, 1993 through November 16, 1993 providing for the issuance of
321,086 shares of Series C Preferred Stock of the Company.
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3.2 REQUEST FOR REGISTRATION.
a. If the Company shall receive at any time after the earlier
of (i) February 1, 1997, or (ii) three (3) months after the effective date of
the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction) (the "IPO"), a written
request from either (x) the Holders of a majority of the Registrable Securities
then outstanding or (y) after the IPO, the Holders proposing to sell Registrable
Securities at a reasonably anticipated aggregate offering price to the public
(net of any underwriters' discounts or commissions) of $10,000,000 that the
Company file a registration statement under the Act covering the registration of
Registrable Securities then the Company shall, within ten (10) days of the
receipt thereof, give written notice of such request to all Holders and shall,
subject to the limitations of subsection 3.2(b), effect as soon as practicable,
and in any event shall use its best efforts to effect within 120 days of the
receipt of such request, the registration under the Act of all Registrable
Securities which the Holders request to be registered within twenty (20) days of
the mailing of such notice by the Company in accordance with paragraph 6.7.
b. If the Holders initiating the registration request hereunder
(the "Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 3.2 and the
Company shall include such information in the written notice referred to in
subsection 3.2(a). The underwriters shall be selected by a majority in interest
of the Initiating Holders and shall be reasonably acceptable to the Company. In
such event, the right of any Holder to include his, her or its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
3.4(e)hereof) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 3.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that if such registration is the IPO, for the purposes of calculating such
proportion and allocating such Registrable Securities, the Series F Registrable
Securities sold in an underwriter's over-allotment pursuant to Section 3.17
shall be disregarded; provided, further, that the number of shares of
Registrable Securities to be included in such underwriting shall not be reduced
unless all other securities are first entirely excluded from the underwriting.
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c. The Company is obligated to effect only two (2) such
registrations pursuant to this Section 3.2.
d. Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 3.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 60 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve month period.
3.3 COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 6.7, the Company shall,
subject to the provisions of Section 3.8, cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered.
3.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section
3 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
a. Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred eighty (180) days.
b. Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
c. Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
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d. Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
e. In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
f. Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
g. Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 3, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this
Section 3, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
3.5 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 3 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
3.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 3.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to
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Section 3.2 if the registration request is subsequently withdrawn at the request
of the Holders of a majority of the Registrable Securities to be registered (in
which case all Participating Holders shall bear such expenses), unless the
Holders of a majority of the Registrable Securities agree to forfeit their right
to one demand registration pursuant to Section 3.2; provided, further, however,
that if at the time of such withdrawal, the Holders have learned of a material
adverse change in the condition, business, or prospects of the Company from that
known to the Holders at the time of their request and have withdrawn the request
with reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 3.2.
3.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 3.3 for each Holder (which right may be assigned as provided
in Section 3.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto, and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
3.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 3.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling Shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders; provided that such apportionment shall disregard
and not impact the amount of securities sold in an over-allotment option in the
IPO pursuant to Section 3.17) but in no event shall (i) the amount of securities
of the selling Holders included in the offering be reduced below thirty percent
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities in which
case the selling shareholders may be excluded if the underwriters make the
determination described above and no other shareholder's securities are included
or (ii) notwithstanding (i) above, any shares being sold by a shareholder
exercising a demand registration right similar to that granted in Section 3.2 be
excluded from such offering. For purposes of the preceding parenthetical
concerning apportionment, for any selling shareholder which is a holder of
Registrable Securities and which is a partnership
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or corporation, the partners, retired partners and shareholders of such holder,
or the estates and family members of any such partners and retired partners and
any trusts for the benefit of any of the foregoing persons shall be deemed to be
a single "selling shareholder," and any pro-rata reduction with respect to such
"selling shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling shareholder," as defined in this sentence.
3.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 3.
3.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 3:
a. The Company will indemnify and hold harmless each Holder,
any underwriter (as defined in the Act) for such Holder and each person, if any,
who controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, or the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, or the 1934
Act or any state securities law; and the Company will pay to each such Holder,
underwriter or controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 3.10(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
b. Each selling Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims,
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damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 3.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
3.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 3.10(b) exceed the net
proceeds from the offering received by such Holder.
c. Promptly after receipt by an indemnified party under this
Section 3.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 3.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 3.10, but the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 3.10.
d. If the indemnification provided for in subsection (a) or (b)
of this Section 3.10 is held by a court of competent jurisdiction to be
unavailable to an indemnified party, then each indemnifying party under any such
subsection, in lieu of indemnifying such indemnified party thereunder, hereby
agrees to contribute to the amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other.
Notwithstanding the foregoing, the amount any Holder of Registrable Securities
shall be obligated to contribute pursuant to this subsection (d) shall be
limited to an amount equal to the net proceeds from the offering received by
such holder.
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e. The obligations of the Company and Holders under this
Section 3.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 3, and otherwise.
3.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
b. take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
c. file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
d. furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
3.12 FORM S-3 REGISTRATION. In case the Company shall receive from
Holders of either at least twenty percent (20%) of the Registrable Securities
then outstanding or from Holders proposing to sell Registrable Securities at a
reasonably anticipated aggregate offering price to the public (net of any
underwriters' discounts or commissions) of at least $10,000,000 a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
a. promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
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b. as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section 3.12: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $250,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than sixty (60) days after
receipt of the request of the Holder or Holders under this Section 3.12;
provided, however, that the Company shall not utilize this right more than once
in any twelve month period; (4) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected two registrations on
Form S-3 for the Holders pursuant to this Section 3.12; or (5) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
c. Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 3.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne pro rata by
the Holder or Holders participating in the Form S-3 Registration; provided,
that, however, the Company shall pay all registration, filing, qualification,
printing and accounting fees and reasonable fees and disbursements of counsel
for the Selling Holder or Holders and counsel for the Company for two (2)
registrations filed pursuant to this Section 3.12, but excluding any
underwriters' discounts or commissions associated with Registrable Securities.
Registrations effected pursuant to this Section 3.12 shall not be counted as
demands for registration or registrations effected pursuant to Sections 3.2 or
3.3, respectively.
3.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 3 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities, provided the Company is, within a reasonable time
after such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
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registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act.
3.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 3.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 3.2(a) or within
one hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 3.2.
3.15 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees that,
during the period of duration (not to exceed 180 days) specified by the Company
and an underwriter of Common Stock or other securities of the Company, following
the effective date of a registration statement of the Company filed under the
Act, it shall not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration; provided, however, that:
a. such agreement shall be applicable only to the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
b. all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
3.16 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled
to exercise any right provided for in this Section 3 after seven (7) years
following the consummation of the sale of securities pursuant to a registration
statement filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public.
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3.17 SERIES F HOLDERS OVER-ALLOTMENT OPTION. The Series F Holders
shall have the right of first refusal, subject to the provisions of this Section
3, to include their Series F Registrable Securities in any underwriter's over-
allotment of Company capital stock sold in connection with the Company's IPO.
The Series F Holders shall notify the Company of their intent to exercise such
over-allotment option in any demand request which is for the IPO delivered
pursuant to Section 3.2(a) (in the case of a demand registration which is the
IPO) or in any written notice delivered pursuant to Section 3.3 (in the case of
a Company registration which is the IPO). The exercise of such right will allow
the Series F Holders to include (on a pro rata basis according to the total
amount of securities entitled to be included therein owned by each selling
shareholder or in such other proportions as shall mutually be agreed to by such
selling shareholders) Series F Registrable Securities in such over-allotment up
to an amount equal to the entire over-allotment; provided that if the total
amount of Series F Registrable Securities requested by the Series F Holders to
be included in such over-allotment exceeds the total amount of securities that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
over-allotment only that number of Series F Registrable Securities which the
underwriters determine in their sole discretion will not jeopardize the success
of the offering (the securities so included to be apportioned pro rata among the
selling shareholders according to the total amount of securities entitled to be
included therein owned by each selling shareholder or in such other proportions
as shall mutually be agreed to by such selling shareholders). For purposes of
the preceding parentheticals concerning apportionment, for any selling
shareholder which is a holder of Series F Registrable Securities and which the
partners, retired partners and shareholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
shareholder," and any pro-rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder," as defined in this sentence.
4. COVENANTS OF THE COMPANY. This Section 4 shall not apply to
Martin Ellis, Jeffrey Kurland, Jerry Siegan and Marshall Ellis, (the holders of
Founders Stock), or transferees thereof.
4.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to
each Investor:
a. as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by independent public accountants
of nationally recognized standing selected by the Company;
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b. within thirty (30) days of the end of each month, an
unaudited income statement and schedule as to the sources and application of
funds and balance sheet for and as of the end of such month, in reasonable
detail;
c. as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, including balance sheets and sources
and applications of funds statements for such months and, as soon as prepared,
any other budgets or revised budgets prepared by the Company;
d. with respect to the financial statements called for in
subsection (b) of this Section 4.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by gaap) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;
e. such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request, provided, however, that
the Company shall not be obligated under this subsection (e) or any other
subsection of Section 4.1 to provide information which it deems in good faith to
be a trade secret or similar confidential information.
4.2 INSPECTION. The Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by such Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 4.2 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
4.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The
covenants set forth in subsections 4.1(b), (c) and (e) and Section 4.2 shall
terminate as to each Investor and be of no further force or effect when the sale
of securities pursuant to a registration statement filed by the Company under
the Act in connection with the firm commitment underwritten offering of its
securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur.
4.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this paragraph 4.4, the Company hereby grants to the Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 4.4, Investor includes
any general partners and affiliates of an Investor. The Investor shall be
entitled to apportion the right of first offer hereby granted it among itself
and its partners and affiliates in such proportions as it deems appropriate.
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Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to the
Investor in accordance with the following provisions:
a. The Company shall deliver a notice in accordance with
Section 6.7 hereof ("Notice") to the Investor stating (i) its bona fide
intention to offer such Shares, (ii) the number of such Shares to be offered,
and (iii) the price and terms, if any, upon which it proposes to offer such
Shares.
b. By written notification received by the Company, within
twenty (20) calendar days after receipt giving of the Notice, the Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion of
the Preferred Stock then held, by such Investor bears to the total number of
shares of Common Stock of the Company then outstanding, assuming full conversion
of all then-outstanding Preferred Stock. The Company shall promptly, in
writing, inform the Investor which purchases all the shares available to it
("Fully-Exercising Investor") of any other Investor's failure to do likewise.
During the ten-day period commencing after receipt of such information is given,
each Fully-Exercising Investor shall be entitled to obtain that portion of the
Shares not subscribed for by the Investor which is equal to the proportion that
the number of shares of Common Stock issued and held, or issuable upon
conversion of Preferred Stock then held, by such Fully-Exercising Investor bears
to the total number of shares of Common Stock issued and held, or issuable upon
conversion of the Preferred Stock then held, by all Fully-Exercising Investors
who wish to purchase some of the unsubscribed shares.
c. If all Shares referred to in the Notice are not elected to
be obtained as provided in subsection 4.4(b) hereof, the Company may, during the
thirty-day period following the expiration of the period provided in subsection
4.4(b) hereof, offer the remaining unsubscribed portion of such Shares to any
person or persons at a price not less than, and upon terms no more favorable to
the offeree than those specified in the Notice. If the Company does not enter
into an agreement for the sale of the Shares within such period, or if such
agreement is not consummated within thirty (30) days of the execution thereof,
the right provided hereunder shall be deemed to be revived and such Shares shall
not be offered unless first reoffered to the Investors in accordance herewith.
d. The right of first offer in this paragraph 4.4 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor) to employees, directors and consultants for the primary purpose of
soliciting or retaining their employment pursuant to a stock option or
restricted stock purchase plan approved in accordance with Section 4.7 hereof,
or (ii) to or after consummation of a bona fide, firmly underwritten public
offering of shares of Common Stock, registered under the Act pursuant to a
registration statement on Form S-1, at an offering price of at least $3.00 per
share (appropriately adjusted for any stock split, dividend, combination or
other recapitalization), (iii) the issuance of securities in connection with a
bona fide business acquisition of or by the
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Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise and (iv) the issuance of stock, warrants or other securities
or rights to persons or entities with which the Company has business
relationships provided such issuances are for other than primarily equity
financing purposes.
4.5 OBSERVER RIGHTS. If the Investor does not have a representative
on the Board of Directors the Company may invite a representative of the
Investor to attend meetings of its Board of Directors in a nonvoting observer
capacity with participation rights and, in this respect, shall give such
representative copies of all notices, minutes, consents, and other materials
that it provides to its directors. Such Investor shall also have the right to
consult with and advise management of the Company on a monthly basis; provided,
however, that such representative shall agree to hold in confidence and trust
and to act in a fiduciary manner with respect to all information so provided;
and, provided further, that the Company reserves the right to withhold any
information and to exclude such representative from any meeting or portion
thereof if access to such information or attendance at such meeting could
adversely affect the attorney-client privilege between the Company and its
counsel or have an adverse effect on the Company's business.
4.6 TERMINATION OF CERTAIN COVENANTS. The covenants set forth in
Section 4.5 shall terminate and be of no further force or effect upon the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the firm commitment
underwritten offering of its securities to the general public.
4.7 EMPLOYEE STOCK PURCHASE AGREEMENTS. The Company will not issue
or grant or agree to issue or grant any shares of its capital stock or any
option, right or warrant to purchase shares of its capital stock or securities
convertible into or exchangeable for shares of its capital stock to any employee
or officer of the Company or a subsidiary except pursuant to a stock option plan
or restricted stock purchase plan adopted by the Board of Directors (a "Plan").
Such issuances or grants shall be made upon the Board's approval of management's
recommendations with respect to such issuances or grants. Each purchase of
shares of Common Stock or exercise of option to purchase such shares will be
conditioned upon the execution and delivery by the Company and such employee or
officer of an Employee Stock Purchase Agreement (with appropriate adjustments
with respect to vesting as determined by the Board of Directors).
5. VOTING OF SHARES. Each Investor shall vote or cause to be voted
all shares owned by him, her or it, or over which he, she or it has voting
control so as to fix the number of directors as five (5) and to elect at least
one member designated by Telstra Incorporated, a Delaware corporation, except as
otherwise permitted by agreements between the Company and Telstra as may be in
effect from time to time.
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6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
6.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
6.3 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and no party shall be liable or bound to any other party in any manner by any
representations, warranties, covenants, or agreements except as specifically set
forth herein or therein. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
6.4 SEPARABILITY. Any invalidity, illegality, or limitation of the
enforceability with respect to any party hereto of any one or more of the
provisions of this Agreement, or any part thereof, whether arising by reason of
the law of any such party's domicile or otherwise, shall in no way affect or
impair the validity, legality, or enforceability of this Agreement with respect
to other parties. In case any provision of this Agreement, shall be invalid,
illegal, or unenforceable, it shall to the extent practicable, be modified so as
to make it valid, legal and enforceable and to retain as nearly as practicable
the intent of the parties, and the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
6.5 AMENDMENT AND WAIVERS. Any provision of Section 3 may be amended
and the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of at least two-thirds of the Registrable
Securities then outstanding. Any amendment or waiver regarding Section 3 of
this Agreement, effected in accordance with this paragraph, shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities, and the Company. Any provision of
Section 4 of this Agreement or any other provision of this Agreement not
included in Section 3, may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
at least two-thirds of the Common Stock issued or issuable upon conversion of
Preferred Stock held by the undersigned investors (not including any Common
Stock held by Martin Ellis, Jeffrey Kurland, Jerry Siegan or Marshall Ellis, or
transferees thereof). Any amendment or waiver regarding Section 4 of this
Agreement, effected in accordance with this paragraph, shall be binding upon
each Investor, each future transferee of Preferred Stock of the Company held by
an Investor, and the Company.
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6.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power, or remedy accruing to any party hereto or any subsequent holder of any
Registrable Securities upon any breach, default or noncompliance of the Company
under this Agreement, shall impair any such right, power, or remedy, nor shall
it be construed to be a waiver of any such breach, default or noncompliance, or
any acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent, or
approval of any kind or character on the part of the parties hereto of any
breach, default or noncompliance under this Agreement or any waiver on the part
of the parties hereto of any provisions or conditions of this Agreement must be
in writing and shall be effective only to the extent specifically set forth in
such writing, and that all remedies, either under this Agreement, by law, or
otherwise afforded to the parties hereto, shall be cumulative and not
alternative.
6.7 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery (by means of overnight mail, courier, messenger or other
reasonable methods of delivery) or upon deposit with the United States Post
Office, by first class mail, postage prepaid, addressed: (a) if to a party
hereto other than the Company, at such party's address as maintained in the
Company's records, or at such other address as such party shall have furnished
to the Company in writing, or (b) if to the Company, at its address as set forth
at the end of this Agreement, or at such other address as the Company shall have
furnished to the other parties hereto in writing.
6.8 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
6.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this FIFTH
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first above
written.
FAXSAV INCORPORATED
By: /s/ Peter S. Macaluso
---------------------------------
Peter S. Macaluso, Vice President
Address: 399 Thornall Street
Edison, New Jersey 08837
Tel: (908) 906-2000
Fax: (908) 906-1113
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this FIFTH
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first above
written.
Telstra Incorporated Menlo Entrepreneurs Fund VI, L.P.
By: MV Management VI, L.P.
By: /s/ Gregory M. Dunfield Its General Partner
------------------------
Title: President
By: /s/ John L. Jarve
--------------------------------
Its: General Partner
Sierra Ventures V
By: /s/ Jeffrey M. Drazan Menlo Ventures VI, L.P.
------------------------
Title: General Partner By: MV Management VI, L.P.
Its General Partner
Battery Ventures II, L.P. By: /s/ John L. Jarve
--------------------------------
Its: General Partner
By: /s/ General Partner
------------------------
Title: General Partner Lehman Brothers Holdings Inc.
By: /s/ Karen M. Muller
--------------------------------
Coral Partners II, a limited partnership Title: Vice President
By: Coral Management Partners II,
Limited Partnership,
Its: General Partner Brae Group, Inc.
By: /s/ Yuval Almog By: /s/ Vice President
------------------------ --------------------------------
Title: General Partner Title: Vice President
Sand Hill Financial Company Wythes Living Trust
By: /s/ Donald L. Lucas By: /s/ Paul M. Wythes
------------------------ --------------------------------
Title: General Partner Title: Trustee
By: Ronald L. Perkins under Power of
Attorney
Noel Group, Inc.
Stanford University
By: /s/ Todd K. West
-----------------------
Title: V.P. Finance By: /s/ Carol Gilmer
--------------------------------
Title: Assistant Secretary, Board of
Trustees of Stanford University
Brendan Joseph Cassin and Isabel B.
Cassin, Trustees of the Cassin Family
Trust U/D/T dated January 31, 1996
By: /s/ B.J. Cassin
------------------------
Title: Trustee
<PAGE>
Wells Fargo Bank, Trustee for SHV Motete Corporation
M/P/T FBO Sherryl Hossack
By: /s/ Gabriel de la Guardia
-------------------------------
By: /s/ Christopher M. Petersen Title: President
----------------------------
Title: Assistant Vice President
Mary G. Lucas and John W. Lucas,
Trustees, UWO L.J. Lucas Trust A
Wells Fargo Bank, Trustee for SHV
M/P/T FBO William H. Younger Jr. By: /s/ Mary G. Lucas
-------------------------------
Title: Trustee
By: /s/ Christopher M. Petersen By: /s/ John W. Lucas
---------------------------- -------------------------------
Title: Assistant Vice President Title: Trustee
Lucas Family Trust dtd 6/4/80
Genstar Investment Corporation
By: /s/ John W. Lucas
-------------------------------
By: /s/ John A. West Title: Co-Trustee
----------------------------
Title: Executive Vice President
Richard M. Lucas Cancer Foundation
Anvest, L.P.
By: /s/ Donald L. Lucas
-------------------------------
By: /s/ David L. Anderson Title: Chairman of the Board
----------------------------
Title: General Partner
Donald L. Lucas, Successor Trustee,
Tow Partners, a California Limited Donald L. Lucas Profit Sharing Trust
Partnership DTD 1-1-84
By: /s/ Paul M. Wythes By: /s/ Donald L. Lucas
---------------------------- --------------------------------
Title: General Partner Title: Successor Trustee
By: Ronald L. Perkins under Power of
Attorney
Latta 1990 Irrevocable Trust
Sutter Hill Ventures, By: /s/ Kurt A. Latta
a California Limited --------------------------------
Partnership Title: Trustee
By: /s/ Tench Coxe
----------------------------
Title: General Partner of the General Latta Pension Plan
Partner
By: /s/ Kurt A. Latta
-------------------------------
Oster Family Revocable Trust Title: Trustee
By: /s/ Robert J. Oster
----------------------------
Title: Trustee Kirktech
By: /s/ Roy Kirkorian
-------------------------------
Title: Managing Partner
<PAGE>
Jeffrey O. Henley and Judy Henley, Sandra Drazan Living Trust
Trustees, Jeffrey and Judy Henley
Trust I, dated 10/23/89 By: /s/ Sandra Drazan
--------------------------------
By: /s/ Jeffrey O. Henley Title: Trustee
----------------------------
Title: Trustee
By: /s/ Judy Henley /s/ Charles Elsener
---------------- ------------------------------------
Title: Trustee
/s/ Burt Zaccaria
------------------------------------
The Trustees of the Wallace R. Hawley
and Alexandra Hawley Revoccable Trust
U/A/D 7/30/92 /s/ Talya Meister
------------------------------------
By: /s/ Wallace R. Hawley
----------------------------
Title: Trustee /s/ Steven Meister
------------------------------------
Dellaporta Family Trust
/s/ Daniel C. Lynch
By: /s/ Angelo Dellaporte ------------------------------------
----------------------------
Title: Trustee /s/ Robert J. Labant
------------------------------------
S&C Trust
/s/ Richard R. Plumridge
By: /s/ Stanley Goodstein ------------------------------------
----------------------------
Title: Trustee
/s/ Michael J. Odrich
------------------------------------
The Encore Co. Inc.
/s/ Michael Parker Odrich
By: /s/ Richard Segal ---------------------------
---------------------------- By: Michael J. Odrich, as custodian
Title: Chairman under the U/G/M/A
/s/ Jeffrey Tarrant
Seavest Partners ---------------------------------
By: /s/ Richard Segal
---------------------------- /s/ G. Arjavalingam
Title: Managing Partner ---------------------------------
Fourth Generation /s/ Clarke H. Bailey
---------------------------------
By: /s/ Richard Segal
---------------------------- /s/ Neil S. Ende
Title: Managing Partner ---------------------------------
/s/ Elizabeth H. Ende
---------------------------------
<PAGE>
/s/ Joseph M. Petri /s/ Noel P. Rahn
- -------------------------------- ---------------------------------
/s/ James C. Gaither
- -------------------------------- /s/ Alberto Perez
By: Ronald L. Perkins under Power of ---------------------------------
Attorney
/s/ Harold W. Milner
/s/ Tench Coxe ---------------------------------
- --------------------------------
/s/ Frank W. McBee, Jr.
/s/ Ronald L. Perkins ---------------------------------
- --------------------------------
/s/ Roy Kirkorian
/s/ G. Leonard Baker, Jr. ---------------------------------
- --------------------------------
By: Ronald L. Perkins under Power of
Attorney /s/ Paul Joas
---------------------------------
/s/ David L. Anderson
- -------------------------------- /s/ Donald K. Grierson
---------------------------------
/s/ Peter H. McNerney
- -------------------------------- /s/ Larry Gerdes
---------------------------------
/s/ David Koehler
- -------------------------------- /s/ Willis K. Drake
---------------------------------
/s/ Anne F. Holloran
- -------------------------------- /s/ Gerald C. Down
---------------------------------
/s/ Thomas G. Kamp
- -------------------------------- /s/ Joseph B. Costello
---------------------------------
/s/ Richard E. Struthers
- -------------------------------- /s/ W.G. Christianson
---------------------------------
/s/ Kip Knelman
- -------------------------------- /s/ Gerald Shaltz
---------------------------------
/s/ Steven G. Rothmeier
- -------------------------------- /s/ Peter A. Howley
---------------------------------
/s/ Mark C. Headrick
- -------------------------------- /s/ Donald T. Pascal
---------------------------------
/s/ Yuval Almog
- --------------------------------
/s/ Morton L. Topfer
- --------------------------------
<PAGE>
SCHEDULE 1
FOUNDERS' STOCK
NO. OF SHARES OF
NAME AND ADDRESS COMMON STOCK
Martin Ellis 297,000
59 Cricket Club Drive
North Hills, NY 11576
Jeffrey Kurland 318,667
9401 Overlea Drive
Rockville, MD 20850
Marshall Ellis 76,000
375 Baptist Church Road
Yorktown Heights, NY 10598
Jerrold Siegan 62,000
20 N. Clark Street
Chicago, IL 60602
22
<PAGE>
EXHIBIT 10.3
DIGITRAN CORPORATION
1990 STOCK OPTION PLAN
I. PURPOSES OF THE PLAN
This Stock option Plan (the "Plan") is intended to promote the interests of
Digitran Corporation, a Delaware corporation (the "Company"), by providing a
method whereby (i) key employees (including officers and directors) of the
Company (or its parent or subsidiary corporations) responsible for the
management, growth and financial success of the Company (or its parent or
subsidiary corporations), (ii) the non-employee members of the Company's Board
of Directors and (iii) consultants and independent contractors who provide
valuable services to the Company (or its parent or subsidiary corporations) may
be offered incentives and rewards which will encourage them to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Company and continue to render services to the Company (or its parent or
subsidiary corporations).
For purposes of the Plan, the following provisions shall be applicable in
determining the parent and subsidiary corporations of the Company:
(i) Any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company shall be considered to be a
parent corporation of the Company, provided each such corporation in the
unbroken chain (other than the Company) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
(ii) Each corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company shall be considered to be
a subsidiary of the Company, provided each such corporation (other than the
last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
II. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors (the "Board") of
the Company. The Board, however, may at any time appoint a committee
("Committee") of three (3) or more members of the Board and delegate to such
Committee one or more of the administrative powers allocated to the Board
pursuant to the provisions of the Plan. Members of the Committee shall serve
for such period of time as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any
<PAGE>
time terminate the functions of the Committee and reassume all powers and
authority previously delegated to the Committee.
The Plan Administrator (either the Board or the Committee, to the extent
the Committee is at the time responsible for the administration of the Plan)
shall have full power and authority (subject to the provisions of the Plan) to
establish such rules and regulations as it may deem appropriate for the proper
administration of the Plan and to make such determinations under, and issue such
interpretations of, the Plan and any outstanding option as it may deem necessary
or advisable. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan or any outstanding option.
III. ELIGIBILITY FOR OPTION GRANTS
The persons eligible to receive option grants under the Plan are as
follows:
(i) key employees (including officers and directors) of the
Company (or its parent or subsidiary corporations);
(ii) the non-employee members of the Board; and
(iii) those consultants or independent contractors who
provide valuable services to the Company (or its parent or subsidiary
corporations).
The Plan Administrator shall have full authority to determine which
eligible individuals are to receive option grants under the Plan, the number of
shares to be covered by each such grant, whether the granted option is to be an
incentive stock option ("Incentive Option") which satisfies the requirements of
section of the Internal Revenue Code or a non-statutory option not intended to
meet such requirements, the time or times at which each such option is to become
exercisable, and the maximum term for which the option is to be outstanding.
IV. STOCK SUBJECT TO THE PLAN
The stock issuable under the Plan shall be shares of the Company's
authorized but unissued or reacquired Common Stock. The aggregate number of
shares which may be issued over the term of the Plan shall not exceed 1,100,000
shares. The total number of shares issuable under the Plan shall be subject to
adjustment from time to time in accordance with the provisions of this Section
IV.
Should an option expire or terminate for any reason prior to exercise or
surrender in full (including options cancelled in accordance with the
cancellation-regrant provisions of Section VIII of the Plan), the shares subject
to the portion of the option not so exercised or surrendered shall be available
for subsequent option grants under the Plan. Shares subject to any option or
portion thereof surrendered in accordance with Section IX of the
2
<PAGE>
Plan and shares repurchased by the Company pursuant to its repurchase rights
under the Plan shall NOT be available for subsequent option grants under the
Plan.
In the event any change is made to the Common Stock issuable under the Plan
by reason of (i) any Corporate Transaction (as defined in Section VII) or (ii)
any stock split, stock dividend, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without receipt
of consideration, then unless such change results in the termination of all
outstanding options under the Plan as a result of the Corporate Transaction,
appropriate adjustments shall be made to (I) the aggregate class and/or number
of shares issuable under the Plan and (II) the class and/or number of shares and
price per share of the Common Stock subject to each outstanding option in order
to prevent the dilution or enlargement of benefits thereunder.
V. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by action of the
Plan Administrator and may, at the Plan Administrator's discretion, be either
Incentive options or non-statutory options. Individuals who are not employees
of the Company or its parent or subsidiary corporations may only be granted non-
statutory options. Each granted option shall be evidenced by one or more
instruments in the form approved by the Plan Administrator; PROVIDED, however,
that each such instrument shall comply with and incorporate the terms and
conditions specified below. Each instrument evidencing an Incentive Option
shall, in addition, be subject to the applicable provisions of Section VI.
1. OPTION PRICE.
A. The option price per share shall be fixed by the Plan Administrator;
PROVIDED, however, that in no event shall the option price per share be less
than eighty-five percent (85%) of the fair market value of a share of Common
Stock on the date of the option grant.
B. The option price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section X and the instrument
evidencing the grant, be payable in one of the alternative forms specified
below:
(i) full payment in cash or check; or
(ii) full payment in shares of Common Stock held by the optionee for
the requisite period necessary to avoid a charge to the Company's earnings
for financial reporting purposes and valued at fair market value on the
Exercise Date (as such term is defined below); or
(iii) payment through a combination of shares of Common Stock held
by the optionee for the requisite period
3
<PAGE>
necessary to avoid a charge to the Company's earnings for financial reporting
purposes and valued at fair market value on the Exercise Date and cash or check,
equal in the aggregate to the option price.
For purposes of this subparagraph B, the Exercise Date shall be the first
date on which the Company shall have received both written notice of the
exercise of the option and payment of the option price for the purchased shares.
C. The fair market value of a share of Common Stock on any relevant date
under subparagraph A or B above (and for all other valuation purposes under the
Plan) shall be determined in accordance with the following provisions:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded in the over-the-counter market,
the fair market value shall be the mean between the highest bid and lowest
asked prices (or, if such information is available, the closing selling
price) per share of Common Stock on the date in question in the over-the-
counter market, as such prices are reported by the National Association of
Securities Dealers through its NASDAQ system or any successor system. If
there are no reported bid and asked prices (or closing selling price) for
the Common Stock on the date in question, then the mean between the highest
bid price and lowest asked price (or the closing selling price) on the last
preceding date for which such quotations exist shall be determinative of
fair market value.
(ii) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the fair market value shall be the
closing selling price per share of Common Stock on the date in question on
the stock exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no reported
sale of Common Stock on such exchange on the date in question, then the
fair market value shall be the closing selling price on the exchange on the
last preceding date for which such quotation exists.
(iii) If the Common Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, or, if the Plan Administrator determines that the value as determined
pursuant to subparagraphs (i) and (ii) above does not reflect fair market value,
then the fair market value shall be determined by the Plan Administrator after
taking into account such factors as the Plan Administrator shall deem
appropriate, including one or more independent professional appraisals.
4
<PAGE>
2. TERM AND EXERCISE OF OPTIONS.
Each option granted under the Plan shall be exercisable at such time or
times, during such period, and for such number of shares as shall be determined
by the Plan Administrator and set forth in the instrument evidencing such
option; PROVIDED, however, that no such option shall have a maximum term in
excess of ten (10) years from the grant date. During the lifetime of the
optionee, the option shall be exercisable only by the optionee and shall not be
assignable or transferable by the optionee otherwise than by will or by the laws
of descent and distribution.
3. EFFECT OF TERMINATION OF EMPLOYMENT.
A. Should an optionee cease to be a Service Provider to the Company for
any reason (including death or permanent disability as defined in Section
22(e)(3) of the Internal Revenue Code) while the holder of one or more
outstanding options under the Plan, then such option or options shall not
(except to the extent otherwise provided pursuant to Section XI below) remain
exercisable for more than a twelve (12) month-period (or such shorter period
determined by the Plan Administrator and specified in the instrument evidencing
the grant) following the date of such cessation of Service Provider status;
PROVIDED, however, that under no circumstances shall such options be exercisable
after the specified expiration date of the option term. Each such option shall,
during such twelve (12) month or shorter period, be exercisable only to the
extent of the number of shares (if any) for which the option is exercisable on
the date of such cessation of Service Provider status. Upon the expiration of
such twelve (12) month or shorter period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be exercisable.
B. Any option granted to an optionee under the Plan and exercisable in
whole or in part on the date of the optionee's death may be subsequently
exercised, but only to the extent of the number of shares (if any) for which the
option is exercisable on the date of the optionee's death, by the personal
representative of the optionee's estate or by the person or persons to whom the
option is transferred pursuant to the optionee's will or in accordance with the
laws of descent and distribution, PROVIDED AND ONLY if such exercise occurs
prior to the EARLIER of (i) the third anniversary of the date of the optionee's
cessation of Service Provider status or (ii) the specified expiration date of
the option term. Upon the occurrence of the earlier event, the option shall
terminate and cease to be exercisable.
C. If (i) the optionee's status as Service Provider is terminated for
misconduct (including, but not limited to, any act of dishonesty,willful
misconduct, fraud or embezzlement) or (ii) the optionee makes or attempts to
make any unauthorized use or disclosure of confidential information or trade
secrets of the Company or its parent or subsidiary corporations, then in any
such event all outstanding options granted the optionee under the Plan shall
terminate and cease to be exercisable immediately upon such
5
<PAGE>
termination of Service Provider status or such unauthorized use or disclosure of
confidential or secret information or attempt thereat.
D. Notwithstanding subparagraphs A and B above, the Plan Administrator
shall have complete discretion, exercisable either at the time the option is
granted or at the time the optionee ceases Service Provider status, to establish
as a provision applicable to the exercise of one or more options granted under
the Plan that during the limited period of exercisability following the
cessation of Service Provider status as provided in Section V.3.A above, the
option may be exercised not only with respect to the number of shares for which
it is exercisable at the time of the optionee's cessation of Service Provider
status but also with respect to one or more subsequent installments of
purchasable shares for which the option would otherwise have become exercisable
had such cessation of Service Provider status not occurred.
E. For purposes of the foregoing provisions of this Section V.3 (and all
other provisions of the Plan), unless it is provided otherwise in the specific
option agreement evidencing the option grant and/or the purchase agreement
evidencing the purchased optioned shares, the optionee shall be deemed to be a
Service Provider to the Company for so long as such individual renders services
on a periodic basis to the Company or any parent or subsidiary corporation in
the capacity of an Employee, a non-employee member of the board of directors or
an independent consultant or advisor. The optionee shall be considered to be an
Employee for so long as such individual remains in the employ of the Company or
one or more of its parent or subsidiary corporations.
4. STOCKHOLDER RIGHTS.
An optionee shall have none of the rights of a stockholder with respect to
any shares covered by the option until such individual shall have exercised the
option and paid the option price.
5. REPURCHASE RIGHTS.
The shares of Common Stock acquired upon the exercise of options granted
under the Plan may be subject to one or more repurchase rights of the Company in
accordance with the following provisions:
A. The Plan Administrator may in its discretion determine that it shall
be a term and condition of one or more options exercised under the Plan that the
Company (or its assignees) shall have the right, exercisable upon the optionee's
cessation of Service Provider status, to repurchase at the option price all or
(at the discretion of the Company and with the consent of the optionee) any
portion of the shares of Common Stock previously acquired by the optionee upon
the exercise of such option. Any such repurchase right shall be exercisable by
the Company (or its
6
<PAGE>
assignees) upon such terms and conditions (including the establishment of the
appropriate vesting schedule and other provision for the expiration of such
right in one or more installments over the optionee's period of Service Provider
status) as the Plan Administrator may specify in the instrument evidencing such
right.
B. All of the Company's outstanding repurchase rights shall automatically
terminate, and all shares purchased or purchasable under the Plan shall
immediately vest in full, upon the occurrence of any Corporate Transaction under
Section VII; PROVIDED, however, that no such termination or immediate vesting
shall occur if (and to the extent): (i) the Company's outstanding repurchase
rights are to be assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such termination of repurchase
rights and acceleration of vesting are precluded by other limitations imposed by
the Plan Administrator at the time of the option grant.
C. The Plan Administrator may also in its discretion establish as a term
and condition of one or more options granted under the Plan that the Company
shall have a right of first refusal with respect to any proposed sale or other
disposition by the optionee (or any successor in interest by reason of purchase,
gift or other mode of transfer) of any shares of Common Stock issued upon the
exercise of such options. Any such right of first refusal shall be exercisable
by the Company (or its assignees) in accordance with the terms and conditions
set forth in the instrument evidencing such right.
VI. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under the Plan. Incentive Options may only be granted
to individuals who are Employees of the Company. Options which are specifically
designated as "non-statutory" options when issued under the Plan shall NOT be
subject to such terms and conditions.
A. OPTION PRICE. The option price per share of the Common Stock subject
to an Incentive Option shall in no event be less than one hundred percent (100%)
of the fair market value of a share of Common Stock on the date of grant.
B. DOLLAR LIMITATION. The aggregate fair market value (determined as of
the respective date or dates of grant) of the Common Stock for which one or more
options granted to any Employee after December 31, 1986 under this Plan (or any
other option plan of the Company or its parent or subsidiary corporations) may
for the first time become exercisable as incentive stock options under the
Federal tax laws during any one calendar year shall not exceed the sum of One
Hundred Thousand Dollars ($100,000). To the extent the Employee holds two or
more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability thereof as
incentive
7
<PAGE>
stock options under the Federal tax laws shall be applied on the basis of the
order in which such options are granted.
C. 10% SHAREHOLDER. if an individual to whom an incentive option is
to be granted pursuant to the provisions of the Plan is on the date of grant the
owner of stock (as determined under Section 425(d) of the Internal Revenue Code)
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or a parent or subsidiary corporations, then the following
special provisions shall be applicable to the option granted to such individual:
(i) the option price per share of the Common Stock subject to
such option shall not be less than one hundred and ten percent (110%) of
the fair market value of one share of Common Stock on the date of grant;
and
(ii) the option shall not have a term in excess of five (5) years
from the date of grant.
Except as modified by the preceding provisions of this Section VI, all the
provisions of the Plan shall be applicable to the Incentive Options granted
hereunder.
VII. CORPORATE TRANSACTIONS
A. In the event of any of the following transactions (a "Corporate
Transaction"):
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company, or
(iii) any reverse merger in which the Company is the surviving
entity but in which fifty percent (50%) or more of the Company's
outstanding voting stock is transferred to holders different from those who
held the stock immediately prior to such merger,
then the exercisability of each option outstanding under the Plan shall be
automatically accelerated so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock
purchasable under such option and may be exercised for all or any portion of
such shares. However, an outstanding option under the Plan shall not be so
accelerated if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or be replaced with a comparable option- to purchase shares of
the capital stock of the successor
8
<PAGE>
corporation or parent thereof, or (ii) such option is to be replaced by a
comparable cash incentive program of the successor corporation based on the
option spread (the excess of the fair market value of the shares of Common Stock
at the time subject to the option over the option price payable for such shares)
at the time of the Corporate Transaction, or (iii) the acceleration of such
option is subject to other applicable limitations imposed by the Plan
Administrator at the time of grant. The determination of comparability under
clause (i) or (ii) above shall be made by the Plan Administrator and its
determination shall be final, binding and conclusive.
B. In connection with any such Corporate Transaction, the exercisability
as an incentive stock option under the Federal tax laws of any accelerated
options under the Plan shall remain subject to the applicable dollar limitation
of Section VI B.
C. Upon the consummation of the Corporate Transaction, all outstanding
options under the Plan shall, to the extent not previously exercised or assumed
by the successor corporation or its parent company, terminate and cease to be
outstanding.
D. The grant of options under this Plan shall in no way affect the right
of the Company to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
VIII. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, the cancellation
of any or all outstanding options under the Plan and to grant in substitution
therefor new options under the Plan covering the same or different numbers of
shares of Common Stock but having an option price per share not less than
eighty-five percent (85%) of fair market value (one hundred percent (100%) of
fair market value in the case of an Incentive Option or, in the case of a 10%
Stockholder, not less than one hundred and ten percent (110%) of fair market
value) on the new grant date.
IX. SURRENDER OF OPTIONS FOR CASE OR STOCK
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
IX, one or more optionees may be granted the right, exercisable upon such terms
and conditions as the Plan Administrator may establish, to surrender all or part
of an unexercised option under the Plan in exchange for a distribution from the
Company equal in amount to the excess of (i) the fair market value (at date of
surrender) of the number of shares in which the optionee is at the time vested
under the surrendered option (or surrendered portion thereof) over (ii) the
aggregate option price payable for such vested shares.
9
<PAGE>
B. No surrender of an option shall be effective hereunder unless it is
approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the optionee shall accordingly become entitled under this
Section IX may be made in shares of Common Stock valued at fair market value at
date of surrender, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan Administrator,
then the optionee shall retain whatever rights the optionee had under the
surrendered option (or surrendered portion thereof) on the date of surrender and
may exercise such rights at any time prior to the LATER of (i) five (5) business
days after the receipt of the rejection notice or (ii) the last day on which the
option is otherwise exercisable in accordance with the terms of the instrument
evidencing such option, but in no event may such rights be exercised at any time
after ten (10) years (or five (5) years in the case of a 10% Stockholder) after
the date of the option grant.
D. Notwithstanding the foregoing provisions of this Section IX, should
twenty-five percent (25%) or more of the Company's outstanding voting stock be
acquired, at a time when one or more classes of the Company's equity securities
are registered under Section 12(g) of the Securities Exchange Act of 1934 (as
amended), pursuant to a tender or exchange offer (I) which is made by a person
or group of related persons other than the Company or a person that directly or
indirectly controls, is controlled by or is under common control with the
Company and (II) which the Board does not recommend the Company's stockholders
to accept, then each optionee who is by reason of his/her affiliation with the
Company at the time subject to the short-swing profit restrictions of the
Federal securities laws shall have the right (exercisable for a period not to
exceed thirty (30) days) to surrender any or all options held by such individual
under this Plan, to the extent such options have been outstanding for at least
six (6) months and are at the time exercisable for vested shares, and receive in
exchange therefor an appreciation distribution from the Company equal in amount
to the excess of (i) the fair market value (on the date of surrender) of the
number of shares in which the optionee is at the time vested under the
surrendered option or portion thereof over (ii) the aggregate option price
payable for such vested shares. The approval of the Plan Administrator shall
not be required for such surrender, and the distribution to which such
individual shall become entitled upon such surrender shall be made entirely in
cash.
E. For purposes of subparagraph D. above, the fair market value per share
of the vested Common Stock subject to the surrendered option shall be deemed to
be equal to the GREATER of (a) the value per share on the date of surrender, as
determined in accordance with the valuation provisions of Section V.1.D., or (b)
the highest reported price per share paid in effecting the tender or exchange
offer. However, if the surrendered option is an Incentive Option, then the fair
market value of the vested shares subject to the surrendered option shall not
exceed the value per share determined under clause (a) above.
10
<PAGE>
X. LOANS OR GUARANTEE OF LOANS
The Plan Administrator may assist any optionee (including any officer or
director) in the exercise of one or more options under the Plan by (a)
authorizing the extension of a loan to such optionee from the Company, (b)
permitting the optionee to pay the option price for the purchased Common Stock
in installments over a period of years or (c) authorizing a guarantee by the
Company of a third-party loan to the optionee. The terms of any loan,
installment method of payment or guarantee (including the interest rate and
terms of repayment) shall be established by the Plan Administrator in its sole
discretion. Loans, installment payments and guarantees may be granted without
security or collateral (other than to optionees who are consultants or
independent contractors, in which event the loan must be adequately secured by
collateral other than the purchased shares), but the maximum credit available
to the optionee shall not exceed the SUM of (i) the aggregate option price (less
the par value) of the purchased shares plus (ii) any Federal and State income
and employment tax liability incurred by the optionee in connection with the
exercise of the option.
XI. EXTENSION OF EXERCISE PERIOD
The Plan Administrator shall have full power and authority to extend the
period of time for which the option is to remain exercisable following the
optionee's termination of Service Provider status from the limited period
specified in the option agreement to such greater period of time as the Plan
Administrator shall deem appropriate; PROVIDED, however, that in no event shall
such option be exercisable after the specified expiration date of the option
term.
XII. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and authority to amend or
modify the Plan in any or all respects whatsoever; PROVIDED, however, that no
such amendment or modification shall, without the consent of the holders,
adversely affect the rights and obligations with respect to options at the time
outstanding under the Plan; and PROVIDED, further that the Board shall not,
without the approval of the Company's stockholders, (i) increase the maximum
number of shares issuable under the Plan, except for permissible adjustments
under Section IV, or (ii) materially modify the eligibility requirements for the
grant of options under the Plan.
XIII. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board, but no
option granted under the Plan shall become exercisable unless and until the Plan
shall have been approved by the Company's stockholders. If such stockholder
approval is not obtained within twelve (12) months after the date of the Board's
adoption of the Plan, then all options previously granted under the Plan shall
terminate and no further options shall be granted.
11
<PAGE>
Subject to such limitation, the Plan Administrator may grant options under the
Plan at any time after the effective date and before the date fixed herein for
termination of the Plan.
B. Unless sooner terminated in accordance with Section VII, the Plan
shall terminate upon the EARLIER of (i) the expiration of the ten (10) year
period measured from the date of the Board's adoption of the Plan or (ii) the
date on which all shares available for issuance under the Plan shall have been
issued pursuant to the exercise or surrender of options granted hereunder. If
the date of termination is determined under clause (i) above, then options
outstanding on such date shall thereafter continue to have force and effect in
accordance with the provisions of the instruments evidencing such options.
C. Options may be granted under this Plan to purchase shares of Common
Stock in excess of the number of shares then available for issuance under the
Plan, PROVIDED (i) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such option and within one year thereafter such amendment is approved by the
Company's stockholders and (ii) each option granted is not to become
exercisable, in whole or in part, at any time prior to the obtaining of such
stockholder approval.
XIV. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of shares pursuant
to options granted under the Plan shall be used for general corporate purposes.
XV. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option hereunder, and
the issuance of stock upon the exercise or surrender of any such option shall be
subject to the procurement by the Company of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the options granted
under it and the stock issued pursuant to it.
12
<PAGE>
EXHIBIT 10.5
FORM OF OFFCIER SEVERANCE AGREEMENT
THIS AGREEMENT is made this ____ day of March, 1996, between FAXSAV
INCORPORATED, a Delaware corporation (the "Corporation") and [________________]
("Executive").
BACKGROUND
The Corporation desires to grant Executive certain benefits upon the
termination of Executive's employment with the Corporation or any Successor
Entity (as defined herein) solely in connection with an Acquisition (as defined
herein) on the terms and conditions set forth below.
AGREEMENT
In consideration of the employment and continued employment of Executive by
the Corporation, the premises, and the mutual agreements hereinafter set forth,
the parties agree:
1. DEFINITIONS. The following terms used herein shall have the
definitions set forth below:
(a) "Acquisition" means (i) a merger or consolidation in which more
than fifty percent (50%) of the Corporation's outstanding voting stock is
transferred to a person or persons different from those who held the stock
immediately prior to such transaction, or (ii) the sale, transfer or other
disposition of all or substantially all of the Corporation's assets.
(b) "Involuntary Termination" shall mean the termination of
Executive's employment with the Corporation or any Successor Entity which occurs
by reason of:
(i) Executive's involuntary dismissal or discharge by the
Corporation (or any Successor Entity) for reasons other than Misconduct, or
(ii) Executive's voluntary resignation following (A) a change in
Executive's position with the Corporation (or any Successor Entity) which
materially reduces Executive's level of responsibility, (B) a reduction in
Executive's level of compensation (including base salary, fringe benefits
and any non-discretionary and objective-standard incentive payment or bonus
award) by more than fifteen percent (15%) or (C) a relocation of
Executive's place of employment by more than fifty (50) miles, provided and
only if such change, reduction or relocation is effected by the Corporation
(or any Successor Entity) without Executive's consent.
(c) Misconduct shall mean the commission of any act of fraud,
embezzlement or dishonesty by Executive, any unauthorized use or disclosure by
Executive of confidential information or trade secrets of the Corporation (or
any Successor Entity), or any other intentional misconduct by Executive
adversely affecting the business or affairs of
<PAGE>
the Corporation (or any Successor Entity) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Successor Entity) may consider as grounds for the
dismissal or discharge of Executive or any other individual in the employment of
the Corporation (or any Successor Entity).
(d) "Options" means any options to purchase capital stock of the
Corporation or any Successor Entity that are owned by the Executive.
(e) "Successor Entity" means any successor corporation, partnership
or other entity which owns all, or substantially all, of the assets or more than
fifty percent (50%) of the voting stock of the Corporation as a result of an
Acquisition.
2. SEVERANCE AGREEMENT. Upon the Involuntary Termination of Executive's
employment with the Corporation or a Successor Entity in connection with an
Acquisition during the two (2) year period following an Acquisition, all Options
that are scheduled to vest and become exercisable during the twenty-four (24)
month period following such termination shall vest upon such termination and
become immediately exercisable; PROVIDED that such vesting shall not occur if
the Corporation and the Executive agree in a signed writing to mutually
satisfactory alternative compensation arrangements.
3. GENERAL PROVISIONS
(a) In the event that any one or more of the provisions, or parts of
any provisions, contained in this Agreement shall for any reason be held to be
invalid, illegal, or unenforceable in any respect by a court of competent
jurisdiction, the same shall not invalidate or otherwise affect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.
(b) This Agreement and the rights and obligations of the Corporation
hereunder may be assigned by the Corporation to any subsidiary of, or any other
successor to the Corporation, including but not limited to any Successor Entity,
and shall inure to the benefit of, shall be binding upon, and shall be
enforceable by any such assignee. This Agreement and the rights and obligations
of Executive hereunder shall inure to the benefit of Executive's estate and to
the person or persons to whom any options are transferred pursuant to the
Executive's will or in accordance with the laws of descent and distribution.
(c) The waiver by the Corporation (or the Successor Entity) or
Executive of any breach of this Agreement by the other party hereto shall not be
effective unless in writing, and no such waiver shall operate or be construed as
a waiver of the same or another breach on a subsequent occasion.
(d) This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of New
Jersey. Any action in law or equity regarding this Agreement or Executive's
rights hereunder may only be brought in the State of New Jersey.
-2-
<PAGE>
(e) This Agreement embodies the entire agreement of the parties
relating to the employment of Executive by the Corporation. No amendment or
modification of this Agreement shall be valid or binding upon the Corporation
(or the Successor Entity) or Executive unless made in writing and signed by the
parties.
(f) Any notice, request, demand, or other communication required to
be given hereunder shall be made in writing and shall be deemed to have been
fully given if personally delivered (including delivery by any overnight
delivery carrier) or if mailed by United States Mail, certified or registered,
postage prepaid, to the parties at the following addresses (or at such other
addresses as shall be given in writing by any party to the other party hereto):
If to Executive:
[ ]
If to Corporation:
FaxSAV Incorporated
399 Thornall Street
Edison, New Jersey 08837
Attention: Mr. Thomas F. Murawski
Telephone: (908) 906-2000
Telecopy: (908) 906-1113
With a copy to:
Brobeck, Phleger & Harrison LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Richard R. Plumridge, Esq.
Telephone: (212) 581-1600
Telecopy: (212) 586-7878
(g) This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, and it shall not be necessary for
the same counterpart of this Agreement to be signed by all of the undersigned in
order for the agreements set forth herein to be binding upon all of the
undersigned in accordance with the terms hereof.
-3-
<PAGE>
IN WITNESS WHEREOF, the Corporation and Executive have each executed
and delivered this Agreement as of the date first above written.
CORPORATION:
FAXSAV INCORPORATED
By: ___________________________________
Peter S. Macaluso
Vice President
EXECUTIVE:
Signature:______________________________
-4-
<PAGE>
EXHIBIT 10.6
FORM OF DIRECTOR SEVERANCE AGREEMENT
THIS AGREEMENT is made this ____ day of March, 1996, between FAXSAV
INCORPORATED, a Delaware corporation (the "Corporation") and [ ]
("Director").
BACKGROUND
The Corporation desires to grant Director certain benefits upon the removal
of Director from the Board of Directors of the Corporation or any Successor
Entity (as defined herein) solely in connection with an Acquisition (as defined
herein) on the terms and conditions set forth below.
AGREEMENT
In consideration of the service and continued service of Director on the
Board of Directors of the Corporation, the premises, and the mutual agreements
hereinafter set forth, the parties agree:
1. DEFINITIONS. The following terms used herein shall have the
definitions set forth below:
(a) "Acquisition" means (i) a merger or consolidation in which more
than fifty percent (50%) of the Corporation's outstanding voting stock is
transferred to a person or persons different from those who held the stock
immediately prior to such transaction, or (ii) the sale, transfer or other
disposition of all or substantially all of the Corporation's assets.
(b) "Involuntary Removal" shall mean the removal of Director from the
Board of Directors of the Corporation or any Successor Entity which occurs by
reason of Director's involuntary dismissal for reasons other than Misconduct.
(c) Misconduct shall mean the commission of any act of fraud,
embezzlement or dishonesty by Director, any unauthorized use or disclosure by
Director of confidential information or trade secrets of the Corporation (or any
Successor Entity), or any other intentional misconduct by Director adversely
affecting the business or affairs of the Corporation (or any Successor Entity)
in a material manner. The foregoing definition shall not be deemed to be
inclusive of all the acts or omissions which the Corporation (or any Successor
Entity) may consider as grounds for the removal of Director from the Board of
Directors of the Corporation (or any Successor Entity).
(d) "Options" means any options to purchase capital stock of the
Corporation or any Successor Entity that are owned by the Director.
<PAGE>
(e) "Successor Entity" means any successor corporation, partnership
or other entity which owns all, or substantially all, of the assets or more than
fifty percent (50%) of the voting stock of the Corporation as a result of an
Acquisition.
2. SEVERANCE AGREEMENT. Upon the Involuntary Removal of Director from
the Board of Directors of the Corporation or a Successor Entity in connection
with an Acquisition during the two (2) year period following an Acquisition, all
Options that are scheduled to vest and become exercisable during the twenty-four
(24) month period following such termination shall vest upon such termination
and become immediately exercisable; PROVIDED that such vesting shall not occur
if the Corporation and the Director agree in a signed writing to mutually
satisfactory alternative compensation arrangements.
3. GENERAL PROVISIONS
(a) In the event that any one or more of the provisions, or parts of
any provisions, contained in this Agreement shall for any reason be held to be
invalid, illegal, or unenforceable in any respect by a court of competent
jurisdiction, the same shall not invalidate or otherwise affect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.
(b) This Agreement and the rights and obligations of the Corporation
hereunder may be assigned by the Corporation to any subsidiary of, or any other
successor to the Corporation, including but not limited to any Successor Entity,
and shall inure to the benefit of, shall be binding upon, and shall be
enforceable by any such assignee. This Agreement and the rights and obligations
of Director hereunder shall inure to the benefit of Director's estate and to the
person or persons to whom any options are transferred pursuant to the Director's
will or in accordance with the laws of descent and distribution.
(c) The waiver by the Corporation (or the Successor Entity) or
Director of any breach of this Agreement by the other party hereto shall not be
effective unless in writing, and no such waiver shall operate or be construed as
a waiver of the same or another breach on a subsequent occasion.
(d) This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of New
Jersey. Any action in law or equity regarding this Agreement or Director's
rights hereunder may only be brought in the State of New Jersey.
(e) This Agreement embodies the entire agreement of the parties
relating to the employment of Director by the Corporation. No amendment or
modification of this Agreement shall be valid or binding upon the Corporation
(or the Successor Entity) or Director unless made in writing and signed by the
parties.
(f) Any notice, request, demand, or other communication required to
be given hereunder shall be made in writing and shall be deemed to have been
fully given if
-2-
<PAGE>
personally delivered (including delivery by any overnight delivery carrier) or
if mailed by United States Mail, certified or registered, postage prepaid, to
the parties at the following addresses (or at such other addresses as shall be
given in writing by any party to the other party hereto):
If to Director:
[ ]
If to Corporation:
FaxSAV Incorporated
399 Thornall Street
Edison, New Jersey 08837
Attention: Mr. Thomas F. Murawski
Telephone: (908) 906-2000
Telecopy: (908) 906-1113
With a copy to:
Brobeck, Phleger & Harrison LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Richard R. Plumridge, Esq.
Telephone: (212) 581-1600
Telecopy: (212) 586-7878
(g) This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, and it shall not be necessary for
the same counterpart of this Agreement to be signed by all of the undersigned in
order for the agreements set forth herein to be binding upon all of the
undersigned in accordance with the terms hereof.
-3-
<PAGE>
IN WITNESS WHEREOF, the Corporation and Director have each executed
and delivered this Agreement as of the date first above written.
CORPORATION:
FAXSAV INCORPORATED
By: ___________________________________
Peter S. Macaluso
Vice President
DIRECTOR:
Signature:______________________________
-4-
<PAGE>
EXHIBIT 10.7
SEVERANCE AGREEMENT
THIS AGREEMENT is made this 1st day of March, 1996, between FAXSAV
INCORPORATED, a Delaware corporation (the "Corporation") and TELSTRA
INCORPORATED, a Delaware corporation ("Telstra").
BACKGROUND
Pursuant to an Agreement between the Corporation and Telstra, dated as of
January 18, 1994, as amended October 31, 1994 and December 1, 1994, and as
further amended by the Stock Option Agreement between the Corporation and
Telstra, dated December 22, 1995, Telstra has the right to designate one member
of the Board of Directors of the Corporation. The Corporation desires to grant
Telstra certain benefits upon the removal of Telstra's Director designee (the
"Telstra Director") from the Board of Directors of the Corporation or any
Successor Entity (as defined herein) solely in connection with an Acquisition
(as defined herein) on the terms and conditions set forth below.
AGREEMENT
In consideration of the service and continued service of a Telstra Director
on the Board of Directors of the Corporation, the premises, and the mutual
agreements hereinafter set forth, the parties agree:
1. DEFINITIONS. The following terms used herein shall have the
definitions set forth below:
(a) "Acquisition" means (i) a merger or consolidation in which more
than fifty percent (50%) of the Corporation's outstanding voting stock is
transferred to a person or persons different from those who held the stock
immediately prior to such transaction, or (ii) the sale, transfer or other
disposition of all or substantially all of the Corporation's assets.
(b) "Involuntary Removal" shall mean the removal of a Telstra
Director from the Board of Directors of the Corporation or any Successor Entity
which occurs by reason of such director's involuntary dismissal for reasons
other than Misconduct.
(c) "Misconduct" shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Telstra Director, any unauthorized use or
disclosure by the Telstra Director or Telstra of confidential information or
trade secrets of the Corporation (or any Successor Entity), or any other
intentional misconduct by the Telstra Director or Telstra adversely affecting
the business or affairs of the Corporation (or any Successor Entity) in a
material manner. The foregoing definition shall not be deemed to be inclusive
of all the acts or omissions which the Corporation (or any Successor Entity) may
consider as grounds for the removal
<PAGE>
of the Telstra Director from the Board of Directors of the Corporation (or any
Successor Entity).
(d) "Options" means any options to purchase capital stock of the
Corporation or any Successor Entity that are owned by Telstra.
(e) "Successor Entity" means any successor corporation, partnership
or other entity which owns all, or substantially all, of the assets or more than
fifty percent (50%) of the voting stock of the Corporation as a result of an
Acquisition.
2. SEVERANCE AGREEMENT. Upon the Involuntary Removal of a Telstra
Director from the Board of Directors of the Corporation or a Successor Entity in
connection with an Acquisition during the two (2) year period following an
Acquisition, all Options that are scheduled to vest and become exercisable
during the twenty-four (24) month period following such termination shall vest
upon such termination and become immediately exercisable; PROVIDED that such
vesting shall not occur if the Corporation and Telstra agree in a signed writing
to mutually satisfactory alternative compensation arrangements.
3. GENERAL PROVISIONS
(a) In the event that any one or more of the provisions, or parts of
any provisions, contained in this Agreement shall for any reason be held to be
invalid, illegal, or unenforceable in any respect by a court of competent
jurisdiction, the same shall not invalidate or otherwise affect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.
(b) This Agreement and the rights and obligations of the Corporation
hereunder may be assigned by the Corporation to any subsidiary of, or any other
successor to the Corporation, including but not limited to any Successor Entity,
and shall inure to the benefit of, shall be binding upon, and shall be
enforceable by any such assignee. This Agreement and the rights and obligations
of Telstra hereunder may be assigned by Telstra to any subsidiary or parent of,
or any other successor to Telstra and shall inure to the benefit of, shall be
binding upon, and shall be enforceable by any such assignee.
(c) The waiver by the Corporation (or the Successor Entity) or
Telstra of any breach of this Agreement by the other party hereto shall not be
effective unless in writing, and no such waiver shall operate or be construed as
a waiver of the same or another breach on a subsequent occasion.
(d) This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with
-2-
<PAGE>
the laws of the State of New Jersey. Any action in law or equity regarding this
Agreement or Telstra's rights hereunder may only be brought in the State of New
Jersey.
(e) No amendment or modification of this Agreement shall be valid or
binding upon the Corporation (or the Successor Entity) or Telstra unless made in
writing and signed by the parties.
(f) Any notice, request, demand, or other communication required to
be given hereunder shall be made in writing and shall be deemed to have been
fully given if personally delivered (including delivery by any overnight
delivery carrier) or if mailed by United States Mail, certified or registered,
postage prepaid, to the parties at the following addresses (or at such other
addresses as shall be given in writing by any party to the other party hereto):
If to Telstra:
Telstra Incorporated
c/o FaxSAV Incorporated
399 Thornall Street
Edison, New Jersey 08837
Attention: Mr. Gregory Dunfield, President
Telephone: (908) 549-5501
Facsimile: (908) 549-5502
If to Corporation:
FaxSAV Incorporated
399 Thornall Street
Edison, New Jersey 08837
Attention: Mr. Thomas F. Murawski
Telephone: (908) 906-2000
Facsimile: (908) 906-1113
With a copy to:
Brobeck, Phleger & Harrison LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Richard R. Plumridge, Esq.
Telephone: (212) 581-1600
Facsimile: (212) 586-7878
(g) This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, and it shall not be necessary for
the same counterpart of this Agreement to be signed by all of the undersigned in
order for the agreements set forth herein to be binding upon all of the
undersigned in accordance with the terms hereof.
-3-
<PAGE>
IN WITNESS WHEREOF, the Corporation and Telstra have each executed and
delivered this Agreement as of the date first above written.
CORPORATION:
FAXSAV INCORPORATED
By: /s/ PETER S. MACALUSO
___________________________________
Peter S. Macaluso
Vice President
TELSTRA INCORPORATED
By: /s/ GREGORY DUNFIELD
___________________________________
Gregory Dunfield
President
-4-
<PAGE>
EXHIBIT 10.8
------------
WILMAX TSA# DCN-940404
TELECOMMUNICATIONS SERVICES AGREEMENT
-------------------------------------
This Telecommunications Services Agreement (hereinafter referred to as the
"Agreement" or the "TSA") is entered into this 4th day of April, 1994, by and
between WILTEL, INC., a Delaware corporation, with is principal office at One
Williams Center, Tulsa, Oklahoma, 74172 ("WilTel") and Digitran Corporation, a
Delaware corporation, with its principal office at 379 Thornall Street, Edison,
NJ 08837 ("Customer").
WITNESSETH:
WilTel agrees to provide and Customer agrees to accept switched
telecommunications services ("Switched Services") and other associated services
(collectively the "Services"), (i) as described in the Service Schedules
identified herewith, (ii) subject to the terms and conditions contained in this
Agreement, including without limitation those terms and conditions contained in
the Program Enrollment Terms ("PET") which are attached hereto and incorporated
herein by reference, and (iii) in conformity with each Service Request
(described below) which is accepted hereunder.
In the event of a conflict between the terms of this Agreement, the PET,
the Service Schedule/Pricing Exhibit and the Service Request(s), the following
order of precedence will prevail: (1) PET, (2) Service Schedule/Pricing Exhibit,
(3) the Agreement, and (4) Service Request(s).
NOW, THEREFORE, in consideration of the above premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. TERM.
(A) EFFECTIVE DATE This Agreement shall be effective between the parties
as of the date first written above (the "Effective Date") and shall
continue for the period of time set forth in the PET (the "Term"). Upon
the expiration of the Term, the Service in question will continue to be
provided subject to termination by either party upon thirty (30) days prior
written notice to the other party. Customer shall be liable for all
charges associated with actual usage of the Service in question during the
Term and any extension thereof.
(B) PET The PET, as subscribed to by the parties, shall set forth the
Discount Schedule applicable to Switched Service charges due under this
Agreement, Customer's Minimum Monthly Commitment, if any, and other
information necessary to provide the Service under this Agreement.
(C) START OF SERVICE WilTel's obligation to provide and Customer's
obligation to accept and pay for non-usage sensitive charges for Service
shall be binding to the extent
Page 1 of 13 CONFIDENTIAL
<PAGE>
provided for in this Agreement upon the submission of an acceptable Service
Request to WilTel by Customer. Customer's obligation to pay for usage sensitive
charges for Switched Services shall commence with respect to any Service as of
the earlier of (i) the "Requested Service Date" set forth in each Service
Request, or (ii) the date the Service in question is made available to Customer
and used ("Start of Service"). Start of Service for particular Services shall
be further described in the Service Schedule relevant to the Switched Service in
question.
(D) SERVICE SCHEDULES Services to be provided under this Agreement shall
be described in the WilTel Service Schedule which is subscribed to by
authorized representatives of WilTel and Customer (collectively referred to
as the "Service Schedules"). Each Service Schedule shall become a part of
this Agreement to the extent that it describes the particular Services
therefor, specific terms and other information necessary or appropriate for
WilTel to provide such Service(s) to Customer.
(E) SERVICE REQUESTS Customer's requests to initiate or cancel Services
shall be described in an appropriate WilTel Service Request ("Service
Requests"). Service Requests may consist of machine readable tapes,
facsimiles or other means approved by WilTel. Further, Service Requests
shall specify all reasonable information, as determined by WilTel,
necessary or appropriate for WilTel to provide the Service(s) in question,
which shall include without limitation, the type, quantity and end point(s)
(when necessary) of circuits comprising a Service Interconnection as
described in the applicable Service Schedules, or automatic number
identification ("ANI") information relevant to the Service(s), the
Requested Service Date, and charges, if any, relevant to the Services
described in the Service Request. After WilTel's receipt and verification
of a valid Service Request for SWITCHED Service (as defined in the Service
Schedule) requiring a change in the primary interexchange carrier ("PIC"),
WilTel agrees to (i) submit the ANI(s) relevant to such Service Requests to
the following local exchange carriers ("LECs") (with which WilTel currently
has electronic interface capabilities) within ten (10) days: Ameritech,
Bell Atlantic, BellSouth, Nynex, Pacific Bell, Southwestern Bell, US West,
GTE and United, and (ii) submit the ANI(s) relevant to such Service
Requests to those LECs with which WilTel does not have electronic inter-
face capabilities within a reasonable time.
2. CANCELLATION.
(A) CANCELLATION CHARGE At any time after the Effective Date, Customer
may cancel this Agreement if Customer provides written notification thereof
to WilTel not less than thirty (30) days prior to the effective date of
cancellation. In such case (or in the event WilTel terminates this
Agreement as provided in Section 8), Customer shall pay to WilTel all
charges for Service provided through the effective date of such
cancellation plus a cancellation charge (the "Cancellation Charge") equal
to one hundred percent
Page 2 of 13 CONFIDENTIAL
<PAGE>
(100%) of the Minimum Monthly Commitment, if any, (as described in the
PET that would have become due for the unexpired portion of the Term.
(B) LIQUIDATED DAMAGES It is agreed that WilTel's damages in the event
Customer cancels Service shall be difficult or impossible to ascertain.
The provision for a cancellation charge in Subsection 2(A) above is
intended, therefore, to establish liquidated damages in the event of a
cancellation and is not intended as a penalty.
(C) CANCELLATION WITHOUT CHARGE Notwithstanding anything to the contrary
contained in Subsection 2(A) above, Customer may cancel this Agreement
without incurring any cancellation charge if (i) WilTel fails to provide a
network as warranted in Section 9 below; (ii) WilTel fails to deliver call
detail records promptly based on the frequency selected by Customer (i.e.,
monthly, weekly or daily); or (iii) WilTel fails to submit ANI(s) relevant
to such Service Requests to the LECs within the time period described in
Subsection 1(E) above. Provided, however, Customer must give WilTel
written notice of any such default and an opportunity to cure such default
within five (5) days of the notice. In the event WilTel fails to cure any
such default within the five-day period on more than three (3) occasions
within any six (6) month period, Customer may cancel this Agreement without
incurring any cancellation charge.
3. CUSTOMER'S END USERS.
(A) END USERS Customer will obtain and upon Wiltel's request provide
WilTel (within two (2) business days of the date of the request) a written
Letter of Agency ("LOA") acceptable to WilTel [or with any other means
approved by the Federal Communications Commission ("FCC")], for each ANI
indicating the consent of the end users of Customer ("End Users") to be
served by Customer and transferred (by way of change of such End User's
designated PIC) to the WilTel network prior to order processing. Each LOA
will provide, among other things, that the End Users have consented to the
transfer being performed by Customer or Customer's designee. When
applicable, Customer will be responsible for notifying End Users, in
writing (or by any other means approved by the FCC) that (i) a transfer
charge will be reflected on their LEC bill for effecting a change in their
primary interexchange carrier ("PIC"), (ii) the entity name under which
their interstate, intrastate and/or operator services will be billed (if
different from Customer), and (iii) the "primary" telephone number(s) to be
used for maintenance and questions concerning their long distance service
and/or billing. Customer agrees to send WilTel a copy of the documentation
Customer uses to satisfy the above requirements promptly upon request of
WilTel. WilTel may change the foregoing requirements for Customer's
confirming orders and/or for notifying End Users regarding the transfer
charge at any time in order to conform with applicable FCC and state
regulations. Provided, however, Customer will be solely responsible for
ensuring that the transfer of End Users to the WilTel network conforms with
applicable FCC and
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<PAGE>
state regulations, including without limitation. the regulations established
by the FCC with respect to verification of orders for long distance service
generated by telemarketing as promulgated in 47 C.F.R., Part 64, Subpart K,
Section 64.1100 or any successor regulation(s).
(B) TRANSFER CHARGES/DISPUTED TRANSFERS Customer agrees that it is
responsible for (i) all charges incurred by WilTel to change the PIC of End
Users to the WilTel network, (ii) all charges incurred by WilTel to change
End Users back to their previous PIC arising from disputed transfers to the
WilTel network plus an administrative charge equal to twenty percent (20%)
of such charges, and (iii) any other damages suffered by or awards against
WilTel resulting from disputed transfers.
(C) EXCLUDED ANIS WilTel has the right to reject any ANI supplied by
Customer for any of the following reasons: (i) WilTel is not authorized to
provide or does not provide long distance services in the particular
jurisdiction in which the ANI is located, (ii) a particular ANI submitted
by Customer is not in proper form, (iii) Customer is not certified to
provide long distance services in the jurisdiction in which the ANI is
located, (iv) Customer is in default of this Agreement, (v) Customer fails
to cooperate with WilTel in implementing reasonable verification processes
determined by WilTel to be necessary or appropriate in the conduct of
business, or (vi) any other circumstance reasonably determined by WilTel
which could adversely affect WilTel's performance under this Agreement or
WilTel's general ability to transfer its other customers or other end users
to the WilTel network, including without limitation, WilTel's ability to
electronically effect PIC changes with the LECs. In the event WilTel
rejects an ANI, WilTel will notify Customer as soon as possible of its
decision specifically describing the rejected ANI and the reason(s) for
rejecting that ANI, and will not incur any further liability under this
Agreement with regard to that ANI. Further, any ANI requested by Customer
for Switched Service may be deactivated by WilTel if no Switched Service
billings relevant thereto are generated in any three (3) consecutive
calendar month/billing periods. WilTel will be under no obligation to
accept ANIs within the three (3) full calendar month period preceding the
scheduled expiration of the Term.
(D) RECORDS Customer will maintain documents and records ("Records")
supporting Customer's re-sale or Switched Service, including, but not
limited to, appropriate and valid LOAs from End Users for a period of not
less than. 12 months or such other longer period as may be required by
applicable law, rule or regulation. Customer shall indemnify WilTel for
any costs, charges or expenses incurred by WilTel arising from disputed PIC
selections involving Switched Service to be provided to Customer for which
Customer cannot produce an appropriate LOA relevant to the ANI and PIC
charge in question, or when WilTel is not reasonably satisfied that the
validity of a disputed LOA has been resolved.
Page 4 of 13 CONFIDENTIAL
<PAGE>
(E) CUSTOMER SERVICE Customer will be solely responsible for billing the
End Users and providing the End Users with customer service. Customer
agrees to immediately notify WilTel in the event an End User notifies
Customer of problems associated with the Service, including without
limitation, excess noise, echo, or loss of Service.
4. CUSTOMER'S RESPONSIBILITIES.
(A) EXPEDITE CHARGES In the event Customer requests expeditious Service
and/or changes to Service Orders and WilTel agrees to such request, WilTel
will pass through the charges assessed by any supplying parries (e.g.,
local access providers) involved at the same rate to Customer. WilTel may
further condition its performance of such request upon Customer's payment
of additional charges to WilTel.
(B) FRAUDULENT CALLS Customer shall indemnify and hold WilTel harmless
from all costs, expenses, claims or actions arising from fraudulent calls
of any nature which may comprise a portion of the Service to the extent
that the party claiming the call(s) in question to be fraudulent is (or had
been at the time of the call) an End User of the Service through Customer
or an end user of the Service through Customer's distribution channels.
Customer shall not be excused from paying WilTel for Service provided to
Customer or any portion thereof on the basis that fraudulent calls
comprised a corresponding portion of the Service. In the event WilTel
discovers fraudulent calls being made (or reasonably believes fraudulent
calls are being made), nothing contained herein shall prohibit WilTel from
taking immediate action (without notice to Customer) that is reasonably
necessary to prevent such fraudulent calls from taking place, including
without limitation, denying Service to particular ANIs or terminating
Service to or from specific locations.
5. CHARGES AND PAYMENT TERMS.
(A) PAYMENT WilTel billings for Service are made on a monthly basis (or
such other basis as may be mutually agreed to by the parties) following
Start of Service. Subject to Subsection 5(D) below, Service shall be
billed at the rates set forth on the Pricing Exhibit executed by the
parties and attached hereto and incorporated herewith, and Service
Requests, as the case may be. Discounts, if any, applicable to the rates
for certain Switched Services are set forth in the PET. Customer will pay
each WilTel invoice in full for Switched Service within thirty (30) days of
the invoice date set forth on each WilTel invoice to Customer ("Due Date").
If payment is not received by WilTel on or before the Due Date, Customer
shall also pay a late fee in the amount of the lesser of one and one-half
percent (1-1/2%) of the unpaid balance of the Service charges per month or
the maximum lawful rate under applicable state law.
Page 5 of 13 CONFIDENTIAL
<PAGE>
(B) DEFINITIONS Time of day rate periods (including WilTel Recognized
National Holidays) will be as described in WilTel's F.C.C. Tariff No. 5.
(C) TAXES Customer acknowledges and understands that WilTel computes all
charges herein exclusive of any applicable federal, state or local use,
excise, gross receipts, sales and privilege taxes, duties, fees or similar
liabilities (other than general income or property taxes), whether charged
to or against WilTel or Customer because of the Service furnished to
Customer ("Additional Charges"). Customer shall pay such Additional
Charges in addition to all other charges provided for herein.
(D) MODIFICATION OF CHARGES WilTel reserves the right to eliminate
Service offerings and/or modify charges for Service offerings (which charge
modifications shall not exceed then-current generally available WilTel
charges for comparable services), upon not less than sixty (60) days prior
notice to Customer, which notice will state the effective date for the
charge modification. In the event WilTel notifies Customer of the
elimination of a Service offering and/or an increase in the charges,
Customer may terminate this Agreement, without incurring a cancellation
charge only with respect to the Service offering affected by the increase
in charges. In order to cancel that offering, Customer must notify WilTel,
in writing, at least thirty (30) days prior to the effective date of the
increase in charges. Further, in the event Customer cancels its
subscription to a Switched Service offering as described in this Subsection
5(D), WilTel and Customer agree to negotiate in good faith concerning
Customer's Minimum Monthly Commitment, if any, described in the PET.
(E) BILLING DISPUTES Notwithstanding the foregoing, late fees shall apply
(but shall not be due and payable for a period of sixty (60) days following
the Due Date therefor) for amounts reasonably disputed by Customer,
provided Customer: (i) pays all undisputed charges on or before the Due
Date, (ii) presents a written statement of any billing discrepancies to
WilTel in reasonable detail on or before the Due Date of the invoice in
question, and (iii) negotiates in good faith with WilTel for the purpose of
resolving such dispute within said sixty (60) day period. In the event such
dispute is resolved in favor of WilTel, Customer agrees to pay WilTel the
disputed amounts together with any applicable late fees within ten (10)
days of the resolution. In the event such dispute is resolved in favor of
Customer, Customer will receive a credit for the disputed charges in
question and the applicable late fees. In the event the dispute can not be
resolved within such sixty (60) day period (unless WilTel has agreed in
writing to extend such period) all disputed amounts together with late fees
shall become due and payable, and this provision shall not be construed to
prevent Customer from pursuing any available legal remedies. WilTel shall
not be obligated to consider any Customer notice of billing discrepancies
which are received by WilTel more than sixty (60) days following the Due
Date of the invoice in question.
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<PAGE>
(F) SUSPENSION OF SERVICE In the event charges due pursuant to WilTel's
invoice are not paid in full by the Due Date, WilTel shall have the right,
after giving Customer ten (10) days prior notice, to suspend all or any
portion of the Service to Customer ("Suspension Notice") until such time
(designated by WilTel in its Suspension Notice) as Customer has paid in
full ALL charges then due to WilTel, including any late fees. Following
such payment, WilTel shall reinstitute Service to Customer ONLY when
Customer provides WilTel with satisfactory assurance of Customer's ability
to pay for Service (i.e., a deposit, letter of credit or other means
acceptable to WilTel) and Customer's advance payment of the cost of
reinstituting Service. If Customer fails to make the required payment by
the date set forth in the Suspension Notice, Customer will be deemed to
have canceled the Service suspended effective as of the date of suspension.
Such cancellation shall not relieve Customer for payment of applicable
cancellation charges as described in Section 2.
6. CREDIT: Customer's execution of this Agreement signifies Customer's
acceptance of WilTel's initial and continuing credit approval procedures and
policies. WilTel reserves the right to withhold initiation or full
implementation of Service under this Agreement pending WilTel's initial
satisfactory credit review and approval thereof which may be conditioned upon
terms specified by WilTel, including, but not limited to, security for payments
due hereunder in the form of a cash deposit or other means. WilTel reserves the
right to modify its requirements, if any, with respect to any security or other
assurance provided by Customer for payments due hereunder in light of Customer's
actual usage when compared to projected usage levels upon which any security or
assurance requirement was based.
7. CREDITWORTHINESS: If at anytime there is a material adverse change in
Customer's creditworthiness, then in addition to any other remedies available to
WilTel, WilTel may elect, in its sole discretion, to exercise one or more of the
following remedies: (i) cause Start of Service for Service described in a
previously executed Service Request to be withheld: (ii) cease providing Service
pursuant to a Suspension Notice; (iii) decline to accept a Service Request or
other requests from Customer to provide Service which WilTel may otherwise be
obligated to accept and/or (iv) condition its provision of Service or acceptance
of a Service Request on Customer's assurance of payment which shall be a deposit
or such other means to establish reasonable assurance of payment. An adverse
material change in Customer's creditworthiness shall include, but not be limited
to: (i) Customer's default of its obligations to WilTel under this or any other
agreement with WilTel; (ii) failure of Customer to make full payment of charges
due hereunder on or before the Due Date on three (3) or more occasions during
any period of twelve (12) or fewer months or Customer's failure to make such
payment on or before the Due Date in any two (2) consecutive months; (iii)
acquisition of Customer (whether in whole or by majority or controlling
interest) by an entity which is insolvent, which is subject to bankruptcy or
insolvency proceedings, which owes past due amounts to WilTel or any entity
affiliated with WilTel or which is a materially greater credit risk than
Customer; or, (iv) Customer's being
Page 7 of 13 CONFIDENTIAL
<PAGE>
subject to or having filed for bankruptcy or insolvency proceedings or the legal
insolvency of Customer.
8. REMEDIES FOR BREACH. In the event Customer is in breach of this Agreement,
including without limitation, failure to pay charges due hereunder by the date
stated in the Suspension Notice described in Subsection 5(F), WilTel shall have
the right, after giving Customer five (5) days prior notice, and in addition to
foreclosing any security interest WilTel may have, to (i) terminate this
Agreement; (ii) withhold billing information from Customer; and/or (iii) contact
the End Users (for whom calls are originated and terminated solely over
facilities comprising the WilTel network) directly and bill such End Users
directly until such time as WilTel has been paid in full for the amount owed by
Customer. If Customer fails to make payment by the date stated in the
Suspension Notice and WilTel, after giving Customer five (5) days prior notice,
terminates this Agreement as provided in this Section 8, such termination shall
not relieve Customer for payment of applicable cancellation charges as described
in Section 2 above.
9. WARRANTY. WilTel will use reasonable efforts under the circumstances to
maintain its overall network quality. The quality of Service provided hereunder
shall be consistent with telecommunications common carrier industry standards,
government regulations and sound business practices. WILTEL MAKES NO OTHER
WARRANTIES ABOUT THE SERVICE PROVIDED HEREUNDER, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE.
10. LIABILITY, GENERAL INDEMNITY: REIMBURSEMENT.
(A) LIMITED LIABILITY IN NO EVENT WILL EITHER PARTY HERETO BE LIABLE TO
THE OTHER PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
LOSSES OR DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF REVENUE, LOSS OF
CUSTOMERS OR CLIENTS, LOSS OF GOODWILL OR LOSS OF PROFITS ARISING IN ANY
MANNER FROM THIS AGREEMENT AND THE PERFORMANCE OR NONPERFORMANCE OF
OBLIGATIONS HEREUNDER.
(B) GENERAL INDEMNITY In the event parties other than Customer (e.g.,
Customer's End Users) shall have use of the Service through Customer, then
Customer agrees to forever indemnify and hold WilTel, its affiliated
companies and any third-party provider or operator of facilities employed
in provision, of the Service harmless from and against any and all claims,
demands, suits, actions, losses, damages, assessments or payments which
those parties may assert arising out of or relating to any defect in the
Service.
(C) REIMBURSEMENT Customer agrees to reimburse WilTel for all reasonable
costs and expenses incurred by WilTel due to WilTel's direct participation
(either as a party or
Page 8 of 13 CONFIDENTIAL
<PAGE>
witness) in any administrative, regulatory or criminal proceeding
concerning Customer if WilTel's involvement in said proceeding is based
solely on WilTel's provision of Services to Customer.
11. FORCE MAJEURE. If WilTel's performance of this Agreement or any obligation
hereunder is prevented, restricted or interfered with by causes beyond its
reasonable control including, but not limited to, acts of God, fire, explosion,
vandalism, cable cut, storm or other similar occurrence, any law, order,
regulation, direction, action or request of the United States government, or
state or local governments, or of any department, agency, commission, court,
bureau, corporation or other instrumentality of any one or more such
governments, or of any civil or military authority, or by national emergency,
insurrection, riot, war, strike, lockout or work stoppage or other labor
difficulties, or supplier failure, shortage, breach or delay, then WilTel shall
be excused from such performance on a day-to-day basis to the extent of such
restriction or interference. WilTel shall use reasonable efforts under the
circumstances to avoid or remove such causes or nonperformance and shall proceed
to perform with reasonable dispatch whenever such causes are removed or cease.
12. STATE CERTIFICATION. Customer warrants that in all jurisdictions in which
it provides long distance services that require certification, it has obtained
the necessary certification from the appropriate governmental authority.
Further, if required by WilTel, Customer agrees to provide proof of such
certification acceptable to WilTel. In the event Customer is prohibited, either
on a temporary or permanent basis, from conducting its telecommunications
operations in a given state, Customer shall (i) immediately notify WilTel by
facsimile, and (ii) send written notice to WilTel within twenty-four (24) hours
of such prohibition.
13. INTERSTATE/INTRASTATE SERVICE. Except with respect to Switched Service
specifically designated as intrastate Service or international Service, the
rates provided to Customer in a Service Schedule are applicable only to Switched
Service if such Service is used for carrying interstate telecommunications
(i.e., Service subject to FCC jurisdiction). WilTel shall not be obligated to
provide Switched Service with end points within a single state or Switched
Service which originates/terminates at points both of which are situated within
a single state. In those states where WilTel is authorized to provide
intrastate service (i.e., telecommunications transmission services subject to
the jurisdiction of state regulatory authorities), WilTel will, at its option,
provide intrastate Service pursuant to applicable state laws, regulations and
applicable tariff, if any, filed by WilTel with state regulatory authorities as
required by applicable law.
14. AUTHORIZED USE OF WILTEL NAME. Without WilTel's prior written consent,
Customer shall not (i) refer to itself as an authorized representative of WilTel
whenever it refers to the Services in promotional, advertising or other
materials, or (ii) use WilTel's logos, trade marks, service marks, or any
variations thereof in any of its promotional, advertising or other materials.
Additionally, Customer shall provide to WilTel for its prior review and written
approval, all promotions, advertising or other materials or activity using or
displaying WilTel's name or the
Page 9 of 13 CONFIDENTIAL
<PAGE>
Services to be provided by WilTel. Customer agrees to change or correct, at
Customer's expense, any such material or activity which WilTel, in its sole
judgment, determines to be inaccurate, misleading or otherwise objectionable.
Customer is explicitly authorized to only use the following statements in its
sales literature: (i) "Customer utilizes the WilTel network", (ii) "Customer
utilizes WilTel's facilities", (iii) "WilTel provides only the network
facilities", and (iv) "WilTel is our network services provider".
15. NOTICES. Notices under this Agreement shall be in writing and delivered to
the person identified below at the offices of the parties as they appear below
or as otherwise provided for by proper notice hereunder. Customer shall notify
WilTel in writing if Customer's billing address is different than the address
shown below. The effective date for any notice under this Agreement shall be
the date of actual receipt of such notice by the appropriate party,
notwithstanding the date of mailing.
If to Wiltel: If to Customer:
Wiltel, Inc. Digitran Corporation
One Williams Center, 28th Flr 379 Thornall Street
Tulsa, OK 74172 Edison, NJ 08837
Attn: Carrier Sales Dept. Attn: Vice President
and CEO
16. NO-WAIVER. No term or provision of this Agreement shall be deemed waived
and no breach or default shall be deemed excused unless such waiver or consent
shall be in writing and signed by the party, claimed to have waived or
consented. A consent to waiver of or excuse for a breach or default by either
party, whether express or implied, shall not constitute a consent to, waiver of,
or excuse for any different or subsequent breach or default.
17. PARTIAL INVALIDITY; GOVERNMENT ACTION.
(A) PARTIAL INVALIDITY If any part of any provision of this Agreement or
any other agreement, document or writing given pursuant to or in connection
with this Agreement shall be invalid or unenforceable under applicable law,
rule or regulation, that part shall be ineffective to the extent of such
invalidity only, without in any way affecting the remaining parts of that
provision or the remaining provisions of this Agreement. In such event,
Customer and WilTel will negotiate in good faith with respect to any such
invalid or unenforceable part to the extent necessary to render such part
valid and enforceable.
(B) GOVERNMENT ACTION Upon thirty (30) days prior notice, either party
shall have the right, without liability to the other, to cancel an affected
portion of the Service if any material rate or term contained herein and
relevant to the affected Service is substantially changed (to the detriment
of the terminating party) or found to be unlawful or the relationship
between the parties hereunder is found to be unlawful by order of the
highest
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<PAGE>
court of competent jurisdiction to which the matter is appealed, the FCC,
or other local, state or federal government authority of competent
jurisdiction.
18. EXCLUSIVE REMEDIES. Except as otherwise specifically provided for herein,
the remedies set forth in this Agreement comprise the exclusive remedies
available to either party at law or in equity.
19. USE OF SERVICE. Upon WilTel's acceptance of a Service Request hereunder,
WilTel will provide the Service specified therein to Customer upon condition
that the Service shall not be used for any unlawful purpose. The provision of
Service will not create a partnership or joint venture between the parties or
result in a joint communications service offering to any third parties, and
WilTel and Customer agree that this Agreement, to the extent it is subject to
FCC regulation, is an inter-carrier agreement which is not subject to the filing
requirements of Section 211(a) of the Communications Act of 1934 (47 U.S.C.
Section 211(a)) as implemented in 47 C.F.R. Section 43.51.
20. CHOICE OF LAW; FORUM.
(A) LAW This Agreement shall be construed under the laws of the State of
Oklahoma without regard to choice of law principles.
(B) FORUM Any legal action or proceeding with respect to this Agreement
may be brought in the Courts of the State of Oklahoma in and for the County
of Tulsa or the United States of America for the Northern District of
Oklahoma. By execution of this Agreement, both Customer and WilTel hereby
submit to such jurisdiction, hereby expressly waiving whatever rights may
correspond to either of them by reason of their present or future domicile.
In furtherance of the foregoing, Customer and WilTel hereby agree to
service by U.S. Mail at the notice addresses referenced in Section 15.
Such service shall be deemed effective upon the earlier of actual receipt
or seven (7) days following the date of posting.
21. PROPRIETARY INFORMATION.
(A) CONFIDENTIAL INFORMATION The parties understand and agree that the
terms and conditions of this Agreement, all documents referenced (including
invoices to Customer for Service provided hereunder) herein, communications
between the parties regarding this Agreement or the Service to be provided
hereunder (including price quotes to Customer for any Service proposed to
be provided or actually provided hereunder), as well as such information
relevant to any other agreement between the parties (collectively
"Confidential Information"), are confidential as between Customer and
WilTel.
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<PAGE>
(B) LIMITED DISCLOSURE A party shall not disclose Confidential
Information unless subject to discovery or disclosure pursuant to legal
process, or to any other party other than the directors, officers, and
employees of a party or a party's agents including their respective
brokers, lenders, insurance carriers or bona fide prospective purchasers
who have specifically agreed in writing to nondisclosure of the terms and
conditions hereof. Any disclosure hereof required by legal process shall
only be made after providing the non-disclosing party with notice thereof
in order to permit the non-disclosing party to seek an appropriate
protective order or exemption. Violation by a party or its agents of the
foregoing provisions shall entitle the non-disclosing parry, at its option,
to obtain injunctive relief without a showing of irreparable harm or injury
and without bond.
(C) PRESS RELEASES The parties further agree that any press release,
advertisement or publication generated by a party regarding this Agreement,
the Service provided hereunder or in which a party desires to mention the
name of the other party or the other party's parent or affiliated
company(ies), will be submitted to the non-publishing party for its written
approval prior to publication.
(D) SURVIVAL OF CONFIDENTIALITY The provisions of this Section 21 will be
effective as of the date of this Agreement and remain in full force and
effect for a period which will be the longer of (i) one (1) year following
the date of this Agreement, or (ii) one (1) year from the termination of
all Service hereunder.
22. SUCCESSORS AND ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors or assigns,
provided, however, that Customer shall not assign or transfer its rights or
obligations under this Agreement without the prior written consent of WilTel,
which consent shall not be unreasonably withheld, and further provided that any
assignment or transfer without such consent shall be void.
23. GENERAL.
(A) SURVIVAL OF TERMS The terms and provisions contained in this
Agreement that by their sense and context are intended to survive the
performance thereof by the parties hereto shall so survive the completion
of performance and termination of this Agreement, including, without
limitation, provisions for indemnification and the making of any and all
payments due hereunder.
(B) HEADINGS Descriptive headings in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
(C) INDUSTRY TERMS Words having well-known technical or trade meanings
shall be so construed, and all listings of items shall not be taken to be
exclusive, but shall include other items, whether similar or dissimilar to
those listed, as the context reasonably requires.
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(D) RULE OF CONSTRUCTION No rule of construction requiring interpretation
against the drafting party hereof shall apply in the interpretation of this
Agreement.
24. ENTIRE AGREEMENT. This Agreement consists of (i) all the terms and
conditions contained herein, and, (ii) all documents incorporated herein
specifically by reference. This Agreement constitutes the complete and
exclusive statement of the understandings between the parties and supersedes all
proposals and prior agreements (oral or written) between the parties relating to
Service provided hereunder. No subsequent agreement between the parties
concerning the Service shall be effective or binding unless it is made in
writing and subscribed to by authorized representatives of Customer and WilTel.
IN WITNESS WHEREOF, the parties have executed this Telecommunications
Services Agreement on the date first written above.
WILTEL INC. DIGITRAN CORPORATION
--------------------
(CUSTOMER)
By: /s/ W.R. Trower /s/ Peter S. Macaluso
---------------- ----------------
(Signature) (Signature)
W.R. Trower Peter S. Macaluso
---------------- ----------------
(Print Name) (Print Name)
Regional Vice President Vice President
---------------- ----------------
(Title) (Title)
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WILMAX
PROGRAM ENROLLMENT TERMS
------------------------
[CARRIER]
These Program Enrollment Terms ("PET") are made this 4th day of April, 1994
(the "Effective Date"), by and between WilTel, Inc. ("WilTel") and Digitran
Corporation ("Customer") and are a part of their agreement for switched
services; more particularly identified as TSA#DCN-940404 ("the Agreement"). In
accordance with the Agreement, charges to Customer for Service obtained
thereunder shall be subject to the Discount Schedule set forth below and the
Agreement shall also be subject to the terms and conditions set forth herein.
1. Service Term: Month to Month (N/A) Months. WilTel will not be obligated
to accept any Service Request under the Agreement if Customer's initial
Service Request is not submitted by Customer within thirty (30) days of the
date of this PET and further subject to a Requested Service Date within
ninety (90) days of the date of this PET.
2. Discount Schedule: The discount is based on the months contained in the
Service Term divided by 12. If the product of the division is equal to or
greater than 1 but less than 2, the 1-Year discounts apply; if the product
of the division is equal to or greater than 2 but less than 3, the 2-Year
discounts apply; and, if the product of the division is equal to or greater
than 3, the 3-Year discounts apply. Customer will automatically receive
the next higher discount when Customer's eligible Monthly Revenue reaches
the next level.
Monthly SERVICE TERM
Revenue (a) MTM 1-YR 2-YR 3-YR
----------- --- ---- ---- ----
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 1 of 4 CONFIDENTIAL
<PAGE>
[*] [*] [*] [*] [*]
(a) Monthly Revenue will include all measured and per call Switched
Service charges (i.e., Directory Assistance and both Domestic and
International) plus three (3) times Customer's recurring monthly
Private Line Interexchange Services charges (i.e., both Domestic and
International) from WilTel (exclusive of any pro rata charges,
ancillary or special feature charges, such as, Authorization codes or
CDR Tapes, or any other charges other than those identified by the
relevant WilTel invoice as Monthly Recurring Interexchange Service
Charges.
(b) Requires a minimum of one (1) DS-1 circuit comprising a Service
Interconnection as defined in the Service Schedule with respect to
TERMINATION Service and/or 800 ORIGINATION Service.
If Customer's Minimum Commitment is at least $50,000, the percentages shown
in the Discount Schedule above will be increased by one-half percent (.5%);
if Customer's Minimum Commitment is at least $250,000, the percentages
shown in the Discount Schedule above will be increased by one percent (1%);
if Customer's Minimum Commitment is at least $500,000, the percentages
shown in the Discount Schedule above will be increased by two percent (2%);
and, if Customer's Minimum Commitment is at least $1,000,000, the
percentages shown in the Discount Schedule above will be increased by three
percent (3%). The applicable percentage (i.e., based on Customer's Service
Term and Minimum Commitment, if any) will commence as of the Effective
Date.
3. Customer's Minimum Commitment: Commencing ____________N/A+______________
through the end of the Service Term or any extension thereof, Customer
agrees to obtain Monthly Revenue of at least $_______-0-_____ ("Customer's
Minimum Commitment"). In the event Customer is no longer maintaining
TERMINATION Service or 800 ORIGINATION Service but is maintaining SWITCHED
Service, DEDICATED ACCESS Service or TRAVEL CARD Service, Customer's
Minimum Commitment will be the greater of (i) $50,000, or (ii) the amount
stated above.
+ If applicable, must not be more than four (4) months after the
Effective Date, and must be the 1st day of a calendar month.
4. Deficiency Charge: In the event Customer does not maintain the designated
Minimum Commitment in the months indicated, then for those month(s) only,
Customer will pay WilTel the difference between Customer's Minimum
Commitment and Customer's Monthly Revenue as described in Section 2 above
net of any applicable discounts (the "Deficiency Charge"). The Deficiency
Charge will be due at the same time payment is due for Service provided to
Customer, or immediately in an amount equal to Customer's
Page 2 of 4 CONFIDENTIAL
<PAGE>
Minimum Commitment for the unexpired portion of the Term, if (i) Customer
cancels all circuits comprising all Service Interconnections as described
in the Service Schedules, or (ii) WilTel terminates the Agreement based on
Customer's default.
5. Application of Discounts: After determining Customer's applicable discount
percentage based on the Discount Schedule in Section 2 above, the
applicable percentage will be only applied to Monthly Revenues comprised of
Customer's interstate (excluding Alaska, Hawaii, the United States Virgin
Islands and Puerto Rico) measured usage charges (which includes 1+ and 800
usage, whether switched access or dedicated access). During the Service
Term of the Agreement, accumulated credits derived from discounts under the
Discount Schedule will be applied in arrears commencing with the first day
of the month following the Effective Date (the "Discount") based upon
Monthly Revenue relevant to the preceding month (the "Discount Period")
which period shall include any partial calendar month following Start of
Service, or such other time basis as may be mutually determined by the
parties.
Example: Customer has agreed to a two-year Service Term and a $500,000
Minimum Commitment. In one month, Customer has $50,000 in
Private Line Interexchange Service Charges (both Interstate and
Intrastate) and is credited with $150,000 in Monthly Revenue plus
$50,000 in Switched Service Intrastate charges and $300,000 in
Interstate Switched Service charges. Customer's Monthly Revenue
for the month in question would equal a total of $500,000.
Customer would receive an 8% discount which, subject to the other
conditions set forth in this Section 5, would be applied to the
total Inter-state Switched Service charges of $300,000 to produce
a credit relevant to the month in question of $24,000.
Each Discount will result in the application of a credit obtained during
the Discount Period to the WilTel invoice to Customer relevant to the
billed measured Interstate Switched Service for the calendar month next
following the completion of each Discount Period, PROVIDED Customer has
paid undisputed charges on a current basis for that month and has not
otherwise been subject to a Suspension Notice in accordance with the
Agreement. Failure of Customer to comply with the foregoing provision
shall result in no credit for the Discount Period in question. In
addition, as the Discount is only applicable for purposes of reducing the
Interstate Switched Service charge to Customer, the Discount will only be
applied to the Interstate Switched Service charges for the Discount Period
in question to the extent that such charge shall not be reduced below zero
and without carry-forward of any unused portion of the accumulated credit
if Interstate Switched Service charges for the month in question do not
exceed the accumulated credit.
Page 3 of 4 CONFIDENTIAL
<PAGE>
IN WITNESS WHEREOF, the parties have executed these Program Enrollment
Terms on the date First written above.
WILTEL INC. DIGITRAN CORPORATION
____________________________
(CUSTOMER)
By: /s/ W.R. Trower /s/ Peter S. Macaluso
______________________________ ____________________________
(Signature) (Signature)
W.R. Trower Peter S. Macaluso
__________________________________ ____________________________
(Print Name) (Print Name)
Regional Vice President Vice President and CFO
__________________________________ ____________________________
(Title) (Title)
Page 4 of 4 CONFIDENTIAL
<PAGE>
WILMAX
SERVICE SCHEDULE
----------------
[CARRIER]
This Service Schedule is made as of the 4th day of April, 1994, by and
between WilTel, Inc. ("WilTel") and Digitran Corporation ("Customer") and is a
part of their agreement for switched services, identified as TSA#DCN-940404 (the
"Agreement"). Neither Customer nor WilTel shall be obligated with respect to
the Service described below, nor any other condition of Service until Customer
has submitted and WilTel has accepted a Service Request with respect to the
particular Services.
1. WILMAX SERVICES: During the Service Term of the Agreement, WilTel will
provide the following Services (all as more particularly described herein), (i)
to and from the locations below, (ii) for the charges set forth in the Pricing
Exhibit dated concurrently herewith, and (iii) subject to the Discount Schedule
set forth in the Program Enrollment Terms:
(a) WilMAX Extended Network Termination Service ("TERMINATION Service")
which is WilTel's termination of calls received from Customer's Service
Interconnection(s).
(b) WilMAX Extended Network 800 Service ("800 ORIGINATION Service") which
is the origination of calls by WilTel and the termination of such calls to
Customer's Service Interconnection(s).
(c) WilMAX Switched Access Service ("SWITCHED Service") which is the
origination and termination of calls solely over facilities comprising the
WilTel network.
(d) WilMAX Dedicated Access Service ("DEDICATED ACCESS Service") which is
the origination and termination of calls solely over facilities comprising the
WilTel network.
(e) WilMAX TRAVEL CARD Service ("TRAVEL CARD Service") which is the
origination and termination of calls solely over facilities comprising the
WilTel network.
2. START OF SERVICE:
(a) Start of Service for TERMINATION Service will occur concurrently with
the activation of each circuit comprising Service Interconnections relevant to
WilTel TERMINATION Service.
Page 1 of 9 CONFIDENTIAL
<PAGE>
(b) Start of Service for 800 ORIGINATION Service will occur concurrently
with the activation of each circuit comprising Service Interconnections relevant
to 800 ORIGINATION Service.
(c) Start of Service for SWITCHED Service will occur on (i) an ANI by ANI
basis concurrently with the activation of each ANI to be served, and (ii) an 800
Number by 800 Number basis concurrently with the activation of each 800 Number.
(d) Start of Service for DEDICATED ACCESS Service will occur concurrently
with the activation of each circuit comprising Service Interconnections relevant
to DEDICATED ACCESS Service.
(e) Start of Service for TRAVEL CARD Service will occur on a Code by Code
basis concurrently with the activation of each Code.
3. SERVICE INTERCONNECTIONS - TERMINATION SERVICE AND 800 ORIGINATION SERVICE:
(a) In order to utilize TERMINATION Service and 800 ORIGINATION Service,
one or more full time dedicated connections between Customer's network and the
WilTel network at one or more WilTel designated locations ("WilTel POP") must be
established ("Service Interconnection(s)"). Each Service Interconnection shall
be comprised of one or more DS-1 circuits.
(b) The circuit(s) comprising each Service Interconnection to a WilTel POP
shall be requested by Customer on the appropriate WilTel Service Request. Each
Service Request for TERMINATION Service or 800 Origination Service will describe
(among other things) the WilTel POP to which a Service Interconnection is to be
established, the Requested Service Date therefor, the type and quantity of
circuits comprising the Service Interconnection and any charges and other
information relevant thereto, such as, Customer's terminating or originating
switch location, as the case may be. Such additional information may be
obtained from Customer or gathered by WilTel and recorded in Technical
Information Sheets provided by WilTel.
(c) Once ordered, and unless otherwise provided for in this Agreement,
Service Interconnections or the circuits comprising each Service Interconnection
may only be canceled by Customer upon not less than thirty (30) days prior
written notice to WilTel.
(d) Absent the automatic number identification ("ANI") of the calling
party, Customer shall provide WilTel with a written certification (the
"Certification") of the percentage of interstate (including international) and
intrastate minutes of use relevant to the minutes of traffic to be terminated in
the same state in which the WilTel POP is located to which the Service
Page 2 of 9 CONFIDENTIAL
<PAGE>
Interconnection is made. This Certification shall be provided by Customer prior
to Start of Service for any Service Interconnection and may be modified from
time to time by Customer and subject to recertification upon the request of
WilTel which requests shall not be made unilaterally by WilTel more than once
each calendar quarter. Any such modification(s) or Certification(s) shall be
effective as of the first day of any calendar month and following at least
forty-five (45) days notice from Customer. In the event Customer fails to make
such Certification, the relevant minutes of use will be deemed to be subject to
the Intrastate Rates provided for in the Pricing Exhibit. In the event WilTel
or any other third party requires an audit of WilTel's interstate/intrastate
minutes of traffic, Customer agrees to cooperate in such audit at its expense
and make its call detail records, billing systems and other necessary
information reasonably available to WilTel or any third party solely for the
purpose of verifying Customer's interstate/intrastate minutes of traffic.
Customer agrees to indemnify WilTel for any liability WilTel incurs in the event
Customer's Certification is different than that determined by the audit.
(e) Customer shall be solely responsible for establishing and maintaining
each Service Interconnection over facilities subject to WilTel's approval.
Service Interconnections shall only be comprised of DS-1 facilities unless
otherwise provided for in the Service Request and agreed to in writing by
WilTel. If a Service Interconnection is proposed to be made via a local
exchange carrier, WilTel will have the authority to direct Customer to utilize
WilTel's entrance facilities or local serving arrangement ("LSA") with the
relevant local telephone operating company, and Customer will be subject to a
non-discriminatory charge therefor from WilTel. The monthly recurring charge
relevant to Customer's use of LSA capacity shall be subject to upward adjustment
by WilTel from time to time. Such adjustment, if any, shall not exceed the rate
that otherwise would be charged for the equivalent switched access capacity
between the rate that otherwise would be charged for the equivalent switched
access capacity between the same points by the relevant local telephone
operating company pursuant to its published charges for the type of service in
question.
(f) If other private line interexchange facilities are necessary to
establish a Service Interconnection, and such facilities are requested from
WilTel, such facilities will be provided on an individual case basis.
(g) Commencing with the first full calendar month following Start of
Service for each circuit comprising a Service Interconnection and thereafter,
Customer will maintain an average loading of traffic per DS-1 (or DS-1
equivalent circuit) of not less than 100,000 minutes of use per calendar
month/billing period ("Minimum Monthly Usage"). In the event Customer fails to
obtain the required Minimum Monthly Usage level for the circuits comprising each
Service Interconnection, WilTel will charge and Customer will pay $.03
multiplied by the difference between the Minimum Monthly Usage and the actual
minutes of use for the circuit(s) comprising the Service Interconnection in
question ("Minimum Usage Charge"), WilTel TERMINATION Service and 800
ORIGINATION Service minutes carried over the same Service Interconnection,
Page 3 of 9 CONFIDENTIAL
<PAGE>
if any, shall be included in determining if Customer has met the Minimum Monthly
Usage requirement.
Example: Customer's actual monthly usage for 2 DS-Is comprising Customer's
Service Interconnection at WilTel POP A is 180,000 minutes and
Customer's actual monthly usage for 2 DS-1s comprising Customer's
Service Interconnection at WilTel POP B is 270,000 minutes.
Customer would be subject to a Minimum Usage charge or $600 since
Customer's Minimum Monthly Usage at WilTel POP A was below
200,000 [(2 x 100,000) - 180,000 x $.03 = $600] and no Minimum
Monthly Usage Charge for the Service Interconnection at WilTel
POP B, because Customer exceeded the required minimum of 200,000
in actual minutes of use for the 2 DS-1s comprising the Service
Interconnection at WilTel POP B.
(h) Customer may cancel circuits comprising the Service Interconnection(s)
at any time without liability to WilTel for cancellation charges. In the event
Customer does not have a Minimum Commitment and Customer cancels all circuits
comprising all Service Interconnections at any time during the Service Term, the
Cancellation Charge described in Subsection 2(A) of the Agreement shall not
apply. Provided, however, Customer shall nevertheless be liable to pay WilTel a
cancellation charge (regardless of the number of DS-1 or DS-1 equivalent
circuits comprising the Service Interconnection(s) in question) of $1,000
multiplied by the number of months (or pro rata portion thereof) remaining in
the Service Term ("Carrier Service Cancellation Charge").
(i) Because the damages to WilTel from Customer's cancellation or
termination of all circuits comprising all Service Interconnections prior to
completion of the Service Term is difficult if not impossible to determine, the
Carrier Service Cancellation Charge due to WilTel in accordance with this
Subsection is intended by the parties to establish liquidated damages payable by
Customer to WilTel and not as a penalty of any kind.
4. SERVICE INTERCONNECTIONS - DEDICATED ACCESS:
(a) In order to utilize DEDICATED ACCESS Service, one or more full time
dedicated connections between an End User's private branch exchange ("PBX") or
other customer premise equipment and the WilTel network at one or more WilTel
designated locations ("WilTel POP") must be established ("Dedicated Service
Interconnection(s)"). Each Dedicated Service Interconnection shall be comprised
of one or more DS-1 circuits or DS-3 circuits, as the case may be.
(b) The circuit(s) comprising each Dedicated Service Interconnection to a
WilTel POP shall be requested by Customer on the appropriate WilTel Service
Request. Each Service Request for DEDICATED ACCESS Service will describe (among
other things) the WilTel POP
Page 4 of 9 CONFIDENTIAL
<PAGE>
to which a Dedicated Service Interconnection is to be established, the Requested
Service Date therefor, the type and quantity of circuits comprising the
Dedicated Service Interconnection and any charges and other information relevant
thereto, such as, the location of the end user's originating or terminating
location, as the case mav be. Such additional information mav be obtained from
Customer or gathered by WilTel and recorded in Technical Information Sheets
provided by WilTel.
(c) Once ordered, and unless otherwise provided for in this Agreement.
Dedicated Service Interconnections or the circuits comprising each Dedicated
Service Interconnection may only be canceled by Customer upon not less than
thirty (30) days prior written notice to WilTel.
(d) Customer shall be responsible for establishing each Dedicated Service
Interconnection over facilities subject to WilTel's approval. Dedicated Service
Interconnections shall only be comprised of DS-1 facilities unless otherwise
provided for in the Service Request. If a Dedicated Service Interconnection is
proposed to be made via a local exchange carrier, WilTel will have the authority
to direct Customer to utilize WilTel's entrance facilities or local serving
arrangement ("LSA") with the relevant local telephone operating company, and
Customer will be subject to a non-discriminatory charge therefor from WilTel.
Rerecurring charge relevant to Customer's use of LSA capacity shall be stated in
the corresponding Service Request subject, however, to upward adjustment by
WilTel. Such adjustment if any, shall not exceed the rate that otherwise would
be charged for the equivalent capacity between the same points by the relevant
local telephone operating company pursuant to its published charges for the type
of service in question.
(e) Upon Customer's request, WilTel will provision and maintain local
access facilities between the End User Location and the WilTel POP, subject to
any LEC charges plus other applicable terms and charges set forth in WilTel's
F.C.C. Tariff No. 5. If other private line interexchange facilities are
necessary to establish a Dedicated Service Interconnection, such facilities will
be provided on an individual case basis.
(f) DEDICATED ACCESS SERVICE MINUTES OF USE ARE NOT SUBJECT TO AGGREGATION
FOR THE PURPOSE OF DETERMINING IF CUSTOMER HAS MET ITS MINIMUM MONTHLY USAGE FOR
TERMINATION SERVICE OR 800 ORIGINATION SERVICE.
5. BILLING INCREMENTS: U.S. Domestic (including Alaska, Hawaii, United States
Virgin Islands and Puerto Rico) Service calls will be billed in six (6) second
increments and subject to a six (6) second minimum charge (i) utilizing Hardware
Answer Supervision where available, and (ii) with respect to 800 Services,
commencing with Customer's switch wink or answer back. If Customer is found to
be non-compliant in passing back appropriate answer supervision, i.e., answer
back, WilTel reserves the right to suspend 800 Service or deny requests by
Customer for additional Service until appropriate compliance is established.
All
Page 5 of 9 CONFIDENTIAL
<PAGE>
international calls, with the exception of Mexico, will be billed in six (6)
second increments and subject to a thirty (30) second minimum charge. Mexico
calls will be billed in one (1) minute increments and subject to a one (1)
minute minimum charge.
6. FORECASTS: Before Customer's initial order for Service, Customer shall
provide WilTel with a forecast regarding the number of minutes expected to be
terminated or originated in various LATAs and/or Tandems, so as to enable WilTel
to configure optimum network arrangements. In the event Customer's Service
traffic volumes result in a lower than industry standard completion rate or
otherwise adversely affect the WilTel Network, WilTel reserves the right to
block the source of such adverse traffic at any time. Customer will provide
WilTel with additional forecasts from time to time upon WilTel's request which
shall not be more frequent than once every three (3) months.
7. RBOC TERMINATION/ORIGINATION: Following Start of Service for TERMINATION
SERVICE or 800 ORIGINATION Service, Customer will maintain at least 80% of the
minutes of traffic (during any calendar month or pro rata portion thereor)
comprising Customer's TERMINATION Service or 800 Service for termination or
origination in a Tandem owned and operated by a Regional Bell Operating Company
("RBOC Terminations/Originations") and subject to such RBOC's tariffed access
charges. WilTel shall have the right to apply a ($.015) per minute surcharge to
the number of minutes by which Non-RBOC Terminations/Originations; exceed 20% of
total monthly TERMINATION Service or 800 ORIGINATION Service minutes.
8. SERVICE INTERCONNECTION INSTALLATION:
(a) DS-1 circuits comprising all Service Interconnections (including
Dedicated Service Interconnections) will be subject to a nonrecurring $400 per
DS-1 switch port installation charge.
(b) DS-3 circuits comprising all Service Interconnections (including
Dedicated Service Interconnections) will be subject to a nonrecurring per DS-3
switch port installation charge as determined on an individual case basis.
9. CDR TAPES: WilTel will provide Call Detail Records for WilTel's Services
in machine readable form ("CDR Tapes") subject to the provisions set forth
below:
(a) WilTel will provide Customer one (1) CDR Tape once each month in one
of several magnetic tape formats (to be selected on Customer's Service Request)
which WilTel currently is then making available to its Customers. Monthly CDR
Tapes under this Subsection are provided at no charge.
(b) Customer may order a monthly delivery of toll records on 3.5" floppy
diskette subject to a recurring charge of $250 per month.
Page 6 of 9 CONFIDENTIAL
<PAGE>
(c) Customer may order and WilTel will provide Customer one (1) CDR Tape
once each week in one of several magnetic tape formats (to be selected on
Customer's Service Request) which WilTel currently is then making available to
its Customers. Weekly CDR Tapes under this Subsection are subject to a
recurring monthly charge of $150.
10. 800 NUMBERS:
(a) 800 numbers will be issued to Customer (i.e., issuance equates to
activation or reservation, whichever occurs first) on a random basis. Customer
requests for specific numbers will be considered by WilTel, and if provided,
will be subject to additional charges as set forth below and WilTel's then
current reservation policy which shall also apply to any randomly selected and
reserved 800 number. At any time preceding three (3) months from the scheduled
expiration of the Service Term, Customer may only reserve 800 numbers in an
amount equal to the greater of (i) 50, or (ii) fifteen percent (15%) of the
total number of 800 numbers activated by WilTel for Customer. Customer requests
for 800 numbers inconsistent with the above stated conditions may be considered
by WilTel on an individual case basis 800 numbers reserved for Customer will be
activated upon Customer's request, however, each 800 number will be subject to
reversion to WilTel without notice to Customer after sixty (60) days from
issuance to Customer in the event WilTel records no level of measured charges
associated with such number as of the expiration or after said sixty (60) day
period.
(b) Customer Request for Specific Numbers - $25 per individual number.
(c) Customer specifically agrees that regardless of the method in which an
800 number is reserved for or otherwise assigned to Customer, that Customer will
not seek any remedy from WilTel under a theory of detrimental reliance or
otherwise that such 800 number(s) are found not to be available for Customer's
use until such 800 number is put in service for the benefit of Customer, and
that such 800 number(s) shall not be sold, bartered, brokered or otherwise
released by Customer for a fee ("800 Number Trafficking"). Any attempt by
Customer to engage in 800 Number Trafficking shall be grounds for reclamation by
WilTel for reassignment of the 800 number(s) reserved for or assigned to
Customer.
11. RESPORG SERVICES: Responsible Organization Services (relevant to 800
Numbers) if provided by WilTel are provided pursuant to WilTel's F.C.C. Tariff
No. 5.
12. LIMITATION OF ORIGINATION OR TERMINATION LOCATIONS:
(a) TERMINATION Service: (i) origination is available from any WilTel POP;
and (ii) termination is to any direct dialable location worldwide.
Page 7 of 9 CONFIDENTIAL
<PAGE>
(b) 800 ORIGINATION Service: (i) origination is available from locations
in the 50 United States, the United States Virgin Islands, Puerto Rico and
Canada: and (ii) termination is to any Customer designated Service
Interconnection.
(c) SWITCHED Service (1 +): (i) origination is available from all equal
access exchanges in the 48 contiguous United States except in LATA 921 (Fishers
Island, NY); and (ii) termination is to any direct dialable location worldwide.
(d) SWITCHED Service (800): (i) origination is available from locations in
the 50 United States, the United States Virgin Islands, Puerto Rico and Canada;
and (ii) termination is available to locations in the 48 contiguous United
States.
(e) DEDICATED ACCESS Service (1+): (i) origination is available from
locations in the 48 contiguous United States; and (ii) termination is available
to any direct dialable location worldwide.
(f) DEDICATED ACCESS Service (800): origination is available from
locations in the 50 United States, the United States Virgin Islands, Puerto Rico
and Canada; and (ii) termination is available to any Customer designated
Dedicated Service Interconnection.
(g) TRAVEL CARD Service: (i) origination is available from locations in
the 50 United States, the United States Virgin Islands, Puerto Rico and Canada;
(ii) termination is available to locations in the 48 contiguous United States
for calls from locations in the 50 United States, the United States Virgin
Islands, Puerto Rico and Canada; and (iii) termination is available to locations
in the 50 United States, the United States Virgin Islands, Puerto Rico and
Canada for calls from locations in the 48 contiguous United States.
13. AUTHORIZATION CODES: WilTel will Supply Customer with authorization codes
("Codes") containing nine (9) digits for use with a corresponding 800 Service
number for origination and termination of Travel Card calls. The Codes may be
obtained by Customer in blocks of ten (10) not to exceed a total of 1000 Codes
at any one time. WilTel reserves the right to deny access to any Code at any
time.
14. INBOUND PORTION OF TRAVEL CARD CALL: The inbound service portion of a
TRAVEL CARD Service call (i.e.. the 800 Service) must be provided by WilTel.
Page 8 of 9 CONFIDENTIAL
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Service Schedule on the
date first written above.
WILTEL INC. DIGITRAN CORPORATION
------------------------
(CUSTOMER)
By: /s/ W.R. Trower /s/ Peter S. Macaluso
-------------------------- ------------------------
(Signature) (Signature)
W.R. Trower Peter S. Macaluso
-------------------------- ------------------------
(Print Name) (Print Name)
Regional Vice President Vice President and CFO
-------------------------- ------------------------
(Title) (Title)
Page 9 of 9 CONFIDENTIAL
<PAGE>
WILMAX
PRICING EXHIBIT
[CARRIER]
This Pricing Exhibit is made as of the 4th day of April, 1994, by and
between WilTel, Inc. ("WilTel") and Digitran Corporation ("Customer") and is a
part of their agreement for switched services, identified as TSA #DCN-940404
(the "Agreement").
A. TERMINATION SERVICE
INTERSTATE RATES PER MINUTE
[*]
INTERSTATE EXTENDED RATES PER MINUTE
[*]
INTERSTATE SUPERSAVER RATE PER MINUTE
[*] These rates are only available and only apply to Interstate
TERMINATION Service calls to the following Supersaver LATAs set forth below
(i.e., Intrastate TERMINATION Service calls will not be subject to
Supersaver Rates):
Atlanta, GA (LATA 438)
Boston, MA (LATA 128)
Chicago, IL (LATA 358)
Dallas, TX (LATA 552)
Denver, CO (LATA 656)
Houston, TX (LATA 560)
Kansas City, MO (LATA 524)
Las Vegas, NV (LATA 721)
Los Angeles, CA (LATA 730)
Miami, FL (LATA 460)
Minneapolis, MN (LATA 628)
New York, NY (LATA 132)
Newark, NJ (LATA 224)
Philadelphia, PA (LATA 228)
St. Louis, MO (LATA 520)
San Francisco, CA (LATA 722)
Seattle, WA (LATA 674)
Washington, DC (LATA 236)
________________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been
filed separately with the Commission pursuant to Rule 406.
Page 1 of 8 CONFIDENTIAL
<PAGE>
INTRASTATE RATES PER MINUTE [NOT SUBJECT TO DISCOUNT]
Intrastate charges for calls and directory assistance shall be accordance
with WilMAX Extended Network Termination Service.
CANADA RATES (1+) [NOT SUBJECT TO DISCOUNT]
Metro Area or NPA Rate Period 1st 30 Sec. Add'l 6 Sec.
- -------------------------------------------------------------------
Montreal Day [*] [*]
Nonday [*] [*]
Ottawa Day [*] [*]
Nonday [*] [*]
Toronto Day [*] [*]
Nonday [*] [*]
Vancouver Day [*] [*]
Nonday [*] [*]
Guelph, Hamilton, Day [*] [*]
London, Kitchner Nonday [*] [*]
NPA 416, 514, 519, Day [*] [*]
613, 819 Nonday [*] [*]
All other areas Day [*] [*]
Nonday [*] [*]
MEXICO RATES (1+) [NOT SUBJECT TO DISCOUNT]
Band + Rate Period Rate
----------------------------------
Band 1 Day [*]
Nonday [*]
Band 2 Day [*]
Nonday [*]
Band 3 Day [*]
Nonday [*]
Band 4 Day [*]
Nonday [*]
Band 5 Day [*]
Nonday [*]
____________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 2 of 8 CONFIDENTIAL
<PAGE>
Band + Rate Period Rate
----------------------------------
Band 6 Day [*]
Nonday [*]
Band 7 Day [*]
Nonday [*]
Band 8 Day [*]
Nonday [*]
+ As defined in WilTel's F.C.C. Tariff No. 2.
B. 800 ORIGINATION SERVICE
INTERSTATE RATES PER MINUTE
[*]
INTERSTATE EXTENDED RATES PER MINUTE
[*]
[*]
[*]
CANADA RATES [NOT SUBJECT TO DISCOUNT]
[*]
INTRASTATE SERVICE RATES PER MINUTE [NOT SUBJECT TO DISCOUNT]
Intrastate charges for calls shall be in accordance with WilTel's tariffed
rates for WilMAX Extended Network 800 Service.
C. SWITCHED SERVICE
INTERSTATE (1+ AND 800) RATES PER MINUTE
[*]
INTERSTATE (1+) EXTENDED RATES PER MINUTE
[*]
____________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been
filed separately with the Commission pursuant to Rule 406.
Page 3 of 8 CONFIDENTIAL
<PAGE>
INTERSTATE (800) EXTENDED RATES PER MINUTE [NOT SUBJECT TO DISCOUNT]
[*]
[*]
[*]
[*]
CANADA RATES (800) [NOT SUBJECT TO DISCOUNT]
[*]
CANADA RATES (1+) [NOT SUBJECT TO DISCOUNT]
Metro Area or NPA Rate Period 1st 30 Sec. Add'l 6 Sec.
- -------------------------------------------------------------------
Montreal Day [*] [*]
Nonday [*] [*]
Ottawa Day [*] [*]
Nonday [*] [*]
Toronto Day [*] [*]
Nonday [*] [*]
Vancouver Day [*] [*]
Nonday [*] [*]
Guelph, Hamilton, Day [*] [*]
London, Kitchner Nonday [*] [*]
NPA 416, 514, 519, Day [*] [*]
613, 819 Nonday [*] [*]
All other areas Day [*] [*]
Nonday [*] [*]
________________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 4 of 8 CONFIDENTIAL
<PAGE>
MEXICO RATES (1+) [NOT SUBJECT TO DISCOUNT]
Band + Rate Period Rate
----------------------------------
Band 1 Day [*]
Nonday [*]
Band 2 Day [*]
Nonday [*]
Band 3 Day [*]
Nonday [*]
Band 4 Day [*]
Nonday [*]
Band 5 Day [*]
Nonday [*]
Band 6 Day [*]
Nonday [*]
Band 7 Day [*]
Nonday [*]
Band 8 Day [*]
Nonday [*]
+ As defined in WilTel's F.C.C. Tariff No. 2
____________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 5 of 8 CONFIDENTIAL
<PAGE>
WILTEL'S TARIFFED INTRASTATE RATES PER MINUTE (1+ AND 800) (SUBJECT TO
CHANGE BY WILTEL) [NOT SUBJECT TO DISCOUNT]
State Rate State Rate State Rate State Rate
- ----------------------------------------------------------------
AL [*] IN [*] NH [*] SC [*]
AR [*] KS [*] NJ [*] SD [*]
AZ [*] KY [*] NM [*] TN [*]
CA [*] LA [*] NY [*] TX [*]
CO [*] MA [*] NC [*] UT [*]
CT [*] MD [*] ND [*] VA [*]
DE [*] MI [*] NV [*] VT [*]
FL [*] MN [*] OH [*] WA [*]
GA [*] MO [*] OK [*] WI [*]
IA [*] MS [*] OR [*] WV [*]
ID [*] MT [*] PA [*] WY [*]
IL [*] NE [*]
D. DEDICATED ACCESS SERVICE
INTERSTATE (1 + AND 800) RATES PER MINUTE
[*]
INTERSTATE (1+) EXTENDED RATES PER MINUTE
[*]
INTERSTATE (800) EXTENDED RATES PER MINUTE [NOT SUBJECT TO DISCOUNT]
[*]
[*]
[*]
[*]
________________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been
filed separately with the Commission pursuant to Rule 406.
Page 6 of 8 CONFIDENTIAL
<PAGE>
CANADA RATES (800) [NOT SUBJECT TO DISCOUNT]
[*]
CANADA RATES (1+) [NOT SUBJECT TO DISCOUNT]
Metro Area or NPA Rate Period 1st 30 Sec. Add'l 6 Sec.
- -------------------------------------------------------------------
Montreal Day [*] [*]
Nonday [*] [*]
Ottawa Day [*] [*]
Nonday [*] [*]
Toronto Day [*] [*]
Nonday [*] [*]
Vancouver Day [*] [*]
Nonday [*] [*]
Guelph, Hamilton, Day [*] [*]
London, Kitchner Nonday [*] [*]
NPA 416, 514, 519, Day [*] [*]
613, 819 Nonday [*] [*]
All other areas Day [*] [*]
Nonday [*] [*]
MEXICO RATES (1+) [NOT SUBJECT TO DISCOUNT]
Band + Rate Period Rate
----------------------------------
Band 1 Day [*]
Nonday [*]
Band 2 Day [*]
Nonday [*]
Band 3 Day [*]
Nonday [*]
Band 4 Day [*]
Nonday [*]
Band 5 Day [*]
Nonday [*]
____________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 7 of 8 CONFIDENTIAL
<PAGE>
Band + Rate Period Rate
----------------------------------
Band 6 Day [*]
Nonday [*]
Band 7 Day [*]
Nonday [*]
Band 8 Day [*]
Nonday [*]
+ As defined in WilTel's F.C.C. Tariff No. 2.
WILTEL'S TARIFFED INTRASTATE RATES PER MINUTE (1+ AND 800) (SUBJECT TO
CHANGE BY WILTEL) [NOT SUBJECT TO DISCOUNT]
State Rate State Rate State Rate State Rate
- ----------------------------------------------------------------
AL [*] IN [*] NH [*] SC [*]
AR [*] KS [*] NJ [*] SD [*]
AZ [*] KY [*] NM [*] TN [*]
CA [*] LA [*] NY [*] TX [*]
CO [*] MA [*] NC [*] UT [*]
CT [*] MD [*] ND [*] VA [*]
DE [*] MI [*] NV [*] VT [*]
FL [*] MN [*] OH [*] WA [*]
GA [*] MO [*] OK [*] WI [*]
IA [*] MS [*] OR [*] WV [*]
ID [*] MT [*] PA [*] WY [*]
IL [*] NE [*]
E. TRAVEL CARD SERVICE
INTERSTATE SERVICE RATES PER MINUTE
[*]
[*]
_____________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been
filed separately with the Commission pursuant to Rule 406.
Page 8 of 8 CONFIDENTIAL
<PAGE>
INTRASTATE TRAVEL CARD SERVICE RATES PER MINUTE [NOT SUBJECT TO DISCOUNT]
[*]
CANADA RATES PER MINUTE [NOT SUBJECT TO DISCOUNT]
[*]
F. DIRECTORY ASSISTANCE SERVICE
[*]
[*]
G. INTERNATIONAL SERVICE [NOT SUBJECT TO DISCOUNT]
See attached Schedule of applicable WilMAX International Rates.
IN WITNESS WHEREOF, the parties have executed this Pricing Exhibit on the
date first written above.
WILTEL INC. DIGITRAN CORPORATION
-----------------------------
(CUSTOMER)
By: /s/ W.R. Trower /s/ Peter S. Macaluso
------------------------------- -----------------------------
(Signature) (Signature)
W.R. Trower Peter S. Macaluso
- ---------------------------------- -----------------------------
(Print Name) (Print Name)
Regional Vice President Vice President
- ---------------------------------- ----------------------------
(Title) (Title)
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 9 of 8 CONFIDENTIAL
<PAGE>
WILMAX
ATTACHMENT I
FOR
SPECIAL INTERNATIONAL PRICING
This Attachment I ("Attachment I") for special International Service
("Special International Service") is made this _____ day of October, 1995 (the
"International Effective Date") to those certain Program Enrollment Terms
("PET") dated April 4, 1994, made by and between WorldCom Network Services, Inc.
d/b/a WilTel ("WilTel") and Digitran ("Customer") and are a part of their
agreement for switched services, more particularly identified as TSA# DCN-940404
(the "TSA"). All capitalized terms used herein not otherwise defined shall have
the meaning ascribed to them in the Agreement or the PET, whichever is
applicable.
A. CUSTOMER'S COMMITMENT: Commencing October, 1995 and continuing
through (check one of the following) (i) _____ the end of the Service Term
(including any extensions thereof), or (ii) _____ October, 1996 [Twelve
(12) months from the International Effective Date) (the "International
Commitment Period"), Customer agrees to maintain Monthly Revenue comprised
solely of International per call and measured usage charges (which includes
only 1+ usage, whether switched access or dedicated access) ("International
Monthly Revenue") of at least (check one of the following) ("Customer's
International Commitment"):
____ $100,000 _X__ $250,000 ____ $500,000
____ $750,000 ____ $1,000,000
At the end of the International Commitment Period, the terms and conditions
contained in this Attachment I (including without limitation, Customer's
International Commitment and the Special International Service Rates) will
remain in full force and effect until the earlier of (i) cancellation by
either party on thirty (30) days prior written notice, or (ii) the
expiration of the Term of the TSA. Upon termination of this Attachment I
(if termination is prior to the end of the Term), Customer's rate for
International Service will be as described in the Pricing Exhibit dated
concurrently with the PET, less discounts, if any, described in the PET.
B. DEFICIENCY CHARGE: In the event Customer does not maintain Customer's
International Commitment in any month during the International Commitment
Period, then for those month(s) only, Customer will pay WilTel the
difference between Customer's International Commitment and Customer's
actual International Monthly Revenue (the "INTERNATIONAL DEFICIENCY
CHARGE"). The International Deficiency Charge will be due at the same time
payment is due for Service provided to Customer, or immediately in an
amount equal to Customer's International Commitment for the unexpired
portion of the Service Term, if (i) Customer cancels all circuits
comprising all International Service Interconnections, or (ii) WilTel
terminates the Agreement based on Customer's Default.
Page 1 of 2 CONFIDENTIAL
<PAGE>
C. OTHER COMMITMENTS: Customer's International Commitment as described
in Paragraph A above (including the International Deficiency Charge as
described in Paragraph B above) is in addition to any commitment(s) and
Deficiency Charges Customer may have as described in the PET. However,
Customer's International Monthly Revenue under this Attachment I will be
included in determining if Customer has met such other commitments as may
be described in the PET.
D. SPECIAL INTERNATIONAL SERVICE RATES: During the International
Commitment Period, charges for Special International Service provided
pursuant to this Attachment I are shown on the Special International
Pricing Exhibit which is attached hereto and dated concurrently herewith.
E. OTHER TERMS/CONDITIONS: All other terms and conditions contained in
the Agreement, including without limitation those terms and conditions
contained in the PET, will remain in full force and effect for the
remainder of the Service Term as defined in the PET (including any
extensions thereto).
IN WITNESS WHEREOF, the parties have executed this Attachment I on the date
first written above.
WORLDCOM NETWORK SERVICES, INC. DIGITRAN CORPORATION
d/b/a WILTEL -----------------------------
(CUSTOMER)
By: /s/ W.R. Trower /s/ George R. Frylinck
------------------------------ -----------------------------
(Signature) (Signature)
W.R. Trower George R. Frylinck
- ---------------------------------- -----------------------------
(Print Name) (Print Name)
Regional Vice President Vice President
- ---------------------------------- -----------------------------
(Title) (Title)
Page 2 of 2 CONFIDENTIAL
<PAGE>
PRICING EXHIBIT
TSA# DCN 940404
This Pricing Exhibit is made to that certain Attachment I for Special
International pricing dated October, 1995 to those certain Program Enrollment
Terms (PET) dated April 4, 1994, and more particularly identified as TSA# DCN
940404, made by and between WorldCom Network Services, Inc. d/b/a WilTel
("WilTel") and Digitran ("Customer").
CARRIER INTERNATIONAL PROMOTION
July 25, 1995
Dedicated
Promotion Access
Rate $250k/month
COUNTRY Country Switched Revenue
Code Access Commitment
Afghanistan 93 [*] [*]
Albania 355 [*] [*]
Algeria 213 [*] [*]
Amer Samoa 684 [*] [*]
Angola 244 [*] [*]
Anguilla 809 [*] [*]
Antarctica 672 [*] [*]
Antigua 809 [*] [*]
Argentina 54 [*] [*]
Armenia 374 [*] [*]
Aruba 297 [*] [*]
Ascension Island 247 [*] [*]
Australia 61 [*] [*]
Austria 43 [*] [*]
Azerbaijan 994 [*] [*]
Bahamas 809 [*] [*]
Bahrain 973 [*] [*]
Bangladesh 880 [*] [*]
Barbados 809 [*] [*]
Belarus 375 [*] [*]
Belgium 32 [*] [*]
___________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 1 of 6
CONFIDENTIAL
<PAGE>
Belize 501 [*] [*]
Benin 229 [*] [*]
Bermuda 809 [*] [*]
Bhutan 975 [*] [*]
Bolivia 591 [*] [*]
Bosnia-Herzegovina 387 [*] [*]
Botswana 267 [*] [*]
Brazil 55 [*] [*]
British Virgin Islands 809 [*] [*]
Brunei 673 [*] [*]
Bulgaria 359 [*] [*]
Burkina Faso 226 [*] [*]
Burundi 257 [*] [*]
Cambodia 855 [*] [*]
Cameroon 237 [*] [*]
Canada [*] [*]
Cape Verde Islands 238 [*] [*]
Cayman Islands 809 [*] [*]
Central African Republ 236 [*] [*]
Chad Republic 235 [*] [*]
Chile 56 [*] [*]
China 86 [*] [*]
Colombia 57 [*] [*]
Comoros (Mayotte Islan 269 [*] [*]
Congo 242 [*] [*]
Cook Islands 682 [*] [*]
Costa Rica 506 [*] [*]
Croatia 385 [*] [*]
Cuba 53 [*] [*]
Cyprus 357 [*] [*]
Czech Republic 42 [*] [*]
Denmark 45 [*] [*]
Diego Garcia 246 [*] [*]
Djibouti 253 [*] [*]
Dominica 809 [*] [*]
Dominican Republic 809 [*] [*]
Ecuador 593 [*] [*]
Egypt 20 [*] [*]
El Salvador 503 [*] [*]
Equi Guinea 240 [*] [*]
___________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 2 of 6
CONFIDENTIAL
<PAGE>
Eritrea 291 [*] [*]
Estonia 372 [*] [*]
Ethiopia 251 [*] [*]
Faeroe Islands 298 [*] [*]
Falkland Islands 500 [*] [*]
Fiji Islands 679 [*] [*]
Finland 358 [*] [*]
Fr Guiana 594 [*] [*]
Fr Polynesia 689 [*] [*]
France (Andorra, Monaco 33 [*] [*]
French Antilles (St. Ba 596 [*] [*]
Gabon 241 [*] [*]
Gambia 220 [*] [*]
Georgia 995 [*] [*]
Germany 49 [*] [*]
Ghana 233 [*] [*]
Gibraltar 350 [*] [*]
Greece 30 [*] [*]
Greenland 299 [*] [*]
Grenada 809 [*] [*]
Guadeloupe 590 [*] [*]
Guam 671 [*] [*]
Guantan. Bay 5399 [*] [*]
Guatemala 502 [*] [*]
Guinea 224 [*] [*]
Guinea Bissau 245 [*] [*]
Guyana 592 [*] [*]
Haiti 509 [*] [*]
Honduras 504 [*] [*]
Hong Kong 852 [*] [*]
Hungary 36 [*] [*]
Iceland 354 [*] [*]
India 91 [*] [*]
Indonesia 62 [*] [*]
Inmarsat ATL WEST 874 [*] [*]
Inmarsat IND OCEAN 873 [*] [*]
Inmarsat PAC OCEAN 872 [*] [*]
Inmarsat ATL EAST 871 [*] [*]
Iran 98 [*] [*]
Iraq 964 [*] [*]
___________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 3 of 6
CONFIDENTIAL
<PAGE>
Ireland 353 [*] [*]
Israel 972 [*] [*]
Italy 39 [*] [*]
Ivory Coast 225 [*] [*]
Jamaica 809 [*] [*]
Japan 81 [*] [*]
Jordan 962 [*] [*]
Kazakhstan 7 [*] [*]
Kenya 254 [*] [*]
Kiribati 686 [*] [*]
Korea, South 82 [*] [*]
Kuwait 965 [*] [*]
Kyrgyzstan 7 [*] [*]
Laos 856 [*] [*]
Latvia 371 [*] [*]
Lebanon 961 [*] [*]
Lesotho 266 [*] [*]
Liberia 231 [*] [*]
Libya 218 [*] [*]
Lithuania 370 [*] [*]
Luxembourg 352 [*] [*]
Macao 853 [*] [*]
Macedonia 389 [*] [*]
Madagascar 261 [*] [*]
Malawi 265 [*] [*]
Malaysia 60 [*] [*]
Maldives 960 [*] [*]
Mali Rep 223 [*] [*]
Malta 356 [*] [*]
Marshall Islands 692 [*] [*]
Mauritania 222 [*] [*]
Mauritius 230 [*] [*]
Mexico
Mexico Band 1 - Peak [*] [*]
Mexico Band 1 - Off Peak [*] [*]
Mexico Band 2 - Peak [*] [*]
Mexico Band 2 - Off Peak [*] [*]
Mexico Band 3 - Peak [*] [*]
Mexico Band 3 - Off Peak [*] [*]
Mexico Band 4 - Peak [*] [*]
Mexico Band 4 - Off Peak [*] [*]
___________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 4 of 6
CONFIDENTIAL
<PAGE>
Mexico Band 5 - Peak [*] [*]
Mexico Band 5 - Off Peak [*] [*]
Mexico Band 6 - Peak [*] [*]
Mexico Band 6 - Off Peak [*] [*]
Mexico Band 7 - Peak [*] [*]
Mexico Band 7 - Off Peak [*] [*]
Mexico Band 8 - Peak [*] [*]
Mexico Band 8 - Off Peak [*] [*]
Micronesia 691 [*] [*]
Moldova (CIS) 373 [*] [*]
Mongolia 976 [*] [*]
Montserrat 809 [*] [*]
Morocco 212 [*] [*]
Mozambique 258 [*] [*]
Mynamar 95 [*] [*]
Namibia 264 [*] [*]
Nauru 674 [*] [*]
Nepal 977 [*] [*]
Neth Antilles 599 [*] [*]
Netherlands 31 [*] [*]
Nevis 809 [*] [*]
New Caledonia 687 [*] [*]
New Zealand 64 [*] [*]
Nicaragua 505 [*] [*]
Niger 227 [*] [*]
Nigeria 234 [*] [*]
Niue Island 683 [*] [*]
Norfolk Island (Christ 672 [*] [*]
Norway 47 [*] [*]
Oman 968 [*] [*]
Pakistan 92 [*] [*]
Palau 680 [*] [*]
Panama 507 [*] [*]
Papua N Guin 675 [*] [*]
Paraguay 595 [*] [*]
Peru 51 [*] [*]
Philippines 63 [*] [*]
Poland 48 [*] [*]
Portugal 351 [*] [*]
___________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 5 of 6
CONFIDENTIAL
<PAGE>
Qatar 974 [*] [*]
Reunion Island 262 [*] [*]
Romania 40 [*] [*]
Russia 7 [*] [*]
Rwanda 250 [*] [*]
Saipan (Tinian,Rota) 670 [*] [*]
Sao Tome 239 [*] [*]
Saudi Arabia 966 [*] [*]
Senegal Rep 221 [*] [*]
Seychelles Island 248 [*] [*]
Sierra Leone 232 [*] [*]
Singapore 65 [*] [*]
Slovakia 42 [*] [*]
Slovenia 386 [*] [*]
Solomon Island 677 [*] [*]
Somalia 252 [*] [*]
South Africa 27 [*] [*]
Spain 34 [*] [*]
Sri Lanka 94 [*] [*]
St Helena 290 [*] [*]
St Kitts 809 [*] [*]
St Lucia 809 [*] [*]
St Pierre/Miq 508 [*] [*]
St Vcnt/Gren 809 [*] [*]
Sudan 249 [*] [*]
Suriname 597 [*] [*]
Swaziland 268 [*] [*]
Sweden 46 [*] [*]
Switzerland 41 [*] [*]
Syria 963 [*] [*]
Tadjikistan 7 [*] [*]
Taiwan 886 [*] [*]
Tanzania 255 [*] [*]
Thailand 66 [*] [*]
Togo 228 [*] [*]
Tonga 676 [*] [*]
Trinidad/Tob 809 [*] [*]
Tunisia 216 [*] [*]
Turkey 90 [*] [*]
Turkmenistan 7 [*] [*]
___________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 6 of 6
CONFIDENTIAL
<PAGE>
Turks/Caicos 809 [*] [*]
Tuvalu 688 [*] [*]
Uganda 256 [*] [*]
Ukraine 380 [*] [*]
United Air Emir 971 [*] [*]
United Kingdom 44 [*] [*]
Uruguay 598 [*] [*]
Uzbekistan 7 [*] [*]
Vanuatu 678 [*] [*]
Venezuala 58 [*] [*]
Vietnam 84 [*] [*]
Wallis/Fut 681 [*] [*]
West Samoa 685 [*] [*]
Yemen, Rep of 967 [*] [*]
Yugoslavia 381 [*] [*]
Zaire 243 [*] [*]
Zambia 260 [*] [*]
Zimbabwe 263 [*] [*]
___________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 7 of 6
CONFIDENTIAL
<PAGE>
AMENDMENT NO. 1
This Amendment No. 1 is made this 22 day of May, 1996 ("EFFECTIVE DATE") by and
between Digitran Corporation ("CUSTOMER") and WorldCom Network Services, Inc.,
d/b/a WilTel ("WILTEL"), to that certain Attachment I to those Program
Enrollment Terms to that certain Telecommunications Services Agreement TSA#
DCN-940404 made by and between Customer and WilTel, Inc., now known as WorldCom
Network Service, Inc. dated April 4, 1994 (the "TSA"). In the event of any
conflict between the terms of the TSA, including the terms of the Attachment I
and the terms of this Amendment No. 1, the terms of this Amendment No. 1 shall
control. The TSA, Attachment I and this Amendment No. 1 shall collectively be
referred to as the "AGREEMENT".
The parties agree for good and valuable consideration, intending legally to be
bound, as follows:
The parties agree that the Customer will receive the following Special
International Rates as described below:
Country Rate
------- ----
Brazil [*]
France [*]
Germany [*]
India [*]
Italy [*]
Netherlands [*]
New Zealand [*]
South Korea [*]
Switzerland [*]
IN WITNESS WHEREOF the parties have entered into this Amendment I on the date
first written above.
FAXSAV INCORPORATED
d/b/a WILTELDIGITRAN CORPORATION WORLDCOM NETWORK SERVICES, INC.
By: /s/ Joseph S. Cusick /s/ Peter S. Macaluso
------------------------------- --------------------------------
(Signature) (Signature)
Joseph S. Cusick Peter S. Macaluso
- ---------------------------------- --------------------------------
(Print Name) (Print Name)
Regional Sales Manager II Vice President and CFO
- ---------------------------------- --------------------------------
(Title) (Title)
___________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
Page 1 of 1
<PAGE>
EXHIBIT 10.9
MCI CONFIDENTIAL
CARRIER AGREEMENT
T E R M S A N D C O N D I T I O N S
This Carrier Agreement (the "Agreement"), is between MCI TELECOMMUNICATIONS
CORPORATION ("MCI") and FAXSAV Incorporated ("Customer") a resale common carrier
subject to the Communications Act of 1934, as amended by the Telecommunications
Act of 1996.
1. SCOPE OF AGREEMENT.
(a) MCI shall provide to Customer certain specified domestic
interstate service(s), and intrastate common carriage service(s). For
domestic interstate this Agreement incorporates by reference the terms of
MCI Tariff FCC No. 1 ("Tariff"), which is on file with the Federal
Communications Commission and which may be modified from time to time by
MCI in accordance with law and thereby affect the service(s) furnished
Customer, except that the following terms and conditions shall supplement
or, to the extent inconsistent, supersede Tariff terms and conditions and
shall remain in effect throughout the Service Term (as defined in Paragraph
8). For intrastate services, this Agreement incorporates by reference each
applicable state tariff filed by MCI, which may be modified by MCI from
time to time, and thereby affect the service(s) furnished Customer. This
Agreement is entered pursuant to Section 211(a) of the Communications Act
of 1934.
(b) Capitalized terms not otherwise defined in this Agreement shall
have the meanings assigned to them in the Tariff.
2. MONTHLY COMMITMENT.
(a) Commencing on the Effective Date, during each monthly billing
period of the Service Term (as defined in Paragraph 12 below), Customer's
Monthly Usage shall equal or exceed the amount per month as specified below
("Monthly Commitment"):
Months 1 - 3 $50,000
Months 4 - 5 $100,000
Months 6 - 8 $150,000
Months 9 - 38 $200,000
Monthly Usage shall mean Customer's domestic interstate usage of the
MCI services in Attachment 1 (hereinafter "Interstate Services") calculated
as follows: at the Two Hundred Thousand ($200,000) to Four Hundred Ninety
Nine Thousand Nine Hundred Ninety Nine Dollars ($499,999) Monthly Usage
level rates set forth in Attachment 1 where Monthly Usage levels are
provided, or at the rates otherwise set forth in Attachment 1, but not
including any applicable taxes (and gross receipts taxes) and tax-related
surcharges on Interstate Services. Monthly Usage also includes intrastate
usage of the MCI services in Attachment 1 at standard tariff rates less
applicable tariff discounts (hereinafter "Intrastate Services") but not
including any applicable taxes (and gross receipts taxes) and tax related
surcharges on MCI Intrastate Services. Interstate Services and Intrastate
Services are collectively hereinafter "MCI Services". The rates for all
other MCI products and services not explicitly contained within this
Agreement shall be governed by the applicable MCI Tariff or applicable
state tariff.
(b) During and after the Ramp Period, if Customer's use of MCI
Services is less than the Monthly Commitment in a month, for that month,
Customer will pay the amount billed plus the difference between the amount
billed and the Monthly Commitment. However in no event shall this amount
exceed the Monthly Commitment for that month.
<PAGE>
3. RATES AND ADDITIONAL TERMS.
Customer shall pay the rates and charges for MCI Services set forth in
the Attachment(s) and Exhibit(s) to this Agreement and agrees to the
additional terms and conditions set forth in such Attachment(s) and
Exhibit(s).
4. SECURITY.
(a) Nothing contained herein shall limit or be interpreted to limit
MCI's right, as provided for in Section B-7.04 of MCI Tariff FCC No. 1, to
require, in MCI's sole discretion, alternative or additional security from
Customer in the event that Customer fails to comply with the payment
requirements in Paragraph 5 below or MCI, in its sole discretion,
determines that Customer's financial viability is at risk.
(b) In the event of non-compliance with the payment terms in
Paragraph 5 below, Customer shall provide such alternative or additional
security to MCI within thirty (30) days of receipt of written request from
MCI. Customer's failure or refusal to provide such alternative or
additional security upon MCI's request therefor may result in the
cancellation of this Agreement and Customer's service for cause pursuant to
Section B-11.01 of the Tariff and Customer shall be subject to all early
termination charges and repayment of credits described in Paragraph 10 of
this Agreement.
(c) In the event that MCI, in its sole discretion, determines that
Customer's financial viability is at risk, Customer shall provide such
alternative or additional security to MCI within thirty (30) business days
of receipt of written request from MCI. Customer's failure or refusal to
provide such alternative or additional security upon MCI's request therefor
may result in the cancellation of this Agreement and Customer's service
pursuant to Section B-11.01 of the Tariff and Customer shall not be subject
to the early termination charges described in Paragraph 10 herein, but
shall repay all credits received pursuant to Paragraph 3 of Attachment 1 of
this Agreement; however, in no event shall this amount exceed Thirty
Thousand Dollars ($30,000).
5. PAYMENT.
Customer shall pay MCI for all MCI Service(s) provided during a usage
month within fifteen (15) days of receipt of MCI's invoice. Customer's
failure to pay the invoiced amount in full within said fifteen (15) day
period may result in the exercise by MCI of its rights under the security
provisions contained in Paragraph 4 immediately above.
6. DISPUTE RESOLUTION.
Any dispute arising out of or related to this Agreement, which cannot
be resolved by negotiation, shall be settled by binding arbitration in
accordance with the rules contained in MCI Tariff FCC No. 1 ("Arbitration
Rules"). Except where explicitly permitted in this Agreement, neither
party may seek injunctive relief of any kind prior to the confirmation of
an arbitration award.
7. TERMINATION FOR INSOLVENCY.
In the event Customer becomes or is declared insolvent or bankrupt, is
the subject of any proceedings related to its liquidation, insolvency or
for the appointment of a receiver or similar officer for it, makes an
assignment for the benefit of all or substantially all of its creditors, or
enters into an agreement for the composition, extension, or readjustment of
all or substantially all of its obligations, MCI may, by giving seven (7)
business days written notice thereof to Customer,
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<PAGE>
terminate this Agreement without liability or obligation, in whole or in part,
as of a date specified in such notice of termination.
8. TERM.
(a) The Service Term ("Service Term") shall begin on March 1, 1996
("Effective Date") and will continue for a period of thirty eight (38)
months therefrom. The first eight (8) months of the Service Term shall be
the Ramp Period.
9. EXPIRATION OF TERM.
Upon expiration of the Service Term, Customer shall be fully subject
to all the term and conditions, including standard tariff rates, set forth
in the Tariff and respective state tariffs for MCI Service(s) received by
Customer after such expiration.
10. TERMINATION LIABILITY.
If Customer terminates this Agreement before expiration of the Service
Term, or MCI terminates this Agreement before expiration of the Service
Term for Customer's breach, Customer will pay MCI within thirty (30) days
of the effective date of such termination an amount equal to fifteen
percent (15%) of the aggregate of Customer's remaining Monthly Commitment
for each month remaining in the Service Term after termination (and a pro
rata portion thereof for any partial month). In addition, if Customer
terminates this Agreement pursuant to this Paragraph 10 prior to the
expiration of the twenty fourth (24th) month of the Service Term, Customer
shall repay MCI the installation credits received pursuant to Paragraph 3
of Attachment 1. If Customer terminates this Agreement pursuant to this
Paragraph 10 at any time after the expiration of the twenty fourth (24th)
month of the Service Term, Customer shall repay to MCI a pro rata portion
of the installation credits received pursuant to Paragraph 3 of Attachment
1; however, in no event shall this amount exceed Thirty Thousand Dollars
($30,000).
11. NONDISCLOSURE.
Customer shall not disclose to any third party during this Agreement,
or during the three (3) year period thereafter, any of the terms and
conditions set forth in this Agreement unless such disclosure is lawfully
required by any federal governmental agency or is otherwise required to be
disclosed by law or is necessary in any proceeding establishing rights and
obligations under this Agreement. MCI reserves the right to terminate this
Agreement immediately upon delivering written notice to Customer of any
unpermitted third party disclosure hereunder.
12. NOTICES.
All notices, reports and other communications pursuant to or in
connection with this Agreement shall be given by personal delivery,
registered or certified mail (return receipt requested), or courier
service. All such communications shall be addressed to the respective
party at its address shown below:
If to MCI: If to Customer:
MCI Telecommunications Corporation FaxSAV Incorporated
205 N. Michigan, Suite 3000 3999 Thornall Street
Chicago, IL 60601 Edison, New Jersey 08837
ATTN.: Business Markets, ATTN.: Peter S. Macaluso
Legal Affairs Vice President/CFO
CC: MCI Account Team
-3-
<PAGE>
MCI Telecommunications Corporation
25 Main Street, Court Plaza, 2nd Floor
Hackensack, New Jersey 07601
ATTN.: Judy Falk
13. LETTER OF AGENCY.
Customer shall appoint MCI as its agent in the Letter of Agency
attached hereto and incorporated herein as Attachment 2 to this Agreement.
14. SURCHARGE EXEMPTION.
When applicable, Customer shall certify that any special access lines
used in connection with services under this Agreement terminate in a device
not capable of interconnecting MCI's service with the local exchange
network and are surcharge exempt from the special access surcharge.
15. TAX EXEMPTION.
When applicable, Customer shall certify that it is exempt from
federal, state, and/or local taxes.
16. GOVERNING LAW.
This Agreement, including all matters relating to the validity,
construction, performance and enforcement thereof, shall be governed by the
laws of the State of New York without giving reference to its principles of
conflicts of law, except to the extent the Communications Act of 1934, as
amended, and as interpreted and applied by the Federal Communications
Commission, applies.
17. ASSIGNMENT.
(a) This Agreement shall be binding on Customer and its respective
successors and assigns. Customer may not assign this Agreement, whether by
operation of law or otherwise, without the prior written consent of MCI,
such consent shall not be unreasonably withheld, and any unpermitted
attempted assignment shall be void. MCI may terminate this Agreement
without liability on ten (10) business days written notice in the event
that Customer fails to obtain MCI's prior written consent.
(b) At least thirty (30) days before the consummation of any
assignment of this Agreement, Customer shall notify MCI in writing of the
name of the proposed assignee. MCI shall conduct a review of the assignee
based on MCI's prior business dealings with such entity and MCI shall
review the financial credit worthiness of the entity. Customer shall not
assign the Agreement if MCI opposes the assignment in its reasonable
discretion based on MCI's prior business dealings with the entity or if the
assignee fails to meet MCI's reasonable credit worthiness standards.
(c) In the alternative, based on MCI's review of the proposed
assignee's credit worthiness, MCI may request additional security from the
proposed assignee. If the proposed assignee fails to provide the
additional security to MCI, Customer shall not assign the Agreement.
(d) The provisions of this Paragraph 17 shall apply in the event of a
change in "control" of Customer. "Control" is defined as the power to
direct the management and policies of Customer, whether through the
ownership of voting securities, by contract or otherwise.
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<PAGE>
18. NO WAIVER.
No waiver of any of the provisions of this Agreement shall be binding
unless it is in writing and signed by both parties. The failure of either
party to insist on the strict enforcement of any provision of this
Agreement shall not constitute a waiver of any provision and all terms
shall remain in full force and effect.
19. ENTIRE AGREEMENT; AMENDMENTS.
This Agreement shall be valid only if signed by Customer by May 31,
1996. Any and all prior or contemporaneous offers, agreements,
representations and understandings made to Customer, whether written or
oral, are hereby superseded. Exclusive of any Tariff or state tariff
modifications initiated by MCI, once this Agreement has been executed, any
amendments hereto must be made in writing and signed by both parties.
IN WITNESS WHEREOF, the parties hereto each acting with proper authority have
executed this Agreement.
MCI TELECOMMUNICATIONS CORPORATION FAXSAV INCORPORATED
By: /s/ Tom Schilling By: /s/ Peter S. Macaluso
Print Name: Tom Schilling Print Name: Peter S. Macaluso
Title: Director Title: Vice President and CFO
Date: 6/7/96 Date: May 28, 1996
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<PAGE>
ATTACHMENT 1
1. ADDITIONAL RATES.
Customer shall receive the following rates during the Service Term for MCI
Services which outbound traffic originates and inbound terminates at a
switch owned and operated by Customer. For all Intrastate Services,
Customer shall pay the standard tariff rates less applicable tariff
discounts. During the Ramp Period, Customer shall receive the $200,000 to
$499,999 Monthly Usage level rates where Monthly Usage levels are provided,
or the rates otherwise set forth below, unless Customer's usage falls into
a higher Monthly Usage level in which case Customer shall receive the rates
for that level. For MCI Toll Free DAL Service, Customer shall receive the
rates and discounts associated with Customer's subcommitment level during
the Ramp Period.
Rates set forth in this Paragraph 2 do not include charges for
installation, taxes, tax-related surcharges, any other applicable
surcharges, charges for access and access-related charges (including,
without limitation, access charges in the Tariff, which are additional)
except as otherwise provided in Paragraphs 2(c), 2(d) and 2(e) herein.
Rates are in lieu of any discounts, promotions, surcharges, and credits
otherwise applicable pursuant to the Tariff and any state tariff, except
that Customer is eligible to receive the discounts associated with the
Access Pricing Plan at the 36 month commitment term as described in the
Tariff.
(a) DOMESTIC INTERSTATE MCI PRISM I SERVICE.
1) Except as provided in Paragraph 1(a)2), for domestic interstate
switched outbound service originating via dedicated access from a Customer-
owned location(s) to an MCI point of presence, except for service
terminating to Alaska, Hawaii, Puerto Rico, and the U.S. Virgin Islands for
which Customer shall pay Tariff rates less applicable Tariff discounts,
Customer will pay the following applicable non-distance sensitive
("postalized") rate per minute as determined by Customer's Monthly Usage:
MONTHLY USAGE RATE PER MINUTE
------------- ---------------
Less than $200,000 Tariff Rates
$200,000 to $499,999 [*]
$500,000 and above [*]
2) Customer shall pay the postalized rate per minute as determined
by Customer's Monthly Usage as set forth below for domestic interstate MCI
PRISM I Service terminating in the following Number Plan Area Codes
("NPAs"):
NPA STATE MAJOR CITY
--- ----- ----------
714 California Irvine
909 California Los Angeles
310 California Los Angeles
213 California Los Angeles
510 California Oakland
916 California Sacramento
619 California San Diego
415 California San Francisco
_________________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
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<PAGE>
NPA STATE MAJOR CITY
--- ----- ----------
408 California San Jose
818 California Sherman Oaks
202 District of Columbia
302 Delaware Dover
410 Maryland Baltimore
301 Maryland Rockville
201 New Jersey Newark
215 Pennsylvania Philadelphia
610 Pennsylvania Philadelphia
412 Pennsylvania Pittsburgh
703 Virginia Arlington
504 Virginia Arlington
804 Virginia Richmond
304 West Virginia Charleston
216 Ohio Cleveland
614 Ohio Columbus
513 Ohio Cincinnati
419 Ohio Toledo
313 Michigan Detroit
810 Michigan Detroit
517 Michigan Lansing
616 Michigan Grand Rapids
312 Illinois Chicago
708 Illinois Chicago
630 Illinois Chicago
309 Illinois Peoria
414 Wisconsin Milwaukee
608 Wisconsin Madison
812 Indiana Evansville
219 Indiana South Bend
317 Indiana Indianapolis
MONTHLY USAGE RATE PER MINUTE
------------- ---------------
Less than $200,000 Tariff Rates
$200,000 to $499,999 [*]
$500,000 and above [*]
2) MCI PRISM I SERVICE CREDIT.
In addition to the postalized rates for domestic interstate MCI PRISM I
Service provided in Paragraph 2 (a) (1) , Customer shall receive a monthly
credit in an amount equal to the below specified percentages (based on time of
day usage) times Customer's domestic intrastate MCI PRISM I Service monthly
usage charges within the corresponding states specified below at standard tariff
rates. The credit percentages and states are as follows:
CREDIT PERCENTAGE
-----------------
STATE DAY EVENING NIGHT/WEEKEND
- ----- --- ------- -------------
Alabama [*] [*] [*]
Arizona [*] [*] [*]
Arkansas [*] [*] [*]
California - Band 1 [*] [*] [*]
Band 2 [*] [*] [*]
Band 3 [*] [*] [*]
_________________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
-7-
<PAGE>
STATE DAY EVENING NIGHT/WEEKEND
- ----- --- ------- -------------
Colorado [*] [*] [*]
Connecticut [*] [*] [*]
Delaware [*] [*] [*]
Florida [*] [*] [*]
Georgia [*] [*] [*]
Idaho [*] [*] [*]
Illinois [*] [*] [*]
Indiana [*] [*] [*]
Iowa [*] [*] [*]
Kansas [*] [*] [*]
Kentucky [*] [*] [*]
Louisiana [*] [*] [*]
Maine [*] [*] [*]
Maryland [*] [*] [*]
Massachusetts [*] [*] [*]
Michigan [*] [*] [*]
Minnesota [*] [*] [*]
Mississippi [*] [*] [*]
Missouri [*] [*] [*]
Montana [*] [*] [*]
New Hampshire [*] [*] [*]
New Jersey [*] [*] [*]
New Mexico [*] [*] [*]
North Carolina [*] [*] [*]
North Dakota [*] [*] [*]
Nebraska [*] [*] [*]
Nevada [*] [*] [*]
New York [*] [*] [*]
Ohio [*] [*] [*]
Oklahoma [*] [*] [*]
Oregon [*] [*] [*]
Pennsylvania [*] [*] [*]
Rhode Island [*] [*] [*]
South Carolina [*] [*] [*]
South Dakota [*] [*] [*]
Tennessee [*] [*] [*]
Texas [*] [*] [*]
Utah [*] [*] [*]
Vermont [*] [*] [*]
Virginia [*] [*] [*]
Washington [*] [*] [*]
West Virginia [*] [*] [*]
Wisconsin [*] [*] [*]
Wyoming [*] [*] [*]
Such credit shall be applied to Customer's domestic interstate MCI
PRISM I Service monthly usage charges. The credit in any month shall not exceed
Customer's domestic interstate PRISM I Service monthly charges (excluding
applicable taxes, surcharges, and pass-through access/egress or related charges)
and may not be carried forward to the next month.
(b) DOMESTIC INTERSTATE MCI TOLL FREE DAL SERVICE.
1) Except as provided in Paragraph 1(b)2) below, for domestic
interstate inbound services terminating via dedicated access from an MCI point
of presence to Customer-owned location(s), except for service originating from
Alaska, Hawaii, Puerto Rico, and the U.S. Virgin Islands for which Customer
shall
_________________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been
filed separately with the Commission pursuant to Rule 406.
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<PAGE>
pay Tariff rates less applicable Tariff discounts, Customer will pay the
following applicable postalized rate per minute as determined by Customer's
Monthly Usage:
MONTHLY USAGE RATE PER MINUTE
------------- ---------------
Less than $200,000 Tariff Rates
$200,000 to $499,999 [*]
$500,000 and above [*]
2) Customer shall pay the postalized rate per minute as
determined by Customer's Monthly Usage as set forth below for domestic
interstate inbound services originating in the following NPAs:
NPA STATE MAJOR CITY
- --- ----- ----------
714 California Irvine
909 California Los Angeles
310 California Los Angeles
213 California Los Angeles
510 California Oakland
916 California Sacramento
619 California San Diego
415 California San Francisco
408 California San Jose
818 California Sherman Oaks
202 District of Columbia
302 Delaware Dover
410 Maryland Baltimore
301 Maryland Rockville
201 New Jersey Newark
215 Pennsylvania Philadelphia
610 Pennsylvania Philadelphia
412 Pennsylvania Pittsburgh
703 Virginia Arlington
540 Virginia Arlington
804 Virginia Richmond
304 West Virginia Charleston
216 Ohio Cleveland
614 Ohio Columbus
513 Ohio Cincinnati
419 Ohio Toledo
313 Michigan Detroit
810 Michigan Detroit
312 Illinois Chicago
708 Illinois Chicago
630 Illinois Chicago
414 Wisconsin Milwaukee
317 Indiana Indianapolis
205 Alabama Montgomery
334 Alabama Montgomery
305 Florida Miami
954 Florida Miami
813 Florida Tampa
941 Florida Tampa
904 Florida Jacksonville
_________________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
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<PAGE>
NPA STATE MAJOR CITY
- --- ----- ----------
404 Georgia Atlanta
770 Georgia Atlanta
502 Kentucky Louisville
504 Louisiana New Orleans
601 Mississippi Jackson
919 North Carolina Raleigh
910 North Carolina Raleigh
704 North Carolina Charlotte
803 South Carolina Columbia
615 Tennessee Nashville
POSTALIZED RATES
MONTHLY USAGE RATE PER MINUTE
------------- ---------------
Less than $200,000 Tariff Rates
$200,000 to $499,999 [*]
$500,000 and above [*]
3) MCI 800 SERVICE CREDITS.
In addition to the postalized rates for domestic interstate MCI
Toll Free DAL Service provided in Paragraph 1 (c) (1) , Customer shall receive a
monthly credit in an amount equal to the below specified percentages (based on
time of day usage) times Customer's domestic intrastate MCI Toll Free DAL
Service monthly usage charges within the corresponding states specified below at
standard tariff rates. The credit percentages and states are as follows:
CREDIT PERCENTAGE
STATE DAY EVENING NIGHT/WEEKEND
- ----- --- ------- -------------
Alabama [*] [*] [*]
Arizona [*] [*] [*]
Arkansas [*] [*] [*]
California - Band 1 [*] [*] [*]
Band 2 [*] [*] [*]
Band 3 [*] [*] [*]
Colorado [*] [*] [*]
Connecticut [*] [*] [*]
Delaware [*] [*] [*]
Florida [*] [*] [*]
Georgia [*] [*] [*]
Idaho [*] [*] [*]
Illinois [*] [*] [*]
Indiana [*] [*] [*]
Iowa [*] [*] [*]
Kansas [*] [*] [*]
Kentucky [*] [*] [*]
Louisiana [*] [*] [*]
Maine [*] [*] [*]
Maryland [*] [*] [*]
Massachusetts [*] [*] [*]
Michigan [*] [*] [*]
Minnesota [*] [*] [*]
Mississippi [*] [*] [*]
Missouri [*] [*] [*]
_________________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed
separately with the Commission pursuant to Rule 406.
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<PAGE>
STATE DAY EVENING NIGHT/WEEKEND
- ----- --- ------- -------------
Montana [*] [*] [*]
Nebraska [*] [*] [*]
Nevada [*] [*] [*]
New Hampshire [*] [*] [*]
New Jersey [*] [*] [*]
New Mexico [*] [*] [*]
New York [*] [*] [*]
North Carolina [*] [*] [*]
North Dakota [*] [*] [*]
Ohio [*] [*] [*]
Oklahoma [*] [*] [*]
Oregon [*] [*] [*]
Pennsylvania [*] [*] [*]
Rhode Island [*] [*] [*]
South Carolina [*] [*] [*]
South Dakota [*] [*] [*]
Tennessee [*] [*] [*]
Texas [*] [*] [*]
Utah [*] [*] [*]
Vermont [*] [*] [*]
Virginia [*] [*] [*]
Washington [*] [*] [*]
West Virginia [*] [*] [*]
Wisconsin [*] [*] [*]
Wyoming [*] [*] [*]
Such credit shall be applied to Customer's domestic interstate MCI Toll
Free DAL Service monthly usage charges. The credit in any month shall not
exceed Customer's domestic interstate Toll Free DAL Service monthly usage
charges (excluding taxes, surcharges, and pass through access/egress or related
charges) and may not be carried forward to the next month.
4)(a)The above rates for MCI Toll Free DAL Service do not include any
feature charges described in the Tariff, including, but not limited to, any Toll
Free DAL Service Management System ("SMS") charges or RESP ORG charges, which
may be additional. Except as provided below, Customer shall pay Tariff rates
for feature charges associated with MCI Toll Free DAL Service. For the features
identified below, Customer shall pay Tariff rates except that for each Corporate
I.D., Customer shall pay a maximum of:
[*] per Corporate I.D. for monthly charges
[*] per Corporate I.D. for installation charges
[*] per Corporate I.D. for change order charges
FEATURE
-------
Point of Call Routing Most Available Agent Routing
Day of Week Routing MCI Rules Based Routing
Time Interval Routing Tailored Call Coverage
Holiday Routing MCI Profile Routing
MCI Quota Routing DNIS
Percentage Allocation Routing Id Codes (per 100)
Sequential Allocation Routing
_________________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been
filed separately with the Commission pursuant to Rule 406.
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<PAGE>
NETWORK MANAGER AND MCI SERVICEVIEW FEATURES:
Pricing per MCI ServiceView Workstation is indicated below:
INSTALLATION PRICING
- ------------ -------
SV one-time platform install fee [*]
This installation charge will be applied to installation of the MCI ServiceView
platform and the first application, additional products added to the same
workstation will not be subject to further platform installation charges.
MONTHLY RECURRING CHARGES PRICING
- ------------------------- -------
800 Network Manager application fee [*]
with cap set at [*]
Direct Dispatch application fee [*]
Fault Manager application fee [*]
The above application fees will cover all dial-up access charges.
Dedicated access is not yet available on MCI ServiceView.
5) DOMESTIC INTERSTATE MCI TOLL FREE DAL SUBCOMMITMENT.
Customer agrees that during each monthly billing period of the
Service Term, Customer will purchase from MCI as a part of the overall Monthly
Commitment, at least One Hundred Twenty Five Thousand Dollars ($125,000) of
domestic interstate MCI Toll Free DAL Service ("Toll Free Subcommitment"). In
each month in which Customer equals or exceeds the Toll Free Subcommitment,
Customer shall receive a [*] discount on Customer's MCI Toll Free DAL Service
domestic interstate usage charges at the above postalized rates.
6) In any month in which Customer fails to equal or exceed the
Toll Free Subcommitment, Customer shall pay MCI the amount billed plus the
difference between the amount billed and the Toll Free Subcommitment. In no
event shall this amount exceed the Toll Free Subcommitment.
(c) DOMESTIC INTERSTATE TDS 1.5.
For domestic interstate TDS 1.5 Service ("TDS 1.5 Service")
terminating at Customer's owned and operated switch locations, Customer will
pay, in addition to all taxes and tax-related surcharges, the InterOffice
Channel ("IOC") monthly charges based on circuit mileage as contained in the
schedule below. Customer shall pay both the charges in Column A plus those in
Column B.
A B
FIXED CHARGE CHARGE PER DS-O
CIRCUIT MILEAGE PER CIRCUIT CIRCUIT MILE
- --------------- ----------- ------------
0 to 49 [*] [*]
50 to 99 [*] [*]
100 to 499 [*] [*]
500 and above [*] [*]
(d) DOMESTIC INTERSTATE TDS-45.
For domestic interstate TDS-45 Service ("TDS-45 Service") terminating
at Customer's owned and operated switch locations, Customer will pay, in
addition
_________________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been
filed separately with the Commission pursuant to Rule 406.
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<PAGE>
to all taxes and tax-related surcharges, the IOC monthly charges based on
circuit mileage as contained in the schedule below. Customer shall pay both the
charges in Column A plus those in Column B.
A B
FIXED CHARGE CHARGE PER DS-O
CIRCUIT MILEAGE PER CIRCUIT CIRCUIT MILE
- --------------- ----------- ------------
0 to 99 [*] [*]
100 and above [*] [*]
(e) DOMESTIC INTERSTATE DS-O.
For domestic interstate DS-0 Service ("DS-0 Service") terminating at
Customer's owned and operated switch locations, Customer will pay, in addition
to all taxes and tax-related surcharges, the IOC monthly charges based on
circuit mileage as contained in the schedule below. Customer shall pay both the
charges in Column A plus those in Column B.
A B
FIXED CHARGE CHARGE PER DS-0
CIRCUIT MILEAGE PER CIRCUIT CIRCUIT MILE
- --------------- ----------- ------------
0 to 99 [*] [*]
100 to 599 [*] [*]
600 and above [*] [*]
(f) 1) All monthly recurring Central Office Connection ("COC") and
monthly recurring Access Coordination ("AC") charges for domestic interstate TDS
1.5 Service, TDS-45 Service and DS-0 Service are included in
the charges for these services.
2) Rates for domestic interstate TDS 1.5 Service, TDS-45
Service and DS-0 Service are based on a least mileage routing and the mileage
per route is determined by using the airline mileage between the two applicable
MCI Dedicated Leased Line cities in accordance with the calculation as set forth
in Section C-11, Table I, Part A of the Tariff. These rates shall apply only to
circuits that are wholly-owned and operated end-to-end by MCI and the rates
shall not apply to circuits with less than ten percent (10%) domestic interstate
traffic.
3) The rates for domestic interstate TDS 1.5 Service, TDS-45
Service and DS-0 Service provided herein are in lieu of any rates, charges,
promotions and discounts available from MCI in the Tariff or applicable state
tariff for the AC, COC and IOC portion of such service including, without
limitation, the Network Pricing Plan(s) specified in the Tariff, except that
Customer shall be eligible to receive the discounts associated with the Access
Pricing Plan described in the Tariff.
(g) ACCESS COORDINATION/CENTRAL OFFICE CONNECTION PROMOTION
As a promotional offering to Customer for executing this Agreement on
or before the final date this offer is capable of acceptance, as specified in
Paragraph 19 of the Agreement, Customer shall pay MCI a monthly recurring
Central Office Connection charge of [*] per circuit and a monthly recurring
Access Coordination charge of [*] per circuit for MCI T-1 digital gateway access
circuits installed prior to the Effective Date of this Agreement and currently
utilized by Customer, and for MCI T-1 digital gateway access circuits installed
pursuant to this Agreement. Such charges shall be in effect for the term of
this Agreement, after which Customer shall pay standard Tariff rates less
applicable Tariff discounts for such circuits.
_________________________
* Indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been
filed separately with the Commission pursuant to Rule 406.
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<PAGE>
3. INSTALLATION CREDIT.
Customer shall receive a credit of up to [*], which shall be applied
to the one-time installation and other one-time non-recurring MCI Tariff charges
associated with the implementation of non-recurring MCI Tariff charges (not
including local exchange carrier or other third party access provider charges)
associated with MCI Services under this Agreement. However, in no event shall
such credit exceed [*]. Customer will be entitled to the credits specified in
this paragraph, provided that (i) the credits shall only apply to circuits
ordered and installed during the service term of this Agreement; (ii) each
circuit must remain in service for at least eighteen (18) months after the date
of initial installation, unless terminated to be replaced by another circuit of
equal or greater length; and (iii) credits for T-1 facilities shall only apply
upon expiration of the tariffed promotion for T-1 installation. Customer shall
reimburse MCI for any credits received for circuits remaining in service for
less than eighteen (18) consecutive months and not replaced by another circuit
of equal or greater length.
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<PAGE>
ATTACHMENT 2
LETTER OF AGENCY
ATTENTION: Concerned Local Operating Companies, AT&T and other Common Carriers
and All Equipment Vendors
The undersigned appoints MCI Telecommunications Corporation or any of its
affiliated companies ("MCI") as agent for the purpose of ordering, in connection
with MCI's provision of service to the undersigned, changes in and/or
maintenance on specific telecommunications service that you provide to the
undersigned including, without limitation, removing, adding to or rearranging
such telecommunications service.
You are hereby released from any and all liability for making pertinent
information available to MCI and for following MCI's instructions with respect
to any changes to or maintenance on the undersigned's telecommunications
service. You may deal directly with MCI on all matters pertaining to
telecommunications service and should follow instructions with respect thereto.
This authorization will remain in effect until modified or rescinded in writing
by the undersigned.
Signed this 28th day of April, 1996.
BY: FAXSAV INCORPORATED
/s/ Peter S. Macaluso
____________________________________________
Authorized Customer Signature
Vice President and CFO
____________________________________________
Title
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<PAGE>
EXHIBIT 10.10
LEASE BETWEEN
METRO FOUR ASSOCIATES LIMITED PARTNERSHIP,
a New Jersey Limited Partnership,
AS LANDLORD
AND
DIGITRAN CORP., a Delaware Corporation
AS TENANT
Premises: 379 Thornall Street
Edison, New Jersey
Portion of 2nd Floor
Dated: May 28, 1992
<PAGE>
I N D E X
ARTICLE CAPTION PAGE
1. Demise, Premises, Term, Rents . . . . . . . . . . . . .1
2. Use . . . . . . . . . . . . . . . . . . . . . . . . . .3
3. Preparation of the Demised Premises . . . . . . . . . .4
4. When Demised Premises Ready for Occupancy . . . . . . .4
5. Adjustment of Rents . . . . . . . . . . . . . . . . . .5
6. Subordination, Notice to Lessors and Mortgagees . . . 11
7. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . 12
8. Assignment, Mortgaging, Subletting. . . . . . . . . . 12
9. Compliance with Laws and Requirements of Public
Authorities . . . . . . . . . . . . . . . . . . . . . 15
10. Insurance . . . . . . . . . . . . . . . . . . . . .. .16
11. Rules and Regulations . . . . . . . . . . . . . . . . 19
12. Tenant's Changes. . . . . . . . . . . . . . . . . . . 19
13. Tenant's Property . . . . . . . . . . . . . . . . . . 22
14. Repairs and Maintenance . . . . . . . . . . . . . . . 23
15. Electricity . . . . . . . . . . . . . . . . . . . . . 25
16. Heat, Ventilation and Air Conditioning. . . . . . . . 27
17. Landlord's Other Services . . . . . . . . . . . . . . 28
18. Access, Changes in Building Facilities, Name. . . . . 29
19. Notices of Accidents. . . . . . . . . . . . . . . . . 30
Non-Liability and Indemnification . . . . . . . . . . 31
(i)
<PAGE>
ARTICLE CAPTION
21. Destruction or Damage . . . . . . . . . . . . . . . ..32
22. Eminent Domain. . . . . . . . . . . . . . . . . . . . 34
23. Surrender . . . . . . . . . . . . . . . . . . . . . . 36
24. Conditions of Limitation. . . . . . . . . . . . . . . 37
25. Re-Entry By Landlord. . . . . . . . . . . . . . . . . 39
26. Damages . . . . . . . . . . . . . . . . . . . . . . . 41
27. Waivers . . . . . . . . . . . . . . . . . . . . . . . 43
28. No Other Waivers or Modifications . . . . . . . . . . 44
29. Curing Tenant's Defaults, Additional Rent . . . . . . 45
30. Broker. . . . . . . . . . . . . . . . . . . . . . . . 45
31. Notices . . . . . . . . . . . . . . . . . . . . . . . 46
32. Estoppel Certificate, Memorandum. . . . . . . . . . . 46
33. Arbitration . . . . . . . . . . . . . . . . . . . . . 47
34. No Other Representations., Construction, Governing
Law . . . . . . . . . . . . . . . . . . . . . . . . 48
35. Security. . . . . . . . . . . . . . . . . . . . . . . 49
36. Parties Bound . . . . . . . . . . . . . . . . . . . . 51
37. Consents. . . . . . . . . . . . . . . . . . . . . . . 51
38. Mortgage Financing - Tenant Cooperation . . . . . . . 52
39. Environmental Compliance. . . . . . . . . . . . . . . 52
40. Holding Over. . . . . . . . . . . . . . . . . . . . . 53
41. Certain Definitions & Constructions . . . . . . . . . 54
(ii)
<PAGE>
ARTICLE CAPTION
42. Relocation of Tenant. . . . . . . . . . . . . . . . . 55
43. Option to Renew . . . . . . . . . . . . . . . . . . . 55
44. "As Is" Lease . . . . . . . . . . . . . . . . . . . . 56
EXHIBIT A - Description of Land
EXHIBIT B - Floor Plan(s)
EXHIBIT C - Separate Work Letter
EXHIBIT D - Cleaning and Maintenance Specifications
EXHIBIT E - Rules and Regulations
EXHIBIT F - Definitions
(iii)
<PAGE>
LEASE, dated May 28, 1992 between METRO FOUR ASSOCIATES LIMITED
PARtNERSHIP, a New Jersey Limited Partnership, C/O Alfieri Property
Management, having its principal office located at 399 Thornall Street, P.O.
Box 2911, Edison, New Jersey 08818-2911, (hereinafter called "Landlord"), and
DIGITRAN CORP., a Delaware Corporation, having its principal office located at
560 Sylvan Avenue, Englewood Cliffs, New Jersey 07632 (hereinafter called
"Tenant").
WITNESSETH:
ARTICLE 1
DEMISE, PREMISE, TERM, RENTS
1.01. Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the premises hereinafter described, in the building located at 379
Thornall Street, Edison, New Jersey (the "Building") on the parcel of land
more particularly described in Exhibit A (the "Land"), for the term
hereinafter stated, for the rents hereinafter reserved and upon and subject to
the conditions (including limitations, restrictions and reservations) and
covenants hereinafter provided. Each party hereby expressly covenants and
agrees to observe and perform all of the conditions and covenants herein
contained on its part to be observed and performed.
1.02. The premises hereby leased to Tenant is a portion of the second
floor of the Building, as shown on the floor plans annexed hereto as Exhibit
B, having a rentable area of 6,465 square feet measured outside wall to
outside wall. Said premises together with all fixtures and equipment which at
the commencement, or during the term, of this lease are thereto attached
(except items not deemed to be included therein and removable by Tenant as
provided in Article 13) constitute and are hereinafter called the "Demised
Premises". Any dispute as to the square footage shall be submitted to
arbitration in accordance with the terms of this Lease.
1.03. The term of this lease, for which the Demised Premises are hereby
leased, shall commence on a date (herein called the "Commencement Date") which
shall be (i) the day on which the Demised Premises are ready for occupancy (as
defined in Article 4) or (ii) the day Tenant, or anyone claiming under or
through Tenant, first occupies the Demised Premises for business, whichever
occurs earlier, and shall end at noon of the last day of the calendar month
in which occurs the day preceding the second (2nd) anniversary of the
Commencement Date, which ending date is hereinafter called the "Expiration
Date", or shall end on such
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earlier date upon which said term may expire or be cancelled or terminated
pursuant to any of the conditions or covenants of this lease or pursuant to
law. Promptly following the Commencement Date, the Landlord shall notify
Tenant in writing of the Commencement Date and the Expiration Date as
determined in accordance with this Section. Landlord and Tenant agree that
June 1, 1992 is the projected target Commencement Date. If possible,
Landlord shall permit Tenant, but only during the three (3) days prior to the
Commencement Date, without cost to Tenant, to move in the Demised Premises.
Tenant shall not have the right to conduct its business and otherwise occupy
the Demised Premises during such period.
1.04. The rents reserved under this lease, for the term thereof, shall
be and consist of:
(a) Fixed rent of $122,835.00 per year,(calculated on the basis
of,$19.00/sq. ft. for 6,465 sq. ft. of rentable area) which shall be
payable in equal monthly installments of $10,236.25 in advance on the
first day of each and every calendar month during the term of this
lease, (except Tenant shall pay, upon execution and delivery of this
lease by Tenant, the sum of $10,236.25 to be applied against the first
monthly installment or installments of fixed rent becoming due under
this lease) and
(b) additional rent consisting of all such other sums of money as
shall become due from and payable by Tenant to Landlord hereunder (for
default in payment of which Landlord shall have the same remedies as for
a default in payment of fixed rent),
all to be paid to Landlord at its office, or such other place, or to such
agent and at such place, as Landlord may designate by notice to Tenant, in
lawful money of the United States of America.
1.05. Tenant shall pay the fixed rent and additional rent herein
reserved promptly as and when the same shall become due and payable, without
demand therefor and without any abatement, deduction or setoff whatsoever
except as expressly provided in this lease.
1.06. If the Commencement Date occurs on a day other than the first day
of a calendar month, the fixed rent for such calendar month shall be prorated
and the balance of the first month's fixed rent theretofore paid shall be
credited against the next monthly installment of fixed rent.
1.07. Late payments of any payment of Rent, including monthly rent,
which is not received within ten (10) days after it is due will be subject to
a late charge equal to five percent (5%) of the unpaid payment, or $100.00,
whichever is greater. This amount is in compensation of Landlord's additional
cost of processing late payments. In addition, any
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Rent which is not paid when due, including monthly rent, will accrue interest
at a late rate charge of the Prime Rate plus three percent (3%) per annum
(but in no event in an amount in excess of the maximum rate allowed by
applicable law) from the date on which it was due until the date on which it
is paid in full with accrued interest.
ARTICLE 2
USE
2.01. Tenant shall use and occupy the Demised Premises for executive and
general offices for the transaction of Tenant's business and for no other
purpose. Landlord acknowledges that the Demised Premises may be used by
Tenant from time to time as its prime telecommunication hub as*
2.02. The use of the Demised Premises for the purposes specified in 2.01
shall not include and Tenant shall not use or permit the use of the Demised
Premises or any part thereof for:
(a) A school of any kind other than for the training of Tenant's
employees;
(b) An employment agency;
(c) An office for any governmental or quasigovernmental bureau,
department, agency, foreign or domestic, including any autonomous
governmental corporation or diplomatic or trade mission; and
2.03. If any governmental license or permit, other than a Certificate of
occupancy, shall be required for the proper and lawful conduct of Tenant's
business in the Demised Premises, or any part thereof, and if failure to
secure such license or permit would in any way affect Landlord, Tenant, at its
expense, shall submit the same to inspection by Landlord. Tenant shall at all
times comply with the terms and conditions of each such license or permit.
2.04. Tenant shall not at any time use or occupy, or do or permit
anything to be done in the Demised Premises, in violation of the Certificate
of Occupancy (or other similar municipal ordinance) governing the use and
occupation of the Demised Premises or for the Building.
* a back-up computer center for other operations. Such use is permitted
hereunder except that Tenant may be liable for additional electric costs if
so determined under Article 15.
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ARTICLE 3
PREPARATION OF THE DEMISED PREMISES
3.01. The Demised Premises shall be completed and prepared for Tenant's
occupancy in the manner, and subject to the terms, conditions and covenants,
set forth in Exhibit C. The facilities, materials and work so to be furnished,
installed and performed in the Demised Premises by Landlord at its expense are
hereinafter and in Exhibit C referred to as 'Landlord's Work'. Such other
installations, materials and work which may be undertaken by or for the
account of Tenant to equip, decorate and furnish the Demised Premises for
Tenant's occupancy, commonly called finishing trades work, are, hereinafter and
in Exhibit C called "Tenant's Finish Work".
ARTICLE 4
WHEN DEMISED PREMISES READY FOR OCCUPANCY
4.01. The Demised Premises shall be deemed ready for occupancy on the
earliest date on which all of the following conditions have been met:
(a) A certificate of occupancy (temporary or final) has been
issued by the applicable governmental authorities, permitting Tenant's
use of the Demised Premises for the purposes for which the same have
been leased.
(b) Landlord's Work, and so much of Tenant's Finish Work as
Landlord shall have undertaken in accordance with Exhibit 'C" or by
separate letter agreement, in the Demised Premises have been
substantially completed; and same shall be so deemed notwithstanding the
fact that minor or insubstantial details of construction, mechanical
adjustment, or decoration or special Finish Work requested by Tenant,
such as cabinetry remain to be performed, the non-completion of which
does not materially interfere with Tenant's use of the Demised Premises.
(c) Reasonable means of access and facilities necessary to
Tenant's use and occupancy of the Demised Premises, including corridors,
elevators and stairways, and heating, ventilating, air conditioning,
sanitary, water, and electrical facilities, have been installed and are
in reasonably good operating order and available to Tenant.
4.02. If the occurrence of any of the conditions listed in Section 4.01,
and thereby the making of the Demised Premises ready for occupancy, shall be
delayed by any act or
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omission of Tenant or any of its employees, agents or contractors or any
failure (not due to any act or omission of Landlord or any of its employees,
agents or contractors) to plan or execute Tenant's Finish Work diligently by
reason of Tenant's failure to submit Tenant's plans and specifications in the
manner set forth in this lease, the Demised Premises shall be deemed ready
for occupancy on the date when they would have been ready but for such delay. I
4.03. If and when Tenant shall take actual possession of the Demised
Premises, it shall be conclusively presumed that the same were in satisfactory
condition (except for latent defects) as of the date of such taking of
possession, unless within ninety (90) days after such date Tenant shall give
Landlord notice specifying the respects in which the Demised Premises were not
in satisfactory condition.
ARTICLE 5
ADJUSTMENT OF RENTS
5.01. For the purpose of Sections 5.01-5.03:
(a) "Taxes" shall mean real estate taxes, special and
extraordinary assessments and governmental levies against the Land and
Building of which the Demised Premises (but excluding therefrom that
portion of the real estate taxes directly attributable to improvements
made by other tenants in the Building beyond Landlord's allowances) are
a part provided, however, if at any time during the term of this lease
the method of taxation prevailing at the date of this lease shall be
altered so that in lieu of, or as an addition to, or as a substitute for
any or all of the above there shall be assessed, levied or imposed (i) a
tax, assessment, levy, imposition or charge based on the income or rents
received therefrom whether or not wholly or partially as a capital levy
or otherwise, or (ii) a tax, assessment, levy, imposition or charge
measured by or based in whole or in part upon all or any part of the Land
and/or Building and imposed upon Landlord, or (iii) a license fee
measured by the rents, or (iv) any other tax, assessment, levy,
imposition, charge or license fee however described or imposed, then all
such taxes, assessments, levies, impositions, charges or license fees or
the part thereof so measured or based shall be included in the
definition of "Taxes". Tenant shall pay to Landlord directly th portion
of any real estate taxes directly attributable to improvements made by
Tenant beyond Landlord's allowances (hereinafter referred to as Tenant's
Direct Tax Payment).
(b) "Base Taxes" shall mean the assessed valuation of the Land
and Building, as finally determined following completion of construction
and issuance of an initial certificate of occupancy for any portion of
the Building (or such equivalent
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certification if Certificates of occupancy not be used), multiplied by
the tax rate for the Tax Year 1992.
(c) "Tax Year" shall mean each calendar year for which Taxes are
levied by any governmental authority.
(d) "Operational Year" shall mean each calendar year commencing
with the year in which Tenant takes occupancy of any portion of the
Demised Premises on a rent paying basis.
(e) "Tenant's Proportionate Share of Increase" shall mean 1.94%
multiplied by the increase in Taxes in any Operational Year in excess of
the Base Taxes. Tenant's Proportionate Share of Increase for the first
Operational Year shall be prorated to reflect the actual occupancy by
Tenant for said Operational Year. Tenant shall not be obligated to pay
any Tenant's Proportionate Share of Increase in Taxes during calendar
year 1992.
(f) "Tenant's Projected Share of Increase" shall mean Tenant's
Proportionate Share of Increase for the projected Operational Year
divided by twelve (12) and payable monthly by Tenant to Landlord as
additional rent.
5.02. After the expiration of each Operational Year, Landlord shall
furnish to Tenant a written statement of the Taxes incurred for such
Operational Year as well as Tenant's Proportionate Share of Increase, if any.
With respect to the first Operational Year for which Tenant shall be required
to pay its Proportionate Share of Increase, Tenant shall pay same to Landlord
within thirty (30) days after the receipt of Landlord's statement therefore.
5.03. Commencing with the first Operational Year Landlord shall be
entitled to receive Tenant's Proportionate Share of Increase, Tenant shall pay
to Landlord as additional rent for the then Operational Year, Tenant's
Projected Share of Increase in equal monthly installments. If the statement
furnished by Landlord to Tenant pursuant to Section 5.02 at the end of the
then Operational Year shall indicate that Tenant's Projected Share of Increase
exceeded Tenant's Proportionate Share of Increase, Landlord shall either
forthwith pay the amount of excess directly to Tenant concurrently with the
notice or credit same against Tenant's next monthly installment of rent. If
such statement furnished by Landlord to Tenant hereunder shall indicate that
the Tenant's Proportionate Share of Increase exceeded Tenant's Projected Share
of Increase for the then Operational Year, Tenant shall forthwith pay the
amount of such excess to Landlord.
Commencing with the first Operational Year, Tenant shall pay to Landlord
in equal monthly installments together with its payment of fixed rent one-
twelfth of Tenant's Direct Tax Payment.
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5.04. As used in Sections 5.04-5.06.
(a) "Operating Expenses' shall mean any or all expenses incurred
by Landlord in connection with the operation of the Land and Buildings
of which the Demised Premises are a part, including all expenses
incurred as a result of Landlord's compliance with any of its
obligations hereunder other than Landlord's Work and such expenses shall
include: (i) salaries, wages, medical, surgical and general welfare
benefits, (including group life insurance) and pension payments of
employees of Landlord engaged in the operation and maintenance of the
Building; (ii) social security, unemployment and payroll taxes, workers'
compensation, disability coverage, uniforms and dry cleaning for the
employees referred to in subdivision (i); (iii) the cost of all charges
for oil, gas, electricity (including but not limited to, fuel cost
adjustments), steam heat, ventilation, air-conditioning, heating & water
(including sewer rental and assessments) furnished to the Building
(including common areas thereof) including any taxes on any such
utilities, but excluding' therefrom the cost, including taxes thereon,
of electric energy furnished other than for heating and air-conditioning
to the Demised Premises (which costs shall be borne by Tenant pursuant
to the provisions of Article 15 hereof); (iv) the cost of all premiums
and charges for the following insurances rent, casualty, liability,
fidelity and war risk (if obtainable from the United States government);
(v) the cost of all building and cleaning supplies for the common areas
of the Building and charges for telephone for the Building; (vi) the
cost of all charges for management, window cleaning and janitorial
services and any independent contractor performing work included within
the definition of operating expenses; (vii) legal and accounting
services and other professional fees and disbursements incurred in
connection with the operation and management of the Land and Building
(other than as related to new leases, enforcing Landlord's rights under
existing leases, or sales of the Building); (viii) general maintenance
of the Building and the cost of maintaining and replacing the
landscaping; (ix) maintenance of the common area; (x) any escalations in
the ground rent payments in excess of the base ground rent required to
be paid by Landlord to the landlord under the* (xi) capital
expenditures of the nature described in the following paragraph:
If Landlord shall purchase any item of capital equipment or
make any capital expenditure which has the effect of reducing the
expenses which would otherwise be included in operating expenses,
then the costs of such capital equipment or capital expenditure
are to be included in Operating Expenses for the operational Year
in which the costs are incurred and subsequent Operational Years
on a straight-line basis, to the extent that such items are
amortized over such period of time as Landlord reasonably
estimates such savings or reductions in operating Expenses are
expected to equal Landlord's costs for such
* existing ground lease upon which the Building is situate.
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capital equipment or capital expenditure, with an interest factor
equal to the interest rate at the time of Landlord's having
made said expenditure. If Landlord shall lease any items of
capital equipment designed to result in savings or reductions
in expenses which would otherwise be included in Operating
Expenses, then the rentals and other costs paid pursuant to
such leasing shall be included in Operating Expenses for the
operational Year in which they were incurred.
and (xii), that portion of the cost of any capital expenditures incurred which
are required in connection with the operation of the existing Land and
Building amortized on a straight line basis, to the extent that such items are
amortized over an appropriate period, but not more than ten years, with an
interest factor equal to the interest rate, at the time of Landlord's having
made said expenditure.
If during all or part of any Operational Year, Landlord
shall not furnish any particular item(s) of work or service (which
would otherwise constitute an Operating Expense hereunder) to
portions of the Building due to the fact that (i) such portions
are not occupied or leased, (ii) such items of work or service is
not required or desired by the tenant of such portion, (iii) such
tenant is itself obtaining and providing such item of work or
service or (iv) for other reasons, then, for the purposes of
computing Operating Expenses, the amount for such item and for
such period shall be deemed to be increased by an amount equal to
the additional costs and expenses which would reasonably have been
incurred during such period by Landlord if it had at its own ex-
pense furnished such item of work or services to such portion of
the Building or such tenant.
Notwithstanding the foregoing, the following costs and
expenses shall not be included in operating expenses:
(a) Executives' salaries above the grade of building
manager;
(b) Amounts received by Landlord through proceeds of
insurance except to the extent they are compensation for
sums previously included in operating expenses hereunder;
(c) Cost of repairs or replacements incurred by
reason of fire or other casualty or condemnation to the
extent Landlord is compensated therefor;
(d) Advertising and promotional expenditures;
(e) Costs incurred in performing work or furnishing
services for any tenant (including Tenant), whether at such
tenant's or
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Landlord's expense, to the extent that such work
or service is in excess of any work or service that Landlord
is obligated to furnish to Tenant at Landlord's expense;
(f) Depreciation, except as provided above;
(g) Brokerage commissions;
(h) Taxes (as hereinbefore defined);
(i) The cost of electricity (for other than heating
and air-conditioning) furnished to the Premises or any other
space leased to tenants as reasonably estimated by Landlord;
and
(j) Refinancing costs and mortgage interest and
amortization payments.
(b) "Operational Year" shall mean each calendar year commencing
with the year in which Tenant takes occupancy of any portion of the
Demised Premises on a rent-paying basis.
(c) "Base Year" shall mean calendar 1992.
(d) "Tenant's Proportionate Share of Increase" shall mean 1.94%
multiplied by the increase in operating Expenses for the Operational
Year over Operating Expenses for the Base Year. For purposes hereof,
the Tenant's Proportionate Share of Increase has been computed based
upon a total square footage of the Building equal to 332,090 square
feet, and a total square footage of the Demised Premises equal to 6,465
square feet. Tenant shall not be obligated to pay any Tenant's
Proportionate Share of Increase in Operating Expenses during calendar
year 1992.
(e) "Tenant's Projected Share of Increase" shall mean Tenant's
Proportionate Share of Increase for the projected Operational Year
divided by twelve (12) and payable monthly by Tenant to Landlord as
additional rent.
5.05 After the expiration of the Base Year and for each Operational
Year thereafter, Landlord shall furnish to Tenant a written detailed statement
of the operating Expenses (certified to be true and correct by Landlord)
incurred for such Operational Year which statement shall set forth Tenant's
Proportionate Share of Increase, if any. With respect to the first
Operational Year for which the Tenant shall be required to pay its
Proportionate Share of Increase, Tenant shall pay same to Landlord within
thirty (30) days after the receipt of Landlord's statement.
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5.06. Commencing with the first Operational Year after Landlord shall be
entitled to receive Tenant's Proportionate Share of Increase, Tenant shall pay
to Landlord as additional rent for the then Operational Year, Tenant's
Projected Share of Increase. If the statement furnished by Landlord to Tenant
pursuant to Section 5.05 at the end of the then Operational Year shall
indicate that Tenant's Projected Share of Increase exceeded Tenant's Pro-
portionate Share of Increase, Landlord shall either forthwith pay the amount
of excess directly to Tenant concurrently with the notice or credit same
against Tenant's next monthly installment of rent. If such statement
furnished by Landlord to Tenant hereunder shall indicate that the Tenant's
Proportionate Share of Increase exceeded Tenant's Projected Share of Increase
for the then Operational Year, Tenant shall forthwith pay the amount of such
excess to Landlord.
5.07. Every notice given by Landlord pursuant to Sections 503 & 5.05
shall be conclusive and binding upon Tenant unless (i) within ninety (90) days
after the receipt of such notice Tenant shall notify Landlord that it disputes
the correctness of the notice, specifying the particular respects in which the
notice is claimed to be incorrect, and (ii) if such dispute shall not have
been settled by agreement, shall submit the dispute to arbitration within one
hundred and twenty (120) days after receipt of the notice. Pending the
determination of such dispute by agreement or arbitration as aforesaid, Tenant
shall within thirty (30) days after receipt of such notice, pay additional
rent in accordance with Landlord's notice and such payment shall be without
prejudice to Tenant's position. If the dispute shall be determined in Ten-
ant's favor, Landlord shall forthwith pay Tenant the amount of Tenant's over
payment of rents resulting from compliance with Landlord's statement.
ARTICLE 6
SUBORDINATION, NOTICE TO LESSORS AND MORTGAGEES
6.01. This lease, and all rights of Tenant hereunder, are and shall be
subject and subordinate in all respects to all ground leases, overriding
leases and underlying leases of the Land and/or the Building now or hereafter
existing and to all mortgages which may now or hereafter affect the Land
and/or the Building and/or any of such leases, whether or not such mortgages
shall also cover other lands and/or buildings, to each and every advance made
or hereafter to be made under such mortgages, and to, all renewals,
modifications, replacements and extensions of such leases and such mortgages
and spreaders and consolidations of such mortgages. This Section shall be
self-operative and no further instrument of subordination shall be required.
In confirmation of such subordination, Tenant shall promptly execute and
deliver any instrument that Landlord, the lessor of any such lease or the
holder of any such mortgage or any of their respective successors in interest
may reasonably request to evidence such subordination. The leases to which
this lease is, at the time referred to, subject and subordinate pursuant to
this Article are hereinafter sometimes called "superior leases" and the
mortgages to which this lease is, at the time referred to, subject and
subordinate are hereinafter sometimes called "superior mortgages", the lessor
of a superior lease or its
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successor in interest at the time referred to is sometimes hereinafter called
a "lessor", and the holder of a superior mortgage or its successor in
interest at the time referred to is sometimes hereinafter called a "superior
mortgagee".
ARTICLE 7
QUIET ENJOYMENT
7.01. So long as Tenant pays all of the fixed rent and additional rent
due hereunder and performs all of Tenant's other obligations hereunder, Tenant
shall peaceably and quietly have, hold and enjoy the Demised Premises subject,
nevertheless, to the obligations of this lease and, as provided in Article 6,
to the superior leases and the superior mortgages.
ARTICLE 8
ASSIGNMENT, MORTGAGING, SUBLETTING
8.01. Neither this lease, nor the term and estate hereby granted, nor
any part hereof or thereof, nor the interest of Tenant in any sublease, or the
rentals thereunder, shall be assigned, mortgaged, pledged, encumbered or
otherwise transferred by Tenant, and neither the Demised Premises, nor any
part thereof shall be encumbered in any manner by reason of any act or
omission on the part of Tenant or anyone claiming under or through Tenant, or
shall be sublet, or offered or advertised for subletting, or be used or
occupied or permitted to be used or occupied, or utilized for desk space or
for mailing privileges, by anyone other than Tenant or for any purpose other
than as permitted by this lease, without the prior written consent of Landlord
in every case, except as expressly otherwise provided in this Article.
8.02. If this lease be assigned, whether or not in violation of the
provisions of this lease, Landlord may collect rent from the assignee. If the
Demised Premises or any part thereof be sublet or be used or occupied by
anybody other than Tenant, whether or not in violation of this lease, Landlord
may, after default by Tenant and expiration of Tenant's time to cure such
default, collect rent from the undertenant or occupant. In either event,
Landlord may apply the net amount collected to the rents herein reserved, but
no such assignment, underletting, occupancy or collection shall be deemed a
waiver of any of the provisions of Section 8.01, or the acceptance of the
assignee, undertenant or occupants as tenant, or a release of Tenant from the
further performance by Tenant of Tenant's obligations under this lease. The
consent by Landlord to assignment, mortgaging, underletting or use or
occupancy by others shall not in any wise be considered to relieve Tenant from
obtaining the express
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written consent of Landlord to any other or further assignment, mortgaging or
underletting or use or occupancy by others not expressly permitted by this
Article.
8.03. Provided Tenant complies with the following conditions Landlord
shall not unreasonably withhold its consent to the subletting of all or a
portion of the Demised Premises:
(a) Tenant shall submit in writing to Landlord (i) the name of
the proposed subtenant, (ii) the nature and character of the proposed
subtenant's business and the intended use to be made of the Demised
Premises by the proposed subtenant, (iii) the terms and conditions of
the proposed sublease and (iv) such reasonable financial information as
Landlord may request regarding the proposed subtenant;
(b) If Tenant requests the right to sublease, the Landlord, at
Landlord's election may (i) elect to sublease the Demised Premises
directly from Tenant either upon (x) the same terms and conditions
offered to the proposed subtenant or (y) upon the same terms and
conditions as set forth in this Lease or (ii) cancel this lease as to
that portion of the Demised Premises which Tenant desires to sublease,
in which event Tenant agrees to surrender all of its right, title and
interest hereunder and Landlord may thereafter enter into a direct lease
with the proposed subtenant or with any other persons as Landlord may
desire, or (iii) consent to the subletting on such terms and conditions
as established by Landlord, including Landlord's participation in any
rentals received by Tenant. Landlord's election under this subdivision
(b) shall be made within thirty (30) days after the information set
forth in subdivision (a) hereof has been received by Landlord;
(c) Landlord has obtained consent to such proposed subletting
by any superior lessor and/or superior mortgagee provided such
superior lessor and/or superior mortgagee requires consent to the
subletting.
(d) Notwithstanding anything to the contrary contained herein,
Tenant agrees not to offer the Demised Premises or any part thereof to
any other tenant in the Building or their subsidiaries or affiliates at
a rental less than the then current rental rate for office buildings in
the surrounding area. Tenant further agrees that it shall not place any
signs on the windows located in the Demised Premises indicating that all
or any portion of the Demised Premises are available for subleasing.
8.04. Tenant shall remain fully liable for the performance of all
Tenant's obligations hereunder notwithstanding any subletting provided for
herein (except to Landlord), and without limiting the generality of the
foregoing, shall remain fully responsible and liable to Landlord for all acts
and omissions of any subtenant or anyone claiming under or through any
subtenant which shall be in violation of any of the obligations of this lease
and any such violation shall be deemed to be a violation by Tenant.
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8.05. Tenant shall not without the prior written consent of Landlord
assign this lease and the provisions of Section 8.03 with respect to
subletting shall equally apply to any assignment of this lease. Tenant herein
named, or any immediate or remote successor in interest of Tenant herein
named, shall remain liable jointly and severally (as a primary obligor) with
its assignee and all subsequent assignees for the performance of Tenant's
obligations hereunder. In the event that Tenant hereunder is a corporation
(other than one whose shares, now or in the future, are regularly and publicly
traded on a recognized stock exchange including over the counter, or is a
public company or merges with a public company), then any substantial change
in the ownership of any/or power to vote the majority of the outstanding
capital stock of Tenant, other than by inheritance or operation of law, shall
be deemed an assignment of this lease and the provisions with respect thereto
shall be applicable.
8.06. Notwithstanding anything to the contrary contained in this Article
with respect to assignment or subletting, Landlord hereby agrees that its
consent to any assignment and/or subletting (a) to any parent, affiliate or
wholly-owned subsidiary of Tenant (as defined in Rule 240.12b-2 under the
Securities Exchange Act of 1934) or (b) to any corporation or other entity
which succeeds to all or substantially all of the assets and business of
Tenant, shall not be unreasonably withheld.
ARTICLE 9
COMPLIANCE WITH LAWS AND REQUIREMENTS
OF PUBLIC AUTHORITIES
9.01. Tenant shall give prompt notice to Landlord of any notice it
receives of the violation of any law or requirement of public authority, and
at its expense shall comply with all laws and requirements of public
authorities which shall, with respect to the Demised Premises or the use and
occupation thereof, or the abatement of any nuisance, impose any violation,
order or duty on Landlord or Tenant, arising from (i) Tenant's use of the
Demised Premises, (ii) the manner of conduct of Tenant's business or operation
of its installations, equipment or other property therein, (iii) any cause or
condition created by or at the instance of Tenant, other than by Landlord's
performance of any work for or on behalf of Tenant, or (iv) breach of any of
Tenant's obligations hereunder. Furthermore, Tenant need not comply with any
such law or requirement of public authority so long as Tenant shall be
contesting the validity thereof, or the applicability thereof to the Demised
Premises, in accordance with Section 9.02.
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Nothing contained herein shall be construed to require Tenant to make
structural alterations to the Building except to the extent that same are
required by reason of Tenant's specific use (other than general office).
9.02. Tenant may, at its expense (and if necessary, in the name of but
without expense to Landlord) contest, by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any law or requirement of public authority, and Landlord shall
cooperate with Tenant in such proceedings, provided that
(a) Tenant shall defend, indemnify and hold harmless Landlord
against all liability, loss or damage which Landlord shall suffer by
reason of such non-compliance or contest, including reasonable
attorney's fees and other expenses reasonably incurred by Landlord;
(b) Such non-compliance or contest shall not constitute or
result in any violation of any superior lease or superior mortgage, or
if such superior lease and/or superior mortgage shall permit such
noncompliance or contest on condition of the taking of action or
furnishing of security by Landlord, such action shall be taken and such
security shall be furnished at the expense of Tenant; and
(c) Tenant shall keep Landlord advised as to the status of such
proceedings.
ARTICLE 10
INSURANCE
10.01. Tenant shall not violate, or permit the violation of, any
condition imposed by the standard fire insurance policy then issued for office
buildings in the county which the Demised Premises are situate, and shall not
do, or permit anything to be kept in the Demised Premises which would increase
the fire or other casualty insurance rate on the Building or the property
therein over the rate which would otherwise then be in effect, (unless Tenant
pays the resulting increased amount of premium as provided in Section 10.02)
or which would result in insurance companies of good standing refusing to
insure the Building or any of such property in amounts and @t normal rates
reasonably satisfactory to Landlord. However, Tenant shall not be subject to
any liability or obligation under this Section by reason of the proper use of
the Demised Premises for the purposes permitted by Article 2.
10.02. If, by reason of any act or omission on the part of Tenant,
the rate of fire insurance with extended coverage on the Building or equipment
or other property of Landlord or other tenants shall be higher than it
otherwise would be, Tenant shall reimburse Landlord,
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on demand, for that part of the premiums for fire insurance and extended
coverage paid by Landlord because of such act or omission on the part of
Tenant, which sum shall be deemed to be additional rent and collectible as
such.
10.03. In the event that any dispute should arise between Landlord
and Tenant concerning insurance rates, a schedule or 'make up' of rates for
the Building or the Demised Premises, as the case may be, issued by the Fire
Insurance Rating Organization of New Jersey or other similar body making rates
for fire insurance and extended coverage for the premises concerned, shall be
presumptive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates with extended coverage then applicable to
such premises.
10.04. Tenant shall obtain and keep in full force and effect during
the term of this lease at its own cost and expense Public Liability Insurance,
such insurance to afford protection in an amount of not less than $1,000,000
for injury or death and $1,000,000 for damage to property, protecting and
naming the Landlord and the Tenant as insureds against any and all claims for
personal injury, death or property damage occurring in, upon, adjacent, or
connected with the Demised Premises and any part thereof. Tenant shall pay
all premiums and charges therefor and upon failure to do so Landlord may, but
shall not be obligated, to make such payments, and in such latter event the
Tenant agrees to pay the amount thereof to Landlord on demand and said sum
shall be deemed to be additional rent and in each instance collectible on the
first day of any month following the date of notice to Tenant in the same
manner as though it were rent originally reserved hereunder, together with
interest thereon at the rate of three points in excess of prime rate of the
Chase Manhattan Bank N.A. Tenant will use its best efforts to include in such
public liability insurance policy a provision to the effect that same will be
non-cancellable, except upon reasonable advance written notice to Landlord.
The original insurance policies or appropriate certificates shall be deposited
with Landlord together with any renewals, replacements or endorsements to the
end that said insurance shall be in full force and effect for the benefit of
the Landlord during the term of this lease. In the event Tenant shall fail to
procure and place such insurance, the Landlord may, but shall not be obligated
to, procure and place same, in which event the amount of the premium paid
shall be refunded by Tenant to Landlord upon demand and shall in each instance
be collectible on the first day of the month or any subsequent month following
the date of payment by Landlord, in the same manner as though said sums were
additional rent reserved hereunder together with interest thereon at the rate
of three points in excess of prime rate of the Chase Manhattan Bank N.A.
10.05. Landlord and Tenant agree to use their best efforts to
include in each of its insurance policies a waiver of the insurer's right of
subrogation against the other party or if such waiver shall be unobtainable or
unenforceable (a) an express agreement that such policy shall not be
invalidated if the insured waives or has waived before the casualty, the right
of recovery against any party responsible for a casualty covered by the policy
or (b) any other
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form of permission for the release of the other party. If such waiver,
agreement or permission shall not be or shall cease to be obtainable without
additional charge, or at all, the insured party shall so notify the other
party after learning thereof. In such a case, if the other party shall agree
in writing to pay the insurer's additional charge therefor, such waiver
agreement or permission shall, if obtainable, be included in the policy.
10.06. Each party hereby releases the other party with respect to
any claim (including a claim for negligence) which it might otherwise have
against the other party for loss, damage or destruction with respect to its
property (including rental value or business interruption) occurring during
the term of this lease and with respect and to the extent to which it is
insured under a policy or policies containing a waiver of subrogation or
permission to release liability or naming the other party as an additional
assured, as provided in Sections 10.04 and 10.05. If notwithstanding the
recovery of insurance proceeds by either party for loss, damage or destruction
of its property (or rental value or business interruption) the other party is
liable to the first party with respect thereto or is obligated under this
lease to make replacement, repair or restoration or payment, then provided
that the first party's right of full recovery under its insurance policies is
not thereby prejudiced or otherwise adversely affected, the amount of the net
proceeds of the first party's insurance against such loss, damage or
destruction shall be offset against the second party's liability to the first
party therefor, or shall be made available to the second party to pay for
replacement, repair or restoration, as the case may be.
10.07. The waiver of subrogation or permission for release referred
to in Section 10.05 shall extend to the agents of each party and its and their
employees and, in the case of Tenant, shall also extend to all other persons
and entities occupying, using or visiting the Demised Premises in accordance
with the terms of this lease, but only if and to the extent that such waiver
or permission can be obtained without additional charge (unless such party
shall pay such charge). The releases provided for in Section 10.06 shall
likewise extend to such agents, employees and other persons and entities, if
and to the extent that such waiver or permission is effective as to them.
Nothing contained in Section 10.06 shall be deemed to relieve either party of
any duty imposed elsewhere in this lease to repair, restore or rebuild or to
nullify any abatement of rents provided for elsewhere in this lease. Except
as otherwise provided in Section 10.04, nothing contained in Sections 10.05
and 10.06 shall be deemed to impose upon either party any duty to procure or
maintain any of the kinds of insurance referred to therein or any particular
amounts or limits of any such kinds of insurance. However, each party shall
advise the other, upon request, from time to time (but not more often than
once a year) of all of the policies of insurance it is carrying of any of the
kinds referred to in Section 10.05, and if it shall discontinue any such
policy or allow it to lapse, shall notify the other party thereof with
reasonable promptness. The insurance policies referred to in Sections 10.05
and 10.06 shall be deemed to include policies procured and maintained by a
party for the benefit of its lessor, mortgagee or pledgee.
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ARTICLE 11
RULES AND REGULATIONS
11.01. Tenant and its employees and agents shall faithfully observe
and comply with the Rules and Regulations annexed hereto as Exhibit E, and
such reasonable changes therein (whether by modification, elimination or
addition) as Landlord at any time or times hereafter may make and communicate
in writing to Tenant, which do not unreasonably affect the conduct of Tenant's
business in the Demised Premises; provided, however, that in case of any
conflict or inconsistency between the provisions of this lease and any of the
Rules and Regulations as originally promulgated or as changed, the provisions
of this lease shall control.
11.02. Nothing contained in this lease shall be construed to impose
upon Landlord any duty or obligation to Tenant to enforce the Rules and
Regulations or the terms, covenants or conditions in any other lease, as
against any other tenant and Landlord shall not be liable to Tenant for
violation of the same by any other tenant or its employees, agents or
visitors. However, Landlord shall not enforce any of the Rules and
Regulations in such manner as to discriminate against Tenant or anyone
claiming under or through Tenant.
ARTICLE 12
TENANT'S CHANGES
12.01. Tenant shall make no changes, alterations, additions,
installations, substitutions or improvements (hereinafter collectively called
"changes", and, as applied to changes provided for in this Article, "Tenant's
Changes") in and to the Demised Premises without the express prior written
consent of Landlord.
All proposed Tenant's Changes shall be submitted to Landlord for
written approval at least sixty (60) days prior to the date Tenant intends to
commence such changes, such submission to include all plans and specifications
for the work to be done, proposed scheduling, and the estimated cost of
completion of Tenant's Changes. If Landlord consents to Tenant's Changes,
Tenant may commence and diligently prosecute to completion Tenant's Changes,
under the direct supervision of Landlord.
Tenant shall pay to Landlord a supervision fee (which shall
include the cost of review of the proposed Tenant's Changes) equal to ten
(10%) percent of the certified cost of completion of Tenant's Changes. Prior
to the commencement of Tenant's changes, Tenant shall pay to Landlord ten
(101) percent of the estimated cost of completion (the "Estimated Payment") as
additional rent. Within fifteen (15) days after completion of Tenant's
Changes,
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Tenant shall furnish Landlord with a statement, certified by an officer or a
principal of Tenant to be accurate and true of the total cost of completion
of Tenant's Changes (the "Total Cost"). If such certified statement
furnished by Tenant shall indicate that the Estimated Payment exceeded ten
(10%) percent of the Total Cost, Landlord shall forthwith either (a) pay the
amount of excess directly to Tenant concurrently with the delivery of the
certified statement or (b) permit Tenant to credit the amount of such excess
against the subsequent payment of rent due hereunder. If such certified
statement furnished by Tenant shall indicate that ten (10%) percent of the
Total Cost exceeded Tenant's Estimated Payment, Tenant shall, simultaneously
with the delivery to Landlord of the certified statement pay the amount of
such excess to Landlord as additional rent. If Landlord performs all of the
work contemplated by Tenant's Changes at a cost to be mutually agreed upon
between Landlord and Tenant, the supervision fee shall be waived.
12.02. Notwithstanding the provisions of Section 12.01, all
proposed Tenant's Changes which shall affect or alter:
(a) the outside appearance or the strength of the Building or of
any of its structural parts,
(b) any part of the Building outside of the Demised Premises,
(c) the mechanical, electrical, sanitary and other service
systems of the Building, or increase the usage of such systems, shall be
performed only by the Landlord, at a cost to be mutually agreed upon
between Landlord and Tenant.
12.03. Tenant, at its expense, shall obtain all necessary
governmental permits and certificates for the commencement and prosecution of
Tenant's Changes and for final approval thereof upon completion, and shall
cause Tenant's Changes to be performed in compliance therewith and with all
applicable laws and requirements of public authorities, and with all
applicable requirements of insurance bodies, and in good and workmanlike
manner, using new materials and equipment at least equal in quality and class
to the original installations in the Building. Tenant's Changes shall be
performed in such manner as not to unreasonably interfere with or delay and
(unless Tenant shall indemnify Landlord therefor to the latter's reasonable
satisfaction) as not to impose any additional expense upon Landlord in the
construction, maintenance or operation of the Building. Throughout the
performance of Tenant's Changes, Tenant, at its expense, shall carry, or cause
to be carried, workmen's compensation insurance in statutory limits and
general liability insurance for any occurrence in or about the Building, in
which Landlord and its agents shall be named as parties insured in such limits
as Landlord may reasonably prescribe, with insurers reasonably satisfactory to
Landlord. Tenant shall furnish Landlord with reasonably satisfactory evidence
that such insurance is in effect at or before the commencement of Tenant's
changes and, on request, at reasonable intervals thereafter during the
continuance of Tenant's Changes. If any of
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Tenant's Changes shall involve the removal of any fixtures, equipment or
other property in the Demised Premises which are not Tenant's Property (as
defined in Article 13), such fixtures, equipment or other property shall be
promptly replaced, at Tenant's expense, with new fixtures, equipment or other
property (as the case may be) of like utility and at least equal value unless
Landlord shall otherwise expressly consent in writing, and Tenant shall
deliver such removed fixtures to Landlord.
12.04. Tenant, at its expense, and with diligence and dispatch,
shall procure the cancellation or discharge of all notices of violation
arising from or otherwise connected with Tenant's Changes which shall be
issued by any public authority having or asserting jurisdiction. Tenant shall
defend, indemnify and save harmless Landlord against any and all mechanic's
and other liens filed in connection with Tenant's Changes, including the liens
of any security interest in, conditional sales of, or chattel mortgages upon,
any materials, fixtures or articles so installed in and constituting part of
the Demised Premises and against all costs, expenses and liabilities incurred
in connection with any such lien, security interest, conditional sale or
chattel, mortgage or any action or proceeding brought thereon. Tenant, at its
expense . shall procure the satisfaction or discharge of all such liens within
fifteen (15) days after Landlord makes written demand therefor. However,
nothing herein contained shall prevent Tenant from contesting, in good faith
and at its own expense, any such notice of violation, provided that Tenant
shall comply with the provisions of Section 9.02.
12.05. Tenant agrees that the exercise of its rights pursuant to
the provisions of this Article 12 shall not be done in a manner which would
create any work stoppage, picketing, labor disruption or dispute or violate
Landlord's union contracts affecting the Land and Building, nor interference
with the business of Landlord or any tenant or occupant of the Building.
ARTICLE 13
TENANT'S PROPERTY
13.01. All fixtures, equipment, improvements and appurtenances
attached to or built into the Demised Premises at the commencement of or
during the term of this lease, whether or not by or at the expense of Tenant,
shall be and remain a part of the Demised Premises, shall be deemed the
property of Landlord and shall not be removed by Tenant, except as hereinafter
in this Article expressly provided.
13.02. All business and trade fixtures, machinery and equipment,
communications equipment and office equipment, whether or not attached to or
built into the Demised Premises, which are installed in the Demised Premises
by or for the account of Tenant, without expense to Landlord, and can be
removed without permanent structural damage to the
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Building, and all furniture, furnishings and other articles of movable
personal property owned by Tenant and located in the Demised Premises (all of
which are sometimes called "Tenant's Property"), shall be and shall remain
the property of Tenant and may be removed by it at any time during the term
of this lease; provided that if any of Tenant's Property is removed, Tenant
shall repair or pay the cost of repairing any damage to the Demised Premises
or to the Building resulting from such removal. Any equipment or other
property for which Landlord shall have granted any allowance or credit to
Tenant shall not be deemed to have been installed by or for the account of
Tenant, without expense to Landlord, and shall not be considered Tenant's
Property.
13.03. At or before the Expiration Date, or the date of an earlier
termination of this lease, or as promptly as practicable after such An earlier
termination date, Tenant at its expense, shall remove from the Demised
Premises all of Tenant's Property except such items thereof as Tenant shall
have expressly agreed in writing with Landlord were to remain and to become
the property of Landlord, and if requested by Landlord all items of work done
by or on behalf of Tenant after the Commencement Date shall be removed by
Tenant and Tenant shall repair any damage to the Demised Premises or the
Building resulting from such removal.
13.04. Any other items, of Tenant's Property (except money,
securities and other like valuables) which shall remain in the Demised
Premises after the Expiration Date or after a period of fifteen (15) days
following an earlier termination date, may, at the option of the Landlord, be
deemed to have been abandoned, and in such case either may be retained by
Landlord as its property or may be disposed of, without accountability, in
such manner as Landlord may see fit, at Tenant's expense.
ARTICLE 14
REPAIRS AND MAINTENANCE
14.01. Tenant shall take good care of the Demised Premises.
Tenant, at its expense, shall promptly make all repairs, ordinary or
extraordinary, interior or exterior, structural or otherwise, (except those of
the nature described in Section 12.02 which shall be done by Landlord at
Tenant's cost and expense) in and about the Demised Premises and the Building,
as shall be required by reason of (i) the performance or existence of Tenant's
Finish Work or Tenant's Changes, (ii) the installation, use or operation of
Tenant's Property in the Demised Premises, (iii) the moving of Tenant's
Property in or out of the Building, or (iv) the misuse or neglect of Tenant or
any of its employees, agents or contractors; but Tenant shall not be
responsible, and Landlord shall be responsible, for any of such repairs as are
required by reason of Landlord's neglect or other fault in the manner of per-
forming any of Tenant's Finish Work or Tenant's Changes which may be
undertaken by Landlord for Tenant's account or are otherwise required by
reason of neglect or other fault of Landlord or its employees, agents or
contractors. Except if required by the neglect or other fault of Landlord
or its
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employees, agents or contractors, Tenant, at its
expense, shall replace all scratched, damaged or broken doors or other glass
in or about the Demised Premises and shall be responsible for all repairs,
maintenance and replacement of wall and floor coverings in the Demised
Premises and, for the repair and maintenance of all lighting fixtures therein.
14.02. Landlord, (subject to the provisions of Section 5.04), shall
keep and maintain the Building and its fixtures, appurtenances, systems and
facilities serving the Demised Premises, in good working order, condition and
repair and shall make with all due diligence all repairs, structural and
otherwise, interior and exterior, as and when needed in or about the Demised
Premises, except for those repairs for which Tenant is responsible pursuant to
any other provisions of this lease.
14.03. Except as expressly otherwise provided in this lease,
Landlord shall have no liability to Tenant by reason of any inconvenience,
annoyance, interruption or injury to Tenant's business arising from Landlord's
making any repairs or changes which Landlord is required or permitted by this
lease, or required by law, to make in or to any portion of the Building or the
Demised Premises, or in or to the fixtures, equipment or appurtenances of the
Building or the Demised Premises, provided that Landlord shall use due
diligence with respect thereto and shall perform such work, except in case of
emergency, at times reasonably convenient to Tenant and otherwise in such
manner as will not materially interfere with Tenant's use of the Demised
Premises.
14.04. SEE PAGE 21A
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14.04. Notwithstanding anything contained in Article 14, Landlord
acknowledges that Tenant shall not be obligated to repair, replace or correct
any damage, nicks, scratches or defects which are in existence within the
Demised Premises as of the Commencement Date. Within five (5) days of
Tenant's occupancy, Tenant shall provide Landlord with a list of the aforesaid
defects. Tenant shall have no obligation to repair, replace and/or correct
such deficiencies during the term of the Lease or at the expiration hereof.
Should Tenant, at its volition, but in accordance with the terms of this
Lease, correct any such deficiencies, Landlord shall have no obligation to
Tenant on account thereof.
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ARTICLE 15
ELECTRICITY
15.01. Landlord shall furnish the electric energy that Tenant shall
require in the Demised Premises. Tenant shall pay to Landlord, as additional
rent, for all electric energy furnished to Tenant at the Demised Premises.
Additional rent for such electric energy shall be calculated and payable in
the manner hereinafter set forth.
15.02. Within a reasonable time after the commencement of the term
of this lease, subsequent to Tenant's having taken occupancy of the Demised
Premises and having installed and commenced the use of Tenant's electrical
equipment, Landlord, at Tenant's sole expense, shall cause a survey to be made
by a reputable independent electrical engineer or similar agency of the
estimated use of electric energy (other than for heat and air conditioning) to
the Demised Premises, and shall compute the cost thereof for the quantity so
determined at prevailing retail rates. Tenant shall pay Landlord the cost of
such electric energy, as so calculated, on a monthly basis, as additional
rent, together with its payment of fixed rent.
Until such time as Landlord shall complete the afore-described survey,
Tenant shall pay to Landlord, each and every month, as additional rent, for
and on account of Tenant's electrical consumption, the sum of $673.44 to be
applied against Tenant's obligations hereunder. Upon completion of the
survey, there shall be an adjustment for the period from the Commencement Date
through the date that the results of the survey shall be effectuated as shall
be required. Landlord shall have the right, at any time, during the term of
this Lease, to cause the Demised Premises to be resurveyed. In the event that
such resurvey shall indicate increased electrical consumption by Tenant at the
Demised Premises, there shall be an adjustment in the amount paid by Tenant to
Landlord for Tenant's electrical consumption in accordance with the survey as
well as an adjustment retroactive to the date Landlord establishes Tenant's
increase in electrical consumption in excess of the consumption established by
the prior survey. Such increased costs shall be calculated based upon the
retail cost of electricity to Landlord.
Landlord shall submit to Tenant the results of any electrical survey and
the same shall be deemed binding upon Tenant unless Tenant shall object to
same within ninety (90) days of the date that Landlord shall furnish Tenant
with the results of the survey. In the event that Landlord and Tenant cannot
agree upon the results of a survey the same shall be submitted to arbitration
in accordance with Article 33, provided, however, until such time as the
arbitration shall have been concluded, the results of Landlord's survey shall
be utilized for the purposes of determining Tenant's electrical consumption
with an appropriate adjustment to be made based upon the results of the
arbitration.
15.03. Landlord shall not be liable in any way to Tenant for any
failure or defect in the supply or character of electric energy furnished to
the Demised Premises by reason of any
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requirement, act or omission of the public utility serving the Building with
electricity or for any other reason. Landlord shall furnish and install all
replacement lighting tubes, lamps, bulbs and ballasts required in the Demised
Premises at Tenant's expense.
15.04. Tenant's use of electric energy in the Demised Premises
shall not at any time exceed the capacity of any of the electrical conductors
and equipment in or otherwise serving the Demised Premises. In order to
insure that such capacity is not exceeded and to avert possible adverse effect
upon the Building electric service, Tenant shall not, without Landlord's prior
written consent in each instance (which shall not be unreasonably withheld),
connect any additional fixtures, appliances or equipment to the Building
electric distribution system or make any alteration or addition to the
electric system of the Demised Premises existing on the Commencement Date.
Should Landlord grant such consent, all additional risers or other equipment
required therefor shall be provided by Landlord and the cost thereof shall be
paid by Tenant upon Landlord's demand. As a condition to granting such
consent, Landlord, at Tenant's sole expense, may cause a new survey to be made
of the use of electric energy (other than for heating and air-conditioning) in
order to calculate the potential additional electric energy to be made
available to Tenant based upon the estimated additional capacity of such addi-
tional risers or other equipment. When the amount of such increase is so
determined, and the estimated cost thereof is calculated, the amount of
monthly additional rent payable pursuant to Section 15.02 hereof shall be
adjusted to reflect the additional cost, and shall be payable as therein
provided.
15.05. If the public utility rate schedule for the supply of
electric current to the Building shall be increased during the term of this
lease, the additional rent payable pursuant to Section 15-02 hereof shall be
equitably adjusted to reflect the resulting increase in Landlord's cost of
furnishing electric service to the Demised Premises effective as of the date
of any increase. Landlord and Tenant agree that the rate charged to Tenant
for electricity shall not be greater than the rate Tenant would have paid had
the Demised Premises been separately metered.
15.06. Tenant agrees within three (3) months from the Commencement
Date to submit to Landlord a list of fixtures and equipment utilizing electric
current including, but not limited to, copying machines, computers and word
processing equipment and equipment of a similar nature. On the first day of
each calendar quarter thereafter, Tenant shall submit to Landlord a statement
indicating any substantial changes in the list previously supplied as same may
be updated by the required quarterly statements.
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ARTICLE 16
HEAT, VENTILATION AND AIR-CONDITIONING
16.01. Landlord, subject to the provisions of Section 5.04, shall
maintain and operate the heating, ventilating and air-conditioning systems
(hereafter called "the systems") and shall furnish heat, ventilating and air-
conditioning (hereinafter collectively called "air-conditioning service") in
the Demised Premises through the systems, in compliance with the performance
specifications set forth in Exhibit C, as may be required for comfortable
occupancy of the Demised Premises during REGULAR HOURS (that is, generally
customary daytime business hours, FE not before 8:00 a.m., or after 6:00 p.m.
weekdays) on BUSINESS DAYS (which term is used herein to mean all days except
Saturdays, Sundays and days observed by the Federal or the state government as
legal holidays) throughout the year. If Tenant shall require air-conditioning
service at any other time (hereinafter called "after hours"), Landlord shall
furnish such after hours air-conditioning service upon reasonable advance
notice from Tenant, and Tenant shall pay Landlord's then established charges
therefor on Landlord's demand.
16.02. Use of the Demised Premises, or any part thereof, in a
manner exceeding the design conditions (including occupancy and connected
electrical load) specified in Exhibit C for air-conditioning service in the
Demised Premises, or rearrangement of partitioning which interferes with
normal operation of the air-conditioning in the Demised Premises, may require
changes in the air-conditioning system servicing the Demised Premises. Such
changes, so occasioned, shall be made by Landlord, at Tenant's expense, as
Tenant's Changes pursuant to Article 12.
ARTICLE 17
LANDLORD'S OTHER SERVICES
17.01. Landlord, subject to the provisions of Section 5.04, shall
provide public elevator service, passenger and service, by elevators serving
the floor on which the Demised Premises are situated during regular hours of
business days, and shall have at least one passenger elevator subject to call
at all other times.
17.02. Landlord, subject to the provisions of Section 5.04, shall
cause the Demised Premises, including the exterior and the interior of the
windows thereof, to be cleaned. Tenant shall pay to Landlord on demand the
costs incurred by Landlord for (a) extra cleaning work in the Demised Premises
required because of (i) misuse or neglect on the part of Tenant or its
employees or visitors, (ii) use of portions of the Demised Premises for prepa-
ration, serving or consumption of food or beverages, data processing or
reproducing operations, private lavatories or toilets or other special purpose
areas requiring greater or more difficult
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cleaning work than office areas, (iii) unusual quantity of interior glass
surfaces, (iv) non-building standard materials or finishes installed by
Tenant or at its request, and (b) removal from the Demised Premises and the
Building of (i) so much of any refuse and rubbish of Tenant as shall exceed
that ordinarily accumulated daily in the routine of business office
occupancy. Landlord, its cleaning contractor and their employees shall have
after-hours access to the Demised Premises and the free use of light, power
and water in the Demised Premises as reasonably required for the purpose of
cleaning the Demised Premises in accordance with Landlord's obligations
hereunder.
17.03. Landlord, subject to the provisions of Section 5.04, shall
furnish adequate hot and cold water to each floor of the Building for
drinking, lavatory and cleaning purposes, together with soap, towels and
toilet tissue for each lavatory. If Tenant uses water for any other purpose,
Landlord, at Tenant's expense, shall install meters to measure Tenant's
consumption of cold water and/or hot water for such other purposes and/or
steam, as the case may be. Tenant shall pay for the quantities of cold water
and hot water shown on such meters, at Landlord's cost thereof, on the
rendition of Landlord's bills therefor.
17.04. Landlord, at its expense, and at Tenant's request, shall
insert initial listings on the Building directory of the names of Tenant, and
the names of any of their officers and employees, provided that the names so
listed shall not take up more than Tenant's Proportionate Share of the space
on the Building directory. All Building directory changes made at Tenant's
request after the Tenant's initial listings have been placed on the Building
directory shall be made by Landlord at the expense of Tenant, and Tenant
agrees to promptly pay to Landlord as additional rent the cost of such changes
within ten (10) days after Landlord has submitted an invoice therefor.
17.05. Landlord reserves the right, without any liability to
Tenant, except as otherwise expressly provided in this lease, to stop service
of any of the heating, ventilating, air conditioning, electric, sanitary,
elevator or other Building systems serving the Demised Premises, or the
rendition of any of the other services required of Landlord under this lease,
whenever and for so long as may be necessary, by reason of accidents,
emergencies, strikes or the making of repairs or changes which Landlord is
required by this lease or by law to make or in good faith deems necessary, by
reason of difficulty in securing proper supplies of fuel, steam, water,
electricity, labor or supplies, or be reason of any other cause beyond
Landlord's reasonable control.
17.06. Landlord shall make available for Tenant's use in common
with other tenants of the Building the parking area adjacent to the Building.
17.07. The Building and the Demised Premises shall be cleaned in
accordance with the Cleaning and Maintenance Schedule set forth on Exhibit D
annexed hereto and made a part hereof.
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ARTICLE 18
ACCESS, CHANGES IN BUILDING FACILITIES, NAME
18.01. All walls, windows and doors bounding the Demised Premises
(including exterior Building walls, core corridor walls and doors and any core
corridor entrance), except the inside surfaces thereof, any terraces or roofs
adjacent to the Demised Premises, and any space in or adjacent to the Demised
Premises used for shafts, stacks, pipes, conduits, fan room, ducts, electric
or other utilities, sinks or other Building facilities, and the use thereof,
as well as access thereto through the Demised Premises for the purposes of
operation, maintenance, decoration and repair are reserved to Landlord.
18.02. Tenant shall permit Landlord to install, use and maintain
pipes, ducts and conduits within the demising walls, bearing columns and
ceilings of the Demised Premises.
18.03. Landlord or Landlord's agent shall have the right upon
request (except in emergency under clause (ii) hereof) to enter and/or pass
through the Demised Premises or any part thereof, at reasonable times during
reasonable hours, (i) to examine the Demised Premises and to show them to the
fee owners, lessors of superior leases, holders of superior mortgages, or
prospective purchasers, mortgagees or lessees of the Building as an entirety,
and (ii) for the purpose of making such repairs or changes or doing such
repainting in or to the Demised Premises or its facilities, as may be provided
for by this lease or as may be mutually agreed upon by the parties or as
Landlord may be required to make by law or in order to repair and maintain
said structure or its fixtures or facilities. Landlord shall be allowed to
take all materials into and upon the Demised Premises that may be required for
such repairs, changes repainting or maintenance, without liability to Tenant
but Landlord shall not unreasonably interfere with Tenant's use of the Demised
Premises. Landlord shall also have the right to enter on and/or pass through
the Demised Premises, or any part thereof, at such times as such entry shall
be required by circumstances of emergency affecting the Demised Premises or
the Building.
18.04. During the period of six (6) months prior to the Expiration
Date Landlord may exhibit the Demised Premises to prospective tenants. Such
activities shall be upon twenty four (24) hours notice and shall be during
reasonable business hours.
18.05. Landlord reserves the right, at any time after completion of
the Building, without incurring any liability to Tenant therefor, to make such
changes in or to the Building and the fixtures and equipment thereof, as well
as in or to the street entrances, halls, passages, elevators, escalators and
stairways thereof, as it may deem necessary or desirable, provided however
that such changes shall not reduce the size of the Demised Premises.
18.06. Landlord may adopt any name for the Building. Landlord reserves
the right to change the name or address of the Building at any time.
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ARTICLE 19
NOTICE OF ACCIDENTS
19.01. Tenant shall give notice to Landlord, promptly after Tenant
learns thereof, of (i) any accident in or about the Demised Premises for which
Landlord might be liable, (ii) all fires in the Demised Premises, (iii) all
damage to or defects in the Demised Premises, including the fixtures,
equipment and appurtenances thereof, for the repair of which Landlord might be
responsible, and (iv) all damage to or defects in any parts or appurtenances
of the Building's sanitary, electrical, heating, ventilating, air-
conditioning, elevator and other systems located in or passing through the
Demised Premises or any part thereof.
ARTICLE 20
NON-LIABILITY AND INDEMNIFICATION
20.01. Neither Landlord nor any agent or employee of Landlord shall
be liable to Tenant for any injury or damage to Tenant or to any other person
or for any damage to, or loss (by theft or otherwise) of, any property of
Tenant or of any other person, irrespective of the cause of such injury,
damage or loss, unless caused by or due to the negligence of Landlord, its
agents or employees without contributory negligence on the part of Tenant, it
being understood that no property, other than such as might normally be
brought upon or kept in the Demised Premises as an incident to the reasonable
use of the Demised Premises for the purpose herein permitted, will be brought
upon or be kept in the Demised Premises.
20.02. Tenant shall indemnify and save harmless Landlord and its
agents against and from (a) any and all claims (i) arising from (x) the
conduct or management of the Demised Premises or of any business therein, or
(y) any work or thing whatsoever done, or any condition created (other than by
Landlord for Landlord's or Tenant's account) in or about the Demised Premises
during the term of this lease or during the period of time, if any, prior to
the Commencement Date that Tenant may have been given access to the Demised
Premises, or (ii) arising from any negligent or otherwise wrongful act or
omission of Tenant or any of its subtenants or licensees or its or their
employees, agents or contractors, and (b) all costs, expenses and liabilities
incurred in or in connection with each such claim or action or proceeding
brought thereon. In case any action or proceeding be brought against Landlord
by reason of any such claim, Tenant, upon notice from Landlord, shall resist
and defend such action or proceeding. Tenant's liability pursuant to this
section shall be limited to the extent of the insurance required to be carried
by Tenant pursuant to the terms of this lease.
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20.03. Except as otherwise expressly provided in this lease, this
lease and the obligations of Tenant hereunder shall be in no wise affected,
impaired or excused because Landlord is unable to fulfill, or is delayed in
fulfilling, any of its obligations under this lease by reason of strike, other
labor trouble, governmental pre-emption or priorities or other controls in
connection with a national or other public emergency or shortages of fuel,
supplies or labor resulting therefrom, or other like cause beyond Landlord's
reasonable control.
ARTICLE 21
DESTRUCTION OR DAMAGE
21.01. If the Building or the Demised Premises shall be partially
or totally damaged or destroyed by fire or other cause, then, whether or not
the damage or destruction shall have resulted from the fault or neglect of
Tenant, or its. employees, agents or visitors (and if this lease shall not
have been terminated as in this Article hereinafter provided), Landlord shall
repair the damage and restore and rebuild the Building and/or the Demised
Premises, at its expense, with reasonable dispatch after notice to it of the
damage or destruction provided, however, that Landlord shall not be required
to repair or replace any of Tenant's Property.
21.02. If the Building or the Demised Premises shall be partially
damaged or partially destroyed by fire or other cause not attributable to the
fault or negligence of Tenant, its agents or employees, the rents payable
hereunder shall be abated to the extent that the Demised Premises shall have
been rendered untenantable and for the period from the date of such damage or
destruction to the date the damage shall be repaired or restored; provided,
however, if the damage shall be attributable to the fault or negligence of
Tenant, its agents or employees, then rent shall continue but shall be reduced
by any amounts received by Landlord pursuant to Landlord's coverage for
business interruption and/or rent insurance attributable to the Demised
Premises. If the Demised Premises or a major part thereof shall be totally
(which shall be deemed to include substantially totally) damaged or destroyed
or rendered completely (which shall be deemed to include substantially
completely) untenantable on account of fire or other cause, the rents shall
abate as of the date of the damage or destruction and until Landlord shall
repair, restore and rebuild the Building and the Demised Premises, provided,
however, that should Tenant reoccupy a portion of the Demised Premises during
the period the restoration work is taking place and prior to the date that the
same are made completely tenantable, rents allocable to such portion shall be
payable by Tenant from the date of such occupancy.
21.03. If the Building or the Demised Premises shall be totally
damaged or destroyed by fire or other cause, or if the Building shall be so
damaged or destroyed by fire or other cause (whether or not the Demised
Premises are damaged or destroyed) as to require a reasonably estimated
expenditure of more than 25% of the full insurable value of the Building
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immediately prior to the casualty, then in either such case Landlord may
terminate this lease by giving Tenant notice to such effect within 180 days
after the date of the casualty. In case of any damage or destruction
mentioned in this Article, Tenant may terminate this lease by notice to
Landlord, if Landlord has not completed the making of the required repairs and
restored and rebuilt the Building and the Demised Premises within twelve (12)
months from the date of such damage or destruction, or within such period
after such date (not exceeding six (6) months) as shall equal the aggregate
period Landlord may have been delayed in doing so by adjustment of insurance,
labor trouble, governmental controls, act of God, or any other cause beyond
Landlord's reasonable control.
21.04. No damages, compensation or claim shall be payable by
Landlord for inconvenience, loss of business or annoyance arising from any
repair or restoration of any portion of the Demised Premises or of the
Building pursuant to this Article. Landlord shall use its best efforts to
effect such repair or restoration promptly and in such manner as not
unreasonably to interfere with Tenant's use and occupancy. In the event that
the Building and/or the Demised Premises shall not have been substantially
repaired within six (6) months from the date of the damage and destruction
(plus three months if force majeure applies) then Tenant shall have the right
to terminate this Lease upon ten days prior written notice.
21.05. Notwithstanding any of the foregoing provisions of this
Article, if Landlord or the lessor of any superior lease or the holder of
any superior mortgage shall be unable to collect all of the insurance proceeds
(including rent insurance proceeds) applicable to damage or destruction of the
Demised Premises or the Building by fire or other cause, by reason of some
action or inaction on the part of Tenant or any of its employees, agents or
contractors in connection with the processing of any claim, then, without
prejudice to any other remedies which may be available against Tenant, there
shall be no abatement of Tenant's rents.
21.06. Landlord will not carry insurance of any kind on Tenant's
Property, and, except as provided by law or by reason of its fault or its
breach of any of its obligations hereunder, shall not be obligated to repair
any damage thereto or replace the same; to the extent that Tenant shall
maintain insurance on Tenant's Property, Landlord shall not be obligated to
repair any damage thereto or replace the same.
21.07. The provisions of this Article shall be considered an
express agreement governing any case of damage or destruction of the Demised
Premises by fire or other casualty, and any law of the State of New Jersey
providing for such a contingency in the absence of an express agreement, and
any other law of like import, now or hereafter in force, shall have no
application in such case.
21.08. If the Demised Premises and/or access thereto become
partially or totally damaged or destroyed by any casualty not insured against,
then Landlord shall have the right to terminate this lease upon giving the
Tenant thirty (30) days notice and upon the expiration
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of said thirty (30) day notice period this lease shall terminate as if such
termination date were the Expiration Date.
ARTICLE 22
EMINENT DOMAIN
22.01. If the whole of the Building shall be lawfully taken by
condemnation or in any other manner for any public or quasi-public use or
purpose, this lease and the term and estate hereby granted shall forthwith
terminate as of the date of vesting of title on such taking (which date is
hereinafter also referred to as the "date of the taking"), and the rents shall
be prorated and adjusted as of such date.
22.02. If any part of the Building shall be so taken, this lease
shall be unaffected by such taking, except that Tenant may elect to.terminate
this lease in the event of a partial taking, if the area of the Demised
Premises shall not be reasonably sufficient for Tenant to continue feasible
operation of its business. Tenant shall give notice of such election to
Landlord not later than thirty (30) days after the date of such taking. Upon
the giving of such notice to Landlord this lease shall terminate on the date
of service of notice and the rents apportioned to the part of the Demised
Premises so taken shall be prorated and adjusted as of the date of the taking
and the rents apportioned to the remainder of the Demised Premises shall be
prorated and adjusted as of such termination date. Upon such partial taking
and this lease continuing in force as to any part of the Demised Premises, the
rents apportioned to the part taken shall be prorated and adjusted as of the
date of taking and from such date the fixed rent shall be reduced to the
amount apportioned to the remainder of the Demised Premises and additional
rent shall be payable pursuant to Article 5 according to the rentable area
remaining.
22.03. Except as specifically set forth in Section 22.04 hereof,
Landlord shall be entitled to receive the entire award in any proceeding with
respect to any taking provided for in this Article without deduction therefrom
for any estate vested in Tenant by this lease and Tenant shall receive no part
of such award. Tenant hereby expressly assigns to Landlord all of its right,
title and interest in or to every such award.
22.04. If the temporary use or occupancy of all or any part of the
Demised Premises shall be lawfully taken by condemnation or in any other
manner for any public or quasi-public use or purpose during the term of this
lease, Tenant shall be entitled, except as hereinafter set forth, to receive
any award which does not serve to diminish Landlord's award in any respect
and, if so awarded, for the taking of Tenant's Property and for moving ex-
penses, and Landlord shall be entitled to receive that portion which
represents reimbursement for the cost of restoration of the Demised Premises.
This lease shall be and remain unaffected
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by such taking and Tenant shall continue responsible for all of its
obligations hereunder insofar as such obligations are not affected by such
taking and shall continue to pay in full the fixed rent and additional rent
when due. If the period of temporary use or occupancy shall extend beyond
the Expiration Date, that part of the award which represents compensation for
the use or occupancy of the Demised Premises (or a part thereof) shall be
divided between Landlord and Tenant so that Tenant shall receive so much
thereof as represents the period prior to the Expiration Date and Landlord
shall receive so much thereof as represents the period subsequent to the
Expiration Date. All moneys received by Tenant as, or as part of, an award
for temporary use and occupancy for a period beyond the date to which the
rents hereunder have been paid' by Tenant shall be received, held and applied
by Tenant as a trust fund for payment of the rents falling due hereunder.
22.05. In the event of any taking of less than the whole of the
Building which does not result in a termination of this lease, or in the event
of a taking for a temporary use or occupancy of all or any part of the Demised
Premises which does not extend beyond the Expiration Date, Landlord, at its
expense, shall proceed with reasonable diligence to repair, alter and restore
the remaining parts of the Building and the Demised Premises to substantially
their former condition to the extent that the same may be feasible and so as
to constitute a complete and tenantable Building and Demised Premises provided
that Landlord's liability under this Section 22.05 shall be limited to the net
amount (after deducting all costs and expenses, including, but not limited to,
legal expenses incurred in connection with the eminent domain proceeding)
received by Landlord as an award arising out of such taking, and provided
further that Landlord shall have the right, if such taking occurs within the
last six (6) months of the term of this lease, to terminate this lease by
giving the Tenant written notice to such effect within ninety (90) days after
such taking and this lease shall then expire on the effective date stated in
the notice as if that were the Expiration Date, but the
fixed rent and the additional rent shall be prorated and adjusted as of the
date of such taking.
22.06. Should any part of the Demised Premises be taken to effect
compliance with any law or requirement of public authority other than in the
manner hereinabove provided in this Article, then, (i) if such compliance is
the obligation of Tenant under this lease, Tenant shall not be entitled to any
diminution or abatement of rent or other compensation from Landlord therefor,
but (ii) if such compliance is the obligation of Landlord under this lease,
the fixed rent hereunder shall be reduced and additional rents under Article 5
shall be adjusted in the same manner as is provided in Section 22.02 according
to the reduction in rentable area of the Demised Premises resulting from such
taking.
22.07. Any dispute which may arise between the parties with respect
to the meaning or application of any of the provisions of this Article shall
be determined by arbitration in the manner provided in Article 33.
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ARTICLE 23
SURRENDER
23.01. On the last day of the term of this lease, or upon any
earlier termination of this lease, or upon any re-entry by Landlord upon the
Demised Premises, Tenant shall quit and surrender the Demised Premises to
Landlord in good order, condition and repair, except for ordinary wear and
tear and such damage or destruction as Landlord is required to repair or
restore under this lease, and Tenant shall remove all of Tenant's Property
therefrom except as otherwise expressly provided in this lease. Landlord
reserves the right to require Tenant to remove all items installed by, for or
on behalf of Tenant in excess of the Building standard items ("Landlord's
Work").
ARTICLE 24
CONDITIONS OF LIMITATION
24.01. This lease and the term and estate hereby granted are
subject to the limitation that whenever Tenant shall make an assignment of the
property of Tenant for the benefit of creditors, or shall file a voluntary
petition under any bankruptcy or insolvency law, or an involuntary petition
alleging an act of bankruptcy or insolvency shall be filed against Tenant
under any bankruptcy or insolvency law, or whenever a petition shall be filed
by or against Tenant under the reorganization provisions of the United States
Bankruptcy Act or under the provisions of any law of like import, or whenever
a petition shall be filed by Tenant under the arrangement provisions of any
law of like import, or whenever a permanent receiver of Tenant or of or for
the property of Tenant shall be appointed, then Landlord, (a) at any time
after receipt of notice of the occurrence of any such event, or (b) if such
event occurs without the acquiescence of Tenant, at any time after the event
continues for thirty (30) days, Landlord may give Tenant a notice of intention
to end the term, of this lease at the expiration of five (5) days from the
date of service of such notice of intention, and upon the expiration of said
five (5) day period this lease and the term and estate hereby granted, whether
or not the term shall theretofore have commenced, shall terminate with the
same effect as if that day were the Expiration Date, but Tenant shall remain
liable for damages as provided in Article 26.
24.02. This lease and the term and estate hereby granted are
subject to the further limitation that;
(a) whenever Tenant shall default in the payment of any
installment of fixed rent, or in the payment of any additional rent or any
other charge payable by Tenant to
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Landlord, on any day upon which the same ought to be paid, and such default
shall continue for ten (10) days after written notice thereof, or
(b) whenever Tenant shall do or permit anything to be done,
whether by action or inaction, contrary to any of Tenant's obligations
hereunder, and if such situation shall continue and shall not be remedied by
Tenant within thirty (30) days after Landlord shall have given to Tenant a
written notice specifying the same, or, in the case of a happening or default
which cannot with due diligence be cured within a period of thirty (30) days
and the continuance of which for the period required for cure will not subject
Landlord to the risk of criminal liability or termination of any superior
lease or foreclosure of any superior mortgage, if Tenant shall not, (i) within
said thirty (30) day period advise Landlord of Tenant's intention to duly
institute all steps necessary to remedy such situation, (ii) duly institute
within said thirty (30) day period, and thereafter diligently prosecute to
completion all steps necessary to remedy the same and (iii) complete such
remedy within such time after the date of the giving of said notice to
Landlord as shall reasonably be necessary, or
(c) whenever any event shall occur or any contingency shall arise
whereby this lease or the estate hereby granted or the unexpired balance of
the term hereof would, by operation of law or otherwise, devolve upon or pass
to any person, firm or corporation other than Tenant, except as expressly
permitted by Article 8, or
(d) whenever Tenant shall abandon the Demised Premises (unless
as a result of a casualty), or
(e) if Tenant shall default in the timely payment of rent or
additional rent and any such default shall continue or be repeated for a total
of four (4),months in any period of twelve (12) months, or more than three (3)
times in any six (6) month period, and Tenant shall default in the performance
of any other term of this lease to be performed by Tenant, then,
notwithstanding that such defaults shall have each been cured within the
applicable period, then any similar default shall be deemed to be deliberate
and Landlord may thereafter serve a notice of termination upon Tenant without
affording to Tenant an opportunity to cure such default;
then and in any of said cases this lease and the term and estate hereby
granted, whether or not the term shall theretofore have commenced shall, if
the Landlord so elects, terminate upon ten (10) days written notice by
Landlord to Tenant of Landlord's election to terminate the Lease and the term
hereof shall expire and come to an end on the date fixed in such notice, with
the same effect as if that day were the Expiration Date, but Tenant shall
remain liable for the rent and additional rent which subsequently accrues and
for damages as provided in Article 26.
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ARTICLE 25
RE-ENTRY BY LANDLORD
25.01. If Tenant shall default in the payment of any installment of
fixed rent, or of any additional rent, on any date upon which the same ought
to be paid, and if such default shall continue for ten (10) days after written
notice thereof, or if this lease shall expire as in Article 24 provided,
Landlord or Landlord's agents and employees may immediately or at any time
thereafter re-enter the Demised Premises, or any part thereof, in the name of
the whole, either by summary dispossess proceedings or by any suitable action
or proceeding at law, or by force or otherwise, without being liable to
indictment, prosecution or damages therefor, and may repossess the same, and
may remove any persons therefrom, to the end that Landlord may have, hold and
enjoy the Demised Premises again as and of its first estate and interest
therein. The word "re-enter", as herein used, is not restricted to its
technical legal meaning. In the event of any termination of this lease under
the provisions of Article 24 or if Landlord shall re-enter the Demised
Premises under the provisions of this Article or in the event of the
termination of this lease, or of re-entry, by or under any summary dispossess
or other proceeding or action or any provision of law by reason of default
hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the
fixed rent and additional rent payable by Tenant to Landlord up to the time of
such termination of this lease, or of such recovery of possession of the
Demised Premises by Landlord, as the case may be, and shall also pay to
Landlord damages as provided in Article 26.
25.02. In the event of a breach or threatened breach by Landlord or
Tenant of any of their respective obligations under this lease, either
Landlord or Tenant, as the case may be, shall also have the right of
injunction. The special remedies hereunder are cumulative and are not
intended to be exclusive of any other remedies or means of redress to which
the parties may lawfully be entitled at any time.
25.03. If this lease shall terminate under the provisions of
Article 24, or if Landlord shall re-enter the Demised Premises under the
provisions of this Article, or in the event of any termination of this lease,
or of re-entry, by or under any summary dispossess or other proceeding or
action or any provision of law by reason of default hereunder on the part of
Tenant, Landlord shall be entitled to retain all moneys, if any, paid by
Tenant to Landlord, whether as advance rent, security or otherwise, but such
moneys shall be credited by Landlord against any fixed rent or additional rent
due from tenant at the time of such termination or re-entry or, at Landlord's
option, against any damages payable by Tenant under Article 26 or pursuant to
law.
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ARTICLE 26
DAMAGES
26.01. If this lease is terminated under the provisions of Article
24, or if Landlord shall re-enter the Demised Premises under the provisions of
Article 25, or in the event of the termination of this lease, or of re-entry,
by or under any summary dispossess or other proceeding or action or any
provision of law by reason of default hereunder on the part of Tenant, Tenant
shall pay to Landlord as damages, at the election of Landlord, either
(a) a sum which at the time of such termination of this lease or
at the time of any such re-entry by Landlord, as the case may be,
represents the then value of the excess, if any, of
(1) the aggregate of the fixed rent and the additional
rent payable hereunder which would have been payable by Tenant
(conclusively presuming the additional rent to be the same as was
payable for the year immediately preceding such termination) for
the period commencing with such earlier termination of this lease
or the date of any such re-entry, as the case may be, and ending
with the Expiration Date, had this lease not so terminated or had
Landlord not so re-entered the Demised Premises, over
(2) the aggregate rental value of the Demised Premises for
the same period, or
(b) sums equal to the fixed rent and the additional rent (as
above presumed) payable hereunder which would have been payable by
Tenant had this lease not so terminated, or had Landlord not so re-
entered the Demised Premises, payable upon the due dates therefor
specified herein following such termination or such re-entry and until
the Expiration Date, provided, however, that if Landlord shall relet the
Demised Premises during said period, Landlord shall credit Tenant with
the net rents received by Landlord from such reletting, such net rents
to be determined by first deducting from the gross rents as and when
received by Landlord from such reletting the expenses incurred or paid
by Landlord in terminating this lease or in re-entering the Demised
Premises and in securing possession thereof, as well as the expenses of
reletting, including altering and preparing the Demised Premises for new
tenants, brokers' commissions, and all other expenses properly
chargeable against the Demised Premises and the rental therefrom; it
being understood that any such reletting may be for a period shorter or
longer than the remaining term of this lease; but in no event shall Ten-
ant be entitled to receive any excess of such net rents over the sums
payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in
any suit for the
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collection of damages pursuant to this Subsection to a credit in
respect of any net rents from a reletting, except to the
extent that such net rents are actually received by Landlord. If the
Demised Premises or any part thereof should be relet in combination with
other space, then proper apportionment on a square foot basis shall be
made of the rent received from such reletting and of the expenses of
reletting.
If the Demised Premises or any part thereof be relet by Landlord for the
unexpired portion of the term of this lease, or any part thereof, before
presentation of proof of such damages to any court, commission or tribunal,
the amount of rent reserved upon such reletting shall, prima facie, be the
fair and reasonable rental value for the Demised Premises, or part thereof, so
relet during the term of the reletting.
26.02. Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the term of this lease would have expired if
it had not been so terminated under the provisions of Article 24, or under any
provision of law, or had Landlord not re-entered the Demised Premises.
Nothing herein contained shall be construed to limit or preclude recovery by
Landlord against Tenant of any sums or damages to which, in addition to the
damages particularly provided above, Landlord may lawfully be entitled by
reason of any default hereunder on the part of Tenant. Nothing herein
contained shall be construed to limit or prejudice the right of Landlord to
seek and obtain as liquidated damages by reason of the termination of this
lease or re-entry on the Demised Premises for the default of Tenant under this
lease, an amount equal to the maximum allowed by any statute or rule of law in
effect at the time when, and governing the proceedings in which, such damages
are to be proved whether or not such amount be greater, equal to, or less than
any of the sums referred to in Section 26.01.
26.03. In addition to the foregoing and without regard to whether
this lease is terminated, Tenant shall pay to Landlord upon demand, all costs
and expenses incurred by Landlord, including reasonable attorney's fees, with
respect to any lawsuit instituted or defended or any action taken by Landlord
to enforce all or any of the provisions of this lease, provided Landlord
prevails.
ARTICLE 27
WAIVERS
27.01. Tenant, for Tenant, and on behalf of any and all persons
claiming through or under Tenant, including creditors of all kinds, does
hereby waive and surrender all right and privilege which they or any of them
might have under or by reason of any present or future law, to redeem the
Demised Premises or to have a continuance of this lease for the term
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hereby demised after being dispossessed or ejected therefrom by process of
law or under the terms of this lease or after the termination of this lease
as herein provided.
27.02. In the event that Tenant is in arrears in payment of fixed
rent or additional rent hereunder, Tenant waives Tenant's right, if any, to
designate the items against which any payments made by Tenant are to be
credited, and Tenant agrees that Landlord may apply any payments made by
Tenant to any items it sees fit, irrespective of and notwithstanding any
designation or request by Tenant as to the items against which any such
payments shall be credited.
27.03. Landlord and Tenant hereby waive trial by jury in any
action, proceeding or counterclaim brought by either against the other on any
matter whatsoever arising out of or in any way connected with this lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised
Premises, including any claim of injury or damage, or any emergency or other
statutory remedy with respect thereto.
27.04. The provisions of Articles 16 and 17 shall be considered
express agreements governing the services to be furnished by Landlord, and
Tenant agrees that any laws and/or requirements of public authorities, now or
hereafter in force, shall have no application in connection with any
enlargement of Landlord's obligations with respect to such services.
ARTICLE 28
NO OTHER WAIVERS OR MODIFICATIONS
28.01. The failure of either party to insist in any one or more
instances upon the strict performance of any one or more of the obligations of
this lease, or to exercise any election herein contained, shall not be
construed as a.waiver or relinquishment for the future of the performance of
such one or more obligations of this lease or of the right to exercise such
election, but the same shall continue and remain in full force and effect with
respect to any subsequent breach, act or omission. No executory agreement
hereafter made between Landlord and Tenant shall be effective to change,
modify, waive, release, discharge, terminate or effect an abandonment of this
lease, in whole or in part, unless such executory agreement is in writing,
refers expressly to this lease and is signed by the party against whom
enforcement of the change, modification, waiver, release, discharge or
termination or effectuation of the abandonment is sought.
28.02. The following specific provisions of this Section shall not
be deemed to limit the generality of any of the foregoing provisions of this
Article:
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(a) No agreement to accept a surrender of all or any part of the
Demised Premises shall be valid unless in writing and signed by
Landlord. The delivery of keys to an employee of Landlord or of its
agent shall not operate as a termination of this lease or a surrender of
the Demised Premises. If Tenant shall at any time request Landlord to
sublet the Demised Premises for Tenant's account, Landlord or its agent
is authorized to receive said keys for such purposes without releasing
Tenant from any of its obligations under this lease, and Tenant hereby
releases Landlord from any liability for loss or damage to any of
Tenant's property in connection with such subletting.
(b) The receipt by Landlord of rent with knowledge of breach of
any obligation of this lease shall not be deemed a waiver of such
breach.
(c) No payment by Tenant or receipt by Landlord of a lesser
amount than the correct fixed rent or additional rent due hereunder
shall be deemed to be other than a payment on account, nor shall any
endorsement or statement on any check or any letter accompanying any
check or payment be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to
recover the balance or pursue any other remedy in this lease or at law
provided.
ARTICLE 29
CURING TENANT'S DEFAULTS, ADDITIONAL RENT
29.01. If Tenant shall default in the performance of any of
Tenant's obligations under this lease, Landlord, without thereby waiving such
default, may (but shall not be obligated to) perform the same for the account
and at the expense of Tenant, without notice, in a case of emergency, and in
any other case, only if such default continues after the expiration of (i) ten
(10) days from the date Landlord gives Tenant notice of intention so to do, or
(ii) the applicable grace period provided in Section 24.02 or elsewhere in
this lease for cure of such default, whichever occurs later.
29.02. Bills for any expenses incurred by Landlord in connection
with any such performance by it for the account of Tenant, and bills for all
costs, expenses and disbursements of every kind and nature whatsoever,
including reasonable counsel fees, involved in collecting or endeavoring to
collect the fixed rent or additional rent or any part thereof or enforcing or
endeavoring to enforce any rights against Tenant, under or in connection with
this lease, or pursuant to law, including any such cost, expense and
disbursement involved in instituting and prosecuting summary proceedings, as
well as bills for any property, material, labor or services provided,
furnished, or rendered, by Landlord or at its instance to Tenant, may be sent
by Landlord to Tenant monthly, or immediately, at Landlord's option, and,
shall be due and payable in accordance with the terms of such bills.
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ARTICLE 30
BROKER
30.01. Tenant covenants, warrants and represents that there was no
broker except None (Broker) instrumental in consummating
this lease and that no conversations or negotiations were had with any broker
except Broker concerning the renting of the premises. Tenant agrees to hold
Landlord harmless against any claims for a brokerage commission arising out of
any conversations or negotiations had by Tenant with any broker except Broker.
Landlord agrees to pay Broker pursuant to separate agreement.
ARTICLE 31
NOTICES
31.01. Any notice, statement, demand or other communications
required or permitted to be given, rendered or made by either party to the
other, pursuant to this lease or pursuant to any applicable law or requirement
of public authority, shall be in writing (whether or not so stated elsewhere
in this lease) and shall be deemed to have been properly given, rendered or
made, if sent by registered or certified mail, return receipt requested,
addressed to the other party at the address hereinabove set forth (except that
after the Commencement Date, Tenant's address, unless Tenant shall give notice
to the contrary, shall be the Building) and shall be deemed to have been
given, rendered or made on the date following the date of mailing. Either
party may, by notice as aforesaid, designate a different address or addresses
for notices, statements, demands or other communications intended for it. In
the event of the cessation of any mail delivery for any reason, personal
delivery shall be substituted for the aforedescribed method of serving
notices.
ARTICLE 32
ESTOPPEL CERTIFICATE, MEMORANDUM
32.01. Each party agrees, at any time and from time to time, as
requested by the other party, upon not less than ten (10) days prior notice,
to execute and deliver to the other a statement certifying that this lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the modi-
fications), certifying the dates to which the fixed rent and additional rent
have been paid, whether any dispute exists with respect thereto and stating
whether or not, to the best knowledge of the signer, the other party is in
default in performance of any of its obligations
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under this lease, and, if so, specifying each such default of which the
signer may have knowledge, it being intended that any such statement
delivered pursuant hereto may be relied upon by others with whom the party
requesting such certificate may be dealing. If Tenant fails to deliver such
notice, Landlord shall be deemed appointed as Tenant's attorney-in-fact to
prepare and deliver such notice on behalf of Tenant, and Tenant shall be
deemed bound thereby upon Landlord's furnishing a copy of the notice to
Tenant.
32.02. At the request of either party, Landlord and Tenant shall
promptly execute, acknowledge and deliver a memorandum with respect to this
lease sufficient for recording. Such memorandum shall not in any
circumstances be deemed to change or otherwise affect any of the obligations
or provisions of this lease. The aforedescribed memorandum shall not include
the rent or additional rent reserved hereunder.
ARTICLE 33
ARBITRATION
33.01. The parties hereto shall not be deemed to have agreed to
determination of any dispute arising out of this lease by arbitration unless
determination in such manner shall have been specifically provided for in this
lease.
33.02. The party desiring arbitration shall give notice to that
effect to the other party and shall in such notice appoint a person as
arbitrator on its behalf. Within ten (10) days, the other party by notice to
the original party shall appoint a second person as arbitrator on its behalf.
The arbitrators thus appointed shall appoint a third person, and such three
arbitrators shall as promptly as possible determine such matter, provided
however that:
(a) if the second arbitrator shall not have been appointed as
aforesaid, the first arbitrator shall proceed to determine such matter;
and
(b) if the two arbitrators appointed by the parties shall be
unable to agree, within ten (10) days after the appointment of the
second arbitrator, upon the appointment of a third arbitrator, they
shall give written notice to the parties of such failure to agree, and,
if the parties fail to agree upon the selection of such third arbitrator
within ten (10) days after the arbitrators appointed by the parties give
notice as aforesaid, then within five (5) days thereafter either of the
parties upon notice to the other party may request such appointment by
the American Arbitration Association (or any organization successor
thereto), or in its absence, refusal, failure or inability to act, may
apply for a court appointment of such arbitrator.
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33.03. Each arbitrator shall be a fit and impartial person who
shall have had at least 5 years' experience in a calling connected with the
matter of the dispute.
33.04. The arbitration shall be conducted, to the extent consistent
with this Article, in accordance with the then prevailing rules of the
American Arbitration Association (or any. organization successor thereto).
The arbitrators shall render their decision and award, upon the concurrence of
at least two of the their number, within thirty (30) days after the
appointment of the third arbitrator. Such decision and award shall be in
writing and shall be final and conclusive on the parties, and counterpart
copies thereof shall be delivered to each of the parties. In rendering such
decision and award, the arbitrators shall not add to, subtract from or
otherwise modify the provisions of this lease. Judgment may be had on the
decision and award of the arbitrators) so rendered in any court of competent
jurisdiction.
33.05. Each party shall pay the fees and expenses of the one of the
two original arbitrators appointed by or for such party and the fees and
expenses of the third arbitrator and all other expense's of the arbitration
(other than the fees and disbursements of attorneys or witnesses for each
party) shall be borne by the parties equally.
33.06. Notwithstanding the provisions of this Article, if any delay
in complying with any requirements of this lease by Tenant might subject
Landlord to any fine or penalty, or to prosecution for a crime, or if it would
constitute a default by Landlord under any mortgage, Landlord may exercise its
right under Article 29, to remedy such default and in such event the sole
question to be determined by the arbitrators under this Article, shall be
whether Tenant is liable for Landlord's cost and expenses of curing such
default.
ARTICLE 34
NO OTHER REPRESENTATIONS, CONSTRUCTION, GOVERNING LAW
34.01. Tenant expressly acknowledges and agrees that Landlord has
not made and is not making, and Tenant, in executing and delivering this
lease, is not relying upon, any warranties, representations, promises or
statements, except to the extent that the same are expressly set forth in this
lease or in any other written agreement which may be made between the parties
concurrently with the execution and delivery of this lease and shall expressly
refer to this lease. This lease and said other written agreements made
concurrently herewith are hereinafter referred to as the "lease documents".
It is understood and agreed that all understandings and agreements heretofore
had between the parties are merged in the lease documents, which alone fully
and completely express their agreements and that the same are entered into
after full investigation, neither party relying Upon any statement or
representation not embodied in the lease documents, made by the other.
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34.02. If any of the provisions of this lease, or the application
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this lease, or the application of such
provision or provisions to persons or circumstances other than those as to
whom for which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this lease shall be valid and enforceable to
the fullest extent permitted by law.
34.03. This lease shall be governed in all respects by the laws of
the State of New Jersey.
ARTICLE 35
SECURITY
35.01. Tenant shall deposit with Landlord the sum of $20,472.50
upon the execution of this Lease. Said deposit (sometimes referred to as the
"Security Deposit") shall be held by Landlord as security for the faithful
performance by Tenant of all the terms of the lease by said Tenant to be
observed and performed. The Security Deposit shall not and may not be
mortgaged, assigned, transferred or encumbered by Tenant, without the written
consent of Landlord, and any such act on the part of Tenant shall be without
force and effect and shall not be binding upon Landlord. If any of the fixed
or additional rent herein reserved or any other sum payable by Tenant to
Landlord shall be overdue and unpaid, or if Landlord makes payment on behalf
of Tenant, or if Tenant shall fail to perform any of the terms, covenants and
conditions of the lease, then Landlord may, at its option and without
prejudice to any other remedy which Landlord may have on account thereof,
appropriate and apply the entire Security Deposit or so much thereof as may be
necessary to compensate Landlord, toward the payment of fixed or additional
rent and any loss or damage sustained by Landlord due to such breach on the
part of Tenant, plus expenses; and Tenant shall forthwith upon demand restore
the Security Deposit to the original sum deposited. The issuance of a warrant
and/or the re-entering of the Demised Premises by Landlord for any default on
the part of Tenant or for any other reason prior to the expiration of the
Demised Term shall not be deemed such a termination of the lease as to entitle
Tenant to the recovery of the Security Deposit. If Tenant complies with all
of the terms, covenants and conditions of the lease and pays all of the fixed
and additional rent and all other sums payable by Tenant to Landlord as they
fall due, the Security Deposit shall be promptly returned in full to Tenant
after the expiration of the Term of the Lease and Tenant's satisfaction of all
its obligations accruing prior to the Lease expiration date. In the event of
bankruptcy or other creditor-debtor proceedings against Tenant, the Security
Deposit and all other securities shall be deemed to be applied first to the
payment of fixed and additional rent and other charges due Landlord for all
periods prior to the filing of such proceedings. In the event of sale by
Landlord of the Building, Landlord may deliver the then balance of the
Security Deposit to the transferee of Landlord's interest in the Demised
Premises and Landlord shall thereupon by discharged from any further liability
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with respect to the Security Deposit and this provision shall also apply to
any subsequent transferees. No holder of a superior mortgage or a lessor's
interest in a superior lease to which the lease is sub ordinate shall be
responsible in connection with the Security Deposit, by way of credit or
payment of any fixed or additional rent, or otherwise, unless such mortgagee
or lessor actually shall have received the entire Security Deposit.
35.02. SEE PAGE 47-A
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35.02. Tenant shall be permitted to satisfy its Security Deposit
obligation with a Letter of Credit, which Letter of Credit shall be held by
Landlord subject to the same terms and conditions as are set forth in Section
35.01. Such Letter of Credit shall be acceptable to Landlord and shall be
issued by a New Jersey or New York bank acceptable to Landlord, shall be
irrevocable and shall be automatically renewable during the term of the Lease.
Said Letter of Credit shall be unconditional and shall otherwise meet
Landlord's standard requirements.
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ARTICLE 36
PARTIES BOUND
36.01. The obligation of this lease shall bind and benefit the
successors and assigns of the parties with the same effect as if mentioned in
each instance where a party is named or referred to, except that no violation
of the provisions of Article 8 shall operate to vest any rights in any
successor or assignee of Tenant and that the provisions of this Article shall
not be construed as modifying the conditions of limitation contained in
Article 24. However, the obligations of Landlord under this lease shall not
be binding upon Landlord herein named with respect to any period subsequent to
the transfer of its interest in the Building as owner or lessee thereof and in
event of such transfer said obligations shall thereafter be binding upon each
transferee of the interest of Landlord herein named as such owner or lessee of
the Building, but only with respect to the period ending with a subsequent
transfer within the meaning of this Article.
36.02. If Landlord shall be an individual, joint venture, tenancy
in common, copartnership, unincorporated association, or other unincorporated
aggregate of individuals and/or entities or a corporation, Tenant shall look
only to such Landlord's estate and property in the Building (or the proceeds
thereof) and, where expressly so provided in this lease, to offset against the
rents payable under this lease, for the satisfaction of Tenant's remedies for
the collection of a judgment (or other judicial process) requiring the payment
of money by Landlord in the event of any default by Landlord hereunder, and no
other property or assets of such Landlord shall be subject to levy, execution
or other enforcement procedure for the satisfaction of Tenant's remedies under
or with respect to this lease, the relationship of Landlord and Tenant
hereunder or Tenant's use or occupancy of the Demised Premises. Further,
Tenant agrees that Landlord shall not be liable to Tenant for any special,
indirect, or consequential damages arising out of Landlord's breach of this
Lease.
ARTICLE 37
CONSENTS
37.01. Wherever it is specifically provided in this Lease that a
party's consent is not to be unreasonably withheld, a response to a request
for such consent shall also not be unreasonably delayed. If either Landlord
or Tenant considers that the other has unreasonably withheld or delayed a
consent, it shall so notify the other party within ten (10) days after receipt
of notice of denial of the requested consent or, in case notice of denial is
not received, within twenty (20) days after making its request for the
consent.
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37.02. Tenant hereby waives any claim against Landlord which it may
have based upon any assertion that Landlord has unreasonably withheld or
unreasonably delayed any such consent, and Tenant agrees that its sole remedy
shall be an action or proceeding to enforce any such provision or for specific
performance injunction or declaratory judgment. In the event of such a deter-
mination, the requested consent shall be deemed to have been granted, however,
Landlord shall have no liability to Tenant for its refusal or failure to give
such consent. The sole remedy for Landlord's unreasonably withholding or
delaying of consent shall. be as provided in this Article.
ARTICLE 38
MORTGAGE FINANCING - TENANT COOPERATION
38.01. In the event that Landlord desires to seek mortgage
financing secured by the Demised Premises, Tenant agrees to cooperate with
Landlord in the making of any application(s) by Landlord for such financing
including the delivery to Landlord's mortgage broker or mortgagee, such
information as they shall require with respect to Tenant's occupancy of the
Demised Premises, including, but not limited to the current financial
statement of Tenant, but Tenant shall not be required to deliver such
information directly to Landlord, all of the above to be at no cost and
expense of Tenant. In the event that Landlord's mortgagee shall request
changes to the within lease in order to make same acceptable to Landlord's
mortgagee, Tenant agrees to consent to such changes provided such changes
shall not affect the term of this lease nor the financial obligations of
Tenant hereunder.
ARTICLE 39
ENVIRONMENTAL COMPLIANCE
39.01 Tenant shall, at Tenant's sole expense, comply with the
Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6 et seq. and the
regulations, promulgated thereunder ("ECRA") as same shall arise from Tenant's
use and occupancy of the leased Premises. Tenant shall, at Tenant's own
expense, make all submissions to, provide all information to, and comply with
all requirements of, the Bureau of Industrial Site Evaluation (the "Bureau")
of the New Jersey Department of Environmental Protection ("NJDEP"). Should
the Bureau or any other division of NJDEP determine that a cleanup, plan be
prepared and that a cleanup be undertaken because of any spills or discharge
of hazardous substances of wastes at the premises which occur during the term
of this lease and were caused by Tenant or its agents or contractors, then
Tenant shall, at Tenant's own expenses prepare and submit the required plans
and financial assurances, and carry out the approved plans. In the event that
Landlord shall have to comply with ECIRA by reason of Landlord's actions,
Tenant shall promptly
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provide all information requested by Landlord for preparation of
non-applicability affidavits or a Negative Declaration and shall promptly
sign such affidavits when requested by Landlord. Tenant shall indemnify,
defend and save harmless Landlord from all fines, suits, procedures, claims
and actions of any kind arising out of or in any way connected with any
spills or discharges of hazardous substances or wastes at the premises which
occur during the term of this lease and were caused by Tenant or its agents
or contractors; and from all fines, suits procedures, claims and actions of
any kind arising out of Tenant's failure to provide all information, make all
submissions and take all actions required by the ECRA Bureau or any other
division of NJDEP. Tenant's obligations and liabilities under this paragraph
shall continue so long as Landlord remains responsible for any spills or
discharges of hazardous substances or wastes at the premises which occur
during the term of this lease and were caused by Tenant or its agents or
contractors. Tenant's failure to abide by the terms of this paragraph shall
be restrainable by injunction. Tenant shall have no responsibility to obtain
a "Negative Declaration" or "Letter of non-applicability" from the NJDEP if
the sole reason for obtaining same is in connection with a sale or other
disposition of the real estate by Landlord but Tenant agrees to cooperate
with Landlord in Landlord's effort to obtain same and shall perform at
Tenant's expense any clean up required by reason of Tenant's use and
occupancy of the Demised Premises.
ARTICLE 40
HOLDING OVER
40.01. Tenant will have no right to remain in possession of all or
any part of the Demised Premises after the expiration of the Term. If Tenant
remains in possession of all or any part of the Demised Premises after the
expiration of the Term, with the express or implied consent of Landlord: (a)
such tenancy will be deemed to be a periodic tenancy from month-to-month only;
(b) such tenancy will not constitute a renewal or extension of this Lease for
any further term; and (c) such tenancy may be terminated by Landlord upon the
earlier of (i) thirty (30) days prior written notice or (ii) the earliest date
permitted by law. In such event, monthly rent will be increased to an amount
equal to one hundred fifty percent (150%) of the monthly rent payable during
the last month of the Term, and any other sums due under this Lease will be
payable in the amount and at the times specified in this Lease. Such month-
to-month tenancy will be subject to every other term, condition, and covenant
contained in this Lease. The provisions of this section shall not be
construed to relieve Tenant from liability to Landlord for damages resulting
from any such Holding Over.
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ARTICLE 41
CERTAIN DEFINITIONS AND CONSTRUCTIONS
41.01. For the purpose of this lease and all agreements supplemental to
this lease, unless the context otherwise required the definitions set forth in
Exhibit F annexed hereto shall be utilized.
41.02. The various terms which are italicized and defined in other
Articles of this lease or are defined in Exhibits annexed hereto, shall have
the meanings specified in such other Articles and such Exhibits for all
purposes of this lease and all agreements supplemental thereto, unless the
context shall otherwise require.
41.03. The submission of this Lease Agreement for examination does
not constitute a reservation of, or option for, the Premises, and this Lease
Agreement becomes effective as a Lease Agreement only upon execution and
delivery thereof by Landlord and Tenant.
41.04. The Article headings in this lease and the Index prefixed to
this lease are inserted only as a matter of convenience in reference and are
not to be given any effect whatsoever in construing this lease.
ARTICLE 42
RELOCATION OF TENANT
42.01. Landlord at its sole expense, on at least sixty (60) days
prior written notice, may require Tenant to move from the Demised Premises to
another location of comparable size and decor in the building complex commonly
known and designated as Twin Towers at Metro Park consisting of 379 Thornall
Street and 399 Thornall Street, Edison, New Jersey in order to permit Landlord
to consolidate the Demised Premises with other space leased or to be leased by
another tenant in the building (provided, however, that in the event of
receipt of any such notice prior to June 1, 1992, Tenant by written notice to
Landlord may elect not to move to the other space and in lieu thereof may
terminate this Lease). In the event of any such relocation, Landlord shall be
responsible for the expenses of preparing and decorating the relocated
premises so that they will be substantially similar to the Demised Premises.
Notwithstanding the foregoing, Landlord agrees that Tenant shall not be
obligated to relocate during the first six (6) months of this Lease calculated
from the Commencement Date.
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ARTICLE 43
OPTION TO RENEW
43.01. Provided that Tenant is not then in default of the terms,
covenants and provisions of this Lease, Landlord hereby grants to Tenant the
right to renew the term of this Lease for one (1) additional period of two (2)
years (the "Renewal Period") commencing on the day after the initial
Expiration Date upon the same terms and condition as set forth in this Lease
other than the fixed annual rental which shall be one Hundred Forty Eight
Thousand, Six Hundred Ninety Five and 00/100 ($148,695.00) Dollars (calculated
on the basis of $23.00 per rentable square foot for 6,465 rentable square
feet). Said fixed annual rental shall be payable in equal monthly
installments of Twelve Thousand, Three Hundred Ninety One and 25/100
($12,391.25) Dollars in advance on the first day of each and every month of
the Renewal Period. The base year for calculation of additional rent for
increase in taxes and operating expenses for the Renewal Period shall be as
defined in this Lease. Tenant shall exercise the within Option by giving
written notice to Landlord not later than nine (9) months prior to the initial
Expiration Date, TIME BEING OF THE ESSENCE. If Tenant fails to give such
notice, Tenant will be deemed to have waived such Renewal Option and the
provisions of this Section shall be null and void.
ARTICLE 44
"AS IS" LEASE
44.01. Notwithstanding anything contained in this Lease, and
specifically in Article 3 and Article 4, Landlord agrees to demise and Tenant
hereby agrees to accept the Demised Premises in an "AS IS CONDITION". Tenant
has inspected the Demised Premises and accepts same in their condition.
Landlord's only obligation shall be to provide a Certificate of Occupancy in
accordance with Section 4.01(a). Accordingly, Landlord has no obligation to
perform "Landlord's Work". Further, except as may otherwise be set forth in a
separate letter agreement as contemplated by Section 4.01(b), there shall not
be any "Tenant's Finish Work".
ARTICLE 45
DEMISING CONSIDERATION
45.01. In consideration of Landlord downsizing its standard unit to
meet the requirements of Tenant and incurring substantial costs to prepare a
downsized Demised Premises, Tenant agrees to pay Landlord, upon execution of
this Lease, the sum of $61,921.50.
-55-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this lease as
of the day and year first above written.
WITNESS: LANDLORD: METRO FOUR ASSOCIATES
LIMITED PARTNERSHIP, a New
Jersey Limited Partnership
- ---------------
/s/ Dominick Alfieri
------------------------
BY: DOMINICK ALFIERI
TITLE: GENERAL PARTNER
ATTEST: TENANT: DIGITRAN CORP., a Delaware
Corporation
- ---------------
/s/ Peter S. Macaluso
----------------------
BY: PETER S. MACALUSO
TITLE: VICE PRESIDENT
-56-
<PAGE>
METRO FOUR ASSOCIATES
LIMITED PARTNERSHIP, AS LANDLORD
DIGITRAN CORP., AS TENANT
EXHIBIT A
DESCRIPTION OF LAND
<PAGE>
DESCRIPTION OF LAND
379 THORNALL STREET
Beginning at a point in the new Southeasterly Right-of-Way line of
Thornall Street, distant Southwestardly 1541.34 feet from the intersection
formed by the Southeasterly Right-of-Way line of Thornall Street, with the
Southwesterly Right-of-Way line of Wood Avenue South and from said beginning
point running:
(1) South 53 degrees 23 minutes 59 seconds East, along a new line in Lot 2-
B-4 in Block 676, as shown on the current Township of Edison Tax Map, 264.80
feet to a point; running thence
(2) South 36 degrees 36 minutes 01 seconds West, 79.19 feet to a point;
running thence
(3) South 53 degrees 23 minutes 59 seconds East, 612.14 feet to a point;
running thence
(4) South 31 degrees 14 minutes 31 seconds West, along the common line
between Lots 2-B-4 and 5, in Block 676, as shown on the current Township of
Edison Tax Map, 280.48 feet to a point; running thence
(5) North 53 degrees 23 minutes 59 seconds West, along the common line
between Lots 2-B-3 and 2-A, in Block 676, as shown on said Tax Map, 889.65
feet to a point in the new Southeasterly Right-of-Way line of Thornall Street;
running thence
(6) Northeastwardly, along the new Southeasterly Right-of-Way line of
Thornall Street, along a curve to the left having a radius of 4,694.00 feet
and an arc length of 355.79 feet to a point, said point being the point and
place of BEGINNING.
Being known as Lot 2-B-3 in Block 676 on the Tax Map on the Township of Edison
containing 6.12 acres.
The area upon which the rental was based was 6.12 acres plus an additional
.021 acres representing that area dedicated to the Township of Edison for road
widening for a total allocated acreage of 6.141 acres.
Subject to easements, restrictions and covenants of record and such state of
facts as an accurate survey may reveal.
<PAGE>
METRO FOUR ASSOCIATES
LIMITED PARTNERSHIP, AS LANDLORD
DIGITRAN CORP., AS TENANT
EXHIBIT B
FLOOR PLAN
Exhibit B was not completed or attached to original document.
<PAGE>
METRO FOUR ASSOCIATES
LIMITED PARTNERSHIP, AS LANDLORD
DIGITRAN CORP., AS TENANT
EXHIBIT C
Pursuant to Article 44, Tenant has accepted the Demised Premises
in an "AS IS CONDITION".
<PAGE>
METRO FOUR ASSOCIATES
LIMITED PARTNERSHIP, AS LANDLORD
DIGITRAN CORP., AS TENANT
EXHIBIT D
CLEANING AND MAINTENANCE SPECIFICATIONS
Landlord will provide building standard cleaning services to the tenant area
and the ground floor lobby area in accordance with the following
specifications:
1. GENERAL CLEANING
Nightly
a. Empty all waste receptacles, removing waste to designated central
location for disposal.
b. Empty and wipe clean all ashtrays. Screen and clean all sand
urns.
c. Wash and disinfect all water coolers and drinking fountains.
d. Wipe clean fingermarks, smudges, etc. from all doors and wall
surfaces.
e. Clean all Tenant's interior stairways.
f. Replace plastic liners in all waste-disposal cans.
Weekly
a. hand-dust all office equipment, furniture, fixtures, including
panelling, shelving and window sills, telephones and door louvers, and
all flat surfaces with a treated cloth or yarn duster.
2. Group A - Ceramic tile, marble, terrazzo.
Group B - Linotile, asphalt, koroseal, plastic vinyl, rubber, wood, cork
or other types of floors and base.
Page 1 of 4
<PAGE>
Nightly
a. All floors in Group A to be swept and wet-mopped.
b. All floors in Group B to be dry-mopped, using a "dustdown" preparation,
and spots to be removed by wet process.
Periodic
a. A wet mopping, waxing, buffing, stripping or machine scrubbing of
the floors in Group B will be accomplished whenever required to
maintain a hard lustrous finish and will be governed by the
amount of wear due to weather and other conditions.
3. VACUUMING
Nightly
a. Vacuum once per week, carpet-sweep four times per week, all rugs
and carpeted areas; moving light furniture and office equipment
other than desks and file cabinets. Spot clean to remove
soluable spots which safely respond to standard spotting
procedures without risk of injury to color or fabric.
4. HIGH DUSTING
Periodic
a. Dust all closet shelving and wash all closet floors, when
accessible, monthly.
b. Damp dust all pictures, charts, graphs, etc. , not reached in
nightly cleaning, quarterly.
c. Dust clean all vertical surfaces such as walls, partitions,
doors, door bucks and other surfaces not reached in nightly
cleaning, quarterly.
d. Damp dust ceiling air conditioning diffusers, wall grills, door
louvers, registers and venetian blinds, quarterly.
e. Dust exterior of light fixtures, annually.
Page 2 of 4
<PAGE>
5. WASHROOMS AND TOILETS
Nightly
a. Sweep, mop, rinse and dry floors; polish mirrors and bright-work,
clean enameled surfaces.
b. wash and disinfect basins, urinals and bowls, using scouring
powder to remove stains, making certain to clean undersides of
rims of urinals and bowls.
c. wash and disinfect both sides of all toilet seats.
d. Supply and service all toilet tissue, soap, towels, and sanitary
napkins. Sanitary napkins will be supplied in coin operated
dispensers.
e. All wastepaper cans and all receptacles are to be emptied and new
plastic liners installed.
f. Hand dust and wash clean all partitions, tile walls, dispensers
and receptacles in lavatories and vanity area.
g. Empty and clean sanitary disposal receptacles.
Weekly
a. Wash down walls in washrooms and stalls, from trim to floor.
6. ELEVATORS
Nightly
a. Clean the floor in accordance with specifications outlined above
based upon the type of flooring installed. The doors, surfaces
and fixtures shall be dusted daily and damp wiped weekly.
7. GLASS
Periodic
a. Clean both sides of all lobby glass, including the building
entrance doors, nightly.
b. Clean all perimeter windows quarterly.
Page 3 of 4
<PAGE>
c. Clean glass partitions, doors and furniture once every six months
(limited to reasonable quantities).
8. MISCELLANEOUS
a. Check all stairwells and landings nightly throughout entire
demised area, and keep in clean condition. All stairways and
landings will be dry mopped nightly. Railings, ledges, and
equipment will be dusted nightly. These areas will be wet mopped
weekly, scrubbed when necessary, and where required, shall be
waxed and buffed weekly.
b. Wipe down mail chute and mail depository nightly.
c. on completion of work all slop sinks are to be thoroughly
cleaned, and cleaning equipment stored neatly in designated
locations.
d. All cleaning services except those performed by day porters,
window cleaners and matrons are to be performed nightly, five
nights per week. No Saturday, Sunday or bank holiday service to
be provided. In no event shall performance of any cleaning
service interfere with Tenant's normal business operation.
e. The Contractor or Landlord is to furnish all necessary approved
cleaning materials, implements and machinery for the satisfactory
completion of the work. This includes scaffolding, vacuum
machines and scrubbing machines, etc.
f. Contractor shall furnish proof of liability and property damage
insurance suitable to the bank, and workman's Compensation
Insurance, in amounts required under the laws of New Jersey.
g. Tenant will be charged for cleaning services in excess of the
specifications outlined above.
h. Tenant will be charged for the incremental cost to clean any
areas of the Demised Premises used for special purposes requiring
more difficult cleaning work than office areas, including, but
not limited to private toilets and showers, dining areas,
cafeteria, kitchen, etc.
Page 4 of 4
<PAGE>
METRO FOUR ASSOCIATES
LIMITED PARTNERSHIP, AS LANDLORD
DIGITRAN CORP., AS TENANT
EXHIBIT E
RULES AND REGULATIONS
1. The rights of tenants in the entrances, corridors, elevators and
escalators of the building are limited to ingress to and egress from the
tenants' premises for the tenants and their employees, licensees and invitees,
and no tenant shall use, or permit the use of, the entrances, corridors,
escalators or elevators for any other purpose. No tenant shall invite to the
tenant's premises, or permit the visit of, persons in such numbers or under
such conditions as to interfere with the use and enjoyment of any of the
plazas, entrances, corridors, escalators, elevators and other facilities of
the Building by other tenants. Fire exits and stairways are for emergency use
only, and they shall not be used for any other purpose by the tenants, their
employees, licensees or invitees. No tenant shall encumber or obstruct, or
permit the encumbrance or obstruction of any of the sidewalks, plazas,
entrances, corridors, escalators, elevators, fire exits or stairways of the
Building. The Landlord reserves the right to control and operate the public
portions of the Building and the public facilities, as well as facilities
furnished for the common use of the tenants, in such manner as it deems best
for the benefit of the tenants generally.
2. The Landlord may refuse admission to the Building outside of
ordinary business hours to any person not having a pass issued by the Landlord
or the tenant whose premises are to be entered or not otherwise properly
identified, and may require all persons admitted to or leaving the Building
outside of ordinary business hours to register. Any person whose presence in
the Building at any time shall, in the judgement of the Landlord be
prejudicial to the safety, character, reputation and interests of the Building
or of its tenants may be denied access to the Building or may be ejected
therefrom. In case of invasion, riot, public excitement or other commotion
the Landlord may prevent all access to the Building during the continuance of
the same, by closing the doors or otherwise, for the safety of the tenants and
protection of property of the Building. The Landlord may require any person
leaving the Building with any package or other object to exhibit a pass from
the tenant from whose premises the package or object is being removed, but the
establishment and enforcement of such requirement shall not impose any
responsibility on the Landlord for the protection of any tenant against the
removal of property from the premises of the tenant. The Landlord shall in no
way be liable to any tenant for damages or loss arising from the admission,
exclusion or ejection of any person to or from the tenant's premises or the
Page 1 of 4
<PAGE>
EXHIBIT E - (continued)
Building under the provisions of this rule. Canvassing, soliciting or
peddling in the Building is prohibited and every tenant shall co-operate to
prevent the same.
3. No tenant shall obtain or accept for use in its premises ice,
food for on premises preparation other than warming, beverage, towel,
barbering, boot blacking, floor polishing, lighting maintenance, cleaning or
other similar services from any persons not authorized by the Landlord in
writing to furnish such services, provided that the charges for such services
by persons authorized by the Landlord are not excessive and where appropriate
and consonant with the security and proper operation of the Building,
sufficient persons are so authorized for the same service to provide tenants
with a reasonably competitive selection. Such services shall be furnished
only at such hours, in such places within the tenant's premises and under such
reasonable regulations as may be fixed by the Landlord. Tenant may have a
coffee service, subject to Landlord's approval, and a kitchen for the use of
its employees.
4. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with
other tenants, caused by a tenant or the employees, licensees or invitees of
the tenant, shall be paid by such tenant.
5. No lettering, sign, advertisement, notice or object shall be
displayed in or on the windows or doors, or on the outside of any tenant's
premises, or at any point inside any tenant's premises where the same might be
visible outside of such premises, except that the name of the tenant may be
displayed on the entrance door of the tenant's premises, and in the elevator
lobbies of the floors which are occupied entirely by any tenant, subject to
the approval of the Landlord as to the size, color and style of such display.
The inscription of the name of the tenant on the door of the tenant's premises
shall be done by the Landlord at the expense of the tenant. Listing of the
name of the tenant on the directory boards in the Building shall be done by
the Landlord at its expense; any other listings shall be in the discretion of
the Landlord.
6. No awnings or other projections over or around the windows shall
be installed by any tenant, and only such window blinds as are supplied or
permitted by the Landlord shall be used in a tenant's premises. Linoleum,
tile or other floor covering shall be laid in a tenant's premises only in a
manner approved by the Landlord.
7. The Landlord shall have the right to prescribe the weight and
position of safes and other objects of excessive weight, and no safe or other
object whose weight exceeds the lawful load for the area upon which it would
stand shall be brought into or kept upon a tenant's premises. If, in the
judgment of the Landlord, it is necessary to distribute the concentrated
weight of any heavy object, the work involved in such distribution shall be
done at the expense of the tenant and in such manner as the Landlord shall
determine. The moving
Page 2 of 4
<PAGE>
EXHIBIT E - (continued)
of safes and other heavy objects shall take place only outside of ordinary
business hours upon previous notice to the Landlord, and the persons employed
to move the same in and out of the Building shall be reasonably acceptable to
the Landlord and, if so required by law, shall hold a Master Rigger's
license. Freight, furniture, business equipment, merchandise and bulky
matter of any description shall be delivered to and removed from the premises
only in the freight elevators and through the service entrances and
corridors, and only during hours and in a manner approved by the Landlord.
Arrangements will be made by the Landlord with any tenant for moving large
quantities of furniture and equipment into or out of the building.
8. No machines or mechanical equipment of any kind other than
typewriters and other ordinary portable business machines, may be installed or
operated in any tenant's premises without Landlord's prior written consent,
and in no case (even where the same are of a type so excepted or as so
consented to by Landlord) shall any machines or mechanical equipment be so
placed or operated as to disturb other tenants; but machines and mechanical
equipment which may be permitted to be installed and used in a tenant's
premises shall be so equipped, installed and maintained by such tenant as to
prevent any disturbing noise, vibration or electrical or other interference
from being transmitted from such
9. No noise, including the playing of any musical instruments, radio
or television, which, in the judgment of the Landlord, might disturb other
tenants in the Building, shall be made or permitted by any tenant, and no
cooking shall be done in the tenant's premises, except as expressly approved
by the Landlord. Nothing shall be done or permitted in any tenant's premises,
and nothing shall be brought into or kept in any tenant's premises, which
would impair or interfere with any of the Building services or the proper and
economic heating, cleaning or.other servicing of the Building or the premises,
or the use or enjoyment by any other tenant of any other premises, nor shall
there be installed by any tenant any ventilating, air conditioning, electrical
or other equipment of any kind which, in the judgment of the Landlord, might
cause any such impairment or interference. No dangerous, inflammable,
combustible or explosive object or material shall be brought into the Building
by any tenant or with the permission of any tenant. Any cuspidors or similar
containers or receptacles used in any tenant's premises shall be cared for and
cleaned by and at the expense of the tenant.
10. No acids, vapors or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the
Building which may damage them. The water and wash closets and other plumbing
fixtures in or serving any tenant's premises shall not be used for any purpose
other than the purposes for which they were designed or constructed, and no
sweepings, rubbish, rags, acids or other foreign substances shall be deposited
therein.
Page 3 of 4
<PAGE>
EXHIBIT E - (continued)
11. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows in any tenant's premises and no lock on any door
therein shall be changed or altered in any respect. Additional keys for a
tenant's premises and toilet rooms shall be procured only from the Landlord,
which may make a reasonable charge therefor. Upon the termination of a
tenant's lease, all keys of the tenant's premises and toilet rooms shall be
delivered to the Landlord.
12. All entrance doors in each tenant's premises shall be left locked
and all windows shall be left closed by the tenant when the tenant's premises
are not in use. Entrance doors shall not be left open at any time.
13. Hand trucks not equipped with rubber tires and side guards shall
not be used within the Building.
14. All windows in each tenant's premises shall be kept closed and
all blinds therein above the ground floor shall be lowered when and as
reasonably required because of the position of the sun, during the operation
of the Building air conditioning system to cool or ventilate the tenant's
premises.
15. The Landlord reserves the right to rescind, alter or waive any
rule or regulation at any time prescribed for the Building when, in its
judgment, it deems it necessary, desirable or proper for its best interest and
for the best interests of the tenants, and no alteration or waiver of any rule
or regulation in favor of one tenant shall operate as an alteration or waiver
in favor of any other tenant. The Landlord shall not be responsible to any
tenant for the non-observance or violation by any other tenant of any of the
rules and regulations at any time prescribed by the Building.
Page 4 of 4
<PAGE>
METRO FOUR ASSOCIATES
LIMITED PARTNERSHIP, AS LANDLORD
DIGITRAN CORP., AS TENANT
EXHIBIT F
DEFINITIONS
(a) The term mortgage shall mean an indenture of mortgage and
deed of trust to a trustee to secure an issue of bonds, and the term mortgagee
shall mean such a trustee.
(b) The terms include, including and such as shall each be
construed as if followed by the phrase "without being limited to".
(c) The term obligations of this lease, and words of like
import, shall mean the covenants to pay rent and additional rent under this
lease and all of the other covenants and conditions contained in this lease.
Any provision in this lease that one party or the other or both shall do or
not do or shall cause or permit or not cause or permit a particular act,
condition, or circumstance shall be deemed to mean that such party so
covenants or both parties so covenant, as the case may be.
(d) The term Tenant's obligations hereunder, and words of like
import, and the term Landlord's obligations hereunder, and words of like
import, shall mean the obligations of this lease which are to be performed or
observed by Tenant, or by Landlord, as the case may be. Reference to
performance of either party's obligations under this lease shall be construed
as "performance and observance".
(e) Reference to Tenant being or not being in default hereunder,
or words of like import, shall mean that Tenant is in default in the
performance of any of Tenant's obligations hereunder, or that Tenant is not in
default in the performance of any of Tenant's obligations hereunder, or that a
condition of the character described in Section 24.01 has occurred and
continues or has not occurred or does not continue, as the case may be.
(f) References to Landlord as having no liability to Tenant or
being without liability to Tenant, shall mean that Tenant is not entitled to
terminate this lease, or to claim actual or constructive eviction, partial or
total, or to receive any abatement or diminution of rent, or to be relieved in
any manner of any of its other obligations hereunder, or to be compensated for
loss or injury suffered or to enforce any other kind of liability whatsoever
Page 1 of 3
<PAGE>
EXHIBIT F - (continued)
against Landlord under or with respect to this lease or with respect to
Tenant's use or occupancy of the Demised Premises.
(g) The term LAWS AND/OR REQUIREMENTS OF PUBLIC AUTHORITIES and
words of like import shall mean laws and ordinances of any or all of the
Federal, state, city, county and borough governments and rules, regulations,
orders and/or directives of any or all departments, subdivisions, bureaus,
agencies or offices thereof, or of any other governmental, public or quasi-
public authorities, having jurisdiction in the premises, and/or the direction
of any public officer pursuant to law.
(h) The term REQUIREMENTS OF INSURANCE BODIES and words of like
import shall mean rules, regulations, orders and other requirements of the New
Jersey Board of Fire Underwriters and/or the New Jersey Fire Insurance Rating
organization and/or any other similar body performing the same or similar
functions and having jurisdiction or cognizance of the Building and/or the
Demised Premises.
(i) The term REPAIR shall be deemed to include restoration and
replacement as may e necessary to achieve and/or maintain good working order
and condition.
(j) Reference to TERMINATION OF THIS LEASE includes expiration
or earlier termination of the term of this lease or cancellation of this lease
pursuant to any of the provisions of this lease or to law. Upon a termination
of this lease, the term and estate granted by this lease shall end at noon of
the date of termination as if such date were the date of expiration of the
term of this lease and neither party shall have any further obligation or
liability to the other after such termination (i) except as shall be expressly
provided for in this lease, or (ii) except for such obligation as by its
nature or under the circumstances can only be, or by the provisions of this
lease, may be, performed after such termination, and, in any event, unless ex-
pressly otherwise provided in this lease, any liability for a payment which
shall have accrued to or with respect to any period ending at the time of
termination shall survive the termination of this lease.
(k) The term IN FULL FORCE AND EFFECT when herein used in
reference to this lease as a condition to the existence or exercise of a right
on the part of Tenant shall be construed in each instance as including the
further condition that at the time in question no default on the part of
Tenant exists, and no event has occurred which has continued to exist for such
period of time (after the notice, if any, required by this lease), as would
entitle Landlord to terminate this lease or to dispossess Tenant.
(l) The term TENANT shall mean Tenant herein named or any
assignee or other successor in interest (immediate or remote) of Tenant herein
named, while such Tenant or such assignee or other successor in interest, as
the case may be, is in possession of the
Page 2 of 3
<PAGE>
EXHIBIT F - (continued)
Demised Premises as owner of the Tenant's estate and interest granted by this
lease and also, if Tenant is not an individual or a corporation, all of the
persons, firms and corporations then comprising Tenant.
(m) Words and phrases used in the singular shall be deemed to
include the plural and vice versa, and nouns and pronouns used in any
particular gender shall be deemed to include any other gender.
(n) The rule of EJUSDEM GENERIS shall not be applicable to limit
a general statement following referable to an enumeration of specific matters
to matters similar to the matters specifically mentioned.
(o) All references in this lease to numbered Articles, numbered
Sections and lettered Exhibits are references to Articles and Sections of this
lease, and Exhibits annexed to (and thereby made part of) this lease, as the
case may be, unless expressly otherwise designated in the context.
Page 3 of 3
<PAGE>
FIRST AMENDMENT TO LEASE
BETWEEN METRO FOUR ASSOCIATES LIMITED PARTNERSHIP,
AS LANDLORD
AND DIGITRAN CORP.,
AS TENANT
THIS FIRST AMENDMENT TO LEASE made this day of June, 1994 by and between
METRO FOUR ASSOCIATES LIMITED PARTNERSHIP, a New Jersey Limited Partnership,
c/o Alfieri Property Management, having an office at 399 Thornall Street, P.O.
Box 2911, Edison, New Jersey 08818-2911 ("Landlord") and DIGITRAN CORP., a
Delaware Corporation, having an office at 379 Thornall Street, Edison, New
Jersey, ("Tenant"),
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into a Lease dated
May 28, 1992, (the "Lease") wherein Landlord let unto Tenant and Tenant hired
from Landlord 6,465 rentable square feet on a portion of the 2nd floor
("Demised Premises") of a certain office building commonly known and
designated as 379 Thornall Street, Edison, New Jersey (the "Building"); and
WHEREAS, Landlord and Tenant have agreed to amend certain provisions in
the Lease and to extend the term thereof.
NOW THEREFORE, in consideration of the mutual covenants and undertakings
hereinafter set forth by and between the parties hereto, it is agreed as
follows:
1. The Lease is hereby extended for 6 months commencing as of June
1, 1994 and expiring on November 30, 1994 (the "Extended Term").
2. The fixed rent during the Extended Term shall be $61,417.50
(calculated on the basis of $19.00 per rentable square foot for 6,465 rentable
square feet) payable in advance in equal monthly installments of $10,236.25.
3. Tenant shall continue to pay all electric charges, additional
rent and Tenant's share of operating expenses and taxes, all in the manner
currently paid in accordance with the Lease. Tenant's Base Year shall
continue as originally set forth in the Lease.
4. Article 39 of the Lease is hereby deleted and shall be
substituted with the following:
Tenant shall, at Tenant's sole expense, comply with the New Jersey
Industrial Site Recovery Act and the regulations promulgated thereunder
(referred to as "ISRA") as same
-1-
<PAGE>
relate to Tenant's occupancy of the Demised Premises, as well as any other
environmental law, rule, or regulation affecting or affected by Tenant's use
and occupancy of the Demised Premises. Tenant shall, at Tenant's own expense,
make all submissions to, provide all information to, and comply with all the
requirements of, the Bureau of Industrial Site Evaluation (the "Bureau") of
the New Jersey Department of Environmental Protection and Energy ("NJDEPE").
Should the Bureau or any other division of NJDEPE, pursuant to any other
environmental law, rule, or regulation, determine that a cleanup plan be
prepared and that a cleanup be undertaken because of any spills or discharge
of hazardous substances or wastes at the Demised Premises which occur during
the term of this Lease and were caused by Tenant or its agents or
contractors, then Tenant shall, at Tenant's own expenses prepare and submit
the required plans and financial assurances, and carry out the approved
plans. In the event that Landlord shall have to comply with ISRA by reason
of Landlord's actions, Tenant shall promptly provide all information
requested by Landlord for preparation of non-applicability affidavits or a
Negative Declaration and shall promptly sign such affidavits when requested
by Landlord. Tenant shall indemnify, defend, and save harmless Landlord from
all fines, suits, procedures, claims, and actions of any kind arising out of
or in any way connected with any spills or discharges of hazardous substances
or wastes at the Demised Premises which occur during the term of this Lease
and were caused by Tenant or its agents or contractors, and from all fines,
suits, procedures, claims, and actions of any kind arising out of Tenant's
failure to provide all information, make all submissions and take all actions
required by the Bureau or any other division of NJDEPE. Tenant's obligations
and liabilities under this Paragraph shall continue so long as Landlord
remains responsible for any spills or discharges of hazardous substances or
wastes at the Demised Premises which occur during the term of this Lease and
were caused by Tenant or its agents or contractors. Tenant's failure to abide
by the terms of this paragraph shall be restrainable by injunction. Tenant
shall have no responsibility to obtain a "Negative Declaration" or "Letter of
Non-Applicability" from the NJDEPE if the sole reason for obtaining same is
in connection with a sale or other disposition of the real estate by Landlord
but Tenant agrees to cooperate with Landlord in Landlord's effort to obtain
same and shall perform at Tenant's expense any clean up required by reason of
Tenant's use and occupancy of the Demised Premises.
5. Article 42 of the Lease is hereby deleted and substituted with
the following:
Landlord at its sole expense, on at least sixty (60) days prior written
notice, may require Tenant to move from the Demised Premises to another
location of comparable size and decor in the Building or 399 Thornall Street,
Edison, New Jersey in order to permit Landlord to consolidate the Demised
Premises with other space in the Building for future occupancy (provided,
however, that in event of receipt of any such notice, Tenant by written notice
to Landlord may elect not to move to the other space and in lieu thereof may
terminate the Lease, as amended). In the event of any such relocation,
Landlord shall be responsible for the expenses of preparing and decorating the
relocated premises so that they will be substantially similar to the Demised
Premises. Notwithstanding the foregoing, Landlord shall be entitled to
rescind its notice of relocation within forty-eight (48) hours of Tenant
having
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<PAGE>
properly elected to terminate this Lease. In the event Landlord rescinds the
notice as aforesaid, the Lease, as amended, shall continue in full force and
effect.
6. Provided that Tenant is not then in default of the terms,
covenants, and provisions of the Lease, as amended, Landlord hereby grants to
Tenant the right to renew the term of the Lease, as amended, for one (1)
additional period of three (3) years (the "Renewal Period") commencing on the
day after the Expiration Date of the Extended Term upon the same terms and
conditions as set forth in the Lease, as amended, other than the fixed annual
rental which shall be $17.50 per square foot. Said fixed annual rental shall
be payable in equal monthly installments in advance on the first day of each
and every month of the Renewal Period. The base year for calculation of
additional rent for increase in taxes and operating expenses for the Renewal
period shall be calendar year 1995. Tenant shall exercise the within option
by giving written notice to Landlord no later than September 10, 1994, TIME
BEING OF THE ESSENCE. If Tenant fails to give such notice, Tenant will be
deemed to have waived such Renewal Option and the provisions of this Section
shall be null and void.
7. Except as modified herein, all of the terms, covenants and
conditions set forth in the Lease remain in full force and effect during the
Extended Term.
LANDLORD:
METRO FOUR ASSOCIATES LIMITED
PARTNERSHIP
WITNESS: a New Jersey Limited Partnership,
/s/ Dominick Alfieri
- ------------------------- ------------------------
By: DOMINICK ALFIERI,
General Partner
TENANT:
DIGITRAN CORP.,
ATTEST: a Delaware Corporation
/s/ Peter S. Macaluso
- ------------------------- ------------------------
By: PETER S. MACALUSO
TITLE: Vice President
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<PAGE>
SECOND AMENDMENT TO
LEASE AGREEMENT BETWEEN METRO FOUR ASSOCIATES
LIMITED PARTNERSHIP, AS PRIOR LANDLORD,
THORNALL ASSOCIATES, AS LANDLORD AND
DIGITRAN CORP., AS TENANT
THIS SECOND AMENDMENT TO LEASE, made this day of May, 1995 by and
between METRO FOUR ASSOCIATES LIMITED PARTNERSHIP, ("Prior Landlord"), a New
Jersey Limited Partnership, THORNALL ASSOCIATES, ("Landlord"), a New Jersey
Limited Partnership, both c/o Alfieri Property Management, 399 Thornall
Street, P.O. Box 291 1, Edison, New Jersey 08818-2911 and DIGITRAN CORP.,
("Tenant"), a Delaware Corporation, having its principal office at 399
Thornall Street, Edison, New Jersey,
WITNESSETH:
WHEREAS, Prior Landlord and Tenant entered into a Lease dated May 28,
1992 (the "Lease") wherein Prior Landlord let unto Tenant and Tenant hired
from Prior Landlord 6,465 rentable square feet on a portion of the second
floor ("Existing Demised Premises") of a certain office building commonly
known as 379 Thornall Street, Edison, New Jersey, ("Existing Building"); and
WHEREAS, Prior Landlord and Tenant entered into a First Amendment to
Lease dated June 6, 1994 wherein the term of the Lease was extended until
November 3O, 1994 ("First Extension Term Expiration Date"); and
WHEREAS, Prior Landlord and Tenant hereby acknowledge that as the First
Extension Term Expiration Date, Tenant has occupied the Existing Demised
Premises on a month-to-month basis; and
WHEREAS, Prior Landlord and Tenant have agreed to extend the term of the
Lease, to relocate the Tenant from the Existing Demised Premises to new
premises in the building owned by Landlord known as 399 Thornall Street,
Edison, New Jersey, and amend certain provisions in the Lease, as amended;
NOW THEREFORE, in consideration of the mutual covenants and undertakings
hereinafter set forth between the parties, it is agreed as follows:
1. Tenant hereby surrenders and Prior Landlord hereby accepts the
surrender of the Existing Demised Premises located on the second floor of the
Existing Building known
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<PAGE>
and designated as 379 Thornall Street, Edison, New Jersey, consisting of
6,465 rentable square feet. Such surrender shall be effective as of the date
the premises described in paragraph 2 hereof are ready for occupancy, Tenant
has relocated to such premises and the Commencement Date therefore has
commenced. Prior Landlord and Tenant agree that until such time as Tenant
relocates to the premises described in paragraph 2 and the surrender of the
Existing Demised Premises take effect, Tenant shall remain in the Existing
Demised Premises and continue paying rent to Prior Landlord on a
month-to-month basis pursuant to Article I of the Lease, as amended.
2. Tenant hereby lets from Landlord and Landlord hereby demises to
Tenant 8,441 rentable square feet on a portion of the third floor ("Demised
Premises") of the building commonly known as 399 Thornall Street, Edison, New
Jersey ("Building") as more particularly referred to in Exhibit A attached
hereto and made a part hereof
3. Tenant hereby accepts the Demised Premises in "As Is" condition
and Landlord shall have no responsibility to perform any work to prepare the
Demised Premises for Tenant's occupancy and use of same except that Landlord
will deliver the space to the Tenant with the lighting in good working order
as is set forth in paragraph 6 of Exhibit C, Landlord's Work, attached hereto
and made a part hereof Any work to be performed in order to make the Demised
Premises ready for occupancy shall be performed by Landlord at Tenant's sole
cost and expense as per separate letter agreement.
4. Landlord hereby accepts all the terms and conditions of the Lease,
as amended, which Lease is expressly incorporated herein and made applicable
to the Demised Premises except as modified herein.
5. The term of this Second Amendment to Lease ("Second Extension
Term") shall begin on the date following three (3) weeks written notice from
Landlord to Tenant that the Demised Premises are ready for Tenant's occupancy
("Commencement Date") and shall expire 36 months after the Commencement Date
("Expiration Date").
6. As of the Commencement Date of the Second Amendment to Lease, the
fixed annual rent for the Second Extension Term shall be $147,717.50 per year
(calculated on the basis of $17.50 per rentable square foot for 8,441 rentable
square feet) payable in advance in equal monthly installments of $12,309.79.
7. As of the Commencement Date of the Second Amendment to Lease,
Tenant's Proportionate Share of Increase in Taxes and Operating Expenses for
the Demised Premises shall be 2.6%.
8. As of the Commencement Date of the Second amendment to Lease,
Tenant's monthly charge for electricity shall be $879.27 per month.
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<PAGE>
9. Article 5 of the Lease, as amended, shall be deleted and replaced
with the following Article 5:
ARTICLE 5
ADDITIONAL RENT
5.01. For the purpose of Sections 5.01 through 5.03:
(a) "Taxes" shall mean real estate taxes, special and
extraordinary assessments and governmental levies against the Land and
Building of which the Demised Premises (but excluding therefrom that portion
of the real estate taxes directly attributable to improvements made by other
tenants in the Building beyond Landlord's allowances) are a part provided,
however, if at any time during the term of this Lease the method of taxation
prevailing at the date of this Lease shall be altered so that in lieu of, or
as an addition to, or as a substitute for any or all of the above there shall
be assessed, levied or imposed (i) a tax, assessment, levy, imposition or
charge based on the income or rents received therefrom whether or not wholly
or partially as a capital levy or otherwise; or (ii) a tax, assessment, levy,
imposition or charge measured by or based in whole or in part upon all or any
part of the Land and/or Building and imposed upon Landlord; or (iii) a license
fee measured by the rents; or (iv) any other tax, assessment, levy,
imposition, charge or license fee however described or imposed, then all such
taxes, assessments, levies, impositions, charges or license fees or the part
thereof so measured or based shall be included in the definition of "Taxes."
Tenant shall pay to Landlord directly that portion of any real estate taxes
directly attributable to improvements made by Tenant beyond Landlord's
allowances (hereinafter referred to as "Tenant's Direct Tax Payment").
(b) "Base Taxes" shall mean the assessed valuation of the Land
and Building multiplied by the tax rate for the Tax Year 1995 as increased by
a pro rata adjustment based on the 1996 tax rate in the manner described in
Section 5.08.
(c) "Tax Year" shall mean each calendar year for which Taxes are
levied by any governmental authority after calendar year 1995.
(d) "Operational Year" shall mean each calendar year, other than
the First Operational Year, commencing with calendar year 1997. The First
Operational Year shall be the number of calendar months remaining in calendar
year 1996 after the passage of 12 full months calculated from the Commencement
Date.
(e) "Tenant's Proportionate Share of Increase" shall mean 2.6%
multiplied by the increase in Taxes in any Operational Year in excess of the
Base Taxes. Tenant's
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<PAGE>
Proportionate Share of Increase for the First Operational Year be prorated to
reflect the actual occupancy by Tenant for said Operational Year.
(f) "Tenant's Projected Share of Increase" shall mean Tenant's
Proportionate Share of Increase in Taxes for the projected Operational Year,
except for the First Operational Year, divided by twelve (12) and payable
monthly by Tenant to Landlord as additional rent.
5.02. Commencing with the First Operational Year and thereafter, Tenant
shall pay to Landlord as additional rent for the then Operational Year,
Tenant's Projected Share of Increase in Taxes in equal monthly installments.
5.03. After the expiration of each Operational Year, Landlord shall
furnish to Tenant a written statement of the Taxes incurred for such
Operational Year as well as Tenant's Proportionate Share of Increase, if any.
If the statement furnished by Landlord to Tenant pursuant to this Section at
the end of the then Operational Year shall indicate that Tenant's Projected
Share of Increase exceeded Tenant's Proportionate Share of Increase, Landlord
shall either forthwith pay the amount of excess directly to Tenant
concurrently with the statement or credit same against Tenant's next monthly
installment of rent. If such statement furnished by Landlord to Tenant shall
indicate that the Tenant's Proportionate Share of Increase exceeded Tenant's
Projected Share of Increase for the then Operational Year, Tenant shall
forthwith pay the amount of such excess to Landlord.
Commencing with the First Operational Year, Tenant shall pay to Landlord
in equal monthly installments together with its payment of fixed rent one-
twelfth (1/12) of Tenant's Direct Tax Payment.
5.04. As used in Sections 5.04 through 5.06:
(a) "Operating Expenses" shall mean any or all expenses incurred
by Landlord in connection with the operation of the Land and Building of which
the Demised Premises are a part, including all expenses incurred as a result
of Landlord's compliance with any of its obligations hereunder other than
Landlord's Work and such expenses shall include: (i) salaries, wages, medical,
surgical and general welfare benefits, (including group life insurance) and
pension payments of employees of Landlord engaged in the operation and
maintenance of the Building; (H) social security, unemployment, and payroll
taxes, workers' compensation, disability coverage, uniforms, and dry cleaning
for the employees referred to in Subsection (i); (iii) the cost of all charges
for oil, gas, electricity (including, but not limited to, fuel cost
adjustments), steam, heat, ventilation, air-conditioning, heating, and water
(including common areas thereof) including any taxes on any such utilities,
but excluding therefrom the cost, including taxes thereon, of electric energy
furnished other than for heating and air-conditioning to the Demised Premises
(which costs shall be borne by Tenant pursuant to the provisions of Article 15
hereof; (iv) the cost of all premiums and charges for the
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<PAGE>
following insurances rent, casualty, liability fidelity and war risk (if
obtainable from the United States Government); (v) the cost of all building
and cleaning supplies for the common areas of the Building and charges for
telephone for the Building; (vi) the cost of all charges for management,
window cleaning, security services, if any, and janitorial services, and any
independent contractor performing work included within the definition of
operating expenses; (vii) legal and accounting services and other
professional fees and disbursements incurred in connection with the operation
and management of the Land and Building (other than as related to new leases,
enforcing Landlord's rights under existing leases, or sales of the Building);
(viii) general maintenance of the Building and the cost of maintaining and
replacing the landscaping; (ix) maintenance of the common area; (x) any
escalations in the ground rent payments in excess of the base ground rent
required to be paid by Landlord to the Landlord under the Ground Lease; (xi)
capital expenditures, including the purchase of any item of capital equipment
which have the effect of reducing the expenses which would otherwise be
included in operating expenses, the costs of which shall be included in
Operating Expenses for the Operational Year in which the costs are incurred
and subsequent Operational Years on a straight-line basis, to the extent that
such items are amortized over such period of time as Landlord reasonably
estimates, with an interest factor equal to the interest rate at the time of
Landlord's having made said expenditure. If Landlord shall lease any items
of capital equipment designed to result in savings or reductions in expenses
which would otherwise be included in Operating Expenses, then the rentals and
other costs paid pursuant to such leasing shall be included in Operating
Expenses for the Operational Year in which they were incurred; and (xii) that
portion of the cost of any capital expenditures incurred in connection with
the operation of the Land and Building amortized on a straight line basis, to
the extent that such items are amortized over an appropriate period, but not
more than ten years, with an interest factor equal to the interest rate, at
the time of Landlord's having made said expenditure.
If during all or part of any Operational Year, Landlord shall not
furnish any particular item(s) of work or service (which would otherwise
constitute an Operating Expense hereunder) to portions of the Building due to
the fact that (i) such portions are not occupied or leased, (ii) such items of
work or service is not required or desired by the tenant of such portion,
(iii) such tenant is itself obtaining and providing such item of work or
service; or (iv) for other reasons, then, for the purposes of computing
Operating Expenses, the amount for such item and for such period shall be
deemed to be increased by an amount equal to the additional costs and expenses
which would reasonably have been incurred during such period by Landlord if it
had at its own expense furnished such item of work or services to such portion
of the Building or such tenant.
Notwithstanding the foregoing, the following costs and expenses
shall not be included in operating expenses:
(1) Executives' salaries above the grade of building manager;
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<PAGE>
(2) Amounts received by Landlord through proceeds of insurance
except to the extent they are compensation for sums previously included in
operating expenses hereunder;
(3) Cost of repairs or replacements incurred by reason of fire
or other casualty or condemnation to the extent Landlord is compensated
therefor,
(4) Advertising and promotional expenditures;
(5) Costs incurred in performing work or furnishing services for
any tenant (including Tenant), whether at such tenant's or Landlord's expense,
to the extent that such work or service is in excess of any work or service
that Landlord is obligated to furnish to Tenant at Landlord's expense;
(6) Depreciation, except as provided above;
(7) Brokerage commissions;
(8) Taxes (as hereinbefore defined);
(9) The cost of electricity (for other than heating and air--
conditioning) furnished to the Demised Premises or any other space leased to
tenants as reasonably estimated by Landlord; and
(10) Refinancing costs and mortgage interest and amortization
payments.
(b) "Operational Year" shall mean each calendar year,
other than the First Operational Year, commencing with calendar year 1997.
The First Operational Year shall be as defined in Section 5.01(d).
(c) "Base Year" shall mean calendar year 1995 subject to
the adjustments described in Section 5.08.
(d) "Tenant's Proportionate Share of Increase" shall mean
2.6% multiplied by the increase in Operating Expenses for the Operational Year
over Operating Expenses for the Base Year. For purposes hereof, the Tenant's
Proportionate Share of Increase has been computed based upon a total square
footage of the Building equal to 330,000 square feet, and a total square
footage of the Demised Premises equal to 8,441 square feet.
(e) "Tenant's Projected Share of Increase" shall mean
Tenant's Proportionate Share of Increase for the projected Operational Year,
except as to the First
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<PAGE>
Operational Year, which shall be calculated in
accordance with Section 5.08 divided by twelve (12) and payable monthly by
Tenant to Landlord as additional rent.
5.05. Commencing with the First Operational Year after Landlord shall be
entitled to receive Tenant's Proportionate Share of Increase, Tenant shall
pay to Landlord as additional rent for the then Operational Year, Tenant's
Projected Share of Increase.
5.06. After the expiration of the First Operational Year and for each
Operational Year thereafter, Landlord shall furnish to Tenant a written
detailed statement of the Operating Expenses (certified to be true and correct
by Landlord) incurred for such Operational Year which statement shall set
forth Tenant's Proportionate Share of Increase, if any. If the statement
furnished by Landlord to Tenant, pursuant to this Section, at the end of the
then Operational Year shall indicate that Tenant's Projected Share of Increase
exceeded Tenant's Proportionate Share of Increase, Landlord shall either
forthwith pay the amount of excess directly to Tenant concurrently with the
statement or credit same against Tenant's next monthly installment of rent.
If such statement furnished by Landlord to Tenant hereunder shall indicate
that the Tenant's Proportionate Share of Increase exceeded Tenant's Projected
Share of Increase for the then Operational Year, Tenant shall forthwith pay
the amount of such excess to Landlord.
5.07. Every statement given by Landlord pursuant to Sections 5.03 and
5.06 shall be conclusive and binding upon Tenant unless (i) within ninety (90)
days after the receipt of such statement Tenant shall notify Landlord that it
disputes the correctness of the statement, specifying the particular respects
in which the statement is claimed to be incorrect; and (ii) if such dispute
shall not have been settled by agreement, shall submit the dispute to
arbitration within one hundred and twenty (120) days after receipt of the
statement. Pending the determination of such dispute by agreement or
arbitration as aforesaid, Tenant shall, within thirty (3) days after receipt
of such statement, pay additional rent in accordance with Landlord's statement
and such payment shall be without prejudice to Tenant's position. If the
dispute shall be determined in Tenant's favor, Landlord shall forthwith pay
Tenant the amount of Tenant's overpayment of rents resulting from compliance
with Landlord's statement.
5.08. Landlord and Tenant agree that for purposes of calculating
Tenant's base taxes, Landlord shall utilize the 1994 tax rate as adjusted by
any upward or downward shift in the 1995 tax rate, calculated pro rata, on the
basis of the number of months of calendar year 1995 which are not part of the
First Operational Year. Landlord shall estimate such amount to project
Tenant's Projected Share of Increase for taxes for the First Operational Year,
and shall thereafter determine the base taxes and the Tenant's proportionate
share as soon as practicable after the municipality has established the 1995
tax rate. With regard to Tenant's Projected and Proportionate Share of
Operating Expenses for the First Operational Year, such share shall be
calculated on the base year as described in Section 5.04(c), pro rated over
the number of months comprising the First Operational Year.
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<PAGE>
10. Tenant's Option to Renew as set forth in Paragraph 6 of the First
Amendment to Lease, is hereby null and void and of no further force and
effect.
11. Provided that Tenant is not then in default of the terms,
covenants, and provisions of the Lease, as amended, Landlord hereby grants to
Tenant the right to renew the term of the Lease, as amended, for one (1)
additional period of three (3) years ("Third Extension Term") commencing on
the day after the Expiration Date of the Second Extension Term upon the same
terms and conditions as set forth in the Lease, as amended, other than the
fixed annual rental which shall be the Fair Market Rental of the Demised
Premises at the time of the commencement of the Third Extension Term,
adjusting as necessary for the lapse of time between the date of Tenant's
notification of intent to exercise its option to renew and the date on which
the Third Extension Term is scheduled to commence but in no event shall be
less than the fixed rent during the term of the Second Extension Term. Said
fixed annual rental shall be payable in equal monthly installments in advance
on the first day of each and every month of the Third Extension Term. The
base year for calculation of additional rent for increase in taxes and
operating expenses for the Third Extension Term shall be as initially
established in the Lease, as amended. Tenant shall exercise the within Option
by giving written notice to Landlord not later than nine (9) months prior to
the Expiration Date of the Second Extension Term, TIME BEING OF THE ESSENCE.
If Tenant fails to give such notice, Tenant will be deemed to have waived such
Renewal Option and the provisions of this Section shall be null and void.
Fair Market Value shall mean the rents obtainable for comparable space in the
Edison (Metro Park), New Jersey market area.
12. Landlord and Tenant hereby acknowledge that Landlord is presently
holding the sum of $20,472.50 as Tenant's security.
13. Tenant covenants, warrants, and represents that there was no
broker instrumental in consummating this Second Amendment to Lease and that no
conversations or negotiations were had with any broker concerning the renting
of the Demised Premises. Tenant agrees to hold Landlord harmless against any
claims for a brokerage commission arising out of any conversations or
negotiations had by Tenant with any broker.
14. All the terms, covenants and conditions of the Lease, as amended,
remain the same and continue in full force and effect, except as said terms,
covenants and conditions have been modified by the First Amendment to Lease
and this Second Amendment to Lease.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals and caused these presents to be signed by the proper corporate officers
and the proper corporate seal to be hereunto affixed, the day and year first
above written.
PRIOR LANDLORD:
METRO FOUR ASSOCIATES LIMITED
PARTNERSHIP
WITNESS: a New Jersey Limited Partnership,
/s/ Dominick Alfieri
- -------------------------- -----------------------------------
By: DOMINICK ALFIERI,
General Partner
LANDLORD:
THORNALL ASSOCIATES
WITNESS: a New Jersey Limited Partnership,
/s/ Dominick Alfieri
- -------------------------- -----------------------------------
By: DOMINICK ALFIERI,
General Partner
TENANT:
DIGITRAN CORP.,
ATTEST: a Delaware Corporation
/s/ Peter S. Macaluso
- -------------------------- -----------------------------------
By: PETER S. MACALUSO
TITLE: Vice President and CFO
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<PAGE>
EXHIBIT A
Exhibit A is a floor plan of premises.
<PAGE>
THORNALL ASSOCIATES, AS LANDLORD
DIGITRAN, AS TENANT
EXHIBIT C
LANDLORD'S WORK
1. HVAC - Perimeter baseboard electric heat, central high velocity fan
system with Barber Coleman mixing boxes, featuring return heat of light
recaptured. System utilizes a minimum of 10% to a maximum of 100% fresh
air to maintain no less than 68 degrees interior at zero degrees
exterior, with a 15-mile per hour wind. Air cooling shall maintain no
more than 78 degrees F dry bulb with approximately 50% relative humidity
when the outdoor conditions are 91 degrees F dry bulb. Dual system -
building standard. The above standard is for normal office use only
which shall be deemed to be one person for every 200 sq. ft. in any
given or confined area which shall not include areas with special HVAC
requirements such as computer rooms, conference rooms, cafeterias, high
density or excessive heat producing equipment. Perimeter baseboard
electric heat is used during winter operations and an air cooling system
is utilized during summer operations.
One (1) diffuser per 250 sq. ft. of usable area
2. Window covering - one (1) building-standard venetian blind per window.
3. Landlord shall deliver the Demised Premises in accordance with plans as
noted in Exhibit A dated April 14, 1995 and Exhibit B dated April 14,
1995. The Landlord will deliver the demised space in an "as is"
condition except as noted in Article 6 contained herein.
4. Landlord shall permit Tenant and/or its agents or labor to enter the
Premises prior to the Commencement Date of the Lease upon prior
reasonable written request from Tenant, at a time designated by Landlord
consistent with Landlord's construction schedule in order to install
telephone outlets and data lines. The foregoing right to enter prior to
the Commencement Date, however, is conditioned upon Tenant's not
interfering with Landlord's labor. If at any time such entry shall
cause disharmony, interference, or union disputes of any nature
whatsoever, or if Landlord shall, in Landlord's sole judgment, determine
that such entry, such work and the continuance thereof shall interfere
with, hamper or prevent Landlord from proceeding with the completion of
the Demised Premises at the earliest possible date, this right of entry
may be withdrawn by Landlord immediately upon written notice to Tenant
but shall be reinstated as soon as Landlord deems Tenant's re-entry
practicable. Such entry shall be at Tenant's sole risk. In the event
that Tenant's agents or labor incur any charges from Landlord including
but not limited to, charges for clean-up costs necessitated by
<PAGE>
Tenant's entry, such charges shall be deemed an obligation of Tenant and
shall be collectible as additional rent pursuant to the Lease. Landlord
shall have not liability for any furnishings, equipment or other items
placed in the Demised Premises and Tenant shall indemnify, defend and hold
Landlord harmless for any damage, loss or expense caused by it or its
contractors or agents. Tenant must also provide evidence of insurance
in accordance with the Lease and evidence of Worker's Compensation
Insurance to protect Landlord and Tenant during the period of Tenant's
entry prior to the Commencement Date.
5. At any time after substantial completion of Landlord's Work, Landlord,
upon reasonable notice to Tenant, may enter the Demised Premises to
complete unfinished details of Landlord's Work and entry by Landlord,
its agents, servants, employees or contractors for such purpose shall
not constitute an actual or constructive eviction, in whole or in part,
or entitle Tenant to any abatement of rent, or relieve Tenant from any
of its obligations under this Lease, or impose any liability upon
Landlord or its agents.
6. The Landlord will deliver the space with the lighting in good working
order.
<PAGE>
EXHIBIT 10.11
CREDIT AGREEMENT
Dated as of July 7, 1995
between
DIGITRAN CORPORATION
and
SILICON VALLEY BANK
--------------------------
Line of Credit Loans
$1,000,000
--------------------------
<PAGE>
CREDIT AGREEMENT
TABLE OF CONTENTS
Page
----
Preamble
Section 1 Line of Credit Loans
1.1 Amount . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Line of Credit Note. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Requests For Line of Credit Loans . . . . . . . . . . . . . . . . . . . 1
1.4 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Maturity Date of Line of Credit Loans . . . . . . . . . . . . . . . . . 1
1.6 Termination of Commitment . . . . . . . . . . . . . . . . . . . . . . . 1
1.7 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2 Interest Rates; Payments and Optional Prepayments
2.1 Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Manner and Place of Payment . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Payments Due on Saturdays, Sundays and Holidays . . . . . . . . . . . . 2
2.4 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3 Security
3.1 Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 4 Conditions Precedent
4.1 This Agreement, the Note and the Security Instruments . . . . . . . . . 3
4.2 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.3 Correctness of Representations . . . . . . . . . . . . . . . . . . . . 3
4.4 Opinion of Counsel for the Borrower . . . . . . . . . . . . . . . . . . 3
4.5 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . 3
4.6 Filing of Financing Statements, etc. . . . . . . . . . . . . . . . . . 4
4.7 Supporting Documents . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.8 Loan Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.9 Compliance and Borrowing Base Certificates . . . . . . . . . . . . . . 4
4.10 Accounts Receivable Audit . . . . . . . . . . . . . . . . . . . . . . . 4
4.11 Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 5 Representations and Warranties
5.1 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.2 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.3 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . 5
5.4 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.5 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . 5
5.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 5
<PAGE>
-ii-
5.7 No Material Change . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.9 Compliance with Other Instruments: Compliance with Law . . . . . . . . 6
5.10 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.11 Investment Company Status; Limits on Ability to Incur Indebtedness. . . 6
5.12 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.16 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.17 Borrowing Base. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6 Affirmative Covenants
6.1 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Taxes and Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.4 Financial Statements, Etc. . . . . . . . . . . . . . . . . . . . . . . 8
6.5 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . 9
6.7 ERISA Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.8 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.9 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.11 Depository Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.12 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.13 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7 Negative Covenants
7.1 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
7.2 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . .11
7.3 Consolidation, Merger or Acquisition . . . . . . . . . . . . . . . . .12
7.4 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . .12
7.5 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
7.6 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
7.7 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . .13
7.8 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
7.9 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.10 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.11 Additional Stock Issuance by Subsidiaries . . . . . . . . . . . . . . 14
7.12 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.13 Quick Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.14 Minimum Profitability . . . . . . . . . . . . . . . . . . . . . . . . 14
7.15 Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.16 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8 Events of Default
8.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
<PAGE>
-iii-
8.2 Remedies Upon an Event of Default. . . . . . . . . . . . . . . . . . . .16
Section 9 Definition
9.1 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 10 Miscellaneous
10.1 Accounting Terms and Definitions. . . . . . . . . . . . . . . . . . . . 23
10.2 Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.3 Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.4 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.5 Right of Set-off. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.6 Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . 24
10.7 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.8 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.9 Governing law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.10 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.11 Venue, Consent to Service of Process. . . . . . . . . . . . . . . . . . 25
10.12 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Exhibits
A - Line of Credit Note
B - Security Agreement
C - Compliance Certificate
D - Borrowing Base Certificate
E - Borrowing Certificate
Schedules
A - Disclosure Schedule
B - Intellectual Property
7.2 Transactions with Affiliates
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of July 7, 1995 by and between DIGITRAN
CORPORATION, a Delaware corporation with its principal place of business at 379
Thornall Street, Edison, New Jersey 08837 (the "BORROWER") and SILICON VALLEY
BANK, a California-chartered bank, with its principal place of business at 3000
Lakeside Drive, P.O. Box 3762, Santa Clara, California 95054 with a loan
production office located at Wellesley Office Park, 45 William Street,
Wellesley, Massachusetts 02181 doing business under the name Silicon Valley East
(the "BANK").
SECTION 1 LINE OF CREDIT LOANS.
1.1 AMOUNT. Subject to and upon the terms and conditions set
forth below, the Bank agrees to make loans (each a "LINE OF CREDIT LOAN" and
collectively, the "LINE OF CREDIT LOANS") to the Borrower under this Section 1
from time to time to and including the date which is one year from the date set
forth above (the "COMMITMENT EXPIRATION DATE"), unless earlier terminated
pursuant to Section 1.6, in an aggregate principal amount not to exceed at any
one time outstanding the sum of $1,000,000 (the "LINE OF CREDIT COMMITMENT"),
subject to the limitation set forth in Section 1.4. Within the limit of the Line
of Credit Commitment, the Borrower may borrow, repay and reborrow at any time or
from time to time until the Commitment Expiration Date, or the termination of
the Line of Credit Commitment, whichever occurs earlier.
1.2 LINE OF CREDIT NOTE. The Line of Credit Loans shall be
evidenced by and payable with interest in accordance with the note of the
Borrower in the form of attached EXHIBIT A, dated today's date (the "NOTE").
1.3 REQUESTS FOR LINE OF CREDIT LOANS. Whenever the Borrower
desires to obtain a Line of Credit Loan, it shall notify the Bank by telex,
telecopy or telephone received no later than 1:00 p.m. (Boston time) one Banking
Day before the day on which the requested Line of Credit Loan is to be made.
Such notice shall specify the effective date and the amount of such Loan. Each
such notice (a "NOTICE OF BORROWING") shall be irrevocable and shall be
immediately followed by a written Borrowing Certificate by the Borrower
substantially in the form of attached EXHIBIT E, provided, if such written
confirmation differs in any material respect from the action taken by the Bank,
the records of the Bank shall control absent manifest error. The Bank shall
make such Line of Credit Loan by crediting its amount in immediately available
funds to the Borrower's regular deposit account with the Bank.
1.4 BORROWING BASE. The Borrower shall not permit, or request
any advance hereunder that would cause, the sum of the aggregate unpaid
principal amount of all Line of Credit Loans under this Line of Credit
Commitment (the "EXTENSIONS OF CREDIT"), to exceed at any time an amount equal
to the lesser of (i) the Line of Credit Commitment or (ii) 50% of all Eligible
Domestic Accounts Receivable at such time (such lesser amount, the "BORROWING
BASE").
1.5 MATURITY DATE OF LINE OF CREDIT LOANS. All Line of Credit
Loans shall mature and the total unpaid principal amount thereunder shall be due
and payable on July 7, 1996 (the "MATURITY DATE"), at which time all amounts
advanced under this Section 1 shall be immediately due and payable.
1.6 TERMINATION OF COMMITMENT. The Borrower, upon (a) at least
two (2) Banking Days' prior written notice to the Bank and (b) the repayment in
full of the outstanding principal balance of the Line of Credit Loans (and
accrued interest thereon) and the payment in full of any expenses or other fees
owed by the Borrower to the Bank under or pursuant to this Agreement, may elect
to permanently terminate the Line of Credit Commitment.
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1.7 COMMITMENT FEE. The Borrower agrees to pay the Bank a
commitment fee (the "Commitment Fee") for the period commencing on the date
hereof and including the Maturity Date (or such earlier date as the Line of
Credit Commitment shall have been terminated) computed at a rate equal to 1/2 of
1% per annum on the average daily unused portion of the Line of Credit
Commitment. Accrued Commitment Fees shall be due and payable quarterly in
arrears on the last Banking Day of July and October 1995 and January and April
1996, respectively.
<PAGE>
SECTION 2 INTEREST RATES; PAYMENTS AND OPTIONAL PREPAYMENTS.
2.1 INTEREST RATES.
(a) The Borrower agrees to pay interest on the unpaid principal
amount of each Line of Credit Loan for each day from and including the date such
Line of Credit Loan was made to but excluding the date the principal on such
Line of Credit Loan is due (whether at maturity, by acceleration or otherwise),
at a fluctuating rate per annum equal to the Prime Rate plus 2%, which interest
rate shall change when the Prime Rate shall change. Such interest shall be
payable monthly in arrears on the last day of each month commencing with the
first such date hereafter and when the principal amount of such Line of Credit
Loan is due (whether at maturity, by acceleration or otherwise).
(b) Any overdue principal or other payment with respect to any
Extension of Credit, including without limitation any overdue interest to the
extent permitted by law, shall, at the Bank's option, bear interest (after as
well as before judgment), payable on demand, for each day from and including the
date payment was due to but excluding the date of actual payment, at a
fluctuating rate per annum equal to the Prime Rate plus five (5) percent per
annum.
2.2 MANNER AND PLACE OF PAYMENT. All payments under this
Agreement or otherwise in respect of the Line of Credit Loans shall be made not
later than 2:00 p.m. (Boston time) on the date when due and shall be made in
immediately available funds at the Office of the Bank or by the Borrower's check
drawn on the depositary account(s) maintained by the Borrower with the Bank,
payable to the Bank or its order. All payments shall be made without setoff,
counterclaim, withholding or reduction of any kind whatsoever. Borrower will
regularly deposit funds received from its business activities in accounts
maintained by the Borrower at Bank's offices in California. Borrower hereby
requests and authorizes the Bank to debit any of Borrower's accounts with the
Bank, specifically, without limitation, Account Number 07-00347100, for payments
of interest and principal due on the Line of Credit Loans and any other
obligations owing by the Borrower to the Bank. The Bank will notify the
Borrower of all debits which the Bank makes against the Borrower's accounts.
Any such debits against the Borrower's accounts in no way shall be deemed a
set-off.
2.3 PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS. Whenever
any payment to be made hereunder or under the Note shall be due on a day which
is not a Banking Day, such payment may be made on the next succeeding Banking
Day, and such extension of time shall be included in computing any interest or
fees due.
2.4 OPTIONAL PREPAYMENTS. The Borrower shall have the right to
prepay the Line of Credit Loans in whole or in part, without premium or penalty,
at any time and from time to time, provided that at the time of the prepayment
in full of all Extensions of Credit, the Borrower shall pay all interest accrued
on the amount prepaid. Principal amounts repaid or prepaid under the Note or
under the Line of Credit Commitment may be reborrowed by the Borrower subject to
the terms hereof; PROVIDED, HOWEVER, that any funds repaid or prepaid on or
after the earlier to occur of (a) the Commitment Expiration Date or (b) the
termination of the Line of Credit Commitment pursuant to Section 1.6 hereof, may
not be reborrowed or readvanced thereafter.
<PAGE>
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2.5 CAPITAL REQUIREMENTS. If the Bank shall determine that the
adoption or implementation after the date hereof of any applicable law, rule,
regulation or treaty regarding capital adequacy, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank (or its applicable lending
office) with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on capital
of the Bank or any Person controlling the Bank (a "PARENT") as a consequence of
its obligations hereunder to a level below that which the Bank (or its Parent)
could have achieved but for such adoption, change or compliance (taking into
consideration its policies with respect to capital adequacy) by an amount deemed
by the Bank to be material, then from time to time, within 15 days after demand
by the Bank the Borrower shall pay to the Bank such additional amount or amounts
as will compensate the Bank for such reduction. A statement of the Bank
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive absent manifest error;
PROVIDED that the determination thereof is made on a reasonable basis.
SECTION 3 SECURITY.
3.1 SECURITY INTERESTS. The Borrower agrees to grant to the
Bank a security interest in, and a lien on, all right, title and interest of the
Borrower in and to all assets of the Borrower and to enter a Security Agreement
in favor of the Bank in the form of EXHIBIT B hereto (the "SECURITY AGREEMENT")
in order to secure payment and performance of the Borrower's obligations to the
Bank under this Agreement, the Note and the other Loan Documents.
SECTION 4 CONDITIONS PRECEDENT.
The Bank shall not be obligated to make any Extensions of Credit to the
Borrower hereunder until the following conditions have been satisfied:
4.1 THIS AGREEMENT, THE NOTE AND THE SECURITY INSTRUMENTS. This
Agreement, the borrowings hereunder, the Note, the Security Instruments and all
transactions contemplated by this Agreement and the Security Instruments shall
have been duly authorized by the Borrower. The Borrower shall have duly
executed and delivered to the Bank this Agreement, the Note and the Security
Instruments to the Bank in form and substance satisfactory to the Bank and its
counsel.
4.2 NO DEFAULT. On the date hereof and on the date of the
making of each Extension of Credit, no Default or Event of Default shall have
occurred and be continuing.
4.3 CORRECTNESS OF REPRESENTATIONS. On the date hereof and on
the date of each Extension of Credit, all representations and warranties made by
the Borrower in Section 5 below or otherwise in writing in connection herewith
shall be true and correct with the same effect as though such representations
and warranties had been made on and as of today's date, except that
representations and warranties expressly limited to a certain date shall be true
and correct as of that date.
4.4 OPINION OF COUNSEL FOR THE BORROWER. On the date hereof,
the Bank shall have received the favorable opinion of Brobeck, Phleger &
Harrison, counsel for the Borrower, in form and substance satisfactory to the
Bank and its counsel.
4.5 GOVERNMENTAL APPROVALS. On the date hereof and on the date
of each Extension of Credit, all necessary approvals, licenses, permissions,
registrations or validations of any Governmental Authority required for the
execution, delivery, performance or carrying out of the provisions of this
Agreement, the Note and the
<PAGE>
-4-
Security Instruments, or for the validity or enforceability of the obligations
incurred thereunder (other than the filing of financing statements as required
under Section 4.6 below), shall have been obtained and shall be in full force
and effect and copies thereof certified by a duly authorized officer of the
Borrower to such effect shall have been delivered to the Bank.
4.6 FILING OF FINANCING STATEMENTS, ETC. On or before the
making of the Line of Credit Loans, financing statements, and other appropriate
documentation relating to the security interests and rights granted pursuant to
the Security Instruments, executed and delivered by the Borrower to the Bank,
shall have been duly recorded or filed in such manner and in such places as is
required by law (including, pursuant to the UCC) to establish, preserve,
protect, and perfect such security interests and rights; and all taxes, fees and
other charges in connection with the execution, delivery and filing of this
Agreement and such financing statements and other appropriate documentation
shall have been duly paid.
4.7 SUPPORTING DOCUMENTS. On or before the date hereof, there
shall have been delivered to the Bank the following supporting documents:
(a) legal existence and corporate good standing certificates
with respect to the Borrower dated as of a recent date issued by the Secretary
of State for Delaware or other officials;
(b) certificates dated as of a recent date with respect to the
due qualification of the Borrower to do business in New Jersey issued by the
Secretary of State of New Jersey;
(c) copies of the corporate charter of the Borrower, certified
by the appropriate Secretaries of State or other officials, as in effect on the
date hereof;
(d) a certificate of the Secretary or Assistant Secretary of the
Borrower certifying as to (i) the By-Laws of the Borrower, as in effect on the
date hereof; (ii) the incumbency and signatures of the officers of the Borrower
who have executed any documents in connection with the transactions contemplated
by this Agreement; and (iii) the resolutions of the Board of Directors and, to
the extent required by law, the shareholders, of the Borrower authorizing the
execution, delivery and performance of this Agreement and the making of the Line
of Credit Loans hereunder, and the execution and delivery of the Note; and
(e) all other information and documents which the Bank or its
counsel may request in connection with the transactions contemplated by this
Agreement.
4.8 LOAN FEE. The Borrower shall have paid a nonrefundable fee
to the Bank in the amount of $10,000, as well as all actual and reasonable fees
and disbursements incurred in connection with the preparation of this Agreement
and the other Loan Documents by Sullivan & Worcester, special counsel to the
Bank.
4.9 COMPLIANCE AND BORROWING BASE CERTIFICATES. The Borrower
shall have furnished to the Bank a Compliance Certificate in the form of
attached EXHIBIT C appropriately completed and signed by the chief financial
officer of the Borrower, and to the extent the Borrower is requesting an
Extension of Credit on the date hereof, a Borrowing Base Certificate in the form
of EXHIBIT D hereto appropriately completed and signed by the chief financial
officer or president of the Borrower, each of which certificates shall reflect
compliance by the Borrower with the requirements of this Credit Agreement.
4.10 ACCOUNTS RECEIVABLE AUDIT. The Bank shall have received the
results of an accounts receivable audit satisfactory to the Bank in all
respects.
<PAGE>
-5-
4.11 LEGAL MATTERS. All documents and legal matters incident to
the transactions contemplated by this Agreement shall be satisfactory to
Sullivan & Worcester, special counsel for the Bank.
Each borrowing hereunder shall constitute a representation and warranty by
the Borrower to the Bank that all of the conditions specified in this Section 4
have been complied with as of the time of any such Borrower Loan.
SECTION 5 REPRESENTATIONS AND WARRANTIES.
In order to induce the Bank to enter into this Agreement and to make the
contemplated Extensions of Credit, the Borrower hereby represents and warrants
as follows (except to the extent qualified by supplemental disclosure set forth
on SCHEDULE A hereto) and the following representations and warranties as so
qualified shall survive the execution and delivery of this Agreement and any of
the Line of Credit Loans:
5.1 CORPORATE STATUS. The Borrower and each of its Subsidiaries
(if any) is a duly organized and validly existing corporation in good standing
under the laws of the jurisdiction of its incorporation and is duly qualified or
licensed as a foreign corporation in good standing in each jurisdiction in which
the failure to do so would have a Material Adverse Effect.
5.2 NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or any other Loan Document, nor consummation of
the contemplated transactions will contravene any law, statute, rule or
regulation to which the Borrower or any of its Subsidiaries is subject or any
judgment, decree, franchise, order or permit applicable to the Borrower or any
of its Subsidiaries, or will conflict or be inconsistent with or will result in
any breach of, or constitute a default under, or result in or require the
creation or imposition of any Lien (other than the lien created by the Security
Instruments) upon any of the property or assets of the Borrower or any of its
Subsidiaries pursuant to, any Contractual Obligation of the Borrower or any of
its Subsidiaries, or violate any provision of the corporate charter or by-laws
of the Borrower or any of its Subsidiaries.
5.3 CORPORATE POWER AND AUTHORITY. The execution, delivery and
performance of this Agreement and the other Loan Documents are within the
corporate powers of the Borrower and have been duly authorized by all necessary
corporate action.
5.4 ENFORCEABILITY. This Agreement and each other Loan Document
constitutes a valid and binding obligation of the Borrower enforceable against
the Borrower in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and subject to general
principles of equity, whether applied in a court of equity or at law.
5.5 GOVERNMENTAL APPROVALS. No order, permission, consent,
approval, license, authorization, registration or validation of, or filing with,
or exemption by, any Governmental Authority is required to authorize, or is
required in connection with, the execution, delivery and performance of this
Agreement or any other Loan Document by the Borrower, or the taking of any
action contemplated hereby or thereby, except for the filing of UCC-1 financing
statements in the appropriate UCC filing offices listed on the Perfection
Certificate (as defined in the Security Agreement).
5.6 FINANCIAL STATEMENTS. (a) The Borrower has furnished the
Bank with complete and correct copies of the audited consolidated balance sheet
of the Borrower and its Subsidiaries as of the Financial Statements Date, and
the related audited consolidated statements of income and of cash flows for the
fiscal year of the Borrower and its Subsidiaries ended on such date, examined by
the Accountants. Such financial statements (including the related schedules and
notes) fairly present the consolidated financial condition of the Borrower and
its Subsidiaries
<PAGE>
-6-
as of the Financial Statements Date, and the consolidated results of their
operations and their consolidated cash flows for the fiscal year then ended.
(b) Neither the Borrower nor any of its Subsidiaries has any
material liabilities, contingent or otherwise, including liabilities for taxes
or any unusual forward or long-term commitments or any Guarantee, which are not
disclosed by or included in the above-referenced financial statements or the
accompanying notes and there are no unrealized or anticipated losses from any
unfavorable commitments of the Borrower or any of its Subsidiaries which may
have a Material Adverse Effect. During the period from the Financial Statements
Date to the date hereof: (i) there has been no sale, transfer or other
disposition by the Borrower or any of its Subsidiaries of any material part of
its business or property and no purchase or other acquisition of any business or
property (including any capital stock of any Person) material in relation to the
consolidated financial condition of the Borrower and its Subsidiaries at the
Financial Statements Date; and (ii) neither the Borrower nor any of its
Subsidiaries has made a Restricted Payment, or agreed or committed to make a
Restricted Payment.
(c) All the above-referenced financial statements (including the
related schedules and notes) have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by the
Accountants and disclosed therein and, in the case of interim financial
statements, subject to normal year-end adjustments and the absence of footnotes
and schedules).
5.7 NO MATERIAL CHANGE. Since the Financial Statements Date
there has been no development or event, nor to the best knowledge of the
Borrower, any prospective development or event, which has had or could have a
Material Adverse Effect.
5.8 LITIGATION. There are no actions, suits or proceedings
pending or threatened against or affecting the Borrower or any of its
Subsidiaries before any Governmental Authority, which in any one case or in the
aggregate, if determined adversely to the interests of the Borrower or any
Subsidiary thereof, would have a Material Adverse Effect.
5.9 COMPLIANCE WITH OTHER INSTRUMENTS: COMPLIANCE WITH LAW.
Neither the Borrower nor any Subsidiary thereof is in default under (a) any
Contractual Obligation, where such default could have a Material Adverse Effect,
or (b) the terms of any Contractual Obligation relating to any Indebtedness of
the Borrower or such Subsidiary in excess of $25,000. Neither the Borrower nor
any Subsidiary thereof is in default and or in violation of any applicable
statute, rule, writ, injunction, decree, order or regulation of any Governmental
Authority having jurisdiction over the Borrower or any Subsidiary thereof which
default or violation could have a Material Adverse Effect.
5.10 SUBSIDIARIES. The Borrower has no Subsidiaries at the date
hereof.
5.11 INVESTMENT COMPANY STATUS; LIMITS ON ABILITY TO INCUR
INDEBTEDNESS. Neither the Borrower nor any of its Subsidiaries is an
"investment company" or a company "controlled by" an investment company within
the meaning of the Investment Company Act of 1940, as amended. The Borrower is
not subject to regulation under any Federal or State statute or regulation which
limits its ability to incur Indebtedness.
5.12 TITLE TO PROPERTY. The Borrower and each of its
Subsidiaries has good and marketable title to all of its properties and assets,
including the properties and assets reflected in the consolidated balance sheet
of the Borrower and its Subsidiaries as of the Financial Statements Date, except
such as have been disposed of since that date in the ordinary course of
business, and none of such properties or assets is subject to any Lien except
for (a) Permitted Liens, or (b) a defect in title or other claim other than
defects and claims that, in the aggregate, would have no Material Adverse
Effect. The Borrower and each of its Subsidiaries enjoys peaceful and
undisturbed
<PAGE>
-7-
possession under all leases necessary in any material respect for the operation
of its properties and assets, none of which contains any unusual or burdensome
provisions which might materially affect or impair such properties or assets.
All such leases are valid and subsisting and are in full force and effect.
5.13 ERISA. The Borrower and each member of the Controlled Group
have fulfilled their obligations under the minimum funding standards of ERISA
and the Code with respect to each Plan and are in compliance in all material
respects with the presently applicable provisions of ERISA and the Code, and
have not incurred any liability to the PBGC or a Plan under Title IV of ERISA
(other than to make contributions or premium payments in the ordinary course).
5.14 TAXES. All tax returns of the Borrower and its Subsidiaries
required to be filed have been timely filed, all taxes, fees and other
governmental charges (other than those being contested in good faith by
appropriate proceedings diligently conducted and with respect to which adequate
reserves have been established and, in the case of AD VALOREM taxes or
betterment assessments, no proceedings to foreclose any lien with respect
thereto have been commenced and, in all other cases, no notice of lien has been
filed or other action taken to perfect or enforce such lien) shown thereon which
are payable have been paid. The charges and reserves on the books of the
Borrower and its Subsidiaries for all income and other taxes are adequate, and
the Borrower knows of no additional assessment or any basis therefor. The
Federal income tax returns of the Borrower and its Subsidiaries have not been
audited within the last three years, all prior audits have been closed, and
there are no unpaid assessments, penalties or other charges arising from such
prior audits.
5.15 ENVIRONMENTAL MATTERS. (a) The Borrower and each of its
Subsidiaries have obtained all Governmental Approvals that are required for the
operation of its business under any Environmental Law, except where the failure
to so obtain a Governmental Approval would not have a Material Adverse Effect.
(b) The Borrower and each of its Subsidiaries are in compliance
with all terms and conditions of all required Governmental Approvals and are
also in compliance with all terms and conditions of all applicable Environmental
Laws, noncompliance with which would have a Material Adverse Effect.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding, notice
or demand letter pending or, to the best knowledge of the Borrower threatened
against the Borrower or any Subsidiary thereof relating in any way to the
Environmental Laws, and there is no Lien of any private entity or Governmental
Authority against any property of the Borrower or any Subsidiary thereof
relating in any way to the Environmental Laws.
(d) There has been no claim, complaint, notice, or request for
information received by the Borrower with respect to any site listed on the
National Priority List promulgated pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") 42 USC Section 9601 ET SEQ.
or any state list of sites requiring investigation or cleanup with respect to
contamination by Hazardous Substances.
(e) To the best of the Borrower's knowledge, there has been no
release or threat of release of any Hazardous Substance at any Borrower Property
which would likely result in liability being imposed upon the Borrower or any
Subsidiary thereof, which liability would have a Material Adverse Effect.
5.16 INTELLECTUAL PROPERTY. Schedule B lists all of the
copyrights, patents, trademarks and similar rights which are registered with or
granted by an agency of the United States ("INTELLECTUAL PROPERTY") owned by the
Borrower and its Subsidiaries as of the date hereof, together with information,
where applicable, as to registration number, filing date, record owner and
remaining life. Except as set forth in SCHEDULE B, the Borrower or a Subsidiary
thereof is the absolute owner of all right, title and interest in the
Intellectual Property, free and clear of all Liens in favor of other Persons
with full right to pledge, sell, assign, transfer and grant a security interest
therein.
<PAGE>
-8-
The Borrower and each of its Subsidiaries owns or possesses such Intellectual
Property and similar rights necessary for the conduct of its business as now
conducted, without any known conflict with the rights of others which would have
a Material Adverse Effect.
5.17 BORROWING BASE. Giving effect to any Extensions of Credit
to be made as of the date hereof under this Agreement, the aggregate amount of
all Extensions of Credit under this Agreement does not exceed the Borrowing Base
on the date hereof.
SECTION 6 AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that for so long as this Agreement is in
effect and until the Note, together with all interest thereon and all other
Obligations of the Borrower to the Bank are paid or satisfied in full:
6.1 MAINTENANCE OF EXISTENCE. The Borrower will, and will cause
each of its Subsidiaries to, maintain its existence and comply with all
applicable statutes, rules and regulations and to remain duly qualified as a
foreign corporation, licensed and in good standing in each jurisdiction where
such qualification or licensing is required by the nature of its business, the
character and location of its property, business, or the ownership or leasing of
its property, except where such noncompliance or failure to so qualify would not
have a Material Adverse Effect, and the Borrower will, and will cause each of
its Subsidiaries to, maintain its properties in good operating condition, and
continue to conduct its business as presently conducted.
6.2 TAXES AND OTHER LIENS. The Borrower will, and will cause
each of its Subsidiaries to, pay when due all taxes, assessments, governmental
charges or levies, or claims for labor, supplies, rent and other obligations
made against it which, if unpaid, might become a Lien against the Borrower or
such Subsidiary or on its property, except liabilities being contested in good
faith and by proper proceedings, as to which adequate reserves are maintained on
the books of the Borrower or its Subsidiaries, in accordance with GAAP.
6.3 INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, maintain insurance with financially sound and reputable
insurance companies in such amounts and against such risks as is usually carried
by owners of similar businesses and properties in the same general areas in
which the Borrower and its Subsidiaries operate, provided that in any event the
Borrower and its Subsidiaries shall maintain or cause to be maintained (a)
insurance against casualty, loss or damage covering all property and
improvements of the Borrower and its Subsidiaries in amounts and in respect of
perils usually carried by owners of similar businesses and properties in the
same general areas in which Borrower and its Subsidiaries operate; (b)
comprehensive general liability insurance against claims for bodily injury,
death or property damage; and (c) workers' compensation insurance to the extent
required by applicable law. In the case of policies referenced in clauses (a)
and (b) above, all such insurance shall (i) name the Borrower and the Bank as
loss payees and additional insureds as their interests may appear; (ii) provide
that no termination, cancellation or material reduction in the amount or
material modification to the extent of coverage shall be effective until at
least 30 days after receipt by the Bank of notice thereof; and (iii) be
reasonably satisfactory in all other respects to the Bank.
6.4 FINANCIAL STATEMENTS, ETC. The Borrower will furnish to the
Bank:
(a) within twenty-eight (28) days after the end of each calendar
month (including the last month of the fiscal year), the unaudited consolidated
balance sheet and income statement of the Borrower and its Subsidiaries as at
the end of, and for, such month (provided, however, that in the case of
financial statements for the last month of any fiscal quarter, such financial
statements shall include an income statement for such fiscal quarter),
accompanied by a certificate of the chief financial officer of the Borrower to
the effect that such financial statements fairly present the consolidated
financial condition of the Borrower and its Subsidiaries as of the end of
<PAGE>
-9-
such month, and the consolidated results of their operations for such month, in
each case in accordance with GAAP (except for the absence of footnotes)
consistently applied (subject to normal year-end audit adjustments);
(b) within one hundred five (105) days after the last day of
each fiscal year of the Borrower, the audited consolidated balance sheet and
income statement and statement of cash flows of the Borrower and its
Subsidiaries as at and for the fiscal year then ended, certified by the
Accountants (the substance of such report to be satisfactory to the Bank),
together with a certificate of the chief financial officer of the Borrower to
the effect that such financial statements fairly present the consolidated
financial condition of the Borrower and its Subsidiaries as of the end of such
fiscal year, and the consolidated results of their operations for such fiscal
year, in each case in accordance with GAAP. The Borrower shall indicate on said
financial statements all guarantees or unusual forward or long-term commitments
made by the Borrower or any Subsidiary thereof;
(c) at the time of the delivery of the monthly and yearly
financial statements required by paragraphs (a) and (b) above, a Compliance
Certificate signed by the chief financial officer or the president of the
Borrower in the form attached to this Agreement as EXHIBIT C, appropriately
completed;
(d) within fifteen (15) days after the end of each fiscal month
of the Borrower, (i) a list of the accounts receivable aging and payables aging
for the Borrower as of the end of such month in such form as the Bank may
prescribe, all in reasonable detail and (ii) a Borrowing Base Certificate signed
by the chief financial officer or the president of the Borrower in the form
attached to this Agreement as EXHIBIT D appropriately completed;
(e) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports, proxy
statements and other materials;
(f) promptly upon request by the Bank, copies of any management
letter provided by the Accountants;
(g) promptly upon the filing thereof by the Borrower with the
SEC (and in any event within ten (10) days of such filing), copies of any
registration statements and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents if such forms no longer exist);
(h) promptly upon becoming aware of any litigation or other
proceeding against the Borrower or any Subsidiary thereof that may have a
Material Adverse Effect, notice thereof; and
(i) promptly following the request of the Bank, such further
information concerning the business, affairs and financial condition or
operations of the Borrower and its Subsidiaries as the Bank may reasonably
request.
6.5 NOTICE OF DEFAULT. As soon as practicable, and in any
event, within three (3) Banking Days of becoming aware of the existence of any
condition or event which constitutes a Default, the Borrower will provide the
Bank with written notice specifying the nature and period of existence thereof
and what action the Borrower is taking or proposes to take with respect thereto.
6.6 ENVIRONMENTAL MATTERS.
(a) The Borrower and each of its Subsidiaries shall comply with
all terms and conditions of all applicable Governmental Approvals and all
applicable Environmental Laws, except where failure to comply would not have a
Material Adverse Effect.
(b) The Borrower shall promptly notify the Bank should the
Borrower become aware of:
<PAGE>
-10-
(i) any spill, release, or threat of release of any
Hazardous Substance at or from any Borrower Property or by any Person for
whose conduct the Borrower or any Subsidiary thereof is responsible, to the
extent the Borrower is required by Environmental Laws to report such to any
Governmental Authority;
(ii) any action or notice with respect to a civil, criminal
or administrative action, suit, demand, claim, hearing, notice of
violation, investigation, proceeding, notice or demand letter pending or
threatened against the Borrower or any Subsidiary thereof relating in any
way to the Environmental Laws, or any Lien of any Governmental Authority or
any other Person against any Borrower Property relating in any way to the
Environmental Laws;
(iii) any claim made or threatened by any Person against the
Borrower or any Subsidiary thereof or any property of the Borrower or any
Subsidiary thereof relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Substance
pertaining to such property or the business or operations of the Borrower
or such Subsidiary; and
(iv) any occurrence or condition on any real property
adjoining or in the vicinity of any Borrower Property known to the officers
or supervisory personnel of the Borrower or any Subsidiary thereof or other
employees having responsibility for the compliance by the Borrower or any
Subsidiary thereof with Environmental Laws, without any independent
investigation, which does cause, or could cause, such Borrower Property, or
any part thereof, to contain Hazardous Substances in violation of any
Environmental Laws, or which does cause, or could cause, such Borrower
Property to be subject to any restrictions on the ownership, occupancy,
transferability or use thereof by the Borrower or any Subsidiary thereof.
(c) The Borrower will, and will cause each of its Subsidiaries
to, at its own cost and expense, and within such period as may be required by
applicable law or regulation, initiate all remedial actions and thereafter
diligently prosecute such action as shall be required by law for the cleanup of
such Borrower Property, including all removal, containment and remedial actions
in accordance with all applicable Environmental Laws and shall further pay or
cause to be paid, at no expense to the Bank, all cleanup, administrative, and
enforcement costs of applicable Government Authorities which may be asserted
against such Borrower Property.
6.7 ERISA INFORMATION. If and when the Borrower or any member
of the Controlled Group (a) gives or is required to give notice to the PBGC of
any "reportable event" (as defined in Section 4043 of ERISA) with respect to any
Plan which might constitute grounds for a termination of such Plan under Title
IV of ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, (b) receives notice of
complete or partial withdrawal liability under Title IV of ERISA or (c) receives
notice from the PBGC under Title IV of ERISA of an intent to terminate or
appoint a trustee to administer the Plan, the Borrower shall in each such
instance promptly furnish to the Bank a copy of any such notice.
6.8 INSPECTION. The Borrower will, upon the request of the
Bank, permit a representative of the Bank to discuss its affairs, finances and
accounts with its officers and accountants, at such reasonable times and as
often as the Bank may reasonably request and cause each of its Subsidiaries to
do so. In addition, the Borrower shall permit a representative of the Bank
(including any field examiner or auditor retained by the Bank) to conduct, or
cause to be conducted, at the Borrower's expense, an audit of the Borrower's
accounts receivable and to make copies of the Borrower's books and records twice
during each year commencing on the date hereof and the anniversary of such date,
as the case may be, (the "Applicable Date") and ending on the next anniversary
of the Applicable Date, provided, however, as long as an Event of Default has
occurred and is continuing such audits and may be conducted at more frequent
intervals as determined by the Bank.
<PAGE>
-11-
6.9 USE OF PROCEEDS. The Borrower shall use the proceeds of the
borrowings under the Note for the working capital purposes of the Borrower.
Without limiting the foregoing, no part of such proceeds will be used for the
purpose of purchasing or carrying any "margin security" as such term is defined
in Regulation U of the Board of Governors of the Federal Reserve System.
6.10 FURTHER ASSURANCES. The Borrower will, and will cause each
of its Subsidiaries to, execute and deliver to the Bank any writings and do all
things necessary, effectual or reasonably requested by the Bank to carry into
effect the provisions and intent of this Agreement or any other Loan Document.
6.11 DEPOSITORY ACCOUNTS. The Borrower shall maintain its
primary operating deposit accounts at the offices of the Bank, and shall deposit
a portion (as agreed with the Bank, from time to time) of its excess cash with
the Bank in either a demand deposit account, a money market deposit account, or
certificates of deposit, or a combination thereof.
6.12 SUBSIDIARIES. The Borrower shall immediately notify the
Bank of the organization of any foreign or domestic Subsidiaries of the
Borrower. The Bank may require that any Subsidiary with total assets in excess
of $25,000) become a party to any of the Loan Documents as guarantors or
sureties and/or that the Borrower pledge the stock of any Subsidiary as
collateral for the Obligations of the Borrower.
6.13 INTELLECTUAL PROPERTY. The Borrower will promptly inform
the Bank of all applications filed by the Borrower for trademarks, patents and
copyrights and of all trademarks, patents and copyrights granted on or after the
date of this Agreement, and, upon the request of the Bank, will promptly execute
and deliver such forms of conditional assignment, mortgage, pledge and similar
documents as the Bank may reasonably require so as to ensure that the security
interests granted pursuant to the Security Instruments extend to and are
perfected in respect of such additional trademarks, patents and copyrights.
SECTION 7 NEGATIVE COVENANTS.
The Borrower covenants and agrees that for so long as this Agreement is in
effect and until the Note, together with all interest thereon and all other
Obligations of the Borrower to the Bank are paid or satisfied in full, without
the prior written consent of the Bank:
7.1 ERISA. The Borrower will not permit any pension plan
maintained by the Borrower or by any member of a "Controlled Group" (ERISA
Section 210(c) or ERISA Section 210(d)) of which the Borrower is a member to:
(a) engage in any "prohibited transaction" (ERISA Section 2003(c)); (b) fail to
report to the Bank a "reportable event" (ERISA Section 4043) within 30 days
after its occurrence or as to any reportable event as to which the 30-day notice
period requirement of Section 4043(b) of Title IV of ERISA has been waived by
the PBGC, within 30 days of such time as the Borrower is requested by the PBGC
to notify the PBGC of such reportable event; (c) incur any "accumulated funding
deficiency" (ERISA Section 302); (d) terminate its existence at any time in a
manner which could result in the imposition of a Lien (in an amount in excess or
5% of the consolidated total assets of the Borrower and its Subsidiaries) on the
property of the Borrower or any Subsidiary thereof; or (e) fail to report to the
Bank any "complete withdrawal" or "partial withdrawal" by the Borrower or an
affiliate from a "multiemployer plan" (ERISA Sections 4203, 4205, and 4001,
respectively). The quoted terms are defined in the respective sections of ERISA
cited above.
7.2 TRANSACTIONS WITH AFFILIATES. Except for transactions
disclosed in Schedule 7.2 attached hereto, the Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, pay any funds to or
for the account of, make any Investment in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, or engage in any transaction in
connection with any joint enterprise or other joint arrangement with, any
Affiliate of the Borrower, unless such transaction (a) is otherwise permitted
under this Agreement, (b) is in the
<PAGE>
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ordinary course of the Borrower's or such Subsidiary's business, and (c) is upon
fair and reasonable terms no less favorable to the Borrower or such Subsidiary
as those that could be obtained in a comparable arm's length transaction with a
Person not an Affiliate.
7.3 CONSOLIDATION, MERGER OR ACQUISITION. The Borrower will
not, and will not permit any of its Subsidiaries to, merge or consolidate with
or into any other Person, or make any acquisition of the business of any other
Person unless it obtains the prior written consent of the Bank; PROVIDED that
any Subsidiary may merge into Borrower or any wholly-owned Subsidiary of the
Borrower; and PROVIDED FURTHER that the Borrower or a Subsidiary may acquire the
business of another Person or merge with another Person as long as (a) no Event
of Default has occurred and is continuing or would otherwise result therefrom;
(b) the other Person is in the same or a related line of business; (c) the
Borrower or the Subsidiary is the surviving corporation, and (d) there would be
no resulting change in senior management of the Borrower or the Subsidiary.
7.4 DISPOSITION OF ASSETS. The Borrower will not, and will not
permit any of its Subsidiaries to, convey, sell, lease, transfer or otherwise
dispose of any of its property, business or assets (including, without
limitation, accounts receivable and leasehold assets), whether now owned or
hereafter acquired, except:
(a) obsolete or worn out property disposed of in the ordinary
course of business;
(b) the sale or other disposition of any property in the
ordinary course of business, PROVIDED that the aggregate book value of all
assets (other than inventory) so sold or disposed of in any period of
twelve consecutive months shall not exceed 5% of the consolidated total
assets of the Borrower and its Subsidiaries as at the beginning of such
twelve month period; and
(c) the sale of inventory in the ordinary course of business.
7.5 INDEBTEDNESS. The Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness payable to the Bank;
(b) existing Indebtedness, including Subordinated Debt, if any,
listed on SCHEDULE A hereto and any extensions, renewals or replacements
thereof, as long as the principal amount of such Indebtedness is not
increased;
(c) Subordinated Debt incurred by the Borrower after the date
hereof; PROVIDED that, after giving effect to the incurrence of such
Subordinated Debt and to the receipt and application of the proceeds
thereof, no Default shall have occurred and be continuing; and
(d) Purchase Money Indebtedness incurred by the Borrower after
the date hereof; PROVIDED that, after giving effect to the incurrence of
such Purchase Money Indebtedness and to the receipt and application of the
proceeds thereof, no Default shall have occurred and be continuing.
7.6 LIENS. The Borrower will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien on any of
its properties or assets, except the following (collectively, "PERMITTED
LIENS"):
(a) Liens for taxes not delinquent or being contested in good
faith and by proper proceedings, as to which adequate reserves are
maintained on the books of the Borrower or its Subsidiary in accordance
with GAAP;
<PAGE>
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(b) carriers', warehousemen's, mechanics', materialmen's or
similar liens imposed by law incurred in the ordinary course of business in
respect of obligations not overdue, or being contested in good faith and by
proper proceedings and as to which adequate reserves with respect thereto
are maintained on the books of the Borrower in accordance with GAAP;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other types of social security
legislation;
(d) security deposits made to secure the performance of leases,
licenses and statutory obligations incurred in the ordinary course of
business;
(e) Liens in favor of the Bank;
(f) existing Liens and any extensions, renewals and replacements
thereof, if any, listed on SCHEDULE A hereto; PROVIDED that no such Lien is
spread to cover any additional property after the date hereof, and that the
amount of the Indebtedness secured thereby is not increased;
(g) Purchase Money Security Interests made to secure such
Purchase Money Indebtedness incurred pursuant to Section 7.5 (d) hereof;
and
(h) Financing Statements filed pursuant to the Uniform
Commercial Code by the Borrower's lessors under the Borrower's equipment
leases.
7.7 RESTRICTED PAYMENTS. The Borrower will not, and will not
permit any of its Subsidiaries to, declare or make any Restricted Payment.
7.8 INVESTMENTS. The Borrower will not, and will not permit any
of its Subsidiaries to, make, maintain or acquire any Investment in any Person
other than:
(a) marketable obligations issued or guaranteed by the United
States of America having a maturity of one year or less from the date of
purchase;
(b) certificates of deposit, eurodollar time deposits,
commercial paper or any other obligations of the Bank or of any other bank
or trust company organized or licensed to conduct a banking business under
the laws of the United States or any State thereof and which has (or which
is a Subsidiary of a bank holding company which has) publicly traded debt
securities rated A or higher by Standard & Poor's Corporation or A-2 or
higher by Moody's Investors Service, Inc.;
(c) (i) depository accounts at the Bank; and (ii) depository
accounts maintained at other banks and listed on SCHEDULE A or that have
been disclosed to the Bank in writing subsequent to the date hereof;
(d) stock or obligations issued to the Borrower or any
Subsidiary thereof in settlement of claims against others by reason of an
event of bankruptcy or a composition or the readjustment of debt or a
reorganization of any debtor of the Borrower or such Subsidiary;
(e) commercial paper with maturities of not more than 90 days
having the highest rating then given by Moody's Investors Services, Inc. or
Standard & Poor's Corporation;
<PAGE>
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(f) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in subparagraph (b)
above entered into with the Bank or any of the banks referred to in
subparagraph (b) above; and
(g) investments made prior to the date hereof by the Borrower in
its Subsidiaries, and Investments by such Subsidiaries in the Borrower,
whether now existing or hereafter arising.
7.9 LEASES. Neither the Borrower nor any of its Subsidiaries
shall during any fiscal year enter into any leases of real or personal property
as lessee, except that the Borrower may enter into an operating lease of
personal property, if, after giving effect thereto, the aggregate amount of all
payments during any one fiscal year (whether or not such payments are termed
rent) under all operating leases of personal property to which the Borrower is a
party does not exceed $430,000.
7.10 SALE AND LEASEBACK. Neither the Borrower nor any of its
Subsidiaries shall enter into any arrangement, directly or indirectly, whereby
it shall sell or transfer any property owned by it in order to lease such
property or lease other property that the Borrower or any such Subsidiary
intends to use for substantially the same purpose as the property being sold or
transferred.
7.11 ADDITIONAL STOCK ISSUANCE BY SUBSIDIARIES. The Borrower
shall not permit any of its Subsidiaries to issue any additional shares of its
capital stock or other equity securities, any options therefor or any securities
convertible thereto other than to the Borrower.
7.12 CAPITAL EXPENDITURES. Neither the Borrower nor any of its
Subsidiaries shall either purchase or agree to purchase, or incur any
obligations for any equipment or other property constituting fixed assets in any
fiscal year (excluding leases of real or personal property) where the aggregate
of such obligations would exceed $1,270,000.
7.13 QUICK RATIO. The Borrower will not permit the Quick Ratio
at the end of any fiscal month ending during the following periods to be less
than the ratio set forth below opposite such period:
Minimum
Relevant Period Quick Ratio
--------------- -----------
12/31/94 through 08/31/95 1.25 to 1
09/30/95 and thereafter 1 to 1
7.14 MINIMUM PROFITABILITY. The Borrower will not permit its Net
Loss for its fiscal year ending December 31, 1994 to be greater than
($3,500,000) or its Net Income or Net Loss for any of the following fiscal
quarters to be less than or greater than, as the case may be, the amount set
forth opposite such fiscal quarter:
Fiscal Quarter Ending Net Income
--------------------- ----------
03/31/95 ($1,200,000)
06/30/95 ($1,000,000)
09/30/95 ($850,000)
12/31/95 ($600,000)
03/31/96 and thereafter $1
7.15 LEVERAGE. The Borrower will not permit the ratio of Total
Senior Liabilities to Tangible Net Worth at the end of any fiscal month to be
greater than 2.10:1.
<PAGE>
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7.16 TANGIBLE NET WORTH. The Borrower will not permit its Tangible
Net Worth at the end of any of the following fiscal quarters to be less than the
amount set forth below opposite such fiscal quarter:
Minimum
Fiscal Quarter Ending Tangible Net Worth
--------------------- ------------------
12/31/94 $500,000
3/31/95 $3,400,000
6/30/95 $2,500,000
9/30/95 $1,700,000
12/31/95 $1,400,000
3/31/96 $1,250,000
SECTION 8 EVENTS OF DEFAULT.
8.1 EVENTS OF DEFAULT. The occurrence of any of the following
events shall be an "Event of Default" hereunder:
(a) The Borrower shall default in the due and punctual payment
of principal or interest on the Note, or shall default in the payment of
any other amount due under any Loan Document; or
(b) Any representation, warranty or statement made herein or any
other Loan Document, or in any certificate or statement furnished pursuant
to or in connection herewith or therewith, shall prove to be incorrect,
misleading or incomplete in any material respect on the date as of which
made or deemed made; or
(c) The Borrower shall default in the performance or observance
of any term, covenant or agreement on its part to be performed or observed
pursuant to Sections 7.3 and 7.13 through 7.16; or
(d) The Borrower shall default in the performance or observance
of any term, covenant or agreement on its part to be performed or observed
pursuant to any of the provisions of this Agreement or any other Loan
Document (other than those referred to in paragraphs (a) through (c) above)
and such default shall continue unremedied for a period of fifteen (15)
days after the occurrence of such default; or
(e) Any obligation of the Borrower or any Subsidiary thereof in
respect of any Indebtedness (other than the Note) or any Guarantee in
excess of $25,000, shall be declared to be or shall become due and payable
prior to the stated maturity thereof, or such Indebtedness or Guarantee
shall not be paid as and when the same becomes due and payable, or there
shall occur and be continuing any default under any instrument, agreement
or evidence of indebtedness relating to any such Indebtedness the effect of
which is to permit the holder or holders of such instrument, agreement or
evidence of indebtedness, or a trustee, agent or other representative on
behalf of such holder or holders, to cause such Indebtedness to become due
prior to its stated maturity; or
(f) The Borrower or a Subsidiary thereof shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part
of its property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv)
file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
readjustment of debts, (v) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against
<PAGE>
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it in an involuntary case under the Bankruptcy Code, or (vi) take any corporate
action for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the
application or consent of the Borrower or any Subsidiary thereof in any
court of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of the Borrower or such Subsidiary or of
all or any substantial part of its assets, or (iii) similar relief in
respect of the Borrower or such Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 days; or an order for relief against the Borrower or such
Subsidiary shall be entered in an involuntary case under the Bankruptcy
Code; or
(h) A judgment or judgments for the payment of money in excess
of $50,000 (net of insurance proceeds) in the aggregate shall be rendered
against the Borrower or any Subsidiary thereof and any such judgment or
judgments shall not have been vacated, discharged, stayed or bonded pending
appeal within thirty (30) days from the entry thereof; or
(i) The Borrower or any member of the Controlled Group shall
fail to pay when due an amount or amounts aggregating in excess of $100,000
which it is obligated to pay to the PBGC or to a Plan under Title IV of
ERISA; or a notice of intent to terminate a Plan or Plans having aggregate
Unfunded Liabilities in excess of $100,000 shall be filed under Title IV of
ERISA by the Borrower or any member of the Controlled Group, any plan
administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such Plan or Plans
against the Borrower or any member of the Controlled Group to enforce
Sections 515 or 4219(c)(5) of ERISA; or a condition shall exist by reason
of which the PBGC would be entitled to obtain a decree adjudicating that
any such Plan or Plans must be terminated; or there shall occur a complete
or partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause the Borrower or one or more members of the Controlled Group to
incur a current payment obligation in excess of $100,000; or
(j) The Borrower or any Subsidiary thereof shall default in the
performance or observance of any term, covenant or agreement on its part to
be performed or observed pursuant to any of the provisions of any agreement
with the Bank or any instrument delivered in favor of the Bank (other than,
in either case, a Loan Document), and such default shall continue
unremedied beyond the grace period (in any) provided for therein; or
(k) Any Security Instrument shall cease for any reason to be in
full force and effect or shall cease to be effective to grant a perfected
security interest in the collateral described in such Security Instrument
with the priority stated to be granted thereby; or
(l) Borrower shall make any payment on account of its
Subordinated Debt, except to the extent such payment is expressly permitted
hereby or under any subordination agreement entered into with the Bank.
8.2 REMEDIES UPON AN EVENT OF DEFAULT. If any Event of Default
shall have occurred and be continuing, the Bank may (a) declare the Line of
Credit Commitment terminated (whereupon the Line of Credit Commitment shall be
terminated) and/or (b) declare the principal amount then outstanding of, and the
accrued interest
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on, the Line of Credit Loans and commitment fees and all other amounts payable
hereunder and under the Note to be forthwith due and payable, whereupon such
amounts shall be and become immediately due and payable, without notice
(including, without limitation, notice of intent to accelerate), presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by the Borrower; PROVIDED that in the case of the occurrence of
an Event of Default with respect to the Borrower referred to in clauses (f) and
(g) of Section 8.1, the Line of Credit Commitment shall be automatically
terminated and the principal amount then outstanding of and the accrued interest
on the Line of Credit Loans and commitment fees and all other amounts payable
hereunder and under the Note shall be and become automatically and immediately
due and payable, without notice (including, without limitation, notice of intent
to accelerate), presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.
SECTION 9 DEFINITIONS.
9.1 CERTAIN DEFINITIONS.
"ACCOUNTANTS" means Coopers & Lybrand, or another accountant firm of
national reputation or other certified public accountants selected by the
Borrower and approved by the Bank.
"AFFILIATE" means, with respect to any specified Person (the
"SPECIFIED PERSON"), any Person directly or indirectly controlling, controlled
by or under direct or indirect common control with, the Specified Person and,
without limiting the generality of the foregoing, includes (i) any director or
officer of the Specified Person or any Affiliate of the Specified Person, (ii)
any such director's or officer's parent, spouse, child or child's spouse (a
"RELATIVE"), (iii) any group acting in concert, of one or more such directors,
officers, relatives or any combination thereof (a "GROUP"), (iv) any Person
controlled by any such director, officer, relative or group in which any such
director, officer, relative or group beneficially owns or holds 5% or more of
any class of voting securities or a 5% or greater equity or profits interest and
(v) any Person or group which beneficially owns or holds 5% or more of any class
of voting securities or a 5% or greater equity or profits interest in the
Specified Person. For the purposes of this definition, the term "control" when
used with respect to any Specified Person means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Specified Person, whether through the ownership of voting
securities, by contract or otherwise.
"AGREEMENT" shall mean this Credit Agreement.
"BANKING DAY" shall mean any day, excluding Saturday and Sunday and
excluding any other day which in the Commonwealth of Massachusetts or the State
of California is a legal holiday or a day on which banking institutions are
authorized by law to close.
"BORROWER PROPERTY" means any real property owned, occupied, or
operated by the Borrower or any of its Subsidiaries.
"BORROWING BASE" shall have the meaning specified in Section 1.4.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"COLLATERAL" shall have the meaning given that term in the Security
Agreement.
"COMMITMENT COMMISSION" shall have the meaning specified in Section
1.7.
"COMMITMENT EXPIRATION DATE" shall have the meaning specified in
Section 1.1.
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"CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"CONTROLLED GROUP" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414 of the Code.
"CURRENT LIABILITIES" means, at any time, all liabilities of the
Borrower and its Subsidiaries at such time, on a consolidated basis, that would
be classified as current liabilities in accordance with GAAP, including, without
limitation, all Indebtedness of the Borrower and its Subsidiaries payable on
demand or maturing within one year of such time, or renewable at the option of
the Borrower or such Subsidiary for a period of not more than one year from such
time, and all serial maturity and periodic or installment payments on any
Indebtedness, to the extent such payments are required to be made within one
year from such time.
"DEFAULT" means any condition or event that constitutes an Event of
Default or that with the giving of notice or lapse of time or both would, unless
cured or waived, become an Event of Default.
"ELIGIBLE DOMESTIC ACCOUNTS RECEIVABLE" means an account receivable
owing to the Borrower which met the following specifications at the time it came
into existence and continues to meet the same until it is collected in full:
(a) The original stated maturity of the account is not more than
90 days after the invoice date thereof, and the account (regardless of its
stated maturity date) does not remain unpaid more than 90 days after such
invoice date.
(b) The account arose from the performance of services or an
outright sale of goods by Borrower, such goods have been shipped to the
account debtor, and Borrower has possession of, or has delivered to Bank,
shipping and delivery receipts evidencing such shipment.
(c) The account is owned solely by the Borrower, and is not
subject to any assignment, claim, lien, or security interest, other than a
security interest in favor of the Bank.
(d) The account is not subject to set-off, credit, allowance or
adjustment by the account debtor, except discount allowed for prompt
payment; the account is not one as to which the account debtor disputes
liability or makes any claim with respect thereto or as to which the Bank
believes, in its sole discretion, that there may be a basis for dispute
(but only to the extent of the amount subject to such dispute or claim), or
which involves an account debtor subject to any insolvency proceeding, or
becomes insolvent, or goes out of business.
(e) The account arose in the ordinary course of Borrower's
business and did not arise from the performance of services or a sale of
goods to a supplier or employee of the Borrower.
(f) No notice of bankruptcy or insolvency of the account debtor
has been received by or is known to the Borrower.
(g) The Borrower has pledged any instrument or chattel paper
evidencing the account to the Bank pursuant to the provisions of the
Security Agreement.
<PAGE>
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(h) Not more than 50% of the aggregate receivables of the
account debtor have remained unpaid for a period of more than ninety (90) days
from the invoice date.
(i) The aggregate accounts receivables from the account debtor
(including its Subsidiaries and Affiliates) do not exceed 25% of the total
Eligible Accounts Receivable of the Borrower; that portion of the account
over the 25% level will be disqualified.
(j) The account does not relate to goods placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other
terms by reason of which the payment by the account debtor may be
conditional.
(k) The account debtor is not an Affiliate, officer, employee or
agent of the Borrower.
(l) The account debtor is not a Governmental Authority.
(m) The Borrower does not owe any amounts to the account debtor
for goods sold, services rendered or otherwise; to the extent that any
amounts are so owed, the accounts of such account debtor in an amount equal
to the amounts owed by the Borrower to the account debtor shall be
disqualified.
(n) The Bank has not notified the Borrower that the Bank has
determined that an account or account debtor is unsatisfactory for credit
reasons (which determination shall not be made unreasonably).
(o) The account debtor is a person or entity located in the
United States and the account arose out of services rendered or goods
delivered in the United States.
"ENVIRONMENTAL LAWS" means all federal, state, local and foreign laws,
and all regulations, notices or demand letters issued, promulgated or entered
thereunder, relating to pollution or protection of the environment and to
occupational health and safety, including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or Hazardous Substances into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statutes.
"EVENT OF DEFAULT" has the meaning set forth in Section 8.
"EXTENSION OF CREDIT" shall have the meaning set forth in Section 1.4.
"FINANCIAL STATEMENTS DATE" means December 31, 1994.
"GAAP" means accounting principles generally accepted in the United
States applied on a consistent basis,
"GOVERNMENTAL APPROVALS" shall mean any authorization, consent, order,
approval, license, lease, ruling, permit, tariff, rate, certification,
validation, exemption, filing or registration by or with, or notice to, any
Governmental Authority.
"GOVERNMENTAL AUTHORITY" shall mean any federal, state, municipal or
other governmental department, commission, board, bureau, agency, court,
tribunal or other instrumentality, domestic or foreign, and any arbitrator.
<PAGE>
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"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
or other obligation of any other Person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or otherwise of
such Person (a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (b) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); PROVIDED that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"HAZARDOUS SUBSTANCES" shall mean all hazardous and toxic substances,
wastes or materials, hydrocarbons (including naturally occurring or man-made
petroleum and hydrocarbons), flammable explosives, urea formaldehyde
insulation, radioactive materials, biological substances, PCBs, pesticides,
herbicides and any other kind and/or type of pollutants, or contaminants and/or
any other similar substances or materials which, because of toxic, flammable,
explosive, corrosive, reactive, radioactive or other properties that may be
hazardous to human health or the environment, are included under or regulated
by any Environmental Laws.
"INDEBTEDNESS" of any Person at any date shall mean, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (excluding current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices, but including any class of capital stock of such Person with fixed
payment obligations or with redemption at the option of the holder), or which is
evidenced by a note, bond, debenture or similar instrument, (b) all obligations
of such Person under leases that should be treated as capitalized leases in
accordance with GAAP, (c) all obligations of such Person in respect of
acceptances issued or created for the account of such Person, and all
reimbursement obligations (contingent or otherwise) of such Person in respect of
any letters of credit issued for the account of such Person, and (d) all
liabilities secured by any Lien on any property owned by such Person even though
such Person has not assumed or otherwise become liable for the payment thereof.
"INTELLECTUAL PROPERTY" shall have the meaning specified in Section
5.16.
"INVESTMENTS" means, with respect to any Person (the "INVESTOR"), (a)
any investment by the Investor in any other Person, whether by means of share
purchase, capital contribution, purchase or other acquisition of a partnership
or joint venture interest, loan, time deposit, demand deposit or otherwise and
(b) any Guarantee by the Borrower of any Indebtedness or other obligation of any
other Person.
"LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any lease
that should be capitalized in accordance with GAAP, and the filing of a
financing statement under the Uniform Commercial Code or comparable law of any
jurisdiction), together with any renewal or extension thereof.
"LINE OF CREDIT COMMITMENT" shall have the meaning specified in
Section 1.1.
"LINE OF CREDIT LOANS" shall have the meaning specified in Section
1.1.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Note, the
Financing Statements, the Security Instruments, and all other agreements and
instruments that are from time to time executed in connection with this
Agreement, as each of such agreements and instruments may be amended, modified
or supplemented from time to time.
<PAGE>
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"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or prospects
of the Borrower, or of the Borrower and its Subsidiaries taken as a whole, (b)
the ability of the Borrower to perform its obligations under this Agreement, the
Note or any of the other Loan Documents, (c) the validity or enforceability of
this Agreement, the Note or any of the other Loan Documents, or the rights or
remedies of the Bank hereunder or thereunder, or (d) the right of the Bank to
enforce the payment of accounts against account debtors in any particular State.
"MULTIEMPLOYER PLAN" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which the Borrower or
any member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions, including for these purposes any Person which ceased to be a
member of the Controlled Group during such five year period.
"NET INCOME" or "NET LOSS" for any period in respect of which the
amount thereof shall be determined, shall mean the aggregate of the consolidated
net income (or net loss) after taxes for such period (taken as a cumulative
whole) of the Borrower and its Subsidiaries, determined in accordance with GAAP,
exclusive of the write-up of any asset.
"NOTE" shall have the meaning set forth in Section 1.2.
"OBLIGATIONS" shall have the meaning given the term "Secured
Obligations" in the Security Agreement.
"OFFICE OF THE BANK" shall mean the banking office of the Bank located
at 3000 Lakeside Drive, P.O. Box 3762, Santa Clara, California 95054, or such
other location of which the Bank shall notify the Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED LIENS" shall have the meaning set forth in Section 7.6.
"PERSON" shall mean and include any individual, firm, corporation,
trust or other unincorporated organization or association or other enterprise
or any government or political subdivision, agency, department or
instrumentality thereof.
"PLAN" means any employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code and is either (a) maintained by the Borrower or any member of the
Controlled Group for employees of the Borrower or any member of the Controlled
Group or (b) maintained pursuant to a collective bargaining agreement or any
other arrangement under which more than one employer makes contributions and to
which the Borrower or any member of the Controlled Group is then making or
accruing an obligation to make contributions or has within the preceding five
plan years made contributions.
"PRIME RATE" shall mean the per annum rate of interest from time to
time announced and made effective by the Bank as its Prime Rate (which rate may
or may not be the lowest rate available from the Bank at any given time).
"PURCHASE MONEY INDEBTEDNESS" shall mean Indebtedness incurred to
finance the acquisition of assets or the cost of improvements on real property
or leaseholds, in each case in an amount not in excess of the lesser of (a) the
purchase price or acquisition cost of said assets or the cost of said
improvements and (b) the fair market value of said assets or said improvements
on the date of acquisition of said assets or contract for said improvements.
<PAGE>
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"PURCHASE MONEY SECURITY INTEREST" shall mean (a) a security interest
securing Purchase Money Indebtedness, which security interest applies solely to
the particular assets acquired with the Purchase Money Indebtedness that said
Purchase Money Security Interest secures, and (b) the renewal, extension and
refunding of such Purchase Money Indebtedness in an amount not exceeding the
amount thereof remaining unpaid immediately prior to such renewal, extension or
refunding.
"QUICK RATIO" means, at any time, all cash and accounts receivable,
less reserves for doubtful accounts, of the Borrower and its Subsidiaries at
such time, on a consolidated basis, determined in accordance with GAAP, divided
by the aggregate of all Current Liabilities at such time.
"RESTRICTED PAYMENT" means, with respect to the Borrower or any
Subsidiary thereof, (a) any dividend or other distribution on any shares of
capital stock of the Borrower or such Subsidiary (except dividends payable
solely in shares of capital stock or rights to acquire capital stock of the
Borrower, and dividends payable solely to the Borrower), (b) any payment on
account of the purchase, redemption, retirement or acquisition of (i) any shares
of the capital stock of the Borrower or a Subsidiary thereof or (ii) any option,
warrant, convertible security or other right to acquire shares of the capital
stock of the Borrower or a Subsidiary thereof, other than, in either case,
payments made solely to the Borrower, and (c) any required or optional payment
of any principal of, or premium [or interest] on, or any required or optional
purchase, redemption or other retirement or other acquisition of any
Subordinated Debt.
"SEC" means the Securities and Exchange Commission.
"SECURITY AGREEMENT" shall have the meaning set forth in Section 3.1.
"SECURITY INSTRUMENTS" means, collectively, the Security Agreement and
each other instrument or agreement that purports to secure the Obligations of
the Borrower to the Bank.
"SUBORDINATED DEBT" means Indebtedness of the Borrower that is
subordinated to the Indebtedness of the Borrower owing to the Bank either (a)
pursuant to a subordination agreement in form and substance satisfactory to the
Bank between the Bank and the holder(s) of such Indebtedness, or (b) pursuant to
the terms thereof, where the Bank has confirmed in writing that such terms are
satisfactory to it.
"SUBSIDIARY" means, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned by
such Person.
"TANGIBLE NET WORTH" means, at any time, the consolidated
stockholders' equity of the Borrower and its Subsidiaries at such time
determined in accordance with GAAP, LESS all assets that are reflected on the
consolidated balance sheet of the Borrower and its Subsidiaries at such time
that would be treated as intangibles under GAAP (including, but not limited, to
goodwill, capitalized software and excess purchase costs), PLUS all then
outstanding Subordinated Debt.
"TOTAL SENIOR LIABILITIES" means, at any time, the consolidated
liabilities of the Borrower and its Subsidiaries at such time, determined in
accordance with GAAP, LESS all then outstanding Subordinated Debt.
"UCC" shall have the meaning given such term in the Security
Agreement.
"UNFUNDED LIABILITIES" means, with respect to any Plan, at any time,
the amount (if any) by which (a) the present value of all benefits under such
Plan exceeds (b) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plan, but only to the extent that such
<PAGE>
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excess represents a potential liability of the Borrower or any member of the
Controlled Group to the PBGC or such Plan under Title IV of ERISA.
SECTION 10 MISCELLANEOUS.
10.1 ACCOUNTING TERMS AND DEFINITIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with GAAP;
PROVIDED that if any change in GAAP in itself materially affects the calculation
of any financial covenant in this Agreement, the Borrower may by notice to the
Bank, or the Bank may by notice to the Borrower, require that such covenant
thereafter be calculated in accordance with GAAP as in effect, and applied by
the Borrower, immediately before such change in GAAP occurs. If such notice is
given, the compliance certificates delivered pursuant to Section 6.4 after such
change occurs shall be accompanied by reconciliations of the difference between
the calculation set forth therein and a calculation made in accordance with GAAP
as in effect from time to time after such change occurs. To enable the ready
determination of compliance with the covenants set forth in this Agreement, the
Borrower will not change the date on which its fiscal year or any of its fiscal
quarters end without the prior consent of the Bank.
10.2 AMENDMENTS, ETC. No amendment or waiver of any
provision of this Agreement or the Note, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Bank and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
10.3 NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing and shall be delivered by hand, by a
nationally recognized commercial overnight delivery service, by first class mail
or by telecopy, delivered, addressed or transmitted, if to the Borrower, at its
address at 379 Thornall Street, Edison, New Jersey 08837, Attention: Peter
Macaluso, Vice President and CFO, Telecopy No. (908) 906-1113; and if to the
Bank, at its address at Wellesley Office Park, 45 William Street, Wellesley,
Massachusetts 02181, Attention: Joan S. Parsons, Vice President, Telecopy No.
(617) 431-9906; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other party. All such
notices and communications shall be deemed effective, (a) in the case of hand
deliveries, when delivered; (b) in the case of an overnight delivery service, on
the next Banking Day after being placed in the possession of such delivery
service, with delivery charges prepaid; (c) in the case of mail, three days
after deposit in the postal system, first class postage prepaid; and (d) in the
case of telecopy notices, when electronic indication of receipt is received,
except that notices to the Bank pursuant to the provisions of Section 1.3 shall
not be effective until received by the Bank.
10.4 NO WAIVER; REMEDIES. No failure on the part of the
Bank to exercise, and no delay in exercising, any right hereunder or under the
Note shall operate as a waiver thereof; nor shall any single or partial exercise
of any right hereunder or under the Note preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
10.5 RIGHT OF SET-OFF. (a) Upon the occurrence and during
the continuance of any Event of Default, the Bank is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by the Bank
to or for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement and
the Note, irrespective of whether or not the Bank shall have made any demand
hereunder and although such obligations may be contingent or unmatured.
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(b) The Bank agrees promptly to notify the Borrower after
any such set-off and application, PROVIDED that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of
the Bank under this Section 10.5 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Bank may
have.
10.6 EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay
on demand (i) the reasonable fees and disbursements of counsel to the Bank in
connection with the preparation of this Agreement and the preparation or review
of each agreement, opinion, certificate and other document referred to in or
delivered pursuant hereto; (ii) all out-of-pocket costs and expenses of the Bank
in connection with the administration of this Agreement and the other Loan
Documents, and any waiver or amendment of any provision hereof or thereof,
including without limitation, the reasonable fees and disbursements of counsel
for the Bank, and of any field examiner or auditor retained by the Bank as
contemplated in Section 6.8; and (iii) if any Event of Default occurs, all costs
and expenses incurred by the Bank, including the reasonable fees and
disbursements of counsel to the Bank, and of any appraisers, environmental
engineers or consultants, or investment banking firms retained by the Bank in
connection with such Event of Default or collection, bankruptcy, insolvency and
other enforcement proceedings related thereto. The Borrower agrees to pay,
indemnify and hold the Bank harmless from, any and all recording and filing
fees, and any and all liabilities with respect to, or resulting from any delay
in paying, stamp, excise or other taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of or the
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement or the other Loan Documents, or any documents
delivered pursuant hereto or thereto.
(b) The Borrower agrees to indemnify the Bank and its
officers and directors and hold the Bank and its officers and directors harmless
from and against any and all liabilities, losses, damages, costs and expenses of
any kind (including, without limitation, the reasonable fees and disbursements
of counsel for the Bank) in connection with any investigative, administrative or
judicial proceeding initiated by a third party where the Bank is designated a
party thereto, or where the Bank or a representative thereof is required to give
testimony or produce evidence or documentation, relating to or arising out of
this Agreement or any other Loan Document, or the existence of any Hazardous
Substance on, in, or under any Borrower Property, or any violation of any
applicable Environmental Laws for which the Borrower or any Subsidiary thereof
has any liability or which occurs upon any Borrower Property, or the imposition
of any Lien under any Environmental Laws, PROVIDED that the Bank shall not have
the right to be indemnified hereunder for its own gross negligence or willful
misconduct as determined by a court of competent jurisdiction and provided
further that the Bank provides prompt notice to Borrower of any claim against
the Bank by a third party.
(c) The agreements in this Section 10.6 shall survive the
repayment of the Note, and all other amounts payable under this Agreement and
the other Loan Documents.
10.7 BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrower and the Bank (provided,
however, in no event shall this Agreement become effective until signed by an
officer of the Bank in California) and thereafter shall be binding upon and
inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Bank. The Bank may assign to any financial institution all or
any part of, or any interest (undivided or divided) in, the Bank's rights and
benefits under this Agreement or the Note, and to the extent of that assignment
such assignee shall have the same rights and benefits against the Borrower
hereunder as it would have had if such assignee were the Bank making the Line of
Credit Loans hereunder.
10.8 SEVERABILITY. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
<PAGE>
-25-
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
10.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS.
10.10 WAIVER OF JURY TRIAL. THE BANK AND THE BORROWER AGREE
THAT NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL
IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR
ARISING OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR THE
DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY
DISCUSSED BY THE BANK AND THE BORROWER, AND THESE PROVISIONS SHALL BE SUBJECT TO
NO EXCEPTIONS. NEITHER THE BANK NOR THE BORROWER HAS AGREED WITH OR REPRESENTED
TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN
ALL INSTANCES.
10.11 VENUE, CONSENT TO SERVICE OF PROCESS. THE BORROWER
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE OF CALIFORNIA OR THE COMMONWEALTH OF
MASSACHUSETTS IN ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH
ARISES OUT OF OR BY REASON OF THIS AGREEMENT, THE NOTE, ANY OTHER LOAN DOCUMENT,
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IRREVOCABLY AGREES TO BE
BOUND BY ANY FINAL JUDGMENT RENDERED BY ANY SUCH COURT IN ANY SUCH ACTION, SUIT
OR PROCEEDING IN WHICH IT SHALL HAVE BEEN SERVED WITH PROCESS IN THE MANNER
HEREINAFTER PROVIDED, SUBJECT TO EXERCISE AND EXHAUSTION OF ALL RIGHTS OF APPEAL
AND TO THE EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES AND AGREES NOT TO ASSERT,
BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN SUCH ACTION, SUIT OR PROCEEDING
ANY CLAIMS THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT,
THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE
ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE
THEREOF IS IMPROPER, AND AGREES THAT PROCESS MAY BE SERVED UPON IT IN ANY SUCH
ACTION, SUIT OR PROCEEDING IN THE MANNER PROVIDED BY CHAPTER 223A OF THE GENERAL
LAWS OF MASSACHUSETTS, RULE 4 OF THE MASSACHUSETTS RULES OF CIVIL PROCEDURE OR
RULE 4 OF THE FEDERAL RULES OF CIVIL PROCEDURE.
10.12 HEADINGS. Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
10.13 COUNTERPARTS. This Agreement may be signed in one or
more counterparts each of which shall constitute an original and all of which
taken together shall constitute one and the same instrument.
<PAGE>
-26-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
DIGITRAN CORPORATION
By: /s/ Peter S. Macaluso
----------------------------
Name: Peter S. Macaluso
Title: Vice President and CFO
SILICON VALLEY EAST, a Division of Silicon Valley
Bank
By: ----------------------------
Name: Joan S. Parsons
Title: Vice President
SILICON VALLEY BANK
By:
----------------------------
Name:
Title:
(Signed at Santa Clara, California)
<PAGE>
-27-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
DIGITRAN CORPORATION
By:
----------------------------
Name:
Title:
SILICON VALLEY EAST, a Division of Silicon Valley
Bank
By: /s/ Joan S. Parson
----------------------------
Name: Joan S. Parsons
Title: Vice President
SILICON VALLEY BANK
By: /s/ Becky Butler
----------------------------
Name: Becky Butler
Title: VP/Mgr
(Signed at Santa Clara, California)
<PAGE>
PROMISSORY NOTE Exhibit A
$1,000,000 Wellesley, Massachusetts
As of July 7, 1995
For value received, the undersigned, DIGITRAN CORPORATION, a Delaware
corporation (the "BORROWER"), promises to pay to SILICON VALLEY BANK (the
"BANK") at the office of the Bank located at 3000 Lakeside Drive, P.O. Box 3762,
Santa Clara, California 95054, or to its order, the lesser of One Million
Dollars ($1,000,000) or the outstanding principal amount hereunder, on July 7, 1
996 (the "MATURITY DATE"), together with interest on the principal amount hereof
from time to time outstanding at a fluctuating rate per annum equal to the Prime
Rate (as defined below) plus 2% until the Maturity Date, payable monthly in
arrears on the first day of each calendar month occurring after the date hereof
and on the Maturity Date. The Borrower promises to pay on demand interest at a
per annum rate of interest equal to the Prime Rate plus 5% on any overdue
principal (and to the extent permitted by law, overdue interest). The Bank's
"Prime Rate" is the per annum rate of interest from time to time announced and
made effective by the Bank as its Prime Rate (which rate may or may not be the
lowest rate available from the Bank at any given time).
Computations of interest shall be made by the Bank on the basis of a year
of 360 days for the actual number of days occurring in the period for which such
interest is payable.
This note is the Note referred to in the credit agreement of even date
herewith between the Bank and the Borrower (together with all related
schedules), as the same may be amended, modified or supplemented from time to
time (the "CREDIT AGREEMENT"), and is entitled to the benefits thereof and of
the other Loan Documents referred to therein, and is subject to optional and
mandatory prepayment as provided therein. This note is secured INTER ALIA by a
Security Agreement dated of even date herewith by the Borrower in favor of the
Bank, as the same may be amended, modified or supplemented from time to time.
Upon the occurrence of any Event of Default under, and as defined in, the
Credit Agreement, at the option of the Bank, the principal amount then
outstanding of and the accrued interest on the advances under this note and all
other amounts payable under this note shall become immediately due and payable,
without notice (including, without limitation, notice of intent to accelerate),
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.
The Bank shall keep a record of the amount and the date of the making of
each advance pursuant to the Credit Agreement and each payment of principal with
respect thereto by maintaining a computerized record of such information and
printouts of such computerized record, which computerized record, and the
printouts thereof, shall constitute PRIMA FACIE evidence of the accuracy of the
information so endorsed.
The undersigned agrees to pay all reasonable costs and expenses of the Bank
(including, without limitation, the reasonable fees and expenses of attorneys)
in connection with the enforcement of this note and the other loan documents.
<PAGE>
-2-
EXHIBIT A
No delay or omission on the part of the Bank in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Bank, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Borrower and every endorser or guarantor of this note regardless of the time,
order or place of signing waives presentment, demand, protest and notices of
every kind and assents to any one or more extensions or postponements of the
time of payment or any other indulgences, to any substitutions, exchanges or
releases of collateral for this note, and to the additions or releases of any
other parties or persons primarily or secondarily liable.
THIS NOTE HAS BEEN DELIVERED TO THE BANK AND ACCEPTED BY THE BANK IN THE
STATE OF CALIFORNIA.
THE BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY NOW OR HEREAFTER HAVE
TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING WHICH ARISES OUT OF OR BY
REASON OF THIS NOTE, ANY LOAN DOCUMENT (AS DEFINED IN THE CREDIT AGREEMENT), OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
BY ITS EXECUTION AND DELIVERY OF THIS NOTE, THE BORROWER ACCEPTS FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE STATE OF CALIFORNIA OR THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION,
SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF
THIS NOTE, ANY LOAN DOCUMENT (AS DEFINED IN THE CREDIT AGREEMENT), OR THE
TRANSACTIONS CONTEMPLATED HEREBY, IN ADDITION TO ANY OTHER COURT IN WHICH SUCH
ACTION, SUIT OR PROCEEDING MAY BE BROUGHT, IRREVOCABLY AGREES TO BE BOUND BY ANY
FINAL JUDGMENT RENDERED BY ANY SUCH COURT IN ANY SUCH ACTION, SUIT OR PROCEEDING
IN WHICH IT SHALL HAVE BEEN SERVED WITH PROCESS IN THE MANNER HEREINAFTER
PROVIDED, SUBJECT TO EXERCISE AND EXHAUSTION OF ALL RIGHTS OF APPEAL AND TO THE
EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES AND AGREES NOT TO ASSERT, BY WAY OF
MOTION, AS A DEFENSE OR OTHERWISE, IN SUCH ACTION, SUIT OR PROCEEDING ANY CLAIMS
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT ITS
PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT
OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS
IMPROPER, AND AGREES THAT PROCESS MAY BE SERVED UPON IT IN ANY SUCH ACTION, SUIT
OR PROCEEDING IN THE MANNER PROVIDED BY CHAPTER 223A OF THE GENERAL LAWS OF
MASSACHUSETTS, RULE 4 OF THE MASSACHUSETTS RULES OF CIVIL PROCEDURE OR RULE 4 OF
THE FEDERAL RULES OF CIVIL PROCEDURE.
ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE GOVERNED BY THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS AND THIS NOTE SHALL BE DEEMED TO BE UNDER SEAL.
DIGITRAN CORPORATION
By: /s/ Peter S. Macaluso
----------------------------
Name: Peter S. Macaluso
Title: Vice President and CFO
<PAGE>
EXHIBIT B
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of July 7, 1995 between DIGITRAN
CORPORATION, a Delaware corporation (the "COMPANY") and SILICON VALLEY BANK (the
"Bank").
W I T N E S E T H :
WHEREAS, the Company and the Bank entered into to a Credit Agreement
dated as of July 7, 1995 (as the same day be amended, supplemented, extended or
restated from time to time, the "CREDIT AGREEMENT"), providing for the
Extensions of Credit to be made by the Bank to the Company;
WHEREAS, in order to induce the Bank to enter into the Credit
Agreement, the Company has agreed to grant a continuing security interest in and
to the Collateral (as defined below) to secure its obligations under the Credit
Agreement, including, without limitation, its obligations under the promissory
note issued by the Company to the Bank pursuant to the Credit Agreement (as the
same day be amended, supplemented, extended or restated from time to time, the
"NOTE");
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the parties agree as follows:
SECTION 1. DEFINITIONS
Except for the terms defined below or elsewhere in this Agreement, the
terms used herein shall have the respective meanings provided for in the Credit
Agreement:
"ACCOUNTS" means all "accounts" (as defined in the UCC) now owned or
hereafter acquired by the Company and shall also mean and include all
accounts receivable, contract rights, book debts, notes, drafts and other
obligations or indebtedness owing to the Company arising from the sale,
lease or exchange of goods or other property and/or the performance of
services by it (including any obligation which might be characterized as an
account, contract right or general intangible under the UCC) and all the
Company's rights in, to and under all purchase orders for goods, services
or other property, and all the Company's rights to any goods, services or
other property represented by any of the foregoing (including returned or
repossessed goods and unpaid sellers' rights of rescission, replevin,
reclamation and rights to stoppage in transit) and all monies due to or to
become due to the Company under all contracts for the sale, lease or
exchange of goods or-other property and/or the performance of services by
it (whether or not yet earned by performance on the part of the Company),
in each case whether now in existence or hereafter arising or acquired,
including the right to receive the proceeds of said purchase orders and
contracts and all collateral security and guarantees of any kind given by
any Person with respect to any of the foregoing.
"COLLATERAL" has the meaning set forth in Section 3.
"DOCUMENTS" means all "documents" (as defined in the UCC) or other
receipts covering, evidencing or representing goods, now owned or hereafter
acquired, by the Company.
"EQUIPMENT" means all "equipment" (as defined in the UCC) now owned or
hereafter acquired by the Company, including, without limitation, all motor
vehicles, trucks and trailers, except such equipment which is held by the
Borrower pursuant to a capital lease (as determined in accordance with GAAP).
<PAGE>
-2-
"GENERAL INTANGIBLES" means all "general intangibles" (as defined in
the UCC) now owned or hereafter acquired by the Company, including, without
limitation, all (a) obligations or indebtedness owing to the Company (other
than Accounts) from whatever source arising, (b) patent licenses, patents,
trademark licenses, trademarks, rights in intellectual property, goodwill,
trade names, service marks, trade secrets, copyrights, permits and
licenses, (c) inventions, processes, production methods, proprietary
information, know-how and trade secrets used or useful in the business of
the Company, (d) licenses or user or other agreements granted to the
Company with respect to any of the items described in clause (b) or (c)
above, (e) information, customer lists, identification of suppliers, data,
plans, blueprints, specifications, designs, drawings, recorded knowledge,
surveys, engineering reports, test reports, manuals, materials standards,
catalogs, computer and automatic machinery software and programs and the
like pertaining to the business of the Company, (f) field repair data,
sales data, and other information relating to sales or service of products
now or hereafter manufactured, (g) accounting information and all media in
or on which any of the information, knowledge, data or records may be
recorded or stored and all computer programs used for the compilation or
printout thereof, (h) causes of action, claims and warranties now or
hereafter owned or acquired by the Company in respect of any of the items
listed above and (i) all tax refunds to which the Company is entitled.
"INSTRUMENTS" means all "instruments", "chattel paper" or "letters of
credit" (each as defined in the UCC) evidencing, representing, arising from
or existing in respect of, relating to, securing or otherwise supporting
the payment of, any of the Accounts, including promissory notes, drafts,
bills of exchange and trade acceptances, now owned or hereafter acquired by
the Company.
"INVENTORY" means all "inventory" (as defined in the UCC), now owned
or hereafter acquired by the Company, wherever located, and shall also mean
and include, without limitation, all raw materials and other materials and
supplies, work-in-process and finished goods and any products made or
processed therefrom and all substances, if any, commingled therewith or
added thereto.
"PERFECTION CERTIFICATE" means a certificate substantially in the form
of EXHIBIT A hereto, completed with the schedules and attachments
contemplated thereby to the satisfaction of the Bank, and duly executed by
the chief financial officer of the Company.
"PERMITTED FINANCING STATEMENTS" means any financing statements naming
the Company as Debtor filed solely pursuant to Section 9-408 of the UCC and
financing statements relating to Permitted Liens.
"PERMITTED LIENS" means the Liens on the Collateral permitted to be
created, assumed or to exist pursuant to Section 7.6 of the Credit
Agreement.
"PROCEEDS" means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease,
exchange, assignment, licensing or other disposition of, or realization
upon, Collateral, including, without limitation, all claims of the Company
against third parties for loss of, damage to or destruction of, or for
proceeds payable under, or unearned premiums with respect to, policies of
insurance in respect of, any Collateral, and any condemnation or
requisition payments with respect to any Collateral, in each case whether
now existing or hereafter arising.
<PAGE>
-3-
"SECURED OBLIGATIONS" means all obligations of the Company to the
Bank, whether now existing or hereafter incurred or created, joint or
several, direct or indirect, absolute or contingent, due or to become due,
matured or unmatured, liquidated or unliquidated, arising by contract,
operation of law or otherwise, including (a) all principal of and interest
(including any interest which accrues after the commencement of any case,
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Company) on any advance to the Company under the
Credit Agreement or the Note; (b) all other amounts (including any fees or
expenses) payable by the Company under the Credit Agreement, the Note or
any other Loan Document; (c) all amounts payable to the Bank in connection
with the issuance of any letter of credit by the Bank for the account of
the Company or any drawing thereunder, including any reimbursement
obligation and fees payable under any related letter of credit application
or reimbursement agreement executed by the Company; (d) all amounts payable
by the Company hereunder; and (e) any renewals, refinancings or extensions
of any of the foregoing.
"SECURITY INTERESTS" means the security interests granted pursuant to
Section 3, as well as all other security interests created or assigned as
additional security for the Secured Obligations pursuant to the provisions
of this Agreement.
"UCC" means the Uniform Commercial Code in effect on the date hereof
in Massachusetts; provided that if by reason of law, the perfection or
effect of perfection or non-perfection of the Security Interests in any
Collateral is governed by the Uniform Commercial Code in effect in a
jurisdiction other than Massachusetts, "UCC" means the Uniform Commercial
Code in effect in such other jurisdiction for purposes of the provisions
hereof relating to such perfection or effect of perfection or non-
perfection.
SECTION 2. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants as follows:
(a) The Company has good title to all of the Collateral, free and clear of
any Liens other than the Permitted Liens and the Security Interests.
(b) Neither the Company nor its predecessors has performed any acts which
might prevent the Bank from enforcing any of the terms of this Agreement or
which would limit the Bank in any such enforcement. Other than the Permitted
Financing Statements and financing statements or other similar or equivalent
documents or instruments with respect to the Security Interests, no financing
statement, mortgage, security agreement or similar or equivalent document or
instrument covering all or any part of the Collateral is on file or of record in
any jurisdiction in which such filing or recording would be effective to perfect
a Lien on such Collateral. No Collateral is in the possession of any Person
(other than the Company) asserting any claim thereto or security interest
therein, except that the Bank or its designee may have possession of Collateral
as contemplated hereby.
(c) Prior to the first borrowing under the Credit Agreement, the Company
shall deliver the Perfection Certificate to the Bank. The information set forth
therein shall be correct and complete.
(d) When UCC financing statements in appropriate form have been filed in
the offices specified in the Perfection Certificate to the extent that a
security interest therein may be perfected by filing pursuant to the UCC, the
Security Interests shall constitute valid and perfected security
<PAGE>
-4-
interests in the Collateral (except Inventory in transit), in each case prior to
all other Liens and rights of others therein.
(e) Except for the filings referred to in paragraph (d) above, no
authorization, approval or other action by, and no notice of filing with, any
Governmental Authority that has not been received, taken or made is required (i)
for the grant by the Company of the Security Interests or for the execution,
delivery or performance of this Agreement by the Company, (ii) for the
perfection and maintenance of the Security Interests as first priority security
interests and liens, or (iii) for the exercise by the Bank of the rights or the
remedies in respect of the Collateral pursuant to this Agreement.
(f) The Inventory and Equipment are insured in accordance with the
requirements of this Security Agreement and the Credit Agreement.
SECTION 3. THE SECURITY INTERESTS
(a) In order to secure the full and punctual payment of the Secured
Obligations in accordance with their respective terms, the Company hereby
hypothecates, assigns, pledges and grants to the Bank a continuing security
interest and lien in and to all right, title and interest of the Company in the
following property, whether now owned or existing or hereafter acquired or
arising and regardless of where located (all being collectively referred to as
the "COLLATERAL"):
(i) Accounts;
(ii) Inventory;
(iii) General Intangibles;
(iv) Documents;
(v) Instruments;
(vi) Equipment;
(vii) All monies and property of any kind of the Company in
the possession or under the control of the Bank;
(viii) All books and records (including customer lists,
marketing information, credit files, price lists, operating records, vendor
and supplier price lists, sales literature, computer programs, printouts
and other computer materials and records) of the Company pertaining to any
of the Collateral; and
(ix) All Proceeds of, attachments or accessions to, or
substitutions for all or any of the Collateral described in Clauses (i)
through (viii) hereof.
(b) The Security Interests are granted as security only and shall not
subject the Bank to, or transfer or in any way affect or modify, any obligation
or liability of the Company with respect to any of the Collateral or any related
transaction.
<PAGE>
-5-
SECTION 4. FURTHER ASSURANCES; COVENANTS
The Company covenants as follows:
(a) The Company will not change (i) the locations of its principal place
of business or its chief executive office, (ii) its federal tax identification
number, (iii) the locations where it keeps or holds any related records from the
applicable locations described in the Perfection Certificate, or (iv) its name,
identity or corporate structure in any manner, without giving the Bank 30 days
prior written notice. In the event of any such change, the Company shall, at
its cost and expense, cooperate with the Bank and cause to be filed or recorded
additional financing statements, amendments or supplements to existing financing
statements, continuation statements or other documents required to be recorded
or filed in order to perfect and protect the Security Interests. The Company
shall not, in any event, make any such change if such change would cause the
Security Interests in any Collateral to lapse or cease to be perfected.
(b) The Company will, from time to time, at its expense, execute, deliver,
file and record any statement, assignment, instrument, document, agreement or
other paper and take any other action (including, without limitation, any
filings of financing or continuation statements under the UCC) that the Bank may
from time to time reasonably determine to be necessary or desirable in order to
create, preserve, upgrade in rank (to the extent required hereby), perfect,
confirm or validate the Security Interests or to enable the Bank to (i) obtain
the full benefits of this Agreement, or (ii) to exercise and enforce any of its
rights, powers and remedies hereunder with respect to any of the Collateral. At
the Bank's request, the Company will use reasonable efforts to obtain the
consent of any Person that is necessary or desirable to effect the pledge
hereunder of any right, title, claims and benefits now owned or hereafter
acquired by the Company in and to any General Intangible. To the extent
permitted by law, the Company hereby authorizes the Bank to execute and file
financing statements or continuation statements without the Company's signature
appearing thereon. The Company agrees that a carbon, photographic or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement. The Company shall pay the costs of, or incidental to, any
recording or filing of any financing or continuation statements concerning the
Collateral.
(c) If any warehouseman, bailee or any of the Company's agents or
processors possesses or controls any Collateral, the Company shall, upon the
request of the Bank, notify such warehouseman, bailee, agent or processor of the
Security Interests created hereby and to hold all such Collateral for the Bank's
account subject to the Bank's instructions.
(d) The Company shall keep complete and accurate books and records
relating to the Collateral, and stamp or otherwise mark them in such manner as
the Bank may reasonably request in order to reflect the Security Interests.
(e) The Company will promptly deliver and pledge each Instrument to the
Bank, appropriately endorsed to the Bank without recourse, provided that so long
as no Event of Default shall have occurred and be continuing, the Company may
retain for collection in the ordinary course any Instruments it receives in the
ordinary course of business and the Bank shall, promptly upon request of the
Company, make appropriate arrangements for making any other Instrument pledged
by the Company available to it for purposes of presentation, collection or
renewal (any such arrangement to be effected, to the extent deemed appropriate
by the Bank, against trust receipt or like document).
<PAGE>
-6-
(f) The Company shall use its best efforts to cause to be collected from
its account debtors, as and when due, any and all amounts owing under or on
account of each Account (including, without limitation, Accounts which are
delinquent, such Accounts to be collected in accordance with lawful collection
procedures and the Company's standard procedures) and apply forthwith upon
receipt mail such amounts so collected to the outstanding balance of such
Account, except that, unless an Event of Default has occurred and is continuing
and the Bank is exercising its rights hereunder to collect Accounts, the Company
may allow in the ordinary course of business as adjustments to amounts owing
under its Accounts (i) an extension or renewal of the time of payment, or
settlement for less than the total unpaid balance, which the Company finds
appropriate in accordance with prudent business judgment and (ii) a refund or
credit due as a result of returned or damaged merchandise, all in accordance
with the Company's ordinary course of business consistent with its historical
collection practices. The costs and expenses (including, without limitation,
attorney's fees) of collection, whether incurred by the Company or the Bank,
shall be borne by the Company.
(g) Upon the occurrence and during the continuance of any Event of
Default, upon the request of the Bank, the Company will promptly notify (and the
Company hereby authorizes the Bank so to notify) each account debtor in respect
of any Account or Instrument that such Collateral has been assigned to the Bank,
and that any payments due or to become due in respect of such Collateral are to
be made directly to the Bank or any designee of the Bank. Following such
request of the Bank, the Company shall hold all proceeds from collection of
Accounts as trustee for the Bank (without commingling the same with other funds
of the Company) and shall turn the same over to the Bank immediately upon
receipt in the for received (duly endorsed by the Company to the Bank, if
required). The Bank shall apply the proceeds of such collections it receives to
the Secured Obligations in accordance with Section 8 of this Agreement. The
application of the proceeds of such collections shall be conditional upon the
final payment in cash of the items so collected. If any item is not so paid or
the Bank is required for any reason to return any payment made, the Bank may
reverse any credit given in respect of such item.
(h) Without the prior written consent of the Bank, the Company will not
(i) sell, lease, exchange, assign or otherwise dispose of, or grant any option
with respect to, any Collateral except as permitted by Section 7.4 of the Credit
Agreement and, in the case of any such permitted sale or exchange, the Security
Interests created hereby in such item (but not in any Proceeds arising from such
sale or exchange) shall cease immediately without any further action on the part
of the Bank; or (ii) create, incur or suffer to exist any Lien with respect to
any Collateral, except for Permitted Liens and the Security Interests.
(i) The Company will maintain, with financially sound and reputable
companies, insurance policies (i) insuring all Inventory and Equipment against
loss by fire, explosion, theft and other casualties reasonably satisfactory to
the Bank and (ii) insuring the Company and the Bank against liability for
personal injury and property damage relating to Inventory and Equipment, such
policies to be in such form and amounts and having such coverage as is
reasonably satisfactory to the Bank, with losses payable to the Bank as sole
loss payee. All such insurance shall (A) provide that no termination,
cancellation, material reduction in amount or material change in coverage
thereof shall be effective until at least 30 days after receipt by the Bank of
written notice thereof, (B) in the case of the policies referenced in clause
(ii) above, name the Bank as additional insured and (C) be otherwise reasonably
satisfactory to the Bank.
(j) The Company will keep each item of Equipment in good order and repair
and will not use the same in violation of law or any policy of insurance
thereon.
<PAGE>
-7-
(k) The Company will, promptly upon request, provide to the Bank all
information and evidence it may reasonably request concerning the Collateral
(including without limitation, the names, addresses, face value, and date of
invoices for each debtor obligated on each Account) to enable the Bank to
enforce the provisions of this Agreement.
SECTION 5. GENERAL AUTHORITY
The Company hereby irrevocably appoints the Bank its true and lawful
attorney, with full power of substitution, in the name of the Company, the Bank,
or otherwise, for the sole use and benefit of the Bank, but at the Company's
expense, to the extent permitted by law to exercise, at any time and from time
to time while an Event of Default has occurred and is continuing, all or any of
the following powers with respect to all or any of the Collateral:
(a) to endorse the Company's name on any checks, notes, acceptances,
money orders, drafts, filings or other forms of payment or security that
may come into the Bank's possession,
(b) to demand, sue for, collect, receive and give acquittance for any
and all monies due or to become due thereon or by virtue thereof,
(c) to settle, compromise, compound, prosecute or defend any action
or proceeding with respect thereto,
(d) to sell, transfer, assign or otherwise deal in or with the same
or the proceeds or avails thereof, as fully and effectively as if the Bank
were the absolute owner, and
(e) to extend the time of payment thereof and to make any allowance
and other adjustments with reference thereto;
PROVIDED that the Bank shall give the Company not less than ten days prior
written notice of the time and place of any sale or other intended disposition
of any of the Collateral, except any Collateral which is perishable or threatens
to decline speedily in value or is of a type customarily sold on a recognized
market. The Company agrees that such notice constitutes "reasonable
notification" within the meaning of Section 9-504(3) of the UCC.
SECTION 6. REMEDIES UPON EVENT OF DEFAULT
(a) If any Event of Default has occurred and is continuing, the Bank may
exercise all rights of a secured party under the UCC (whether or not in effect
in the jurisdiction where such rights are exercised) and, in addition, the Bank
may, without being required to give any notice, except as herein provided or as
may be required by law, sell any and all of the Collateral at public or private
sale, for cash, upon credit or for future delivery, and at such prices as the
Bank may deem satisfactory. The Bank may be the purchaser of any or all of the
Collateral so sold at any public sale (or, if the Collateral is of a type
customarily sold in a recognized market or is of a type which is the subject of
widely distributed standard price quotations, at any private sale) and
thereafter hold the same, absolutely, free from any right or claim of whatsoever
kind. The Company will execute and deliver such documents and take such other
action as the Bank deems necessary or advisable in order that any such sale may
be made in compliance with law. Upon any such sale the Bank shall have the
right to deliver, assign and transfer to the purchaser the Collateral so sold.
Each purchaser at any such sale shall hold the Collateral so sold to it
absolutely, free from any claim or right of whatsoever kind, including any
equity or right of redemption of the Company. The
<PAGE>
-8-
Company, to the extent permitted by law, hereby specifically waives all rights
of redemption, stay or appraisal which it has or may have under any law now
existing or hereafter adopted. The notice (if any) of such sale required by
Section 5 shall (i) in case of a public sale, state the time and place fixed for
such sale, and (ii) in the case of a private sale, state the day after which
such sale may be consummated. Any such public sale shall be held at such
time(s) within ordinary business hours and at such places as the Bank may fix in
the notice of such sale. At any such sale the Collateral may be sold in one lot
as an entirety or in separate parcels, as the Bank may determine. The Bank
shall not be obligated to make any such sale pursuant to any such notice. The
Bank may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or place to
which the same may be so adjourned. In case of any sale of all or any part of
the Collateral on credit or for future delivery, the Collateral so sold may be
retained by the Bank until the selling price is paid by the purchaser thereof,
but the Bank shall not incur any liability in case of the failure of such
purchaser to take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may again be sold upon like notice. The Bank, instead
of exercising the power of sale herein conferred upon it, may proceed by a suit
or suits at law or in equity to foreclose the Security Interests and sell the
Collateral, or any portion thereof, under a judgment or decree of a court or
courts of competent jurisdiction.
(b) For the purpose of enforcing its rights and remedies under this
Agreement, the Bank may (i) require the Company to, and the Company agrees that
it will, at its expense and upon the request of the Bank, forthwith assemble all
or any part of the Collateral as directed by the Bank and make it available at a
place designated by the Bank which is, in its opinion, reasonably convenient to
the Bank, whether at the premises of the Company or otherwise, (ii) to the
extent permitted by law, enter, with or without process of law and without
breach of the peace, any premise where any of the Collateral may be located, and
without charge or liability to it seize and remove such Collateral from such
premises, (iii) have access to and use the Company's books and records relating
to the Collateral and (v) prior to the disposition of the Collateral, store or
transfer it without charge in or by means of any storage or transportation
facility owned or leased by the Company, process, repair or recondition it or
otherwise prepare it for disposition in any manner and to the extent the Bank
deems appropriate to preserve and enhance its value and, in connection with such
preparation and disposition, use, as a licensee (or if no decline in the value
of the Collateral would result, otherwise) without charge any trademark, trade
name, copyright, patent or technical process used by the Company.
SECTION 7. LIMITATION ON DUTY OF BANK IN RESPECT OF COLLATERAL
Beyond the safe custody thereof in accordance with law, the Bank shall have
no duty as to any Collateral in the possession or control of the Bank or any
agent or bailee, or any income thereon, or as to the preservation of rights
against prior parties or any other rights pertaining thereto. The Bank shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equivalent to that which it accords its own property of like
nature, and shall not be liable or responsible for any loss or damage to any of
the Collateral, or for any diminution in the value thereof, by reason of the act
or omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by the Bank in good faith and in the absence of gross
negligence.
<PAGE>
-9-
SECTION 8. APPLICATION OF PROCEEDS
Upon the occurrence and during the continuance of an Event of Default, the
proceeds of any sale of, or other realization upon, all or any part of the
Collateral shall be applied by the Bank in the following order of priorities:
FIRST, to payment of the expenses of such sale or other realization,
including reasonable compensation to the Bank and its agents and counsel in
connection therewith, and all expenses, liabilities and advances incurred
or made by the Bank in connection therewith, and any other unreimbursed
expenses for which the Bank is to be reimbursed pursuant to Section 10.6 of
the Credit Agreement, or Section 9 hereof and unpaid fees owing to the Bank
under the Credit Agreement;
SECOND, to the payment of accrued but unpaid interest on the Secured
Obligations;
THIRD, to the payment of unpaid principal of the Secured Obligations;
FOURTH, to the payment of all other Secured Obligations, until all
Secured Obligations shall have been paid in full; and
FINALLY, to payment to the Company or its successors or assigns, or as
a court of competent jurisdiction may direct, of any surplus then remaining
from such proceeds.
The Bank may make distributions hereunder in cash or in kind or in any
combination thereof.
SECTION 9. EXPENSES
In the event that the Company fails to comply with the provisions of the
Credit Agreement or this Agreement, such that the value of any Collateral or the
validity, perfection, rank or value of any Security Interest is thereby
diminished or potentially diminished or put at risk, the Bank may effect such
compliance on behalf of the Company, and the Company shall reimburse the Bank
for the costs thereof within two Business Days of demand therefor. All
insurance expenses and all reasonable expenses of protecting, storing,
warehousing, appraising, insuring, handling, maintaining, and shipping the
Collateral, any and all excise, property, sales, and use taxes imposed by any
state, federal, or local authority on any of the Collateral, or in respect of
the sale or other disposition thereof, shall be borne by the Company; and if the
Company fails to promptly pay any portion thereof when due, the Bank may, at its
option, but shall not be required to, pay the same and charge the Company's
account therefor, and the Company agrees to reimburse the Bank therefor on
demand. All sums so paid or incurred by the Bank for any of the foregoing and
any and all other sums for which the Company may become liable hereunder and all
reasonable costs and expenses (including attorneys' fees, legal expenses and
court costs) reasonably incurred by the Bank in enforcing or protecting the
Security Interests or any of their rights or remedies under this Agreement,
shall, together with interest thereon until paid at the rate applicable to
advances made under the Credit Agreement, be additional Secured Obligations
hereunder.
SECTION 10. TERMINATION OF SECURITY INTERESTS
Upon the indefeasible payment in full of all Secured Obligations and the
termination of the Commitment, the Security Interests shall terminate and all
rights to the Collateral shall revert to the Company, and this Security
Agreement shall terminate and no longer be of any force and effect.
<PAGE>
-10-
SECTION 11. NOTICES
All notices, approvals, requests, demands and other communications
hereunder shall be given in accordance with the Credit Agreement.
SECTION 12. WAIVERS, NON-EXCLUSIVE REMEDIES
No failure on the part of the Bank to exercise, and no delay in exercising
and no course of dealing with respect to, any right under the Credit Agreement
or this Agreement shall operate as a waiver thereof; nor shall any single or
partial exercise by the Bank of any right under the Credit Agreement or this
Agreement preclude any other or further exercise thereof or the exercise of any
other right. The rights in this Agreement and the Credit Agreement are
cumulative and are not exclusive of any other remedies provided by law.
SECTION 13. SUCCESSORS AND ASSIGNS
This Agreement is for the benefit of the Bank and its successors and
assigns, and in the event of an assignment of all or any of the Secured
Obligations, the rights hereunder, to the extent applicable to the indebtedness
so assigned, may be transferred with such indebtedness. This Agreement shall be
binding on the Company and its successors and assigns,
SECTION 14. CHANGES IN WRITING
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only in writing signed by the Company and
the Bank.
SECTION 15. MASSACHUSETTS LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, EXCEPT AS OTHERWISE REQUIRED BY
MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY
THE LAWS OF ANY JURISDICTION OTHER THAN THE COMMONWEALTH OF MASSACHUSETTS ARE
GOVERNED BY THE LAWS OF SUCH JURISDICTION.
SECTION 16. SEVERABILITY
If any provision hereof is invalid and unenforceable in any jurisdiction,
then, to the fullest extent permitted by law, (a) the other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in favor of the Bank in order to carry out the intentions of
the parties hereto as nearly as may be possible; and (b) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
SECTION 17. COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any such counterpart.
<PAGE>
-11-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
DIGITRAN CORPORATION
By: /s/ Peter S. Macaluso
----------------------------
Name: Peter S. Macaluso
Title: Vice President and CFO
SILICON VALLEY BANK
By: /s/ Joan S. Parsons
----------------------------
Name: Joan S. Parsons
Title: Vice President
<PAGE>
EXHIBIT A
PERFECTION CERTIFICATE
OF
DIGITRAN CORPORATION
The undersigned, the chief financial officer of Digitran Corporation, a
Delaware corporation (the "COMPANY"), hereby certifies to Silicon Valley Bank
(the "BANK") with reference to the Security Agreement dated as of July 7, 1995
between the Company and the Bank (the terms defined therein being used herein as
therein defined) as follows:
1. NAMES. (a) The exact corporate name of the Company as it appears in
its certificate of incorporation is as follows:
Digitran Corporation
(b) Set forth below is each other corporate name the Company has had
since its organization, together with the date of the relevant change:
(c) Set forth below is a description of each change by the Company of
its identity or corporate structure in any way within the past five years:
(d) The following is a list of all other names (including trade names
or similar appellations) used by the Company or any of its divisions or other
business units at any time during the past five years:
(e) The Federal tax identification number of the Company is as
follows:
2. CURRENT LOCATIONS. (a) The chief executive office of the Company is
located at the following address:
379 Thornall Street
Edison, NJ 08837
<PAGE>
-2-
(b) The following are all the locations where the Company maintains
any books or records relating to any Accounts:
Mailing
Name Address City State
---- ------- ---- -----
(c) The following are all the locations where Inventory and Equipment
of the Company are located:
Mailing
Name Address City State
---- ------- ---- -----
(d) The following are all the places of business of the Company not
identified above:
Mailing
Name Address City State
---- ------- ---- -----
3. PRIOR LOCATIONS. Set forth below is the information required by
subparagraphs (a), (b), (c) and (d) of paragraph 2 with respect to each location
or place of business maintained by the Company at any time during the past five
years:
4. UNUSUAL TRANSACTIONS. Except as set forth in SCHEDULE 4, all Accounts
have been originated by the Company and all Equipment has been acquired by the
Company in the ordinary course of its business.
5. FILE SEARCH REPORTS. Attached hereto as SCHEDULE 5 is a true copy of
a file search report from the Uniform Commercial Code filing officer in each
jurisdiction identified in paragraph 2 or 3 above with respect to each name set
forth in paragraph 1 above, together with a true copy of each financing
statement or other filing identified in such file search reports. To the best
knowledge of the Company, no other financing statements have been filed listing
the Company as a debtor and no such filings are pending except in favor of the
Bank.
<PAGE>
-3-
WITNESS WHEREOF, I have hereunto set my hand this __ day of ________,
199_.
-------------------------
Name:
-------------------
Title:
-------------------
<PAGE>
SCHEDULE 4
-----------
(Unusual Transactions)
<PAGE>
SCHEDULE 5
----------
(Search Reports)
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
----------------------
TO: SILICON VALLEY BANK
3000 Lakeside Drive
Santa Clara, California 95954
The undersigned authorized officer of Digitran Corporation and ____________
(the "Borrower"), hereby certify, with respect to the Credit Agreement dated as
of July 7, 1995 between Silicon Valley Bank and the Borrower (the "Bank"), as
amended through the date hereof (the "Credit Agreement"), that (a) the Borrower
has been in complete compliance for the period from ___/___/_____ to
___/___/_____ (the "Applicable Financial Statements Date") with the covenants
of the Borrowers contained therein as demonstrated below, and (b) no Default has
occurred and is continuing as of the date hereof, except, in either case, as
noted below. All capitalized terms used herein and not otherwise defined shall
have the meanings prescribed therefor in the Credit Agreement.
<TABLE>
<CAPTION>
ACTUAL AS
COVENANT REQUIRED OF __________
<S> <C> <C>
- ------------------------------------------------------------------------------------------
Financial Statements Monthly w/in 28 days;
annually w/in 105 days; and
Borrowing Base Certificate
and A/R aging w/in 15 days of
each month
- ------------------------------------------------------------------------------------------
All documents filed with SEC Within 10 days after filing
- ------------------------------------------------------------------------------------------
Minimum Quick Ratio (cash & 1.25:1 at all times from ___.___:1
accounts receivable/current 12/31/94 through 8/31/95; ($__________ to $__________)
liabilities) 1.0:1 at all times thereafter
- ------------------------------------------------------------------------------------------
<PAGE>
-2-
- ------------------------------------------------------------------------------------------
Minimum Profitability Maximum Net Loss of
$3,500,000 for the fiscal
year ending 12/31/94; Maximum
Net Loss of $1,200,000 for
the quarter ending 3/31/95;
$1,000,000 for the quarter
ending 6/30/95; $850,000 for
the quarter ending 9/30/95;
$600,000 for the quarter
ending 12/31/95 and Minimum
Net Income of $1 for the
quarter ending 3/31/96 and
each quarter thereafter. $__________
- ------------------------------------------------------------------------------------------
Limit of Capital Maximum Capital Expenditure
Expenditures of $1,270,000 in any fiscal $__________
year
- ------------------------------------------------------------------------------------------
Limit on Operating Lease Maximum Lease Expense of
Payments $430,000
- ------------------------------------------------------------------------------------------
Minimum Tangible Net Worth $500,000 for the quarter
ending 12/31/94; $3,400,000
for the quarter ending
3/31/95; $2,500,000 for
quarter ending 6/30/95;
$1,700,000 for quarter ending
9/30/95; $1,400,000 for
quarter ending 12/31/95 and
$1,250,000 for quarter ending
3/31/96 and each quarter
thereafter.
- ------------------------------------------------------------------------------------------
Calculation of Tangible Net stockholders' equity $__________
Worth
- intangible assets $__________
- goodwill $__________
+ Subordinated Debt $__________]
Total Tangible Net Worth $__________
- ------------------------------------------------------------------------------------------
Maximum Ratio of Total 2.1:1 at all times ___.___:1
Senior Liabilities
($__________
to Tangible Net Worth) $__________]
- ------------------------------------------------------------------------------------------
A/R Advance Rate 50% of Eligible Domestic
Accounts Receivable. $__________
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-3-
Comments Regarding Exceptions:
Attached hereto are financial statements as of and for the fiscal
[month][year] ended on the Applicable Financial Statements Date, which have been
certified by the [undersigned] [Accountants] as required by Section 6.4 of the
Credit Agreement.
Submitted by:
By:
Name:
Title:
Date:
<PAGE>
EXHIBIT D
BORROWING BASE CERTIFICATE
The undersigned is an authorized officer of Digitran Corporation (the
"Borrower"), and is delivering this certificate pursuant to the requirements of
the Credit Agreement dated as of July 7, 1995 between Silicon Valley Bank (the
"Bank") and the Borrower, as amended through the date hereof (the "Credit
Agreement").
The undersigned hereby certifies to the Bank that the following is a fair,
accurate and complete report of the Borrowing Base (as such term is defined in
the Credit Agreement) of the Borrower as of , 199__ (the
"Relevant Date"):
I. ACCOUNTS RECEIVABLE ACTIVITY
A. Eligible Domestic Accounts Receivable: $
1. Balance as of the Relevant Date
2. Minus: Ineligible Accounts
Foreign Accounts
Amounts over 90 days due
Balance of 50% over 90 days accounts
Excess 25% Concentration
Contra Accounts
Intercompany/Employee Accounts
Government Accounts
Other Ineligible Accounts
Total Ineligible Accounts
3. Total Eligible Domestic Accounts Receivable (Line (1) minus
Line (2)) $
4. Funds Available (50% of Line (3)) $
II. EXTENSION OF CREDIT ACTIVITY
A. Total Funds Available:
(Limited to the lesser of $1,000,000 or the amount set forth
in I.A.4. $
B. Extension of Credit Balance as of the Relevant Date
$
C. Reserve Position (II.A minus II.B) $
Accompanying this certificate is a fair, accurate and complete report
of accounts receivable aging for the Borrower as of the Relevant Date, in
reasonable detail.
<PAGE>
-2-
The above listed collateral is subject to a security interest in favor of
the Bank pursuant to the terms of a Security Agreement executed by the Borrower
and the Bank.
Submitted By:
Name:
Title:
Date:
<PAGE>
EXHIBIT E
SILICON VALLEY BANK
LOAN PAYMENT/ADVANCE
TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., E.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
FAX#: 617-431-9906 TIME:
FROM:
CLIENT NAME (BORROWER)
REQUESTED BY:
AUTHORIZED SIGNERS NAME
AUTHORIZED SIGNATURE:
PHONE NUMBER:
FROM ACCOUNT # TO ACCOUNT #
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $
PRINCIPAL PAYMENT (ONLY) $
INTEREST PAYMENT (ONLY) $
PRINCIPAL & INTEREST (PAYMENT) $
OTHER INSTRUCTIONS:
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/
loan advance on the above designated account and is known to me.
AUTHORIZED REQUESTER PHONE #
RECEIVED BY (BANK) PHONE #
AUTHORIZED SIGNATURE (BANK)
<PAGE>
SCHEDULE A
Existing Indebtedness
OF DIGITRAN CORPORATION
Digitran Corporation
Equipment Lease Commitments
As of April 30, 1995
Equipment Lease Term Buyout
Lessor Cost Payment Date Price
Comdisco Inc.
Lease schedule 106,644 3,460 12/31/95 FMV
Buyout #268-00 60,000 5,185 9/30/95 $1.00
Buyout #268-02 24,925 2,164 3/31/96 $1.00
LTI Venture Leasing
($300,000 lease line)
Schedule 1 50,475 2,347 7/31/95 FMV
Schedule 2 97,334 4,477 4/30/96 FMV
Schedule 3 40,874 1,901 1/31/97 FMV
Schedule 4 13,575 524 2/28/97 FMV
Schedule 5 28,474 1,099 6/30/97
Schedule 6 130,118 4,515 1/31/98 13%
360,850 14,863
Phoenix Leasing Incorporated
($500,000 lease line)
Schedule 1 93,676 3,068 3/31/98 15%
Schedule 2 51,574 1,689 4/30/98 15%
145,250 4,757
<PAGE>
Schedule B
INTELLECTUAL PROPERTY
Trademark and Service Mark Registrations
NAME OF MARK REGISTRATION NO. REGISTRATION DATE
DIGITRAN THE FAX 1,768,897 5/4/93
NETWORK COMPANY
FAXASSURED 1,766,243 4/20/93
FAXSAVER 1,766,242 4/20/93
DIGITRAN 1,766,241 4/20/93
Trademark Application
NAME OF MARK APPLICATION NO. FILING DATE
FAXSAV 74/518,903 5/2/94
<PAGE>
SCHEDULE 7.2
The Borrower and Telstra Incorporated, a Delaware corporation and shareholder in
the Borrower ("Telstra"), signed a letter agreement on November 1, 1994 (the
"Letter Agreement"), which sets forth the basic terms of a Traffic Agreement
between the Borrower and Telstra. Under the terms of the Letter Agreement, the
Borrower and Telstra have agreed that (i) the Borrower will exclusively use
Telstra's "WorldFax" service for all of the Borrower's outbound traffic from the
United States, subject to customer acceptance, quality of service and
competitive pricing, (ii) pricing for the Borrower's use of Telstra's "WorldFax"
service is to be reviewed on a six-month basis, (iii) the arrangements are for a
period of five yeas commencing on the commercial commencement date of Telstra's
"WorldFax" service in the United States and (iv) Digitran has a right to use a
secondary carrier for outbound traffic from the United States in the event of a
"WorldFax" outage.
<PAGE>
LOAN DOCUMENT MODIFICATION AGREEMENT NO. 1
dated as of April 15, 1996,
amending, INTER ALIA,
CREDIT AGREEMENT
dated as of July 7, 1995
between
SILICON VALLEY BANK (the "Bank")
and
FAXSAV INCORPORATED (the "Borrower")
<PAGE>
LOAN MODIFICATION AGREEMENT
(NO. 1; DATED AS OF APRIL 15, 1996
LOAN DOCUMENT MODIFICATION AGREEMENT dated as of April 15, 1996 by and
between FAXSAV INCORPORATED, a Delaware corporation with its principal place of
business at 379 Thornall Street, Edison, New Jersey 08837 and formerly known as
Digitran Corporation (the "BORROWER") and SILICON VALLEY BANK (the "BANK"), a
California-chartered bank with its principal place of business at 3003 Tasman
Drive, Santa Clara, California 95054, and with a loan production office located
at Wellesley Office Park, 45 William Street, Wellesley, MA 02181, doing business
under the name "Silicon Valley East."
1. REFERENCE TO EXISTING LOAN DOCUMENTS.
Reference is hereby made to that Credit Agreement dated July 7, 1995
between the Bank and the Borrower (with the attached schedules and exhibits, the
"CREDIT AGREEMENT") and the Loan Documents referred to therein, including
without limitation that certain Promissory Note of the Borrower dated July 7,
1995 in the principal amount of $1,000,000 (the "WORKING CAPITAL NOTE"), and the
Security Documents referred to therein. Unless otherwise defined herein,
capitalized terms used in this Agreement shall have the same respective meanings
as set forth in the Credit Agreement.
2. EFFECTIVE DATE.
This Agreement shall become effective as of April 15, 1996 (the "EFFECTIVE
DATE"), provided that the Bank shall have received the following on or before
April 29, 1996 and provided further, however, in no event shall this Agreement
become effective until signed by an officer of the Bank in California:
a. two copies of this Agreement, duly executed by the Borrower;
b. an amended and restated promissory note (working capital line of
credit) in the form enclosed herewith (the "AMENDED WORKING CAPITAL NOTE"), duly
executed by the Borrower;
c. a promissory note in the principal amount of $750,000 in respect
of the Equipment Line Commitment in the form enclosed herewith (the "EQUIPMENT
LINE NOTE"), duly executed by the Borrower; and
d. evidence of the approval by your Board of Directors of this
Agreement the Amended Working Capital Note and the Equipment Line Note.
By the signature of its authorized officer below, the Borrower is hereby
representing that, except as modified in SCHEDULE A attached hereto, the
representations of the Borrower set forth in the Loan Documents (including those
contained in the Credit Agreement. as amended by this Agreement) are true and
correct as of the Effective Date as if made on and as of such date. In
addition, the Borrower confirms its authorization as to the debiting of its
account with the Bank in the aggregate amount of $5,000 in order to pay the
Bank's facility fee for the period up to and including the extended Commitment
Expiration Date. Finally, the Borrower agrees that, as of the Effective Date,
it has no defenses against its obligations to pay any amounts outstanding under
the Credit Agreement and the other Loan Documents.
<PAGE>
-2-
3. DESCRIPTION OF CHANGE IN TERMS.
As of the Effective Date, the Credit Agreement is modified in the following
respects:
a. Section 1.1 is hereby amended by deleting the words "the date
which is one year from the date set forth above" and substituting in place
thereof the date "April 14, 1997."
b. Section 1.4 is hereby amended and restated in its entirety to
read as follows:
"BORROWING BASE. The Borrower shall not permit, or request any advance
hereunder that would cause, the sum of the aggregate of all Working Capital
Line of Credit Loans under this Section 1 to exceed at any time an amount
equal to the lesser of (a) the Working Capital Line of Credit Commitment
and (b) 60% of all Eligible Domestic Accounts Receivable at such time MINUS
(until the occurrence of a Debt Service Coverage Event) the aggregate
outstanding amount of Equipment Line of Credit Loans under Section 1A
hereof (the lesser of (a) and (b) being referred to herein as the
"BORROWING BASE")."
c. Section 1.5 is hereby amended by deleting the date "July 7, 1996"
appearing in the second line thereof and substituting in place thereof the date
"April 14, 1997. "
d. There is hereby inserted immediately following Section 1 the
following new Section 1A:
"SECTION 1A EQUIPMENT LINE OF CREDIT LOANS.
"1A. AMOUNT. Subject to and upon the terms and conditions set forth
below, the Bank agrees to make loans (each an "EQUIPMENT LINE OF CREDIT
LOAN" and collectively, the "EQUIPMENT LINE OF CREDIT LOANS") to the
Borrower under this Section 1A.1 from time to time up to and including
October 14, 1996 (the "EQUIPMENT LINE COMMITMENT EXPIRATION DATE"), unless
earlier terminated pursuant to Section 1A.6, in an aggregate amount not to
exceed at any one time outstanding the lesser of (a) $750,000 and (b) until
the occurrence of a Debt Service Coverage Event, 60% of all Eligible
Domestic Accounts Receivable at such time LESS the aggregate outstanding
principal amount of Working Capital Line of Credit Loans (the "EQUIPMENT
LINE COMMITMENT"), subject to the limitation set forth in Section 1A.4.
"1A.2 EQUIPMENT NOTE. The Equipment Line of Credit Loans shall be
evidenced by and payable with interest in accordance with the note of the
Borrower in the form of attached EXHIBIT A-1, dated as of the date hereof
(the "EQUIPMENT LINE NOTE"). The Working Capital Line Note and the
Equipment Line Note are sometimes together referred to as the "BORROWER
NOTES."
"1A.3 REQUESTS FOR EQUIPMENT LINE LOANS. The Borrower may make
requests for Equipment Line of Credit Loans, and the Bank shall make such
loans in the same manner as provided in Section 1.3 with respect to Working
Capital Line of Credit Loans, except that together with the Notice of
Borrowing, the Borrower shall furnish to the Bank copies of all invoices
for items of Eligible Equipment and such other information as the Bank
shall reasonably request.
<PAGE>
-3-
"1A.4 RESTRICTIONS ON ADVANCES. Equipment Line of Credit Loans
may be made only with respect to an item or items of Eligible Equipment
specifically identified in accordance with Section 1A.3, and the principal
amount of any such Equipment Line of Credit Loans may not exceed 80% of the
invoice price of such item or items of Eligible Equipment, including sales
taxes, shipping charges, installation charges and similar charges and
expenses.
"1A.5 MATURITY DATE OF EQUIPMENT LINE LOANS. All Equipment Line
of Credit Loans shall be repayable in installments in accordance with the
terms of the Equipment Line Note, provided that all Equipment Line of
Credit Loans shall mature and the total principal amount thereunder shall
be prepayable on October 14, 1999 (the "EQUIPMENT LINE MATURITY DATE"), at
which time all amounts advanced under this Section 1A shall be immediately
due and payable.
"1A.6 TERMINATION OF COMMITMENT. The Borrower, upon (a) at least
two (2) Banking Days' prior written notice to the Bank and (b) the
repayment in full of the outstanding principal balance of the Equipment
Line of Credit Loans (and accrued interest thereon) and the payment in full
of any expenses or other fees owed by the Borrower to the Bank under or
pursuant to this Agreement, may elect to permanently terminate the
Equipment Line Commitment."
e. Section 2.1 (a) is hereby amended by deleting the phrase "Prime
Rate plus 2%" appearing in the fourth line thereof and substituting in place
thereof the phrase "Prime Rate plus 1/2%."
f. Subparagraph (b) of Section 2.1 is hereby relettered as
subparagraph "(c)" and is further amended by substituting for the words
"Extension of Credit" in the first line thereof the following: "any Working
Capital Line of Credit Loans or the Equipment Line of Credit Loans (together,
the "BORROWER LOANS")."
g. There is hereby inserted immediately following subparagraph (a)
of Section 2.1 the following new subparagraph (b):
"(b) The Borrower agrees to pay interest on the unpaid principal
amount of each Equipment Line of Credit Loan for each day from and
including the date such Equipment Line of Credit Loan was made to it,
but excluding the date the principal on such Equipment Line of Credit
Loan is due (whether at maturity, by acceleration or otherwise), at a
fluctuating rate per annum equal to the Prime Rate plus 1/2%, which
interest shall change when the Prime Rate shall change. Such interest
shall be payable monthly in arrears on the fourteenth day of each
month commencing with the first such date hereafter and when the
principal amount of such Equipment Line of Credit Loan is due (whether
at maturity, by acceleration or otherwise)."
h. Section 4 is hereby amended by deleting the words "Extensions of
Credit" appearing in the first line of the initial unnumbered paragraph thereof
and substituting in place thereof the words "Borrower Loans."
<PAGE>
-4-
i. Section 5 is hereby amended by deleting the words "Extensions of
Credit" in the first line and "Line of Credit Loans" appearing in the fourth
line of the initial unnumbered paragraph thereof and substituting in place
thereof the words "Borrower Loans."
j. Section 6.11 is hereby amended by inserting at the end thereof
the following:
"In addition, Borrower agrees to maintain a minimum monthly average
balance of $500,000 in one or more money market accounts at the Bank.
Borrower acknowledges and agrees that the rate of interest on the Borrower
Notes has been established based upon Borrower's compliance."
k. The text of Sections 7.9 is hereby deleted in its entirety and
there is hereby inserted in place thereof the following: "Not utilized."
l. Sections 7.12 through 7.16 of the Credit Agreement are amended in
their entirety to read as follows:
"7.12 CAPITAL EXPENDITURES. Neither the Borrower nor any of its
Subsidiaries shall either purchase or agree to purchase, or incur any
obligations for, any equipment or other property constituting fixed assets
in any fiscal year (excluding leases of real or personal property) where
the aggregate of such purchases or obligations would exceed $2,500,000.
"7.13 QUICK RATIO. The Borrower will not permit the Quick Ratio
at the end of any fiscal month, commencing with the month ending March 3 1,
1996, to be less than 1.25 to 1.
"7.14 MINIMUM PROFITABILITY. Commencing with the fiscal quarter
ending March 31, 1996, the Borrower will not permit (a) Net Losses to
exceed $1,600,000 for the quarter ending March 31, 1996; $950,000 for the
quarter ending June 30, 1996 and $200,000 for the quarter ending September
30, 1996; and (b) Net Income to be less than $1 for the quarter ending
December 31, 1996 and thereafter.
"7.15 LEVERAGE. The Borrower will not permit the ratio of Total
Senior Liabilities to Tangible Net Worth at the end of any fiscal month,
commencing with the month ending March 31, 1996, to be more than 1.75 to 1.
"7.16 TANGIBLE NET WORTH. The Borrower will not permit Tangible
Net Worth at the end of any fiscal month, commencing with the month ending
March 31, 1996, to be less than $3,500,000 PLUS (a) 100% of cumulative Net
Income earned by the Borrower after March 31, 1996 (with no offset for Net
Losses incurred in any month); and (b) 100% of the proceeds (net of
reasonable costs of issuance) from the sale of any shares of capital stock
of the Borrower."
m. There is inserted immediately following Section 7.16 the
following new Section 7.17 to read as follows:
"7.17 DEBT SERVICE COVERAGE. Following the first occurrence of a
Debt Service Coverage Event, the Borrower will not permit the Debt Service
Ratio for any fiscal quarter to be less than 1.5 to 1. "
<PAGE>
-5-
n. Section 9 is hereby amended by inserting the following additional
definitions in alphabetical order:
""BORROWER LOANS" shall have the meaning specified in Section 2.1(c)."
""BORROWER NOTES shall have the meaning specified in Section 1A.2."
""COMMITMENTS" shall mean the Working Capital Line Commitment and the
Equipment Line Commitment."
""DEBT SERVICE COVERAGE EVENT" shall mean an event that occurs when the
following conditions are satisfied:
"(a) The Borrower and its Subsidiaries shall in any two (2)
consecutive fiscal quarters, commencing with the fiscal quarter ending
March 31, 1996, have a Debt Service Ratio of at least 1.5 to 1; and
"(b) The Borrower shall have notified the Bank in writing of its
election that a Debt Service Coverage Event be deemed to have occurred; and
"(c) The Borrower shall have furnished to the Bank consolidated
financial statements of the Borrower and its Subsidiaries demonstrating
satisfaction of the condition referred to in CLAUSE (A) above."
""DEBT SERVICE RATIO" shall mean, for any fiscal period, the ratio of (a)
Net Income (Net Loss), PLUS the sum of depreciation and amortization for such
period, PLUS the sum of the aggregate amount of interest accrued during such
period on Indebtedness of the Borrower and its Subsidiaries on a consolidated
basis ("INTEREST EXPENSE") to (b) the sum of Interest Expense, the current
portion of Long-Term Indebtedness and obligations of the Borrower and its
Subsidiaries in respect of any capitalized lease."
""ELIGIBLE EQUIPMENT" means any items of equipment that the Borrower has
requested that the Bank finance the purchase of through an Equipment Line of
Credit Loan under this Agreement, and which, both on the date of such request
and the date of such loan, meets the following requirements:
"(a) such equipment is not (i) a motor vehicle, airplane or similar
mode of transportation, (ii) a fixture or leasehold improvement, or (iii)
intended by the Borrower to become a fixture or leasehold improvement;
"(b) such equipment has been purchased by the Borrower from the
manufacturer or a distributor thereof, has not been put in service by any
Person prior to the date of the invoice furnished to the Borrower by such
manufacturer or distributor, and has an invoice date of not earlier than
January 31, 1996 or later than October 14, 1996;
"(c) such equipment is owned solely by the Borrower and is not subject
to any leasehold interest, assignment, claim, lien or security interest,
other than a security interest in favor of the Bank pursuant to the
Security Agreement; and
<PAGE>
-6-
"(d) such equipment is in the possession of the Borrower and is
located in the State of New Jersey or another jurisdiction of which the
Borrower has given the Bank written notice."
""EQUIPMENT LINE COMMITMENT" shall have the meaning set forth in Section
1A.1."
""EQUIPMENT LINE EXPIRATION DATE" shall have the meaning specified in
Section 1A.1."
""EQUIPMENT LINE OF CREDIT LOANS" shall have the meaning set forth in
Section 1A.1."
""EQUIPMENT LINE MATURITY DATE" shall have the meaning specified in Section
1A.5."
""EQUIPMENT LINE NOTE" shall have the meaning set forth in Section 1A.l."
o. The definitions of "Line of Credit Loans" and "Extensions of
Credit" are hereby changed to "Working Capital Line of Credit Loans." The
definition of "Line of Credit Commitment" is hereby changed to "Working Capital
Line of Credit Commitment." All references to such terms throughout the Credit
Agreement and the other Loan Documents are changed accordingly.
p. All references to the term "Note" in Section 1 of the Credit
Agreement are changed to the term "Working Capital Line of Credit Note." All
other references to the term "Note" in the Credit Agreement and the other Loan
Documents shall (unless it is clear from the context that the reference is
solely to the Working Capital Line of Credit Note) shall be changed to refer to
"the Borrower Notes."
q. The Credit Agreement and the other Loan Documents are hereby
amended wherever necessary or appropriate to reflect the foregoing changes.
4. CONTINUING VALIDITY.
Upon the effectiveness hereof, each reference in each Security Instrument
or other Loan Document to "the Credit Agreement", "thereunder", "thereof",
"therein", or words of like import referring to the Credit Agreement, shall mean
and be a reference to the Credit Agreement, as amended hereby. Except as
specifically set forth above, the Credit Agreement shall remain in full force
and effect and is hereby ratified and confirmed. Each of the other Loan
Documents, is in full force and effect and is hereby ratified and confirmed.
The amendments set forth above (i) do not constitute a waiver or modification of
any term, condition or covenant of the Credit Agreement or any other Loan
Document, other than as expressly set forth herein, and (ii) shall not prejudice
any rights which the Bank may now or hereafter have under or in connection with
the Credit Agreement, as modified hereby, or the other Loan Documents and shall
not obligate the Bank to assent to any further modifications.
5. MISCELLANEOUS.
a. This Agreement may be signed in one or more counterparts each of
which taken together shall constitute one and the same document.
b. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
<PAGE>
-7-
c. THE BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY
REASON OF THIS LOAN MODIFICATION AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY
REASON LENDER CANNOT AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS, THEN VENUE SHALL LIE IN SANTA CLARA COUNTY, CALIFORNIA.
d. The Borrower agrees to promptly pay on demand all costs and
expenses of the Bank in connection with the preparation, reproduction, execution
and delivery of this letter amendment and the other instruments and documents to
be delivered hereunder, including the reasonable fees and out-of-pocket expenses
of Sullivan & Worcester LLP, special counsel for the Bank with respect thereto.
[remainder of page intentionally blank]
<PAGE>
-8-
IN WITNESS WHEREOF, the Bank and the Borrower have caused this Agreement to
be signed under seal by their respective duly authorized officers as of the date
set forth above.
SILICON VALLEY EAST, a Division of Silicon
Valley Bank
By: /S/ JANE BRAUN
------------------------
Name: Jane Braun
Title: Vice President
SILICON VALLEY BANK
By: /S/ G. LINVILL
--------------------------
Name: G. Linvill
Title: SVP
(signed in Santa Clara, CA)
FAXSAV INCORPORATED
By:
---------------------------
Name:
Title:
<PAGE>
-8-
IN WITNESS WHEREOF, the Bank and the Borrower have caused this Agreement to
be signed under seal by their respective duly authorized officers as of the date
set forth above.
SILICON VALLEY EAST, a Division of Silicon
Valley Bank
By: /S/ JANE BRAUN
-----------------------
Name: Jane Braun
Title: Vice President
SILICON VALLEY BANK
By:
-----------------------
Name:
Title:
(signed in Santa Clara, CA)
FAXSAV INCORPORATED
By:
-----------------------
Name:
Title:
<PAGE>
-8-
IN WITNESS WHEREOF, the Bank and the Borrower have caused this Agreement to
be signed under seal by their respective duly authorized officers as of the date
set forth above.
SILICON VALLEY EAST, a Division of Silicon
Valley Bank
By:
-----------------------
Name: Jane Braun
Title: Vice President
SILICON VALLEY BANK
By:
-----------------------
Name:
Title:
(signed in Santa Clara, CA)
FAXSAV INCORPORATED
By: /S/ Peter S. Macaluso
--------------------------
Name: Peter S. Macaluso
Title: Vice President and CFO
<PAGE>
SCHEDULE A
QUALIFICATIONS AND SUPPLEMENTS TO PRIOR REPRESENTATIONS
See attached.
<PAGE>
FAXSAV INCORPORATED
EQUIPMENT LEASE COMMITMENTS
AS OF MARCH 31, 1996
EQUIPMENT LEASE TERM
LESSOR COST PAYMENT DATE
- ------ --------- ------- -------
LTI VENTURE LEASING
($300,000 lease line)
SCHEDULE 1 50,475 985 7/31/99
SCHEDULE 2 97,334 4,477 4/30/96
SCHEDULE 3 40,874 1,901 1/31/97
SCHEDULE 4 13,575 524 2/28/97
SCHEDULE 5 28,474 1,099 6/30/97
SCHEDULE 6 13,118 4,515 1/31/98
SCHEDULE 7 8,058 2,668 2/28/99
---------------------
251,908 16,169
PHOENIX LEASING
($500,000 lease line)
SCHEDULE 1 93,677 3,068 3/16/98
SCHEDULE 2 51,574 1,689 3/31/98
SCHEDULE 3 93,368 3,058 4/30/98
SCHEDULE 4 95,696 3,134 7/31/98
SCHEDULE 5 92,439 3,027 10/31/98
SCHEDULE 6 59,449 1,947 11/31/98
--------------------
486,202 15,923
FIRST UNITED LEASING 15,492 465 7/31/98
<PAGE>
AMENDED AND RESTATED PROMISSORY NOTE
(Working Capital Line of Credit Loans)
$1,000,000 Wellesley, Massachusetts
April 15, 1996 (Originally
dated July 7, 1995)
For value received, the undersigned, FAXSAV INCORPORATED, a Delaware
corporation (the "BORROWER"), promises to pay to SILICON VALLEY BANK (the
"BANK") at the office of the Bank located at 3003 Tasman Drive, Santa Clara,
California 95054, or to its order, the lesser of One Million Dollars
($1,000,000) or the outstanding principal amount hereunder, on April 14, 1997
(the "MATURITY DATE"), together with interest on the principal amount hereof
from time to time outstanding at a fluctuating rate per annum equal to the Prime
Rate (as defined below) plus one-half percent (1/2%) until the Maturity Date,
payable monthly in arrears on the fourteenth day of each calendar month
occurring after the date hereof and on the Maturity Date. The Borrower promises
to pay on demand interest at a per annum rate of interest equal to the Prime
Rate plus 5% on any overdue principal (and to the extent permitted by law,
overdue interest). The Bank's "Prime Rate" is the per annum rate of interest
from time to time announced and made effective by the Bank as its Prime Rate
(which rate may or may not be the lowest rate available from the Bank at any
given time).
Computations of interest shall be made by the Bank on the basis of a year
of 360 days for the actual number of days occurring in the period for which such
interest is payable.
This promissory note amends and restates the terms and conditions of the
obligations of the Borrower under the promissory note dated July 7, 1995 (the
"ORIGINAL NOTE") by the Borrower to the Bank. Nothing contained in this
promissory note shall be deemed to create or represent the issuance of new
indebtedness or the exchange by the Borrower of the Original Note for a new
promissory note. This promissory note is referred to in the credit agreement
dated July 7, 1995, as amended by a loan document modification agreement dated
as of April 15, 1996, by the Bank and accepted by the Borrower together with all
related schedules, as the same may be amended, modified or supplemented from
time to time (the "CREDIT AGREEMENT"), and is subject to optional and mandatory
prepayment as provided therein, and is entitled to the benefits thereof and of
the other Loan Documents referred to therein.
Each reference in each Loan Document (as defined in the Credit Agreement)
to "the Note", "thereof", "therein", "thereunder", or words of like import
referring to the Original Note, shall mean and be a reference to the Original
Note, as amended and restated hereby.
<PAGE>
-2-
Upon the occurrence of any Event of Default under, and as defined in, the
Credit Agreement, at the option of the Bank, the principal amount then
outstanding of and the accrued interest on the advances under this note and all
other amounts payable under this note shall become immediately due and payable,
without notice (including, without limitation, notice of intent to accelerate),
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.
The Bank shall keep a record of the amount and the date of the making of
each advance pursuant to the Credit Agreement and each payment of principal with
respect thereto by maintaining a computerized record of such information and
printouts of such computerized record, which computerized record, and the
printouts thereof, shall constitute PRIMA FACIE evidence of the accuracy of the
information so endorsed.
The undersigned agrees to pay all reasonable costs and expenses of the Bank
(including, without limitation, the reasonable fees and expenses of attorneys)
in connection with the enforcement of this note and the other Loan Documents and
the preservation of their respective rights hereunder and thereunder.
No delay or omission on the part of the Bank in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Bank, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Borrower and every endorser or guarantor of this note regardless of the time,
order or place of signing waives presentment, demand, protest and notices of
every kind and assents to any one or more extensions or postponements of the
time of payment or any other indulgences, to any substitutions, exchanges or
releases of collateral for this note, and to the additions or releases of any
other parties or persons primarily or secondarily liable.
THIS NOTE HAS BEEN DELIVERED TO THE BANK AND ACCEPTED BY THE BANK IN THE
STATE OF CALIFORNIA.
THE BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY NOW OR HEREAFTER HAVE
TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING WHICH ARISES OUT OF OR BY
REASON OF THIS NOTE, ANY LOAN DOCUMENT (AS DEFINED IN THE CREDIT AGREEMENT), OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
BY ITS EXECUTION AND DELIVERY OF THIS NOTE, THE BORROWER ACCEPTS FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON
- -EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE COMMONWEALTH OF MASSACHUSETTS (OR IF FOR ANY REASON ACCESS TO SUCH COURTS
IS DENIED TO THE BANK, THEN, IN THE STATE OF CALIFORNIA) IN ANY ACTION, SUIT OR
PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS NOTE,
ANY LOAN DOCUMENT (AS DEFINED IN THE CREDIT AGREEMENT), OR THE TRANSACTIONS
CONTEMPLATED HEREBY, IN ADDITION TO ANY OTHER COURT IN WHICH SUCH ACTION, SUIT
OR PROCEEDING MAY BE BROUGHT, IRREVOCABLY
<PAGE>
-3-
AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED BY ANY SUCH COURT IN ANY SUCH
ACTION, SUIT OR PROCEEDING IN WHICH IT SHALL HAVE BEEN SERVED WITH PROCESS IN
THE MANNER HEREINAFTER PROVIDED, SUBJECT TO EXERCISE AND EXHAUSTION OF ALL
RIGHTS OF APPEAL AND TO THE EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES AND AGREES
NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN SUCH ACTION, SUIT
OR PROCEEDING ANY CLAIMS THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION
OF SUCH COURT, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR
EXECUTION, THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM OR THAT THE VENUE THEREOF IS IMPROPER, AND AGREES THAT PROCESS MAY BE
SERVED UPON IT IN ANY SUCH ACTION, SUIT OR PROCEEDING IN THE MANNER PROVIDED BY
CHAPTER 223A OF THE GENERAL LAWS OF MASSACHUSETTS, RULE 4 OF THE MASSACHUSETTS
RULES OF CIVIL PROCEDURE OR RULE 4 OF THE FEDERAL RULES OF CIVIL PROCEDURE.
ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE GOVERNED BY THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS AND THIS NOTE SHALL BE DEEMED TO BE UNDER SEAL.
FAXSAV INCORPORATED
By: /S/ Peter S. Macaluso
--------------------------
Name: Peter S. Macaluso
Title: Vice President and CFO
<PAGE>
PROMISSORY NOTE
(Equipment Line of Credit Loans)
$750,000 Edison, New Jersey
As of April 15, 1996
For value received, the undersigned, FAXSAV INCORPORATED, a Delaware
corporation formerly known as Digitran Corporation (the "BORROWER"), promises to
pay to SILICON VALLEY BANK (the "BANK") at the office of the Bank located at
3003 Tasman Drive, Santa Clara, California 95054, or to its order, the lesser of
(i) Seven Hundred Fifty Thousand Dollars ($750,000) or (ii) the principal
outstanding hereunder as of October 14, 1996, in thirty-six (36) equal monthly
installments payable on the fourteenth day of each month, commencing October 14,
1996 and ending on September 14, 1999 (the "MATURITY DATE"), but in no event
more than Seven Hundred Fifty Thousand Dollars ($750,000) in principal amount in
the aggregate, together with interest on the principal amount hereof from time
to time outstanding at a fluctuating rate per annum equal to the Prime Rate (as
defined below) plus one-half percent (1/2%) until the Maturity Date, payable
monthly in arrears on the last day of each calendar month occurring after the
date hereof and on the Maturity Date. The Borrower promises to pay on demand
interest at a per annum rate of interest equal to the Prime Rate plus 5% on any
overdue principal (and to the extent permitted by law, overdue interest). The
Bank's "Prime Rate" is the per annum rate of interest from time to time
announced and made effective by the Bank as its Prime Rate (which rate may or
may not be the lowest rate available from the Bank at any given time).
Computations of interest shall be made by the Bank on the basis of a year
of 360 days for the actual number of days occurring in the period for which such
interest is payable.
This note is the Equipment Line Note referred to in the Loan Document
Modification Agreement of even date herewith, which amended the credit agreement
dated as of July 7, 1995, between the Bank and the Borrower (together with all
related schedules), and as the same may be further amended, modified or
supplemented from time to time (the "CREDIT AGREEMENT"), and is entitled to the
benefits thereof and of the other Loan Documents referred to therein, and is
subject to optional and mandatory prepayment as provided therein. This note is
secured INTER ALIA by a Security Agreement dated as of July 7, 1995, herewith by
the Borrower in favor of the Bank, and as the same may be further amended,
modified or supplemented from time to time and by other Security Instruments
referenced in the Credit Agreement.
Upon the occurrence of any Event of Default under, and as defined in the
Credit Agreement, at the option of the Bank, the principal amount then
outstanding of and the accrued interest on the advances under this note and all
other amounts payable under this note shall become immediately due and payable,
without notice (including, without limitation, notice of intent to accelerate),
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.
<PAGE>
-2-
The Bank shall keep a record of the amount and the date of the making of
each advance pursuant to the Credit Agreement and each payment of principal with
respect thereto either by maintaining a computerized record of such information
and printouts of such computerized record, which endorsement or computerized
record, and the printouts thereof, shall constitute PRIMA FACIE evidence of the
accuracy of the information so endorsed.
The undersigned agrees to pay all reasonable costs and expenses of the Bank
(including, without limitation, the reasonable fees and expenses of attorneys)
in connection with the enforcement of this note and the other Loan Documents and
the preservation of their respective rights hereunder and thereunder.
No delay or omission on the part of the Bank in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Bank, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Borrower and every endorser or guarantor of this note regardless of the time,
order or place of signing waives presentment, demand, protest and notices of
every kind and assents to any one or more extensions or postponements of the
time of payment or any other indulgences, to any substitutions, exchanges or
releases of collateral for this note, and to the additions or releases of any
other parties or persons primarily or secondarily liable.
THIS NOTE SHALL BE DEEMED DELIVERED TO THE BANK AND ACCEPTED BY THE BANK IN
THE STATE OF CALIFORNIA.
THE BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY NOW OR HEREAFTER HAVE
TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING WHICH ARISES OUT OF OR BY
REASON OF THIS NOTE, ANY LOAN DOCUMENT (AS DEFINED IN THE CREDIT AGREEMENT), OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
BY ITS EXECUTION AND DELIVERY OF THIS NOTE, THE BORROWER ACCEPTS FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE COMMONWEALTH OF MASSACHUSETTS (OR IF FOR ANY REASON ACCESS TO SUCH COURTS
IS DENIED TO THE BANK, THEN IN THE STATE OF CALIFORNIA) IN ANY ACTION, SUIT OR
PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS NOTE,
ANY LOAN DOCUMENT (AS DEFINED IN THE CREDIT AGREEMENT), OR THE TRANSACTIONS
CONTEMPLATED HEREBY, IN ADDITION TO ANY OTHER COURT IN WHICH SUCH ACTION, SUIT
OR PROCEEDING MAY BE BROUGHT, IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL
JUDGMENT RENDERED BY ANY SUCH COURT IN ANY SUCH ACTION, SUIT OR PROCEEDING IN
WHICH IT SHALL HAVE BEEN SERVED WITH PROCESS IN THE MANNER HEREINAFTER
PROVIDED, SUBJECT TO EXERCISE AND EXHAUSTION OF ALL RIGHTS OF APPEAL AND TO THE
EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES AND AGREES NOT TO ASSERT, BY WAY OF
MOTION, AS A DEFENSE OR OTHERWISE, IN SUCH ACTION, SUIT OR PROCEEDING ANY CLAIMS
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
<PAGE>
-3-
SUCH COURT, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION,
THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT
THE VENUE THEREOF IS IMPROPER, AND AGREES THAT PROCESS MAY BE SERVED UPON IT IN
ANY SUCH ACTION, SUIT OR PROCEEDING IN THE MANNER PROVIDED BY CHAPTER 223A OF
THE GENERAL LAWS OF MASSACHUSETTS, RULE 4 OF THE MASSACHUSETTS RULES OF CIVIL
PROCEDURE OR RULE 4 OF THE FEDERAL RULES OF CIVIL PROCEDURE.
ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE GOVERNED BY THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS AND THIS NOTE SHALL BE DEEMED TO BE UNDER SEAL.
FAXSAV INCORPORATED
By: /S/ Peter S. Macaluso
----------------------------
Name: Peter S. Macaluso
Title: Vice President and CFO
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM:FAXSAV INCORPORATED
The undersigned authorized officer (the "Officer") of FaxSav Incorporated
("Borrower") hereby certifies that in accordance with the terms end conditions
of the Credit Agreement between Borrower and Silicon Valley Bank, as amended
(the "Agreement"), (i) Borrower is in complete compliance for the period ending
3/31/96 with all covenants except as noted below and (ii) all representations
and warranties of Borrower stated in the Agreement are true and correct in all
material respects as if made on and as of the date hereof. Attached herewith
are the required documents supporting the above certification. The Officer
further certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) and are consistently applied from one period to the
next except as explained in an accompanying letter or footnotes. The Officer
expressly acknowledges that no borrowings may be requested by the Borrower at
any time if on the date of determination the Borrower is not in compliance with
any of the terms of the Agreement, and that such compliance is determined not
just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
Reporting Covenant Required Complies
- ------------------ -------- --------
Monthly financial statements Monthly within 28 days Yes No
Annual (CPA Audited) FYE within 105 days Yes No
A/R Aging Monthly within 15 days Yes No
A/R Audit Initial and Semi-Annual Yes No
Financial Covenant Required Actual Complies
- ------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.25:1.0 1.61:1.0 Yes No
Minimum Tangible Net Worth $3,500,000 $4,866,430 Yes No
Maximum Leverage Ratio 1.75:1.0 1.02:10 Yes No
Minimum Debt Service Ratio 1.50:1.0 N/A:1.0 Yes No
Profitability: Maximum Net Loss
for Quarters ending:
3/31/96 $1,600,000 $1,519,085 Yes No
6/30/96 $ 950,000 $___________ Yes No
9/30/96 $ 200,000 $___________ Yes No
Minimum Net Income
for Quarters ending
on or after:
12/31/96 $ 1 $___________ Yes No
- -------------------
PLUS 100% of cumulative Net Income (with no offset for Net Losses for any month)
earned during March 1996 and any month thereafter, PLUS 100% of the proceeds
(net of reasonable costs of Issuance) of the sale of shares of capital stock.
<PAGE>
Comments Regarding Exceptions: See Attached.
Sincerely,
/S/ Peter S. Macaluso
- ----------------------------
Signature: Peter S. Macaluso
Title: Vice President and CFO
Date:
<PAGE>
- --------------------------------------------------------------------------------
CERTIFICATE OF SECRETARY
BORROWER: FaxSav Incorporated LENDER: Silicon Valley Bank
379 Thornall Street 3003 Tasman Drive
Edison, NJ 08837 P.O. Box 3762
Santa Clara, CA 95054
- --------------------------------------------------------------------------------
I, Peter S. Macaluso, hereby certify (1) that I am the duly elected,
qualified and acting Secretary of FaxSav Incorporated, a Delaware corporation
(the "Company"), and (2) that attached hereto as EXHIBIT A is a true, correct
and complete copy of certain resolutions duly adopted by the Board of Directors
of the Company on April 18, 1996 authorizing and approving, among other things,
the execution, delivery and performance of the Loan Document Modification
Agreement (No. 1) dated as of April 15, 1996, amending the Credit Agreement
dated July 7, 1995 (as so amended and modified, the "Credit Agreement") by and
between the Company and Silicon Valley Bank (the "Bank"), and the other
agreements and transactions contemplated thereby, including without limitation
the issuance to the Bank by the Borrower of (A) the Borrower's Amended and
Restated Promissory Note (Working Capital Line of Credit Loans) dated April 15,
1996 in the original principal amount of up to $1,000,000 and (B) the Borrower's
Promissory Note (Equipment Line of Credit Loans) dated as of April 15, 1996 in
the original principal amount of up to $750,000. Said resolutions have not been
amended or repealed and remain in full force and effect on the date hereof.
IN WITNESS WHEREOF, I have signed this certificate and affixed the
corporate seal of the Company.
Dated: April 26, 1996 /s/ Peter S. Macaluso
-------------- ---------------------
Secretary
[Corporate Seal]
<PAGE>
-2-
I, Thomas F. Murawski, President of the Company do hereby certify that
Peter S. Macaluso is on the date hereof the duly elected or appointed, qualified
and acting Secretary of the Company, and the signature set forth above is the
genuine signature of such officer.
/s/ Thomas F. Murawski
-----------------------
<PAGE>
EXHIBIT A
RESOLVED: That the form, terms and conditions of (A) the Loan Document
Modification Agreement (No. 1) and the attached Schedules and
Exhibits (collectively, the "Loan Modification") to be entered into
by and between Silicon Valley Bank (the "Bank") and the Corporation
to modify and amend the Credit Agreement dated July 7, 1995 by and
between the Bank and the Corporation (as so amended and modified,
the "Credit Agreement"), pursuant to which the Bank will make
available to the Corporation a $1,000,000 working-capital line of
credit and a $750,000 equipment-loan line of credit, and (B) the
Amended and Restated Promissory Note (Working Capital Line of Credit
Loans) in the original principal amount of up to $1,000,000 and the
Promissory Note (Equipment Line of Credit Loans) in the original
principal amount of up to $750,000 to be executed pursuant to the
Loan Modification and the Credit Agreement (together, the "Notes"),
which form, terms and conditions have been presented to and reviewed
by the Board of Directors, be, and they hereby are, approved and
adopted; and further
RESOLVED: That the President, any Vice President and the Chief Financial Officer
(the "Authorized Officers") of the Corporation be, and each of them
hereby is, authorized, empowered and directed, in the name and on
behalf of the Corporation, (A) to execute, under its corporate seal
if necessary, and to deliver the Loan Modification and the Notes to
be issued by the Corporation pursuant thereto in substantially the
forms adopted with such changes as any such officer shall, in his
sole discretion approve, such approval to be conclusively evidenced
by such Authorized Officer's execution thereof, and (B) to request
extensions of credit from time to time as contemplated by the Credit
Agreement and the Notes, whether in the form of loan advances,
letters of credit or otherwise; and further
RESOLVED: That the Authorized Officers of the Corporation be, and each of them
singly hereby is, authorized and empowered, in the name and on behalf
of the Corporation, to prepare, execute, deliver, file and record any
and all agreements, certificates, and other documents and instruments
(including, without limitation, any letter of credit applications or
foreign exchange contracts), to request advances under the
aforementioned Credit Agreement on behalf of the Corporation (whether
in the form of loan advances, letters of credit or otherwise), to take
any action as they or any of them may deem necessary or appropriate in
order to effectuate fully the purposes of the foregoing resolutions
and the transactions contemplated thereby, and to enter into on behalf
of the Corporation any amendments, modifications or extensions to the
Credit Agreement, the Notes or any security instruments or other
document contemplated thereby as such officer may deem necessary or
appropriate including, without limitation, any modification that
increases the amount that the Corporation may borrow from the Bank
under the Credit Agreement or otherwise; and further
RESOLVED: That any and all acts of the type authorized pursuant to these
resolutions and performed prior to adoption and approval of these
resolutions are hereby ratified and approved, that these resolutions
Shall remain in full force and effect as long
<PAGE>
-2-
as any obligations are owing to the Bank or as long as the Bank is
committed to make extensions of credit to the Company and the Bank may
rely on these resolutions until written notice of their revocation
shall have been delivered to and received by the Bank; provided,
however, any such notice shall not affect any of the Corporation's
agreements or commitments in effect or any of its obligations
outstanding at the time such notice is given.
<PAGE>
August 2, 1996
Peter Macaluso
Chief Financial Officer
FaxSav, Inc.
399 Thornall Street
3rd Floor
Edison, NJ 08837
Dear Peter:
Silicon Valley Bank ("Bank") hereby waives FaxSav Inc.'s ("Company") existing
default under the Loan as a result of FaxSav Inc.'s failure to comply with
the Profitability covenant as of the quarter ended June 30, 1996; the Quick
Ratio covenant as of the month ended June 30, 1996; and the TNW covenant as
of the month ended June 30, 1996.
Silicon Valley Bank's agreement to waive the above-described defaults
(1) in no way shall be deemed an agreement by the Bank to waive FaxSav, Inc.'s
compliance with the above-described covenants as of all other dates and
(2) shall not limit or impair the Bank's right to demand strict performance
of these covenants as of all other dates and (3) shall not limit or impair
the Bank's right to demand strict performance of all other covenants as of
any date. Furthermore, the Bank agrees to revise these covenants for the
period ending July 31, 1996 and thereafter, as per the attached Term Sheet.
Sincerely,
/s/ Joan S. Parsons
- ----------------------
Joan S. Parsons
Senior Vice President
Technology Division
Agreed and Accepted this 2nd day of August, 1996.
By: /s/ Peter S. Macaluso
Title: Vice President and CEO
<PAGE>
FAXSAV, INC.
------------
FACILITY: A) $1,000,000 Revolving Line of Credit.
B) $750,000 Equipment Line of Credit.
TOTAL OUTSTANDINGS LIMITED TO
$1,000,000 UNTIL IPO OR ADDITIONAL
EQUITY IS RAISED.
RATE: A) Prime +0.5%
B) Prime +0.5%
FEE: Aggregate modification fee of $2,500.00.
EXPIRATION: A) 4/14/97
B) 10/14/96
ADVANCE RATE: A) 60% of eligible domestic A/R under
90 days from invoice.
B) 80% of eligible equipment purchases
subsequent to 1/31/96.
COLLATERAL: All Corporate Assets, including
Intellectual Property.
COVENANTS:
Profitability: (tested quarterly): Maximum loss of
($2,100,000) for the quarter ending
9/30/96; Maximum loss of ($1,500,000)
for the quarter ending 12/31/96; and
Maximum loss of ($1,100,000) for the
quarter ending 3/31/97.
<PAGE>
Liquidity: (tested monthly): Minimum Quick Ratio
of 0.6:1 for the months ending 7/31/96
through 9/30/96; increasing to 1.25:1 for
the month ending 10/31/96 and
thereafter.
Leverage: (tested monthly): Total Liabilities
divided by TNW not to exceed 2.2:1 for
the month ending 7/31/96; 2.7:1 for the
month ending 8/31/96; 3.35:1 for the
month ending 9/30/96; and 1.75:1 for the
month ending 10/31/96 and thereafter.
Tangible Net Worth: (tested monthly): Minimum
Tangible Net Worth of $1,000,000 for the
months ending 7/31/96 through 9/30/96;
and $3,500,000 for the month ending
10/31/96 and thereafter.
Tangible Net Worth is defined as equity
plus Subordinated Debt minus Intangible
Assets.
EQUITY EVENT: IPO MUST OCCUR ON OR BEFORE 10/15/96
OR THE COMPANY MUST CLOSE ON
ADDITIONAL EQUITY IN THE MINIMUM
AMOUNT OF $3,000,000 BY 10/15/96.
REPORTING: Monthly financials and Certificate of
Compliance within 30 days.
Borrowing Base Certificate and A/R
aging within 15 days.
Audited fiscal within 90 days.
OTHER: Primary operating account at SVB.
Some portion of excess funds at SVB.
Legal costs for account of Borrower.
Examination of Company's A/R by an
agent of the Bank at Company's expense.
<PAGE>
Exhibit 10.12
Telstra Network Services, Incorporated
Thomas F. Murawski
President and CEO
Digitran Corporation
379 Thornall Street
Edison, New Jersey 08837
Dear Tom:
I am writing to outline our proposed agreement concerning the terms of
a Traffic Agreement between Telstra Network Services, Incorporated and
Digitran Corporation.
Among other customary provisions, it is agreed that the Traffic
Agreement will include the following terms:
* Digitran will exclusively use the WorldFax service for
outbound traffic from the USA offered by Telstra (or its
nominee) for its outbound USA traffic subject to the
following terms:
a. customer acceptance of the product,
b. quality of service no less than the quality of circuit
switched services provided to Digitran by its current
suppliers,
c. pricing at a rate equal to or less than what Digitran can
reasonably demonstrate that it can secure from a recognized
service provider for services of equivalent quality on
comparable terms over the same time period, and
d. Digitran's need to use a secondary carrier to provide
worldwide termination service in the event of a WorldFax
outage.
* Picing will be reviewed on a six-month basis.
* Settlement terms: Invoice one month in arrears, payment within
thirty (30) days.
* The term of this agreement shall be for a period of five (5)
years commencing on the commercial commencement date of the
WorldFax service in the USA.
<PAGE>
If this letter agreement reflects your understanding of these matters,
please sign the enclosed copy and return it to us. Each of us then agrees to
proceed expeditiously, using best efforts, to negotiate and execute a
definitive Traffic Agreement by no later than November 18, 1994. During the
period that this letter agreement is in effect, each of us further agrees not
to negotiate with any other party concerning the terms hereof. If the parties
do not execute a definitive Traffic Agreement by November 18, 1994, and the
Amendment to the Preferred Stock Purchase Agreement becomes effective, the
parties agree that this letter agreement shall constitute the definitive
Traffic Agreement.
Very truly yours,
Telstra Network Services, Incorporated
By: /s/ Gregory M. Dunfield
-------------------------------
Gregory M. Dunfield
President
Dated: November 1, 1994
Agreed and Accepted:
Digitran Corporation
By: /s/ Thomas F. Murawski
---------------------------
Thomas F. Murawski
President
Dated: November 1, 1994
<PAGE>
FaxSav Incorporated
Pro forma earnings per share
EXHIBIT 11
For the For the
Year Ended Six Monthly Ended
December 31, 1995 June 30, 1996
----------------- -----------------
(unaudited)
Net loss $(4,085,447) $(3,432,073)
----------- -----------
----------- -----------
Weighted average number of common
and equivalent shares used in
computing pro forma loss
per share:
Actual 327,354 335,833
Effect of fully dilutive shares 8,920,737 8,279,588
(see Note 2 to the financial
statements) ----------- ------------
9,248,091 8,615,421
----------- ------------
----------- ------------
Pro forma net loss per
common and equivalent
share $(0.44) $(0.40)
----------- ------------
----------- ------------
<PAGE>
The financial statements of FaxSav Incorporated have been prepared to give
effect to the one-for-nine reverse stock split at a par value of $0.01, as
described in Note 14 to the financial statements included in this registration
statement. When the reverse stock split has occurred, we will issue the consent
below.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
August 5, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of
FaxSav Incorporated of our reports dated March 29, 1996, on our audits of the
financial statements and financial statement schedule of FaxSav Incorporated
(formerly Digitran Corporation). We also consent to the reference to our firm
under the caption "Experts."
Parsippany, New Jersey
, 1996
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
We the undersigned directors and/or officers of FaxSav Incorporated (the
"Company"), hereby severally constitute and appoint Thomas Murawski, Chief
Executive Officer and Peter Macaluso, Chief Financial Officer, and each of them
individually, with full powers of substitution and resubstitution, our true and
lawful attorneys, with full powers to them and each of them to sign for us, in
our names and in the capacities indicated below, the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission, and any and all
amendments to said Registration Statement (including post-effective amendments),
and any registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, in connection with the registration under
the Securities Act of 1933, as amended, of equity securities of the Company, and
to file or cause to be filed the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as each of them might
or could do in person, and hereby ratifying and confirming all that said
attorneys, and each of them, or their substitute or substitutes, shall do or
cause to be done by virtue of this Power of Attorney.
WITNESS our hands on this 29th day of July, 1996.
/s/ Thomas F. Murawski /s/ Jeffrey Drazan
- ----------------------------------- ----------------------------------
Thomas F. Murawski Jeffrey Drazan
Chief Executive Officer, Director
President, and Chairman of the Board of
Directors (Principal Executive Officer)
/s/ Peter S. Macaluso /s/ Peter A. Howley
- ----------------------------------- ----------------------------------
Peter S. Macaluso Peter A. Howley
Vice President and Chief Financial Director
Officer
(Principal Financial Officer)
/s/ Gregory Dunfield /s/ Robert Labant
- ----------------------------------- ----------------------------------
Gregory Dunfield Robert Labant
Director Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES F-3 AND F-4 OF THE COMPANY'S
FINANCIAL STATEMENTS FROM S-1, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 JUN-30-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 552370 2788659
<SECURITIES> 0 0
<RECEIVABLES> 2532789 2408256
<ALLOWANCES> 174737 271605
<INVENTORY> 0 0
<CURRENT-ASSETS> 2977728 5081399
<PP&E> 3017963 4199738
<DEPRECIATION> 982184 1538060
<TOTAL-ASSETS> 5131578 7915907
<CURRENT-LIABILITIES> 4118308 4288823
<BONDS> 0 0
0 0
58770 78770
<COMMON> 818 946
<OTHER-SE> (15) (8,671)<F1>
<TOTAL-LIABILITY-AND-EQUITY> 5131578 7915907
<SALES> 11649499 7445166
<TOTAL-REVENUES> 11649499 7455166
<CGS> 7020659 4280482
<TOTAL-COSTS> 8755917 6634106
<OTHER-EXPENSES> 4051 (45284)
<LOSS-PROVISION> 194720 156300
<INTEREST-EXPENSE> 52727 67385
<INCOME-PRETAX> (4127077) (3469422)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4085447) (3432073)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4085447) (3432073)
<EPS-PRIMARY> (0.44) (0.40)<F2>
<EPS-DILUTED> (0.44) (0.40)
<FN>
<F1>AMOUNTS REPRESENT TREASURY STOCK
<F2>AMOUNTS REPRESENT PRO FORMA LOSS PER SHARE
</FN>
</TABLE>
