SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from_________________ to ________________
Commission file number 0-09613
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FAXSAV INCORPORATED
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(Exact name of registrant as specified in its character)
Delaware 11-3025769
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
399 Thornall Street, Edison, New Jersey 08837
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(Address of principal executive offices)
Registrant's telephone number, including area code (732) 906-2000
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by a check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 13,153,982 shares of the
Company's Common Stock, $.01 par value, were outstanding as of November 6, 1998.
<PAGE>
FAXSAV INCORPORATED
Index to September 30, 1998 Form 10-Q
Page
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Part I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets - September 30, 1998 and December 31, 1997.. 3
Condensed Statements of Operations -
Three and Nine Months Ended September 30, 1998 and 1997.............. 4
Condensed Statements of Cash Flow - Nine Months Ended
September 30, 1998 and 1997.......................................... 5
Notes to Condensed Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ 7
Part II - Other Information
Item 1. Legal Proceedings....................................................19
Item 2. Changes in Securities................................................19
Item 3. Defaults upon Senior Securities......................................19
Item 4. Submission of Matters to a Vote of Security Holders..................19
Item 5. Other Information....................................................19
Item 6. Exhibits and Reports on Form 8-K.....................................19
Signatures...........................................................21
2
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FAXSAV INCORPORATED
CONDENSED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,733,241 $ 3,680,185
Accounts receivable, net of allowances of $194,844
and $330,724 for September 30, 1998 and
and December 31, 1997 3,092,879 2,280,119
Prepaid expenses and other current assets 132,677 35,844
------------ ------------
Total current assets 7,958,797 5,996,148
Property and equipment, net 4,642,455 4,175,264
Other assets, net 379,195 324,173
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Total assets $ 12,980,447 $ 10,495,585
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,060,105 $ 658,703
Accrued expenses and other liabilities 3,110,651 3,219,846
Obligation under capital lease 151,485 315,370
Current portion of notes payable 752,309 469,217
------------ ------------
Total current liabilities 5,074,550 4,663,136
Obligation under capital lease -- 85,551
Notes payable 1,169,177 1,083,190
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Total liabilities 6,243,727 5,831,877
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Stockholders' equity:
Common stock, $0.01 par value;40,000,000 shares
authorized; 13,170,371 and 10,827,855 shares issued
and 13,148,982 and 10,806,466 shares outstanding as of
September 30, 1998 and December 31, 1997, respectively 131,490 108,065
Additional paid-in capital 44,730,605 36,730,403
Accumulated deficit (38,125,360) (32,174,745)
Treasury stock, at cost 21,389 common shares
as of September 30, 1998 and December 31, 1997 (15) (15)
------------ ------------
Total stockholders' equity 6,736,720 4,663,708
------------ ------------
Total liabilities and stockholders' equity $ 12,980,447 $ 10,495,585
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements
3
<PAGE>
FAXSAV INCORPORATED
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 5,307,019 $ 4,423,634 $ 15,507,389 $ 12,814,578
Cost of service 2,854,845 2,549,938 8,121,692 7,830,668
------------ ------------ ------------ ------------
Gross margin 2,452,174 1,873,696 7,385,697 4,983,910
Operating expenses:
Network operations and support 930,540 596,832 2,570,767 1,668,826
Research and development 456,111 482,795 1,582,447 1,415,871
Sales and marketing 1,755,210 1,211,031 4,708,289 3,995,562
General and administrative 766,200 822,466 2,368,961 2,428,232
Depreciation and amortization 394,379 426,408 1,080,669 1,272,343
Patent litigation settlement 1,025,000 -- 1,025,000 --
------------ ------------ ------------ ------------
Total operating expenses 5,327,440 3,539,532 13,336,133 10,780,834
------------ ------------ ------------ ------------
Operating loss (2,875,266) (1,665,836) (5,950,436) (5,796,924)
Other income, net 15,738 21,814 (179) 166,705
------------ ------------ ------------ ------------
Net loss ($ 2,859,528) ($ 1,644,022) ($ 5,950,615) ($ 5,630,219)
============ ============ ============ ============
Basic and diluted net loss per
Common and equivalent share ($0.23) ($0.17) ($0.52) ($0.58)
============ ============ ============ ============
Shares used in computing net loss
per common and equivalent share 12,483,884 9,795,654 11,377,178 9,793,064
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements
4
<PAGE>
FAXSAV INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
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1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($5,950,615) ($5,630,219)
Adjustments to reconcile net loss to net cash used
In operating activities:
Depreciation and amortization expense 1,080,669 1,297,343
Patent litigation settlement 1,000,000 --
Other adjustments 118,282 160,775
Changes in assets and liabilities:
Accounts receivable (956,160) (465,981)
Accounts payable 401,402 (24,769)
Other, net (19,056) (178,806)
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Net cash used in operating activities (4,325,478) (4,841,657)
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CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds received from marketable securities -- 1,002,513
Purchase of property and equipment, net (1,764,737) (2,023,787)
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Net cash used in investing activities (1,764,737) (1,021,274)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of notes payable and capital lease obligation (569,053) (342,308)
Borrowings under line of credit 688,697 808,734
Proceeds from issuance of common stock and
exercise of stock options and warrants, net 7,023,627 23,311
----------- -----------
Net cash provided by financing activities 7,143,271 489,737
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NET (DECREASE) INCREASE IN CASH 1,053,056 (5,373,194)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,680,185 7,923,105
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,733,241 $ 2,549,911
=========== ===========
NONCASH FINANCING ACTIVITIES:
Issuance of common stock pursuant to patent litigation settlement $ 1,000,000 --
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements
5
<PAGE>
FAXSAV INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited condensed financial statements included herein have been
prepared by the Company in accordance with the requirements of Form 10-Q, and
consequently do not include disclosures normally made in the annual report on
Form 10-K. The December 31, 1997 results included herein have been derived from
the audited financial statements included in the Company's annual report on Form
10-K. However, the Company believes that the disclosures are adequate to make
the information presented not misleading. These condensed financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
The unaudited condensed financial statements included herein reflect all
adjustments (which include only normal, recurring adjustments) which are, in the
opinion of management, necessary to state fairly the results for the three and
nine month periods ended September 30, 1998. The results for the three and nine
month periods ended September 30, 1998 are not necessarily indicative of the
results expected for the full fiscal year.
2. Patent Litigation Settlement
On September 22, 1998, the Company settled all outstanding litigation with
AudioFAX to avoid the expense and disruption of protracted litigation. The
terms of the settlement agreement require the Company to issue 275,000 shares of
common stock to AudioFAX in exchange for a fully paid-up license to certain
patents relating to store-and-forward technologies.
The Company has escrowed an additional 100,000 shares of FaxSav Common
Stock for the benefit of AudioFAX. Some or all of the 100,000 shares held in
escrow (along with certain additional other shares or a certain amount of cash,
at FaxSav's option) may be transferred as an additional license fee to AudioFAX.
Such transfers depend on whether the market value of the 275,000 shares issued
to AudioFAX is less than $1.0 million as of a specific date.
The Company has undertaken to file a registration statement covering
resale of its shares by AudioFAX. Upon effectiveness, AudioFAX has agreed not to
sell on a weekly basis more than the greater of 40,000 shares or 10% of the
prior week's trading volume.
In the third quarter, the Company recorded $1,025,000 of charges
representing all costs associated with this patent litigation settlement as the
Company could not determine the future economic benefit, if any, to the
Company of the patent licenses acquired.
3. Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share". In accordance with SFAS 128, both basic
and diluted net loss per share are presented in the financial statements. Stock
options outstanding of approximately 1,971,000 and 1,544,000 as of September 30,
1998 and 1997, respectively, have been excluded from the calculation of diluted
earnings per share, since their effect would be antidilutive. In addition,
approximately 100,000 warrants outstanding have been excluded from diluted
earnings per share, since their effect would be antidilutive.
4. 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.
5. Impact of Recently Issued Accounting Standards
In September 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes the
standards for reporting and displaying comprehensive income and its components
(revenues, expenses, gains, and losses) as part of a full set of financial
statements. This statement requires that all elements of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company adopted SFAS 130 during the first
quarter of 1998, but presently the Company's Comprehensive Loss and Net Loss are
equal.
In September 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Among other provisions, it
requires that entities recognize all derivatives as either assets or liabilities
in the
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statement of financial position and measure those instruments at fair value.
Gains and losses resulting from changes in the fair values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. This standard is effective for fiscal years
beginning after September 15, 1999, though earlier adoption is encouraged and
retroactive application is prohibited. For FaxSav this means that the standard
must be adopted no later than January 1, 2000. Management does not expect the
adoption of this standard to have a material impact on FaxSav's results of
operations, financial position or cash flows as the Company does not presently
use derivative instruments or engage in hedging activities.
6. Reclassification
Certain items in 1997 have been reclassified to conform to the 1998
presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
FaxSav Incorporated (the "Company") derives its revenues from the provision of a
variety of facsimile services largely to 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. In the fourth quarter of 1996, the Company began offering fax-to-fax
services through local resellers in certain countries where an Internet node was
installed. 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 plans to continue to install Internet nodes in key international
telecommunications markets to enable the Company ultimately to route a majority
of its customers' traffic through the Internet.
This report contains certain statements of a forward-looking nature relating to
future events of the future financial performance of the Company. Stockholders
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
report, including the matters set forth under the caption "Certain Factors That
May Affect Future Results, Financial Condition and the Market Price of
Securities," which could cause actual results to differ materially from those
indicated by such forward-looking statements.
Results of Operations
The following table represents unaudited financial information expressed as a
percentage of total revenues for the periods indicated. The Company believes
that this information has been presented on a basis consistent with the
Company's audited financial statements and includes all adjustments, consisting
only of normal recurring adjustments, that management considers necessary for a
fair presentation for the periods presented.
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<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Percentage of Revenues:
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of service 53.8 57.6 52.4 61.1
------ ------ ------ ------
Gross margin 46.2 42.4 47.6 38.9
------ ------ ------ ------
Operating expenses:
Net operations and support 17.5 13.5 16.6 13.0
Research and development 8.6 10.9 10.2 11.1
Sales and marketing 33.1 27.4 30.4 31.2
General and administrative 14.4 18.6 15.3 18.9
Depreciation and amortization 7.4 9.6 7.0 9.9
Patent litigation settlement 19.3 -- 6.6 --
------ ------ ------ ------
Total operating expenses 100.3 80.0 86.1 84.1
------ ------ ------ ------
Operating loss (54.1) (37.6) (38.5) (45.2)
------ ------ ------ ------
Other income, net 0.3 0.5 0.0 1.3
------ ------ ------ ------
Loss before income taxes (53.8) (37.1) (38.5) (43.9)
Provision for income taxes -- -- -- --
------ ------ ------ ------
Net loss (53.8)% (37.1)% (38.5)% (43.9)%
====== ====== ====== ======
</TABLE>
Three Months Ended September 30, 1998 and 1997
Revenues. Revenues, which consist primarily of customer usage charges, grew
20.0% to $5.3 million in the three months ended September 30, 1998 from $4.4
million in the three months ended September 30, 1997 primarily as a result of
the continued expansion of the Company's customer base, particularly in
international markets. The increased revenues result largely from the Company's
Internet desktop-to-fax and faxSAV EZ-List broadcast services.
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 amounted to $2.9 million and $2.5 million,
respectively for the three month periods ended September 30, 1998 and 1997 but
decreased as a percentage of revenues in the three months ended September 30,
1998 to 53.8% from 57.6% in the three months ended September 30, 1997. The
decreased percentage is a result of transmitting an increased level of customer
faxes over the Company's Internet Fax Network and lower costs for international
telephony termination fax charges.
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 and 17.5% of
revenues in the three months ended September 30, 1998 in comparison to $0.6
million and 13.5% of revenues in the three months ended September 30, 1997 as a
result of hiring additional personnel to implement the Internet fax node
deployment plan and to support the Company's expanding customer base on a 7 day
per week/ 24 hour per day basis.
Research and development. Research and development expenses consist primarily of
salaries and consulting fees paid to software engineers and development
personnel largely for the continuing development efforts for enhancements to the
Company's Internet desktop-to-fax services and faxSAV EZ-List broadcast service.
Research and development expenses amounted to $0.5 million for each of the three
months ended September 30, 1998 and 1997. As a percentage of
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revenues, these costs decreased to 8.6% in the 1998 period from 10.9% in the
1997 period as a result of higher revenues in 1998.
Sales and marketing. Sales and marketing expenses consist primarily of salaries
and commissions for sales and marketing staffs, promotional material preparation
and mailing costs, agent and dealer commissions. Sales and marketing expenses
increased to $1.8 million and 33.1% of revenues for the three months ended
September 30, 1998 in comparison to $1.2 million and 27.4% of revenues in the
three months ended September 30, 1997 due to increased marketing expenses to
support the growth in international revenues, costs for the expansion of the
Company's direct sales staff in the U.S. and increased spending for U.S.
marketing programs in an effort to accelerate the Company's revenue growth.
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 amounted to
$0.8 million in the three months ended September 30, 1998 and 1997. As a
percentage of revenues, these expenses decreased to 14.4% in the three months
ended September 30, 1998 from 18.6% in the three months ended September 30, 1997
as a result of increased revenues.
Depreciation and amortization. Depreciation and amortization amounted to $0.4
million in the three months ended September 30, 1998 and 1997. As a percentage
of revenues, depreciation and amortization expenses decreased to 7.4% in the
three months ended September 30, 1998 in comparison to 9.6% in the three months
ended September 30, 1997, as a result of increased revenues.
Patent litigation settlement. During the quarter ended September 30, 1998 the
Company agreed to the settlement of all outstanding patent litigation with
AudioFAX. The charge in the current quarter represents the cost of the license
fee paid by FaxSav for the license of certain AudioFAX patents.
Other income, net. Other income amounted to $0.02 million in the three months
ended September 30, 1998 and 1997. Due to increased revenues this amount
represented a lower percentage of revenues in the 1998 period as compared to
1997.
Provision for income taxes. The Company had losses for income tax purposes for
the three months ended September 30, 1998 and 1997. 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
a valuation allowance for deferred tax assets.
Nine Months Ended September 30, 1998 and 1997
Revenues. Revenues grew 21.0% to $15.5 million in the nine months ended
September 30, 1998 from $12.8 million in the nine months ended September 30,
1997 primarily as a result of the continued expansion of the Company's customer
base, particularly in international markets. The increased revenues resulted
largely from the Company's Internet desktop-to-fax and faxSAV EZ-List broadcast
services.
Cost of service. Cost of service increased to $8.1 million in the nine months
ended September 30, 1998 from $7.8 million in the nine months ended September
30, 1997 but decreased as a percentage of revenues in 1998 to 52.4% from 61.1%
in same period in 1997. The decreased percentage is a result of transmitting an
increased level of customer faxes over the Company's Internet Fax Network and
lower costs for international fax charges.
Network operations and support. Network operations and support costs increased
to $2.6 million and 16.6% of revenues in the nine months ended September 30,
1998 from $1.7 million and 13.0% of revenues in the nine months ended September
30, 1997 as a result of hiring additional personnel to implement the Internet
fax node deployment plan and to support the Company's expanding customer base on
a 7 day per week / 24 hour per day basis.
Research and development. Research and development expenses increased to $1.6
million from $1.4 million in the nine months ended September 30, 1998 in
comparison to the nine months ended September 30, 1997 due to the
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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 decreased to 10.2% in the nine months
ended September 30, 1998 from 11.1% in the nine months ended September 30, 1997.
Sales and marketing. Sales and marketing expenses increased to $4.7 million for
the nine months ended September 30, 1998 in comparison to $4.0 million in the
nine months ended September 30, 1997 but decreased as a percentage of revenues
to 30.4% in the 1998 period from 31.2% in the 1997 period. The higher costs in
1998 relate to additional expenses to support the growth in international
revenues, the expansion of the Company's direct sales staff in the U.S. and
increased spending for U.S. marketing programs.
General and administrative. General and administrative expenses amounted to $2.4
million in the nine months ended September 30, 1998 and 1997 but decreased as a
percentage of revenues to 15.3% in 1998 from 18.9% in 1997 because of increased
revenues.
Depreciation and amortization. Depreciation and amortization decreased to $1.1
million and 7.0% of revenues in the nine months ended September 30, 1998 in
comparison to $1.3 million and 9.9% of revenues in the nine months ended
September 30, 1997, primarily reflecting reduced charges for faxSAV Connectors
installed on fax machines at customer premises, resulting from the Company's
shift in its business to desktop originated services.
Patent litigation settlement. The charge for patent litigation settlement
represents the total cost paid by the Company for the license of certain
AudioFAX patents in connection with the settlement of all outstanding
litigation.
Other income, net. Other income, net decreased to $0.0 million in the nine
months ended September 30, 1998 from $0.2 million and 1.3% of revenues in the
nine months ended September 30, 1997. In the 1998 period, the Company incurred
increased interest expense on higher outstanding debt balances and earned less
interest income in comparison to the 1997 period when the Company had less
outstanding debt and more funds available for temporary investment as a result
of the proceeds on hand from its October 1996 initial public offering of
securities.
Provision for income taxes. The Company had losses for income tax purposes for
the nine months ended September 30, 1998 and 1997. 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 the valuation allowance for deferred tax assets.
Liquidity and Capital Resources
The Company has financed its cash requirements for operations and investments in
equipment primarily through public and private sales of equity securities, bank
borrowings and capital lease financing. During the nine months ended September
30, 1998, the Company sold 2 million shares of its Common Stock in a private
transaction for net proceeds of $6.9 million. In addition, the Company entered
into an agreement for a $0.5 million secured equipment line of credit with
Silicon Valley Bank, all of which was outstanding as of September 30, 1998 and
the Company agreed to a $0.5 million expansion of its equipment loan facility
with Phoenix Growth Capital Corp. $0.2 million of which was outstanding as of
September 30, 1998.
As a result of operating losses, cash used in operating activities amounted to
$4.3 million in the nine months ended September 30, 1998, as compared to $4.8
million for the comparable period in 1997. Cash used in investing activities
largely consists of the purchase of network equipment. Such purchases amounted
to $1.8 million for the nine months ended September 30, 1998 and $2.0 million
for the comparable period in 1997. The Company is obligated to several operating
entities of MCI WorldCom for a minimum monthly usage commitment of $0.7 million
for total long distance service through June 1999 and $0.5 million from July
1999 to October 2001.
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The Company's principal sources of liquidity at September 30, 1998 included cash
and cash equivalents of $4.7 million and $0.3 million in net available balances
of the financing agreements with Silicon Valley Bank and Phoenix Growth Capital
Corp. Management believes that its current sources of liquidity will be
sufficient to satisfy the Company's requirements through at least September 30,
1999. 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.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than fourteen months, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements or risk system failure or miscalculations causing
disruptions of normal business activities.
State of Readiness. We have conducted a study of the Year 2000 readiness of our
information technology ("IT") systems, including our computing and networking
systems, and our non-IT systems. Our study consisted of (i) contacting
third-party vendors and licensors of material hardware, software and services
that are both directly and indirectly related to the delivery of the our faxSAV
for internet suite of services and the faxSAV Connector; (ii) contacting vendors
of material non-IT systems; (iii) assessment of repair or replacement
requirements; and (iv) repair or replacement. We intend to conduct a test our IT
systems to verify the results of our study prior to the Year 2000. We have been
informed by many of our vendors of material hardware and software components of
our IT systems that the products that we use are currently Year 2000 compliant.
The computing systems that provide application layer services (i.e., FaxSav
customer services) within the FaxSav network are based upon some variant of the
Unix operating system, which adequately represents dates beyond the year 2000.
Many of the computing systems that support the internal operations of our
business have the similar capacity to represent dates beyond the Year 2000. In
addition, for all of our internal accounting applications, we have purchased new
accounting system software that the manufacturer specifies as Year 2000
compliant. We will require vendors of our other material hardware and software
components of our IT systems to provide assurances of their Year 2000
compliance, and we plan to complete this process during the first half of 1999.
We will also seek assurances of Year 2000 compliance from providers of our
material non-IT systems.
Costs. To date, the we have not incurred any material expenditures in connection
with identifying or evaluating Year 2000 compliance issues. Most of our expenses
have related to, and are expected to continue to relate to, the operating costs
associated with time spent by employees in the evaluation process and Year 2000
compliance matters generally. Our expected costs to implement the new accounting
software mentioned above is approximately $0.2 million.
Risks. We are not currently aware of any Year 2000 compliance problems relating
to the faxSAV for internet suite of services, the faxSAV Connector or our other
IT or non-IT systems that would have a material adverse effect on our business,
financial condition and results of operations, without taking into account our
efforts to avoid or fix such problems. There can be no assurance that our
software contains all necessary date code changes or that all problems can be
identified by our study and subsequent testing. Compliance with Year 2000
requirements may disrupt our ability to continue to developing and marketing
facsimile transmission products and services. The failure to adequately address
Year 2000 compliance issues in our products, services, and in our IT and non-IT
systems could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming to
defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by such entities
to be Year 2000 compliant could result in a systemic failure beyond our control,
such as a prolonged Internet, telecommunications or electrical failure, which
could also prevent us from delivering services to our customers, which could
have a material adverse effect on our business, financial condition and results
of operations.
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Contingency Plan. As discussed above, we intend to conduct a further tests of
our Year 2000 compliance to confirm the results of our study, and have not yet
developed any contingency plans. The results of our tests and the responses
received from third-party vendors and service providers will be taken into
account in determining the nature and extent of any contingency plans.
Certain Factors That May Affect Future Results, Financial Condition and the
Market Price of Securities.
History of Operating Losses; Accumulated Deficit
From our inception in 1989 through the nine month period ended September 30,
1998, we have experienced significant operating losses. We incurred operating
losses of $4.1 million, $7.5 million and $7.1 million during the years ended
December 31, 1995, 1996 and 1997, respectively, and $6.0 million during the nine
months ended September 30, 1998. We currently anticipate that we will have
additional operating losses as we attempt to expand our business and we may not
have positive operating income in the future. As of September 30, 1998, we had
an accumulated deficit of $38.1 million.
Since inception, we have incurred substantial costs to develop and enhance our
technology and to create, introduce and enhance our service and product
offerings. We intend to continue these efforts and, in addition, to increase our
marketing spending. We recently announced a new marketing campaign, which will
involve significant expenditures by us, including the hiring of an outside
advertising agency. There can be no assurance that our new marketing campaign
will be successful or that it will result in any increase in revenues.
We generated net operating loss ("NOL") carryforwards for income tax purposes of
approximately $30.0 million through December 31, 1997. These NOL carryforwards
have been recorded as a deferred tax asset of approximately $9.5 million. Based
upon our history of operating losses and other presently known factors,
management has determined that it is more likely than not that we will be unable
to generate sufficient taxable income prior to the expiration of these NOL
carryforwards in order to receive the benefit of them and has accordingly
reduced our deferred tax assets to zero with a full valuation allowance.
Intense Competition
The market for facsimile transmission services is intensely competitive and the
industry is characterized by low barriers to entry. We expect that competition
will intensify in the future. We believe that our ability to compete
successfully will depend upon a number of factors, including market presence;
the capacity, reliability and security of our network infrastructure; the
pricing policies of our competitors and suppliers; the timing of introductions
of new services and service enhancements by us and our competitors; and industry
and general economic trends. Our current and future competitors generally fall
into the following groups: (i) telecommunication companies, such as AT&T, MCI
WorldCom, Sprint and the regional Bell operating companies, and
telecommunications resellers; (ii) Internet service providers, such as Uunet
Technologies, Inc., a subsidiary of MCI WorldCom, Inc., and NETCOM On-Line
Communications Services, Inc., (iii) on-line services providers, such as
Microsoft Corporation and America Online, Inc. and (iv) direct fax delivery
competitors, including Xpedite Systems, Inc. and UNIFI Communications, Inc. Many
of these competitors have greater market presence, engineering and marketing
capabilities, and financial, technological and personnel resources than we do.
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 we can. Further, the
foundation of our telephony network infrastructure consists of the right to use
the telecommunications lines of several of the above-mentioned long distance
carriers, including MCI WorldCom. There can be no assurance that these companies
will not discontinue or otherwise change their relationships with us in a manner
that would have a material adverse effect upon our 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
our 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 our larger
potential customers may seek to internally fulfill their fax
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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 our market share, any of which would
have a material adverse effect on our business, financial condition and results
of operations. There can be no assurance that we will be able to compete
successfully against current or future competitors or that competitive pressures
will not have a material adverse effect on our business, financial condition and
results of operations.
On August 7, 1997, the Federal Communications Commission (the "FCC") issued new
rules, which may significantly reduce the cost of international calls
originating in the United States. The five-year phase-in period began on January
1, 1998. To the extent that these new regulations are implemented and result in
reductions in the cost of international calls originating in the United States,
we will face increased competition for our international fax services which may
have a material adverse effect on our business, financial condition or results
of operations.
Possible Delisting from Nasdaq
Our Common Stock is currently traded on the Nasdaq National Market ("Nasdaq").
In order to continue to trade on Nasdaq, Nasdaq generally requires, among other
things, that we maintain at least $4.0 million in net tangible assets. In the
past, we have not been in compliance with this requirement. We believe that we
are currently in compliance with Nasdaq's requirements. However, if in the
future we are unable to satisfy Nasdaq's requirements, our securities may be
delisted from Nasdaq. There can be no assurance that our Common Stock will not
be delisted, which would materially affect your ability to buy or sell shares of
our Common Stock.
Future Capital Needs; Uncertainty of Additional Financing; Dilution
We believe that our current cash and cash equivalents will be sufficient to meet
our presently anticipated cash needs for working capital and our capital
expenditure requirements through September 30, 1999. However, our cash
requirements may vary materially from those now planned as a result of
unforeseen changes that could consume a significant portion of our available
resources before such time. To the extent that funds expected to be generated
from our operations are insufficient to meet current or planned operating
requirements or to maintain a Nasdaq listing, we will seek to obtain additional
funds through bank facilities, equity or debt financing, collaborative or other
arrangements with corporate partners and others and from other sources. See "--
Possible Delisting from Nasdaq." Additional funding may not be available when
needed or on terms acceptable to us, which could have a material adverse effect
on our business, financial condition and results of operations. If adequate
funds are not available, we may be required to delay or to eliminate certain
expenditures or to license to third parties the rights to commercialize
technologies that we would otherwise seek to develop ourselves. In addition, in
the event that we obtain any additional funding, such financings may have a
dilutive effect on the holders of our securities.
Limited Protection of Intellectual Property Rights; Risk of Third Party Claims
of Infringement
Our success is dependent upon our proprietary technology. We rely primarily on a
combination of contract, copyright and trademark law, trade secrets,
confidentiality agreements and contractual provisions to protect our proprietary
rights. We were granted a patent related to our faxSAV Connector and have a
patent application pending for our "e-mail Stamps" security technology
incorporated into our faxMailer service. There can be no assurance that a patent
will issue from such application or that present or future patents will provide
sufficient protection to our 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 our know-how. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our services or to obtain
and use information that we regard as proprietary. In addition, the laws of some
foreign countries do not protect our proprietary rights to the same extent, as
do the laws of the United States. There can be no assurance that the steps taken
by us to protect our proprietary rights will be adequate or that our competitors
will not independently develop technologies that are substantially equivalent or
superior to our technologies.
There can be no assurance that other third parties will not assert infringement
claims against us 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 our
services. As patent applications in the United States
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are not publicly disclosed until the patent issues, applications may have been
filed which, if issued as patents, could relate to our services. We could incur
substantial costs and diversion of management resources with respect to the
defense of any claims that we have infringed upon the proprietary rights of
others, which costs and diversion could have a material adverse effect on our
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 our
ability to license and sell our services in the United States or abroad. Any
such judgment could have a material adverse effect on our business, financial
condition and results of operations. In the event a claim relating to
proprietary technology or information is asserted against us, we may seek
licenses to such intellectual property. There can be no assurance, however, that
licenses could be obtained on terms acceptable to us, or at all. The failure to
obtain any necessary licenses or other rights could have a material adverse
effect on our business, financial condition and results of operations.
Quarterly Fluctuations; Possible Volatility of Stock Price
We may experience significant quarter to quarter fluctuations in our results of
operations, which may result in volatility in the price of our Common Stock.
Quarterly results of operations may fluctuate as a result of a variety of
factors, including demand for our services, the introduction of new services and
service enhancements by us or our 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. Our revenues are difficult to forecast.
Shortfalls in revenues may adversely and disproportionately affect our results
of operations because a high percentage of our operating expenses are relatively
fixed, and planned expenditures, such as the anticipated expansion of our
Internet infrastructure, are based primarily on sales forecasts. In addition,
the stock market in general has experienced extreme price and volume
fluctuations, which have affected the market price of securities of many
companies in the telecommunications and technology industries and which may have
been unrelated to the operating performance of such companies. These market
fluctuations may adversely affect the market price of our Common Stock.
Accordingly, we believe 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 we
will be profitable in any future quarter. Due to the foregoing factors, it is
likely that in one or more future quarters our 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 our Common Stock.
Dependence on Network Infrastructure; No Assurance of Additional
Internet-Capable Node Deployment
Our future success will depend in part upon the capacity, reliability and
security of our network infrastructure and in part upon our ability to expand
the deployment of an international network of Internet-capable facsimile nodes.
We must continue to expand and adapt our network infrastructure as the number of
customers and the volume of traffic they wish to transmit increases. The
expansion and adaptation of our network infrastructure will require substantial
financial, operational and management resources. There can be no assurance that
we will be able to expand or adapt our network infrastructure to meet any
additional demand on a timely basis, at a commercially reasonable cost, or at
all. In addition, there can be no assurance that we will be able to deploy
additional contemplated Internet-capable facsimile nodes on a timely basis, at a
commercially reasonable cost, or at all. Any failure to expand our network
infrastructure on a timely basis, to adapt it to changing customer requirements
or evolving industry standards or to complete the development of the
contemplated Internet-capable facsimile node infrastructure on a timely basis
would have a material adverse effect on our business, financial condition and
results of operations. Further, there can be no assurance that we be able to
satisfy the regulatory requirements in each of the countries currently targeted
for node deployment, which may prevent us from installing Internet-capable
facsimile nodes in such countries and may have a material adverse effect on our
business, operating results and financial condition.
Dependence on the Internet as a Low-Cost Facsimile Transmission Medium; No
Assurance of Increased Market Acceptance
We believe that our future success will depend in part upon our ability to
significantly expand our base of Internet-capable nodes and route more of our
customers' traffic through the Internet. Our success is therefore largely
dependent upon the viability of the Internet as a medium for the transmission of
documents. There can be no assurance that document transmission over the
Internet will continue to be reliable or that Internet capacity constraints will
not develop
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which inhibit efficient document transmission. We access the Internet from our
Internet-capable nodes by dedicated connection to third party Internet service
providers. We pay fixed monthly fees for such Internet access, regardless of our
usage or the volume of our customers' traffic. There can be no assurance that
the current pricing structure for access to and use of the Internet will not
change unfavorably. If material capacity constraints develop on the Internet or
the current Internet pricing structure changes unfavorably, our business,
financial condition and results of operations would be materially and adversely
affected. In addition, our future success is dependent upon the increased
acceptance by potential customers of the Internet as the preferred medium for
transmission of documents. There can be no assurance that such market acceptance
shall continue to increase. Lack of increased market acceptance would materially
and adversely affect our business, financial condition and results of
operations.
No Assurance of Successful Management of Growth
We have rapidly and significantly expanded our operations and anticipate that
significant expansion will continue to be required in order to address potential
market opportunities. There can be no assurance that such expansion will be
successfully completed or that it will generate sufficient revenues to cover our
expenses. Our inability to promptly address and respond to these circumstances
could have a material adverse effect on our 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 we provide or reduce the cost of existing
products or services, any of which could enable our existing or potential
customers to fulfill their fax communications needs more cost efficiently. There
can be no assurance that we 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 our services noncompetitive.
Our inability 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 our services
noncompetitive would have a material adverse effect on our business, financial
condition and results of operations.
Risk of System Failure; Security Risks
Our operations are dependent on our ability to protect our network from
interruption by damage from fire, earthquake, power loss, telecommunications
failure, unauthorized entry, computer viruses or other events beyond our
control. Most of our current computer hardware and switching equipment,
including our processing equipment, is currently located at three sites. There
can be no assurance that our 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, our infrastructure may also be vulnerable to computer
viruses, hackers or similar disruptive problems caused by our 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 our
services. This may result in significant liability to us and also may deter
potential customers from using our services. Any damage, failure or security
breach that causes interruptions or data loss in our operations or in the
computer systems of our customers could have a material adverse effect on our
business, financial condition and results of operations.
Dependence Upon Suppliers; Sole and Limited Sources of Supply
We rely on third parties to supply key components of our network infrastructure,
including long distance telecommunications services and telecommunications node
equipment, many of, which are available only from sole or limited sources. MCI
WorldCom is our primary provider of long distance telecommunications services.
We have from time-to-time experienced partial interruptions of service from our
telecommunications carriers, which have temporarily prevented customers in
limited geographical areas from reaching the FaxSav network. There can be no
assurance that we will not experience partial or complete service interruptions
in the future. There can be no assurance that MCI WorldCom
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and our other telecommunications providers will continue to provide long
distance services to us at attractive rates, or at all, or that we 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 us. 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 our business, financial condition and results of operations.
All of the faxboards used in our telecommunications nodes are supplied by
Brooktrout Technology, Inc. ("Brooktrout"). We purchase Brooktrout faxboards on
a non-exclusive basis pursuant to purchase orders placed from time-to-time,
carry a limited inventory of faxboards and have no guaranteed supply arrangement
with Brooktrout. In addition to faxboards, many of the routers, switches and
other hardware components used in our network infrastructure are supplied by
sole or limited sources on a non-exclusive, purchase order basis. There can be
no assurance that Brooktrout or our other suppliers will not enter into
exclusive arrangements with our competitors, or cease selling these components
to us at commercially reasonable prices, or at all. The anticipated expansion of
our network infrastructure is expected to place a significant demand on our
suppliers, some of which have limited resources and production capacity. In
addition, certain of our suppliers, in turn, rely on sole or limited sources of
supply for components included in their products. Should our suppliers fail to
adjust to meet such increasing demand, they may be unable to continue to supply
components and products in the quantities and quality and at the times required
by us, or at all. Our 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 our network
infrastructure or in our inability to properly maintain the existing network
infrastructure, which would have a material adverse effect on our business,
financial condition and results of operations.
Risk of Software Defects or Development Delays
Software-based services and equipment, such as our 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 us and by current and potential customers, errors will
not be found in such software or other releases after commencement of commercial
shipments, or that we 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 our business, financial
condition and results of operations.
Dependence on Key Personnel
Our future performance depends in significant part upon the continued service of
our key technical, sales and senior management personnel, none of whom is bound
by an employment agreement. Competition for such personnel is intense, and there
can be no assurance that we can retain our key technical, sales and managerial
employees or that we can attract, assimilate or retain other highly qualified
technical, sales and managerial personnel in the future.
Reliance on International Strategic Alliances; Risks Associated with
International Operations
We have established and intend to expand an international customer base by
forming strategic sales and marketing alliances with foreign Internet service
providers, telecommunications companies and resellers. There can be no assurance
that we will be able to establish additional strategic alliances or to maintain
such strategic alliances. Our success in expanding our international customer
base depends not only on the formation of additional strategic alliances but
also on the success of these partners and their ability to market our services.
The failure to maintain such strategic alliances or the failure of these
partners to successfully develop and sustain a market for our services will have
a material adverse effect on our ability to expand our international customer
base, which could have a material adverse effect on our business, financial
condition and results of operations.
In 1997, we derived approximately $2.3 million, or 13.2% of our total revenues,
from customers outside of the United States. We expect that such revenues will
represent an increasing percentage of our total revenues in the future. Risks
inherent in our international business activities generally include foreign
currency exchange risk, unexpected changes in regulatory requirements, tariffs
and other trade barriers, costs of localizing products for foreign countries,
lack of acceptance of localized products in foreign markets, longer accounts
receivable payment cycles, difficulties in managing international operations,
potentially adverse tax consequences, and the burdens of complying with a wide
variety of
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foreign laws. There can be no assurance that such factors will not have a
material adverse effect on our future international revenues and, consequently,
on our business, financial condition and results of operations.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than fourteen months, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements or risk system failure or miscalculations causing
disruptions of normal business activities.
State of Readiness. We have conducted a study of the Year 2000 readiness of our
information technology ("IT") systems, including our computing and networking
systems, and our non-IT systems. Our study consisted of (i) contacting
third-party vendors and licensors of material hardware, software and services
that are both directly and indirectly related to the delivery of the our faxSAV
for internet suite of services and the faxSAV Connector; (ii) contacting vendors
of material non-IT systems; (iii) assessment of repair or replacement
requirements; and (iv) repair or replacement. We intend to conduct a test our IT
systems to verify the results of our study prior to the Year 2000. We have been
informed by many of our vendors of material hardware and software components of
our IT systems that the products that we use are currently Year 2000 compliant.
The computing systems that provide application layer services (i.e., FaxSav
customer services) within the FaxSav network are based upon some variant of the
Unix operating system, which adequately represents dates beyond the year 2000.
Many of the computing systems that support the internal operations of our
business have the similar capacity to represent dates beyond the Year 2000. In
addition, for all of our internal accounting applications, we have purchased new
accounting system software that the manufacturer specifies as Year 2000
compliant. We will require vendors of our other material hardware and software
components of our IT systems to provide assurances of their Year 2000
compliance, and we plan to complete this process during the first half of 1999.
We will also seek assurances of Year 2000 compliance from providers of our
material non-IT systems.
Costs. To date, the we have not incurred any material expenditures in connection
with identifying or evaluating Year 2000 compliance issues. Most of our expenses
have related to, and are expected to continue to relate to, the operating costs
associated with time spent by employees in the evaluation process and Year 2000
compliance matters generally. Our expected costs to implement the new accounting
software mentioned above is approximately $0.2 million.
Risks. We are not currently aware of any Year 2000 compliance problems relating
to the faxSAV for internet suite of services, the faxSAV Connector or our other
IT or non-IT systems that would have a material adverse effect on our business,
financial condition and results of operations, without taking into account our
efforts to avoid or fix such problems. There can be no assurance that our
software contains all necessary date code changes or that all problems can be
identified by our study and subsequent testing. Compliance with Year 2000
requirements may disrupt our ability to continue to developing and marketing
facsimile transmission products and services. The failure to adequately address
Year 2000 compliance issues in our products, services, and in our IT and non-IT
systems could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming to
defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by such entities
to be Year 2000 compliant could result in a systemic failure beyond our control,
such as a prolonged Internet, telecommunications or electrical failure, which
could also prevent us from delivering services to our customers, which could
have a material adverse effect on our business, financial condition and results
of operations.
Contingency Plan. As discussed above, we intend to conduct a further tests of
our Year 2000 compliance to confirm the results of our study, and have not yet
developed any contingency plans. The results of our tests and the responses
received from third-party vendors and service providers will be taken into
account in determining the nature and extent of any contingency plans.
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Government Regulation
We are subject to regulation by various state public service and public utility
commissions and by various international regulatory authorities. We are licensed
by the FCC as an authorized telecommunications company and our 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 us and to change our regulatory
classification. There can be no assurance that the FCC will not change our
regulatory classification or otherwise subject us to more burdensome regulatory
requirements.
In connection with the deployment of Internet-capable nodes in countries
throughout the world, we are required to satisfy a variety of foreign regulatory
requirements. We intend 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 we 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 us 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 our
business, operating results and financial condition.
Our nodes and FAXLAUNCHER service utilize 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. We have the
authority to export such encryption technology except to Cuba, Iran, Iraq,
Libya, North Korea and Rwanda. Nevertheless, there can be no assurance that such
authority will not be revoked or modified at any time 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 our ability to distribute our services outside of the United
States or electronically. While we take precautions against unlawful exportation
of our software, the global nature of the Internet makes it virtually impossible
to effectively control the distribution of our 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 our services, or new legislation or regulation could
have a material adverse effect on our business, financial condition and results
of operations.
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PART II o OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
As disclosed in the Company's latest proxy statement, the deadline
for submitting proposals to be considered for inclusion in the
Company's Proxy Statement for the 1999 Annual Meeting is December 7,
1998.
Pursuant to recent amendments to Rule 14a-4(C)(1) under the
Securities Exchange Act of 1934, as amended, the Company will have
discretionary voting authority if a proponent does not notify the
Company by March 1, 1999 of their intent to present a proposal from
the floor at the 1999 Annual Meeting of Stockholders or of their
intent to commence a proxy solicitation for the 1999 Annual Meeting
of Stockholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
3.1 Registrant's Ninth Amended and Restated Certificate of Incorporation
(incorporated by reference to exhibit 3.3 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-09613
("Registrant's Registration Statement")).
3.2 By-laws of the Registrant (incorporated by reference to exhibit 3.4
and 3.5 to the Registrant's Registration Statement and Exhibit 3.3 to
the Registrant's Report on form 10-Q for the quarter ended September
30, 1997).
4.1 Specimen Common Stock Certificate (incorporated by reference to
exhibit 4.1 to the Registrant's Registration Statement).
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of holders
of Common Stock of the Registrant.
10.1 Fifth Amended and Restated Investor Rights Agreement, as amended
(incorporated by reference to exhibit 10.1 and 10.3 to the
Registrant's Registration Statement
10.2 1990 Stock Option Plan (incorporated by reference to exhibit 10.3 to
the Registrant's Registration Statement).
10.3 1996 Stock Option/Stock Issuance Plan (incorporated by reference to
exhibit 10.4 to the Registrant's Registration Statement).
10.4 Form of Officer Severance Agreement (incorporated by reference to
exhibit 10.5 to the Registrant's Registration Statement).
10.5 Form of Director Severance Agreement (incorporated by reference to
exhibit 10.6 to the Registrant's Registration Statement).
10.6* Telecommunications Services Agreement, between LDDS World Com and the
Registrant, dated December 1, 1996 (incorporated by reference to
exhibit 10.7 to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 1997).
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10.7* Agreement between MCI Telecommunications Corporation and the
Registrant, effective March 1, 1996 (incorporated by reference to
exhibit 10.9 to the Registrant's Registration Statement).
10.8 Lease Agreement, dated May 28, 1992, between Metro Four Associates
Limited Partnership, Thornall Associates and the Registrant, as
extended and amended to date (incorporated by reference to exhibit
10.10 to the Registrant's Registration Statement).
10.10 Credit Agreement, dated July 7, 1995, between the Company and Silicon
Valley Bank, as amended to date (incorporated by reference to exhibit
10.11 to the Registrant's Registration Statement).
10.11 Letter Agreement, dated November 1, 1994 between Telstra Incorporated
and the Registrant (incorporated by reference to exhibit 10.12 to the
Registrant's Registration Statement).
10.12 Series B Preferred Stock Warrant between the Registrant and Comdisco,
Inc., dated May 30, 1991 (incorporated by reference to exhibit 10.14
to the Registrant's Registration Statement).
10.13 Series B Preferred Stock Warrant between the Registrant and Comdisco,
Inc., dated September 16, 1992 (incorporated by reference to exhibit
10.15 to the Registrant's Registration Statement).
10.14 Series D Preferred Stock Warrant between the Registrant and Comdisco,
Inc., dated October 28, 1993 (incorporated by reference to exhibit
10.16 to the Registrant's Registration Statement).
10.15 Common Stock Warrant between the Registrant and LTI Ventures Leasing
Corp., dated February 15, 1993 (incorporated by reference to exhibit
10.17 to the Registrant's Registration Statement).
10.16 Common Stock Warrant between the Registrant and LTI Ventures Leasing
Corp., dated May 5, 1994 (incorporated by reference to exhibit 10.18
to the Registrant's Registration Statement).
10.17 Common Stock Warrant between the Registrant and Silicon Valley
Bancshares, dated April 6, 1992 (incorporated by reference to exhibit
10.19 to the Registrant's Registration Statement).
10.18 Common Stock Warrant between the Registrant and Silicon Valley
Bancshares, dated July 7, 1995 (incorporated by reference to exhibit
10.20 to the Registrant's Registration Statement).
10.19 Form of Common Stock Purchase Agreement, dated November 21, 1997
(incorporated by reference to exhibit 10.1 to the Registrant's
Registration Statement on form S-3 dated January 9, 1998, Registration
No. 333-43939)
10.20 Loan and Security Agreement, dated as of March 27, 1998, between
Silicon Valley Bank and the Registrant. (incorporated by reference to
exhibit 10.20 to the Registrant's Report on Form 10-Q for the quarter
ended March 31, 1998)
10.21 Form of Common Stock Purchase Agreement, dated July 22, 1998
(incorporated by reference to exhibit 10.1 of the Registrant's
Registration Statement on Form S-3 dated September 29, 1998,
Registration No. 333-64515)
10.22 Rights Agreement, dated September 17, 1998 (incorporated by reference
to exhibit 10.1 of the Registrants Registration Statement on Form S-3
dated November 16, 1998 Registration No. 333- )
10.23** Amendment No. 1 to Telecommunications agreement between Worldcom
Network Services, Inc. and the Registrant effective October 6, 1998.
27. Financial Data Schedule.
- ---------
* Confidential treatment granted
** Confidential treatment requested
(b) Reports on Form 8-K.
Report on Form 8-K dated September 23, 1998
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAXSAV INCORPORATED
-------------------
(Registrant)
Date: November 13, 1998 /s/ Thomas F. Murawski
--------------------------------------------
Thomas F. Murawski
Chief Executive Officer, President and
Chairman of the Board of Directors
Date: November 13, 1998 /s/ Peter S. Macaluso
--------------------------------------------
Peter S. Macaluso
Chief Financial Officer
Treasurer and Secretary,
(Principal Financial and Accounting Officer)
21
<PAGE>
FAXSAV INCORPORATED
Exhibit Index
Exhibit No.
3.1 Registrant's Ninth Amended and Restated Certificate of Incorporation
(incorporated by reference to exhibit 3.3 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-09613
("Registrant's Registration Statement")).
3.2 By-laws of the Registrant (incorporated by reference to exhibit 3.4
and 3.5 to the Registrant's Registration Statement and Exhibit 3.3 to
the Registrant's Report on form 10-Q for the quarter ended September
30, 1997).
3.3 Amendment to the By-laws of the Registrant, dated April 25, 1997.
4.1 Specimen Common Stock Certificate (incorporated by reference to
exhibit 4.1 to the Registrant's Registration Statement).
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of holders
of Common Stock of the Registrant.
10.1 Fifth Amended and Restated Investor Rights Agreement, as amended
(incorporated by reference to exhibit 10.1 and 10.3 to the
Registrant's Registration Statement
10.2 1990 Stock Option Plan (incorporated by reference to exhibit 10.3 to
the Registrant's Registration Statement).
10.3 1996 Stock Option/Stock Issuance Plan (incorporated by reference to
exhibit 10.4 to the Registrant's Registration Statement).
10.4 Form of Officer Severance Agreement (incorporated by reference to
exhibit 10.5 to the Registrant's Registration Statement).
10.5 Form of Director Severance Agreement (incorporated by reference to
exhibit 10.6 to the Registrant's Registration Statement).
10.6* Telecommunications Services Agreement, between LDDS World Com and the
Registrant, dated December 1, 1996 (incorporated by reference to
exhibit 10.7 to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 1997).
10.7* Agreement between MCI Telecommunications Corporation and the
Registrant, effective March 1, 1996 (incorporated by reference to
exhibit 10.9 to the Registrant's Registration Statement).
10.8 Lease Agreement, dated May 28, 1992, between Metro Four Associates
Limited Partnership, Thornall Associates and the Registrant, as
extended and amended to date (incorporated by reference to exhibit
10.10 to the Registrant's Registration Statement).
10.10 Credit Agreement, dated July 7, 1995, between the Company and Silicon
Valley Bank, as amended to date (incorporated by reference to exhibit
10.11 to the Registrant's Registration Statement).
10.11 Letter Agreement, dated November 1, 1994 between Telstra Incorporated
and the Registrant (incorporated by reference to exhibit 10.12 to the
Registrant's Registration Statement).
10.12 Series B Preferred Stock Warrant between the Registrant and Comdisco,
Inc., dated May 30, 1991 (incorporated by reference to exhibit 10.14
to the Registrant's Registration Statement).
10.13 Series B Preferred Stock Warrant between the Registrant and Comdisco,
Inc., dated September 16, 1992 (incorporated by reference to exhibit
10.15 to the Registrant's Registration Statement).
10.14 Series D Preferred Stock Warrant between the Registrant and Comdisco,
Inc., dated October 28, 1993 (incorporated by reference to exhibit
10.16 to the Registrant's Registration Statement).
10.15 Common Stock Warrant between the Registrant and LTI Ventures Leasing
Corp., dated February 15, 1993 (incorporated by reference to exhibit
10.17 to the Registrant's Registration Statement).
10.16 Common Stock Warrant between the Registrant and LTI Ventures Leasing
Corp., dated May 5, 1994 (incorporated by reference to exhibit 10.18
to the Registrant's Registration Statement).
10.17 Common Stock Warrant between the Registrant and Silicon Valley
Bancshares, dated April 6, 1992 (incorporated by reference to exhibit
10.19 to the Registrant's Registration Statement).
10.18 Common Stock Warrant between the Registrant and Silicon Valley
Bancshares, dated July 7, 1995 (incorporated by reference to exhibit
10.20 to the Registrant's Registration Statement).
<PAGE>
10.19 Form of Common Stock Purchase Agreement, dated November 21, 1997
(incorporated by reference to Exhibit 10.1 to the Registrant's
Registration Statement on form S-3 dated January 9, 1998, Registration
No. 333-43939)
10.20 Loan and Security Agreement, dated as of March 27, 1998, between
Silicon Valley Bank and the Registrant. (incorporated by reference to
Exhibit 10.20 to the Registrant's Report on Form 10-Q for the quarter
ended March 31, 1998)
10.21 Form of Common Stock Purchase Agreement, dated July 22, 1998
(incorporated by reference to exhibit 10.1 of the Registrant's
Registration Statement on Form S-3 dated September 29, 1998,
Registration No. 333-64515)
10.22 Rights Agreement, dated September 17, 1998 (incorporated by reference
to exhibit 10.1 of the Registrants Registration Statement on Form S-3
dated November 16, 1998 Registration No. 333- )
10.23** Amendment No. 1 to Telecommunications agreement between Worldcom
Network Services, Inc. and the Registrant effective October 6, 1998.
27. Financial Data Schedule.
- ---------
* Confidential treatment granted
** Confidential treatment requested
(b) Reports on Form 8-K.
Report on Form 8-K dated September 23, 1998
EXHIBIT 10.23
CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR
PORTIONS OF THIS EXHIBIT PURSUANT TO RULE 24b-2
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
AMENDMENT NO. 1
This Amendment No. 1 is made by and between FaxSAV, Inc. ("Customer") and
WorldCom Network Services, Inc. ("WorldCom"), to those certain Amended and
Restated Program Enrollment Terms (the "Amended PET") to that certain WilMAX
UNIVERSAL Telecommunications Services Agreement (TSA#FSI-961201) made by and
between Customer and WorldCom dated as of December 1, 1996 (the "TSA"). The
parties acknowledge that the prior Telecommunications Services Agreement (along
with the Program Enrollment Terms, Pricing Exhibit and Service Schedule) between
Digitran Corp. (now known as FaxSAV, Inc.) and WilTel, Inc. (now known as
WorldCom Network Services, Inc.) were canceled in their entirety and superseded
by the TSA..
The parties agree that the Service Schedule attached to the TSA will be
canceled in its entirety and superseded by the Service Schedule (the "New
Service Schedule") attached hereto. All references to "WilTel" in the TSA or the
Amended PET shall be deemed to refer to WorldCom. In the event of any conflict
between the terms of the TSA or the Amended PET and the terms of this Amendment
No. 1, the terms of this Amendment No. 1 shall control. The TSA (along with the
Amended PET, the New Service Schedule and the Rate and Discount Schedule) 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:
A. SERVICE TERM. The parties agree to substitute Section 2 of the Amended PET to
read in its entirety as follows:
2. SERVICE TERM: This Agreement shall commence as of June 1, 1998 (the
"Effective Date"), and shall continue for a period of thirty-two
(32) months thereafter (the "Service Term").
B. DISCOUNT SCHEDULE/APPLICATION OF DISCOUNTS/RATES. The parties agree to delete
Sections 3, 6 and 7 of the Amended PET in their entirety and replace such
provisions with the Rate and Discount Schedule attached hereto.
C. CUSTOMER'S COMMITMENT. The parties agree to substitute Section 4 of the
Amended PET to read in its entirety as follows:
4. CUSTOMER'S MINIMUM REVENUE COMMITMENT:
(A) Commencing with the first day of the fifth (5th) billing
period following
Page 1 of 2 CONFIDENTIAL
<PAGE>
the Effective Date and continuing through the end of the
Service Term (including any extensions thereto) (the
"Commitment Period"), Customer agrees to maintain, on a
take-or-pay basis, Monthly Revenue (as defined in the
applicable Rate and Discount Schedule) of at least $500,000
("Customer's Minimum Revenue Commitment").
(B) Provided Customer's cumulative Monthly Revenue from WorldCom
under this Agreement commencing with the Effective Date of
this Amendment is at least $[****] (i.e., in the aggregate),
Customer may elect to terminate Customer's Minimum Revenue
Commitment described in Subsection 4(A) above by providing
WorldCom written notice ("Customer Notice"). In such event,
commencing with the first day of the first full month
following at least thirty (30) days after WorldCom receives
the Customer Notice (the "Commitment Termination Date"),
Customer's Minimum Revenue Commitment shall terminate and will
no longer be in force or effect. Provided, for the remainder
of the Service Term, Customer will continue to receive the
Discount determined under Section II.(B) of the Rate and
Discount Schedule.
D. DEFICIENCY CHARGE: The parties agree to substitute Section 5 of the Amended
PET to read in its entirety as follows:
5. DEFICIENCY CHARGE: In the event Customer does not maintain
Customer's Minimum Revenue Commitment in any month during the
Commitment Period (regardless of whether Customer has commenced
using any or all of the Switched Services described herein), then
for those month(s) only, Customer will pay WorldCom the difference
between Customer's Minimum Revenue Commitment and Customer's actual
Monthly Revenue (as described in the applicable Rate and Discount
Schedule) (the "Deficiency Charge"). The Deficiency Charge will be
due at the same time payment is due for Service provided to
Customer, or immediately in an amount equal to Customer's Minimum
Revenue Commitment for the unexpired portion of the Service Term, if
WorldCom terminates this Agreement based on Customer's default.
E. CREDIT. In consideration of Customer's Commitment described in Paragraph C.
above and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, WorldCom agrees to give Customer a credit (the
"Credit") in an amount equal to $[****]. The Credit will be applied to
Customer's invoices from WorldCom commencing with the first invoice following
the Effective Date (but in no event less than zero) until such Credit is
completely utilized.
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
Page 2 of 2 CONFIDENTIAL
<PAGE>
F. OTHER TERMS AND CONDITIONS. Except as specifically amended or modified
herein, the terms and conditions of the TSA and the Amended PET will remain in
full force and effect throughout the Service Term and any extensions thereof.
IN WITNESS WHEREOF the parties have entered into this Amendment No. 1 on
the date first written above.
WORLDCOM NETWORK SERVICES, INC. FAXSAV, INC.
By: /s/ Charles M. Cole By: /s/ Peter S. Macaluso
-------------------------------- --------------------------------
Print Name: Charles M. Cole Print Name: Peter S. Macaluso
Title: Vice President Carrier Sales Title: Vice President and CFO
Page 2 of 2 CONFIDENTIAL
<PAGE>
WORLDCOM NETWORK SERVICES, INC.
CLASSIC/TRANSCEND(TM) SWITCHED SERVICES
SERVICE SCHEDULE
This Service Schedule is made by and between WorldCom Network Services,
Inc. ("WorldCom") and FaxSAV, Inc. ("Customer") and is a part of their
Telecommunication Services Agreement for Switched Services. Neither Customer nor
WorldCom shall be obligated with respect to the Switched Services described
below, nor any other condition of such Switched Services until Customer has
submitted and WorldCom has accepted a Service Request with respect to the
particular Switched Service. Capitalized terms not defined herein shall have the
meaning ascribed to them in the TSA, the PET or the applicable Rate and Discount
Schedule.
1. SWITCHED SERVICES: During the Service Term of the Agreement, WorldCom will
provide the following Switched Services (all as more particularly
described herein), (i) to and from the locations below, and (ii) for the
charges and applicable discounts set forth in the applicable Rate and
Discount Schedule attached herewith:
(a) "TERMINATION Service" which is WorldCom's termination of calls
received from Customer's Service Interconnection(s).
(b) "TOLL FREE ORIGINATION Service" which is the origination of Toll
Free calls by WorldCom and the termination of such calls to
Customer's Service Interconnection(s).
(c) "SWITCHED ACCESS Service" which is the origination (via individual
telephone access lines) and termination of calls solely over
facilities comprising the WorldCom network.
(d) "DEDICATED ACCESS Service" which is the origination and termination
of calls solely over facilities comprising the WorldCom network
which origination or termination is via dedicated access lines.
(e) "TRAVEL CARD Service" which is the origination (via Travel Card Toll
Free number access) and termination of calls solely over facilities
comprising the WorldCom network.
2. SERVICE INTERCONNECTIONS:
(a) In order to utilize (i) TERMINATION Service and TOLL FREE
ORIGINATION Service, one or more full time dedicated connections
between Customer's network and the WorldCom network at one or more
WorldCom designated locations ("WorldCom POP") must be established
("Carrier Service Interconnections"), and (ii) DEDICATED ACCESS
Service, one or more
Page 1 of 8
CONFIDENTIAL
<PAGE>
full time dedicated connections between an End User's private branch
exchange ("PBX") or other customer premise equipment and the
WorldCom network at one or more WorldCom POP(s) must be established
("Dedicated Service Interconnections"). Each Carrier Service
Interconnection and Dedicated Service Interconnection shall be
comprised of one or more dedicated access circuits, as the case may
be. Carrier Service Interconnections and Dedicated Service
Interconnections are collectively referred to as "Service
Interconnections".
(b) The circuit(s) comprising each Service Interconnection to a WorldCom
POP shall be requested by Customer on the appropriate WorldCom
Service Request. Each Service Request will describe (among other
things) the WorldCom 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
WorldCom and recorded in Technical Information Sheets provided by
WorldCom.
(c) Once ordered, and unless otherwise provided for in this TSA, 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 WorldCom.
(d) With respect to a Carrier Service Interconnection, absent the
automatic number identification ("ANI") of the calling party,
Customer shall provide WorldCom with a written certification (the
"Certification") of the percentage of interstate (including
intentional) and intrastate minutes of use relevant to the minutes
of traffic to be terminated in the same state in which the WorldCom
POP is located to which the Carrier Service Interconnection is made.
This Certification shall be provided by Customer prior to Start of
Service for any Carrier Service Interconnection and may be modified
from time to time by Customer and subject to recertification upon
the request of WorldCom which requests shall not be made
unilaterally by WorldCom 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 described in the
applicable Rate and Discount Schedule. In the event WorldCom or any
other third party requires an audit of WorldCom'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 WorldCom or any third party solely for the purpose of
verifying Customer's interstate/intrastate minutes of traffic.
Customer agrees to indemnify WorldCom for any liability WorldCom
incurs in the event Customer's Certification is different than that
determined by the audit.
(e) With respect to Carrier Service Interconnections, Customer shall be
solely responsible for establishing and maintaining each Carrier
Service Interconnection over facilities subject to WorldCom's
approval. With respect to Dedicated Service Interconnections,
WorldCom will provision and maintain local access facilities between
the End User location (i.e., PBX) and the WorldCom POP, subject to
any LEC charges plus other applicable terms and charges set forth in
Page 2 of 8
CONFIDENTIAL
<PAGE>
WorldCom's F.C.C. Tariff No. 5, however, Customer may elect to be
responsible for establishing each Dedicated Service Interconnection
over facilities subject to WorldCom'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 WorldCom. If a Service Interconnection is proposed to be
made via a local exchange carrier, WorldCom will have the authority
to direct Customer to utilize WorldCom'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 WorldCom. The monthly
recurring charge relevant to Customer's use of LSA capacity shall be
subject to upward adjustment by WorldCom from time to time which
adjustment, if any, shall not exceed 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 WorldCom, such facilities will be provided on an
individual case basis.
(g) Commencing with the second full calendar month following Start of
Service for each circuit comprising a Service Interconnection (i.e.,
both Carrier Service Interconnections and Dedicated Service
Interconnections) and thereafter, Customer will maintain Switched
Services measured usage charges per DS-1 (or DS-1 equivalent
circuit) of not less than $[****] per calendar month/billing period
("Minimum Monthly Usage"). In the event Customer fails to obtain the
required Minimum Monthly Usage for the circuits comprising each
Service Interconnection, WorldCom will charge and Customer will pay
the difference between the number of DS-1s times the Minimum Monthly
Usage (i.e., $[****]) and Customer's total Switched Services
measured usage charges for the circuit(s) comprising the Service
Interconnection in question ("Minimum Usage Charge"). WorldCom
TERMINATION Service and TOLL FREE ORIGINATION Service minutes
carried over the same Service Interconnection, if any, shall be
included in determining if Customer has met the Minimum Monthly
Usage requirement.
Example: [****]
(h) DS-1 circuits comprising all Service Interconnections will be
subject to a nonrecurring $[****] per DS-1 switch port installation
charge, and DS-3 circuits comprising all Service Interconnections
will be subject to a nonrecurring per DS-3 switch port installation
charge as determined on an individual case basis.
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
Page 3 of 8
CONFIDENTIAL
<PAGE>
3. FORECASTS: Before Customer's initial order for Switched Services, Customer
shall provide WorldCom with a forecast regarding the number of minutes
expected to be terminated or originated in various LATAs and/or Tandems,
so as to enable WorldCom to configure optimum network arrangements. In the
event Customer's Switched Service traffic volumes result in a lower than
industry standard completion rate or otherwise adversely affect the
WorldCom Network, WorldCom reserves the right to block the source of such
adverse traffic at any time. Customer will provide WorldCom with
additional forecasts from time to time upon WorldCom's request which shall
not be more frequent than once every three (3) months.
4. START OF SERVICE: Start of Service for the various Switched Services will
occur as described below:
- --------------------------------------------------------------------------------
SERVICE START OF SERVICE
- --------------------------------------------------------------------------------
TERMINATION Service Concurrently with the activation of
each circuit comprising Carrier
Service Interconnections relevant to
TERMINATION Service
- --------------------------------------------------------------------------------
TOLL FREE ORIGINATION Concurrently with the activation
of each circuit comprising Carrier
Service Interconnections relevant
to TOLL FREE ORIGINATION Service
- --------------------------------------------------------------------------------
SWITCHED ACCESS Service ANI by ANI basis concurrently with
the activation of each ANI to be
served, and a TOLL FREE Number by
TOLL FREE Number basis concurrently
with activation of each TOLL FREE
Number
- --------------------------------------------------------------------------------
DEDICATED ACCESS Service Concurrently with the activation of
each circuit comprising Dedicated
Service Interconnections
- --------------------------------------------------------------------------------
TRAVEL CARD Service Code by Code basis concurrently with
the activation of each Code
- --------------------------------------------------------------------------------
5. LIMITATION OF ORIGINATION OR TERMINATION LOCATIONS:
- --------------------------------------------------------------------------------
SWITCHED SERVICE ORIGINATION FROM TERMINATION TO
- --------------------------------------------------------------------------------
TERMINATION Service Any WorldCom POP Any dialable location
worldwide
- --------------------------------------------------------------------------------
TOLL FREE ORIGINATION Locations in the 48 Any Customer
Service contiguous United designated Carrier
States, Hawaii, Service Interconnection
Alaska, the US Virgin
Islands, Puerto Rico
and Canada
- --------------------------------------------------------------------------------
SWITCHED ACCESS (1+) All equal access Any direct dialable
Service exchanges in the 48 location worldwide
contiguous United
States (except in LATA
921-Fishers Island,
New York) and Hawaii
- --------------------------------------------------------------------------------
SWITCHED ACCESS (Toll Locations in the 48 Locations in the 48
Free) Service contiguous United contiguous United
States, Hawaii, States and Hawaii
Alaska, the US Virgin
Islands, Puerto Rico
- --------------------------------------------------------------------------------
Page 4 of 8
CONFIDENTIAL
<PAGE>
- --------------------------------------------------------------------------------
DEDICATED ACCESS (1+) Locations in the 48 Any direct dialable
Service contiguous United location worldwide
States
- --------------------------------------------------------------------------------
DEDICATED ACCESS (Toll Locations in the 48 Any Customer
Free) Service contiguous United designated Dedicated
States, Hawaii, Service Interconnection
Alaska, the US Virgin
Islands, Puerto Rico
- --------------------------------------------------------------------------------
BASIC TRAVEL CARD Locations in the 48 Locations in the 48
Services contiguous United contiguous United
States States, Hawaii, Alaska, the
US Virgin Islands, Puerto Rico
and Canada
- --------------------------------------------------------------------------------
BASIC TRAVEL CARD Locations in Hawaii, Locations in the 48
Services Alaska, the US Virgin contiguous United
Islands, Puerto Rico States
and Canada
- --------------------------------------------------------------------------------
BASIC TRAVEL CARD Select International Locations in the 48
Service locations. contiguous United
States
- --------------------------------------------------------------------------------
TRAVEL CARD Service - SEE Schedule 6 to the SEE Schedule 6 to the
Enhanced and Discount applicable Rate and applicable Rate and
Features Discount Schedule Discount Schedule
- --------------------------------------------------------------------------------
6. BILLING INCREMENTS:
(A) Classic Service - (i) all calls (excluding California IntraLATA and
California intrastate calls and calls to International Locations,
Canada and Mexico) will be billed in six (6) second increments and
subject to a six (6) second minimum charge, (ii) California
IntraLATA and California intrastate calls will be billed in six (6)
second increments and subject to an eighteen (18) second minimum,
and (ii) calls to International Locations, Canada and Mexico will be
billed in six (6) second increments and subject to a thirty (30)
second minimum charge.
(B) TRANSCEND(TM) Service - (i) all calls (excluding calls to
International Locations, Canada and Mexico and calls from Canada)
will be billed in six (6) second increments and subject to a six (6)
second minimum charge, and (iii) calls to International Locations,
Canada and Mexico and calls from Canada will be billed in six (6)
second increments and subject to a thirty (30) second minimum
charge.
(C) All calls will be billed (i) utilizing Hardware Answer Supervision
where available, and with respect to TOLL FREE 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, WorldCom reserves the right to suspend TOLL FREE
Service or deny requests by Customer for additional Service until
appropriate compliance is established.
7. CDR MEDIA: WorldCom will provide Call Detail Records (CDRs) for WorldCom's
Switched Services in machine readable form in one of several magnetic tape
formats (selected by Customer on Customer's Service Request) ("CDR
Media"). CDR Media provided under this Section (i) monthly is provided at
no charge, (ii) weekly is subject to a recurring monthly charge of $150,
and (iii) daily is subject to the applicable non-recurring Installation
Charge as described below (plus all leased-line and equipment costs
necessary to implement Daily CDR Media which will be determined on an
individual case basis depending on Customer's specific configuration).
Page 5 of 8
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<PAGE>
- --------------------------------------------------------------------------------
TYPE Total Contract Value Non-Recurring
Installation Charge
- --------------------------------------------------------------------------------
Daily CDR <$1,000,000 $[****]
Media-Customer provided $1,000,000+ $[****]
hardware and software
- --------------------------------------------------------------------------------
Daily CDR Media-PC <$1,000,000 $[****]
Solution $1,000,000+ $[****]
- --------------------------------------------------------------------------------
Sub-Daily CDR <$1,000,000 $[****]
Media-Customer provided $1,000,000+ $[****]
hardware and software
- --------------------------------------------------------------------------------
Sub-Daily CDR Media-PC <$1,000,000 $[****]
Solution $1,000,000+ $[****]
- --------------------------------------------------------------------------------
8. TOLL FREE NUMBERS:
(a) TOLL FREE 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
WorldCom, and if provided, will be subject to additional charges as
set forth below and WorldCom's then current reservation policy which
shall also apply to any randomly selected and reserved TOLL FREE
number. At any time preceding three (3) months from the scheduled
expiration of the Service Term, Customer may only reserve TOLL FREE
numbers in an amount equal to the greater of (i) 50, or (ii) fifteen
percent (15%) of the total number of TOLL FREE numbers activated by
WorldCom for Customer. Customer requests for TOLL FREE numbers
inconsistent with the above stated conditions may be considered by
WorldCom on an individual case basis. TOLL FREE numbers reserved for
Customer will be activated upon Customer's request, however, with
respect to TRANSCEND(TM) WorldCom may charge Customer an SMS Storage
fee for each TOLL FREE number.
(b) Customer Request for Specific Numbers - $[****] per individual TOLL
FREE number.
(c) Customer specifically agrees that regardless of the method in which
a TOLL FREE number is reserved for or otherwise assigned to
Customer, that Customer will not seek any remedy from WorldCom under
a theory of detrimental reliance or otherwise that such TOLL FREE
number(s) are found not to be available for Customer's use until
such TOLL FREE number is put in service for the benefit of Customer,
and that such TOLL FREE number(s) shall not be sold, bartered,
brokered or otherwise released by Customer for a fee ("TOLL FREE
Number Trafficking"). Any attempt by Customer to engage in TOLL FREE
Number Trafficking shall be grounds for reclamation by WorldCom for
reassignment of the TOLL FREE number(s) reserved for or
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
Page 5 of 8
CONFIDENTIAL
<PAGE>
assigned to Customer
9. ENHANCED TOLL FREE SERVICES: The following TOLL FREE identification
services and routing options (collectively, "Enhanced TOLL FREE Services")
are available from WorldCom:
IDENTIFICATION SERVICES:
i. Dialed Number Identification Service - identification of specific TOLL
FREE number dialed.
ii. Real-Time ANI - receipt of telephone number of calling party.
TOLL FREE ROUTING OPTIONS:
i. Message Referral - recording (up to six (6) months) that informs callers
that the TOLL FREE number has been disconnected or refers callers to new
number.
ii. Call Area Selection - selection or blockage of locations from which TOLL
FREE numbers can be received (i.e., State, NPA, LATA or NXX level).
iii. Call Distributor Routing - distribution of TOLL FREE traffic evenly over
dedicated access lines in a trunk group (e.g., ascending, descending, most
idle, least idle).
iv. Route Completion (Overflow) - overflow of TOLL FREE dedicated access
traffic only to up to five (5) pre-defined alternate routing groups (e.g.,
dedicated access, WATs access lines or switched access lines).
v. Geographic Routing - termination of calls to a single TOLL FREE number
from two or more originating routing groups to different locations.
vi. Time-of-Day Routing - routing of calls to single TOLL FREE number based on
time of day (up to forty-eight (48) time slots of 15-minute increments in
a 24-hour period).
vii. Day-of-Week Routing - routing of calls to single TOLL FREE number based on
each day of the week.
viii. Day-of-Year Routing - routing of calls to single TOLL FREE number based on
up to fifteen (15) customer-specified holidays.
ix. Percent Allocation Routing - routing of calls for each originating routing
group to two (2) or more terminating locations based on customer-specified
percentage.
Customer will receive the Identification Services described above at no
charge. The minutes of use rates for TOLL FREE Routing Options described
above (in addition to the TOLL FREE Routing Option Feature Charges
described below) will be the same rates for SWITCHED ACCESS Service (TOLL
FREE) and DEDICATED ACCESS Service (TOLL FREE), whichever is applicable,
as described in the applicable Rate and Discount
Page 6 of 8
CONFIDENTIAL
<PAGE>
Schedule excluding Route Completion (Overflow). If Customer selects Route
Completion (Overflow) and Customer's traffic overflows from DEDICATED
ACCESS Service (TOLL FREE) to SWITCHED ACCESS Service (TOLL FREE),
Customer's minute of use rate will be the rate associated with SWITCHED
ACCESS Service (TOLL FREE). The TOLL FREE Routing Option Feature Charges
are as follows:
Installation Charge: $[****] per feature; maximum of $[****] per TOLL FREE
number.
Change Order Charge: $[****] per feature; maximum of $[****] per TOLL FREE
number.
Monthly Recurring Charge: $[****] per feature; maximum of $[****] per TOLL
FREE number.
Expedite Charge: $500.00 (i.e., outside normal interval time of four (4)
business days).
Note: More than ten (10) points of termination for a single feature will
be treated as two (2) features. Further, every additional ten (10) points
of termination will be treated as a separate feature.
10. RESPORG SERVICES: Responsible Organization Services (relevant to TOLL FREE
Numbers) if provided by WorldCom will be provided by WorldCom pursuant to
WorldCom's F.C.C. Tariff No. 5.
11. AUTHORIZATION CODES FOR TRAVEL CARD SERVICE: WorldCom will supply Customer
with authorization codes ("Codes") containing nine (9) or fourteen (14)
digits for use with a corresponding TOLL FREE Service number for
origination and termination of TRAVEL CARD Service 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. WorldCom reserves the right to deny access to any
Code at any time.
12. INBOUND PORTION OF TRAVEL CARD SERVICE CALL: The inbound service portion
of a TRAVEL CARD Service call (i.e., the TOLL FREE Service) must be
provided by WorldCom.
13. ACCOUNTING CODES: For every billed telephone number (BTN) requested by
Customer, whether verified or non-verified, Customer shall pay a monthly
recurring charge of $[****].
14. PAY PHONE SURCHARGE: In the event WorldCom is required to compensate
payphone
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
Page 7 of 8
CONFIDENTIAL
<PAGE>
service providers (PSPs) for toll-free or access code calls which originate from
payphones (including without limitation, any Order adopted by the FCC)
("Payphone Surcharge"), WorldCom will charge and Customer agrees to pay WorldCom
the amount of the Payphone Surcharge which is required to be paid by WorldCom.
15. RBOC TERMINATION/ORIGINATION: With respect to Classic Switched Services,
following Start of Service for TERMINATION SERVICE, TOLL FREE ORIGINATION
Service and/or DEDICATED ACCESS Service, Customer will maintain at least
80% of the minutes of traffic (during any calendar month or pro rata
portion thereof) comprising Customer's TERMINATION Service, TOLL FREE
ORIGINATION Service and DEDICATED ACCESS Service for termination or
origination in a Tandem owned and operated by a Regional Bell Operating
Company ("RBOC Terminations/Originations") and subject to such RBOC's
tariffed access charges. WorldCom shall have the right to apply a ($.015)
per minute surcharge to the number of minutes by which Non-RBOC
Terminations/Originations exceed 20% of total monthly TERMINATION Service,
TOLL FREE ORIGINATION Service and DEDICATED ACCESS Service minutes.
16. PRESUBSCRIBED INTEREXCHANGE CARRIER CHARGE (PICC): With respect to Classic
Switched Services, WorldCom will charge Customer for any LEC-assessed
presubscribed interexchange carrier charge ("PICC Charge") which PICC
Charge will be reasonably determined by WorldCom as of a date certain each
month (the "PICC Charge Determination Date") but only if WorldCom is
directly billed by the LEC for such PICC Charge. Customer's PICC Charge
will be determined as of the PICC Charge Determination Date and will be
based on the same criteria for which WorldCom is assessed such charge by
the LEC (e.g., number and type of Customer's End Users (i.e., residential
or business) as well as the type of line associated with each such End
User (i.e., single line, secondary line or multi-line). This Section 16
will be deemed to include any other similar additional charges assessed by
a LEC after the date of this Agreement. (i.e., charges for which WorldCom
is not currently being assessed).
IN WITNESS WHEREOF, Customer has initialed this CLASSIC/TRANSCEND(TM)
SWITCHED SERVICES Service Schedule on the date first written above.
FAXSAV, INC.
Customer's Initials: /s/ PSM
Page 8 of 8
CONFIDENTIAL
<PAGE>
WORLDCOM NETWORK SERVICES, INC.
CLASSIC SWITCHED SERVICES
RATE AND DISCOUNT SCHEDULE
This Rate and Discount Schedule is made by and between WorldCom Network
Services, Inc. ("WorldCom") and FaxSAV, Inc. ("Customer") and is a part of their
Telecommunications Services Agreement for Switched Services. Capitalized terms
not defined herein shall have the meaning ascribed to them in the TSA, the PET
or the Service Schedule. NOTE: ANY MODIFICATIONS, ADDITIONS OR DELETIONS FROM
THIS RATE AND DISCOUNT SCHEDULE WILL NOT BE EFFECTIVE UNLESS SPECIFICALLY SET
FORTH IN THE PET.
I. RATES
(A) TERMINATION Service
- --------------------------------------------------------------------------------
JURISDICTION RATE PER MINUTE
- --------------------------------------------------------------------------------
INTERSTATE
o Within the 48 contiguous United States $[****]
(excluding termination to SUPERSAVER
LATAs)
o Within the 48 contiguous United States $[****]
(termination to SUPERSAVER LATAs on
Schedule 1)
- --------------------------------------------------------------------------------
INTERSTATE Extended
o 48 contiguous United States to Hawaii $[****]
o 48 contiguous United States to Alaska, $[****]
Puerto Rico and US Virgin Islands
- --------------------------------------------------------------------------------
INTRASTATE+ SEE Schedule 2 (DEDICATED
ACCESS Service Rates)
- --------------------------------------------------------------------------------
INTERNATIONAL+
o 48 contiguous United States to SEE Schedule 5++
International locations (excluding
Canada and Mexico)
o 48 contiguous United States to Canada SEE Schedule 3
o 48 contiguous United States to Mexico SEE Schedule 3
- --------------------------------------------------------------------------------
+ NOT SUBJECT TO DISCOUNT.
++ Based on Customer's Minimum Revenue Commitment described in Section 4 of the
Amended PET rounded down to the nearest level.
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
Page 1 of 6
CONFIDENTIAL
<PAGE>
B. TOLL FREE ORIGINATION Service
- --------------------------------------------------------------------------------
JURISDICTION RATE PER MINUTE
- --------------------------------------------------------------------------------
INTERSTATE
o Within the 48 contiguous United States $[****]
(excluding termination to SUPERSAVER
LATAs)
o Within the 48 contiguous United States $[****]
(origination from SUPERSAVER LATAs on
Schedule 1)
- --------------------------------------------------------------------------------
INTERSTATE Extended
o Hawaii to 48 contiguous United States $[****]
o Alaska to 48 contiguous United States $[****]
o Puerto Rico to 48 contiguous United $[****]
States
o US Virgin Islands to 48 contiguous $[****]
United States
- --------------------------------------------------------------------------------
INTRASTATE+ SEE Schedule 2 (DEDICATED
ACCESS Service Rates)
- --------------------------------------------------------------------------------
INTERNATIONAL+
o Canada to 48 contiguous United States SEE Schedule 3 (DEDICATED
ACCESS Service Rates)
- --------------------------------------------------------------------------------
+ NOT SUBJECT TO DISCOUNT.
C. SWITCHED ACCESS Service
- --------------------------------------------------------------------------------
JURISDICTION RATE PER MINUTE
- --------------------------------------------------------------------------------
INTERSTATE (1+ and TOLL FREE)
o Within the 48 contiguous United States $[****]
- --------------------------------------------------------------------------------
INTERSTATE (1+) Extended
o 48 contiguous United States to Hawaii $[****]
o 48 contiguous United States to Alaska, $[****]
Puerto Rico and US Virgin Islands
o Hawaii to 48 contiguous United States $[****]
o Hawaii to Alaska, Puerto Rico and US $[****]
Virgin Islands
- --------------------------------------------------------------------------------
INTERSTATE (TOLL FREE) Extended+
o Hawaii to 48 contiguous United States $[****]
o Alaska to 48 contiguous United States $[****]
o Puerto Rico to 48 contiguous United $[****]
States
o US Virgin Islands to 48 contiguous $[****]
United States
- --------------------------------------------------------------------------------
INTRASTATE (1+ and TOLL FREE)+ SEE Schedule 2
- --------------------------------------------------------------------------------
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
Page 2 of 5
CONFIDENTIAL
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL+
o 48 contiguous United States to SEE Schedule 4++
International locations (excluding
Canada and Mexico)
o 48 contiguous United States to Canada SEE Schedule 3
o 48 contiguous United States to Mexico SEE Schedule 3
o Hawaii to certain international locations SEE Schedule 7
o Hawaii to Canada SEE Schedule 3
o Hawaii to Mexico SEE Schedule 3
- --------------------------------------------------------------------------------
+ NOT SUBJECT TO DISCOUNT.
++ Based on Customer's Minimum Revenue Commitment described in Section 4 of the
Amended PET rounded down to the nearest level.
D. DEDICATED ACCESS Service
- --------------------------------------------------------------------------------
JURISDICTION RATE PER MINUTE
- --------------------------------------------------------------------------------
INTERSTATE (1+)
o Within the 48 contiguous United States $[****]
(excluding termination to SUPERSAVER
LATAs)
o Within the 48 contiguous United States $[****]
(termination to SUPERSAVER LATAs on
Schedule 1)
- --------------------------------------------------------------------------------
INTERSTATE (TOLL FREE)
o Within the 48 contiguous United States $[****]
(excluding termination to SUPERSAVER
LATAs)
o Within the 48 contiguous United States $[****]
(termination to SUPERSAVER LATAs on
Schedule 1)
- --------------------------------------------------------------------------------
INTERSTATE (1+) Extended
o 48 contiguous United States to Hawaii $[****]
o 48 contiguous United States to Alaska, $[****]
Puerto Rico and US Virgin Islands
- --------------------------------------------------------------------------------
INTERSTATE (TOLL FREE) Extended+
o Hawaii to 48 contiguous United States $[****]
o Alaska to 48 contiguous United States $[****]
o Puerto Rico to 48 contiguous United $[****]
States
o US Virgin Islands to 48 contiguous $[****]
United States
- --------------------------------------------------------------------------------
INTRASTATE (1+ and TOLL FREE)+ SEE Schedule 2
- --------------------------------------------------------------------------------
INTERNATIONAL+
o 48 contiguous United States to SEE Schedule 5++
International locations (excluding
Canada and Mexico)
o 48 contiguous United States to Canada SEE Schedule 3
o 48 contiguous United States to Mexico SEE Schedule 3
- --------------------------------------------------------------------------------
+ NOT SUBJECT TO DISCOUNT.
++ Based on Customer's Minimum Revenue Commitment described in Section 4 of the
Amended PET rounded down to the nearest level.
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
Page 3 of 5
CONFIDENTIAL
<PAGE>
E. TRAVEL CARD Service
- --------------------------------------------------------------------------------
JURISDICTION RATE PER MINUTE
- --------------------------------------------------------------------------------
BASIC INTERSTATE
o Within the 48 contiguous United States $[****]
- --------------------------------------------------------------------------------
BASIC INTERSTATE Extended
o 48 contiguous United States to Alaska, $[****]
Hawaii, Puerto Rico and US Virgin Islands
o Hawaii to 48 contiguous United States $[****]
o Alaska to 48 contiguous United States $[****]
o Puerto Rico to 48 contiguous United $[****]
States
o US Virgin Islands to 48 contiguous $[****]
United States
- --------------------------------------------------------------------------------
BASIC INTRASTATE+ SEE Schedule 2 (SWITCHED
ACCESS Service Rates)
- --------------------------------------------------------------------------------
BASIC INTERNATIONAL+
o 48 contiguous United States to SEE Schedule 4++ (SWITCHED
International locations (excluding ACCESS Service Rates)
Canada and Mexico)
o 48 contiguous United States to Canada $[****]
o 48 contiguous United States to Mexico SEE Schedule 3 (SWITCHED
ACCESS Service Rates)
o Canada to 48 contiguous United States $[****]
- --------------------------------------------------------------------------------
ENHANCED SEE Schedule 6
- --------------------------------------------------------------------------------
+ NOT SUBJECT TO DISCOUNT.
++ Based on Customer's Minimum Revenue Commitment described in Section 4 of the
Amended PET rounded down to the nearest level.
F. Directory Assistance
(i) Interstate Rate Per Call [NOT SUBJECT TO DISCOUNT]: $[****].
(ii) Intrastate Rate Per Call [NOT SUBJECT TO DISCOUNT]: $[****].
II. DISCOUNTS
(A) For purposes of this Agreement, Customer's "Monthly Revenue" will be
comprised of (i) Customer's gross measured and per call Switched Service
charges (i.e., Directory Assistance and both Domestic and International)
which shall include Customer's measured usage charges for International
Toll Free Service (ITFS) and Universal International Free Phone Number
Service (UIFN) from WorldCom (ii) the PICC Charge described in Section 16
of the Service Schedule (if billed directly to WorldCom by the LEC) (iii)
three (3) times Customer's first $[****] recurring monthly Private Line
Interexchange Service charges (i.e., both Domestic and International) from
WorldCom, two (2) times Customer's second $[****] recurring monthly
Private Line
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
Page 3 of 5
CONFIDENTIAL
<PAGE>
Interexchange Service charges (i.e., both Domestic and International) from
WorldCom, and Customer's recurring monthly Private Line Interexchange Service
charges (i.e., both Domestic and International) from WorldCom in excess of
$[****] and (iv) Monthly Port Charges, Monthly CIR Charges and Monthly NNI
Charges, if any, as are specifically described in an agreement for Frame Relay
Services between WorldCom and Customer. Customer's Monthly Revenue will not
include any pro rata charges, access charges, ancillary or special feature
charges, such as, Authorization codes or CDR Tapes, or any other charges other
than those identified by the relevant WorldCom invoice as monthly recurring
private line Interexchange service charges or the switched service charges
specifically mentioned in this Subsection (A).
(B) Commencing with the Effective Date and continuing through the end of the
Service Term (including any applicable extensions thereto), Customer's
discount percentage (the "Discount") will be determined under this
Subsection (B) taking into account any increase as described in Subsection
(C) below. Throughout the Service Term, Customer will automatically
receive the next higher (or lower) Discount when Customer's eligible
Monthly Revenue reaches the next level (or falls below a level which in no
event shall be less than Customer's Minimum Revenue Commitment, if any,
described in the PET). Customer will receive the percentage shown in the
Discount Schedule associated with Customer's Minimum Revenue Commitment
commencing with the Effective Date regardless of Customer's actual Monthly
Revenue.
Monthly Revenue Discount
$[****] [****]%
$[****] [****]
$[****] [****]%
III. APPLICATION OF DISCOUNTS
(A) After determining Customer's applicable Discount percentage under Article
II above, the applicable percentage will be applied to Monthly Revenues
comprised of Customer's Interstate (including Alaska, Hawaii, the United
States Virgin Islands and Puerto Rico unless otherwise noted herein)
measured usage charges (which includes 1+ and Toll Free usage unless
otherwise noted herein).
(B) During the Service Term, accumulated credits derived from the applicable
Discount will be applied in arrears commencing with the first day of the
month following the Effective Date, that is, the Discount will be applied
to Customer's measured usage charges for the preceding month (the
"Discount Period"). The initial Discount Period shall include any partial
calendar month following Start of Service, or such other time basis as may
be mutually determined by the parties.
(C) Each Discount will result in the application of a credit obtained during
the Discount Period to the WorldCom invoice to Customer relevant to the
billed measured Switched Service for the
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
Page 4 of 5
CONFIDENTIAL
<PAGE>
calendar month next following the completion of each Discount Period, provided
Customer has paid undisputed charges (including any late fees, if applicable)
for that month and has not otherwise been subject to a Suspension Notice in
accordance with the TSA. Failure of Customer to comply with the foregoing
provision shall entitle WorldCom to withhold any credit due Customer for the
Discount Period in question until such charges (including late fees) have been
paid in full.
IN WITNESS WHEREOF, Customer has initialed this CLASSIC SWITCHED SERVICES
Rate and Discount Schedule on the date first written above.
FAXSAV, INC.
Customer's Initials /s/ PSM
ATTACHMENTS:
Schedule 1 SUPERSAVER LATAs
Schedule 2 Intrastate Rates
Schedule 3 Canada and Mexico Rates; Canada and Mexico Rates from Hawaii
Schedule 4 SWITCHED ACCESS Service International Rates
Schedule 5 DEDICATED ACCESS Service international Rates
Schedule 6 ENHANCED TRAVEL CARD Service Rates
Schedule 7 Switched International Rates 1+ from Hawaii
Page 5 of 5
CONFIDENTIAL
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 1
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 2
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE 3
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 4
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 4
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 4
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 4
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 4
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 4
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 4
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 5
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 5
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 5
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 5
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 5
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 5
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 5
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 6
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 6
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 7
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 7
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 7
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 7
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 7
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 7
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE 7
[****]
- ----------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the FaxSav,
Inc. financial statements, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,733,241
<SECURITIES> 0
<RECEIVABLES> 3,287,723
<ALLOWANCES> 194,844
<INVENTORY> 0
<CURRENT-ASSETS> 7,958,797
<PP&E> 9,940,706
<DEPRECIATION> 5,298,251
<TOTAL-ASSETS> 12,980,447
<CURRENT-LIABILITIES> 5,074,550
<BONDS> 0
0
0
<COMMON> 131,490
<OTHER-SE> (15)
<TOTAL-LIABILITY-AND-EQUITY> 12,980,447
<SALES> 15,507,389
<TOTAL-REVENUES> 15,507,389
<CGS> 8,121,692
<TOTAL-COSTS> 13,336,133
<OTHER-EXPENSES> (77,829)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,008
<INCOME-PRETAX> (5,950,615)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,950,615)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,950,615)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
