<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1998
REGISTRATION NO. 333-61441
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
TELEHUB COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
NEVADA 4813,4899 36-413-6730
(Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation) Classification Code Number) Identification Number)
</TABLE>
SUBSIDIARY GUARANTORS OF 13.875% SENIOR DISCOUNT NOTES DUE 2005
TELEHUB NETWORK SERVICES CORPORATION
TELEHUB TECHNOLOGIES CORPORATION
TELEHUB LEASING CORPORATION
(Exact Name of Co-Registrants as Specified in their Charters)
<TABLE>
<S> <C> <C>
ILLINOIS 4813,4899 36-406-6622
NEVADA 4813,4899 36-421-3797
NEVADA 4813,4899 04-335-3108
(Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation) Classification Code Number) Identification Number)
</TABLE>
---------------------
RICHARD M. HARMON, CHIEF FINANCIAL OFFICER
TELEHUB COMMUNICATIONS CORPORATION
1375 TRI-STATE PARKWAY, SUITE 250
GURNEE, ILLINOIS 60031
1-(800)-TELEHUB
(Address, including zip code, & telephone number, of Registrants' principal
executive offices)
---------------------
WITH COPIES TO:
<TABLE>
<S> <C>
MICHAEL L. GLASER, ESQ. JANET C. ALLEN, ESQ., GENERAL COUNSEL
K. HARSHA KRISHNAN, ESQ. TELEHUB COMMUNICATIONS CORPORATION
HALIGMAN LOTTNER RUBIN & FISHMAN, P.C. DBA PACIFIC TELEHUB COMMUNICATIONS CORPORATION
633 17TH STREET, SUITE 2700 2033 NORTH MAIN STREET, SUITE 340
DENVER, COLORADO 80202 WALNUT CREEK, CALIFORNIA 94596
(303) 292-1200 (925) 295-1140
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
13.875% Senior Discount Notes due
2005, Series B................. $125,000,000 -- $83,533,750 $24,643(2)
Guarantees of Senior Discount Notes
due 2005, Series B(3).......... -- -- -- --
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</TABLE>
(1) Pursuant to Rule 457(f), the registration fee has been estimated based on
the book value of the securities to be received by Registrant in exchange
for the securities to be issued in the Exchange Offer described herein.
(2) Registration fee of $24,643 paid with initial filing; no additional
registration fee is required.
(3) Represents the guarantees of the 13.875% Senior Discount Notes due 2005,
Series B to be issued by the co-registrants. The guarantees are not traded
separately. No separate consideration will be received for the Guarantees
and no registration fee is payable pursuant to Rule 457(n).
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED OCTOBER 13, 1998
PROSPECTUS
TELEHUB COMMUNICATIONS CORPORATION
OFFER TO EXCHANGE
ALL OUTSTANDING 13.875% SENIOR NOTES DUE 2005 ("OLD NOTES")
FOR 13.875% SENIOR NOTES DUE 2005 ("NEW NOTES")
---------------------
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
---------------------
TeleHub Communications Corporation, a Nevada corporation (the "Issuer"),
hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in
this Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal") to exchange up to $125,000,000 aggregate principal amount of its
13.875% Senior Notes Due 2005 (the "Series B Notes" or "New Notes") for an equal
principal amount of the issued and outstanding 13.875% Senior Notes Due 2005
(the "Series A Notes" or "Old Notes"), of which an aggregate of $125,000,000 in
principal amount remains outstanding on the date of this Prospectus. THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION.
HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE RELATED LETTER OF
TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR OLD NOTES PURSUANT
TO THE EXCHANGE OFFER.
The Old Notes were originally issued and sold (the "Initial Note Offering")
to BancBoston Securities, Inc. (the "Initial Purchaser") pursuant to a Purchase
Agreement dated July 30, 1998 (the "Note Purchase Agreement"), among the Issuer
and the Initial Purchaser, pursuant to which the Issuer sold 125,000 Units
consisting of the Old Notes and warrants to purchase 16.662 Issuer common shares
per Unit. The Initial Purchaser subsequently resold the Old Notes in reliance on
Rule 144A of the Securities Act. The Issuer and the Initial Purchaser also
entered into a Registration Rights Agreement, dated July 30, 1998 (the "Note
Registration Rights Agreement"), pursuant to which the Issuer granted certain
registration rights for the benefit of the holders of the Old Notes. This
Exchange Offer satisfies certain Issuer obligations under the Note Registration
Rights Agreement. The New Notes will be obligations of the Issuer evidencing the
same indebtedness as the Old Notes and will be issued under and entitled to the
benefits of the Indenture, dated as of July 30, 1998 (the "Indenture"), between
the Issuer and State Street Bank, as trustee (in such capacity, the "Trustee").
The form and terms of the New Notes are identical in all material respects to
the Old Notes, except that the offer and exchange of the New Notes will not be
subject to certain transfer restrictions and registration rights provisions
applicable to the Old Notes. See "The Exchange Offer -- Purpose and Effect."
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except that the New Notes will not bear transfer restriction
legends. The New Notes will be obligations of the Issuer, guaranteed by Issuer's
subsidiaries (the "Subsidiaries") and entitled to the benefits of the Indenture,
dated as of July 30, 1998 (the "Indenture"), relating to the Old Notes and the
New Notes (collectively, "Notes"). See "Description of the Notes." Following the
completion of the Exchange Offer, none of the Old Notes will be entitled to any
rights under the Note Registration Rights Agreement, including, but not limited
to, any contingent increase in the interest rate. See "The Exchange Offer".
PROSPECTIVE INVESTORS SHOULD CONSIDER THE "RISK FACTORS" DISCUSSION,
BEGINNING ON PAGE 10, FOR A DESCRIPTION OF CERTAIN SIGNIFICANT RISKS RELEVANT TO
AN INVESTMENT IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOT HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is October , 1998
<PAGE> 3
The Issuer will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer and not withdrawn on or prior to 5:00
p.m., New York City time, on , 1998, unless the Exchange Offer is
extended by the Issuer (the "Expiration Date"). Tenders of Old Notes may be
withdrawn at any time before 5:00 p.m., New York City time, on the Expiration
Date. The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange. However, the Exchange Offer is subject to
certain customary conditions which may be waived by the Issuer. The Issuer
agreed to pay the expenses of the Exchange Offer. See "The Exchange Offer."
Issuer will not receive cash proceeds from the Exchange Offer. See "Use of
Proceeds."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "The Exchange Offer -- Resales
of the New Notes" and "Plan of Distribution." The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Issuer has agreed
that, starting on the Expiration Date and ending on the close of business on the
180th day following the Expiration Date, it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The New Notes will mature on July 31, 2005. Cash interest on the New Notes
will not accrue on the Notes prior to July 31, 2001. The Notes will accrete at a
rate of 13.875%, compounded semi-annually to an aggregate principal amount of
$125.0 million by July 31, 2001. Thereafter, interest on the New Notes will be
payable semi-annually on January 31 and July 31 of each year commencing January
31, 2002. The New Notes will be redeemable at the option of the Issuer, in whole
or in part, at any time on or after July 31, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest and liquidated damages, if any,
to the date of redemption. See "Description of the New Notes -- Redemption."
The Notes are senior unsecured obligations of the Issuer, ranking pari
passu in right of payment with all existing and future unsecured and
unsubordinated indebtedness of the Issuer and senior in right of payment to all
existing and future subordinated indebtedness of the Issuer. The Notes are
effectively subordinated to all indebtedness of the Issuer to the extent of the
value of the assets securing such indebtedness and to all indebtedness of
subsidiaries of the Issuer. As of June 30, 1998, on a pro forma basis after
giving effect to the Initial Note Offering, holders of Notes would have been
effectively subordinated in right of payment to approximately $11.6 million of
outstanding secured indebtedness.
The Issuer is making the Exchange Offer in reliance on the position of the
Staff of the Securities and Exchange Commission (the "Commission") as set forth
in certain interpretive letters issued to third parties in other transactions.
However, the Issuer has not sought its own interpretive letter, and there can be
no assurance that the Commission would make a similar determination with respect
to the Exchange Offer. Based on the Commission's interpretations, the Issuer
believes that New Notes issued pursuant to the Exchange Offer to any holder of
Old Notes in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by such holder (other than a broker-dealer who purchased
Old Notes directly from the Issuer for resale pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act)
without further compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such holder is not an
"affiliate" of the Issuer (within the meaning of Rule 405 under the Securities
Act), is acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. Holders wishing to accept the
Exchange Offer must represent to the Issuer that such conditions have been met.
In addition, if such holder is not a broker-dealer, it must represent that it is
not engaged in, and does not intend to engage in, a distribution of the New
Notes. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of a market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "The Exchange Offer --
i
<PAGE> 4
Resales of the New Notes" and "Plan of Distribution." This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
or other trading activities.
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages ("PORTAL") market. In
addition, the Initial Purchaser has advised the Issuer that it currently intends
to make a market in the New Notes; however, the Initial Purchaser is not
obligated to do so and any market making activities may be discontinued by the
Initial Purchaser at any time. Therefore, there can be no assurance that an
active market for the New Notes will develop. If such a trading market develops
for the New Notes, future trading prices will depend on many factors, including,
among other things, prevailing interest rates, the Issuer's results of
operations and the market for similar securities. Depending on such factors, the
New Notes may trade at a discount from their face value. See "Risk
Factors -- Lack of Public Market."
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject to
the same limitations applicable thereto under the Indenture (except for those
rights which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the holders of the Old Notes will continue
to be subject to existing restrictions upon transfer thereof and the Issuer will
have no further obligation to such holders (other than to the Initial Purchaser
under certain limited circumstances) concerning registration of the Old Notes
under the Securities Act. To the extent that Old Notes are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered Old Notes could be
adversely affected. See "Risk Factors -- Consequences of Failure to Exchange."
THE EXCHANGE OFFER ARE NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT
TENDERS FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE
OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES
OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Old Notes were each issued originally in global form (the "Global
Series A Notes"). The Global Series A Notes, were deposited with, or on behalf
of, The Depository Trust Company ("DTC"), as the initial depository with respect
to the Old Notes (in such capacity, the "Depository"). The Global Series A Notes
are registered in the name of Cede & Co. ("Cede"), as DTC's nominee, and
beneficial interests in the Global Series A Notes are shown on, and transfers
effected only through, records maintained by the Depository and its
participants. The use of the Global Series A Notes to represent certain of the
Old Notes permits the Depository's participant, and anyone holding a beneficial
interest in an Old Note registered in the name of such a participant, to
transfer interests in the Old Notes electronically in accordance with the
Depository's established procedures without transferring a physical certificate.
New Notes issued in exchange for the Global Series A Notes will also be issued
initially as a note in global form (the "Global New Notes," and, together with
the Global Series A Notes, the "Global Notes") and deposited with, or on behalf
of, the Depository. After the initial issuance of the Global New Notes, New
Notes in certificated form will be issued in exchange for a holder's
proportionate interest in the appropriate Global New Notes only as set forth in
the Indenture.
FORWARD-LOOKING STATEMENTS. This Prospectus contains certain forward-looking
statements that are based on the beliefs of management as well as assumptions
made by, and information currently available to, management. In particular,
certain statements under the caption "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this Prospectus constitute "forward-looking
statements". Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
Company's limited operating history and uncertainty as to the Company's future
profitability; uncertainty as to
ii
<PAGE> 5
the Company's ability to meet business targets and budgets and to develop and
implement operational, sales and marketing and financial systems to manage
rapidly growing operations; competition from other participants in the highly
competitive telecommunications industry; uncertainty as to the Company's ability
to obtain financing on acceptable terms to finance its business strategy;
uncertainty as to the Company's ability to obtain and protect intellectual
property rights or to develop proprietary products that will receive
intellectual property protection; the possibility that technological
developments may adversely affect the commercial viability of VASP(TM) (as
defined) and the Company's other products; and unanticipated regulatory changes
that may change the competitive environment to the Company's detriment.
iii
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless the context suggests otherwise, references in this Prospectus to
"TeleHub" or the "Company" mean TeleHub Communications Corporation and its
subsidiaries. See "Glossary" for the definition of certain terms used in this
Prospectus.
THE COMPANY
TeleHub believes it has the only universal Asynchronous Transfer Mode
("ATM")-based telecommunications network in commercial operation that is capable
of seamlessly interconnecting with the Public Switched Telephone Network
("PSTN"). TeleHub has developed first-to-market proprietary software, Virtual
Access Services Platform ("VASP(TM)"), that will enable telecommunications
service providers to (i) integrate the delivery of voice, video and data over a
single platform; (ii) seamlessly interconnect with the PSTN; (iii) provide
real-time monitoring of telecommunications traffic; and (iv) facilitate local
exchange competition. The Company believes the VASP(TM) platform addresses
significant needs throughout the telecommunications industry for improved
systems and less reliance on legacy hardware. VASP(TM) creates virtual switching
capabilities, permits real-time network supervision and facilitates the
introduction of new service offerings. When fully deployed, VASP(TM) will
integrate voice, video and data on a single switched network and enable the
provisioning of bandwidth-on-demand services. The Company's VASP(TM)-managed ATM
network, which began carrying commercial traffic in December 1997, both acts as
a "proof of concept" for VASP(TM) and generates revenues to support the
Company's growth.
TeleHub believes that VASP(TM) addresses the demand for advanced network
features and capabilities resulting from the telecommunications industry's
changing competitive and regulatory environment. Recent regulatory changes have
introduced competition in local and long distance telephone services. To compete
effectively in this new environment and to meet growing demand for high speed
data and video transmission services, telecommunications carriers seek to enter
new markets rapidly and to introduce differentiated services in a cost-effective
manner. In addition, carriers must develop new Operational Support Systems
("OSS") that are interoperable with legacy systems, both to comply with
interconnection and unbundling mandates of the Telecommunications Act of 1996
and associated regulations (collectively, the "Telecommunications Act"), and to
enhance their competitiveness. As carriers expand the scope of their services,
original equipment manufacturers ("OEMs") also must enter new markets to address
their carrier customers' expanded needs. The Company believes that its VASP(TM)
technology will enable Incumbent Local Exchange Carriers ("ILECs"), Competitive
Local Exchange Carriers ("CLECs"), Interexchange Carriers ("IXCs") and OEMs to
accelerate the introduction of new products and services, to reduce costs and to
enter new markets rapidly. Management believes that integrating its VASP(TM)
technology on an ATM backbone offers the following competitive advantages:
- A VASP(TM)-enhanced ATM network allows for increased capacity and
efficiencies, thereby lowering costs as compared to networks
utilizing legacy technologies. Further, the VASP(TM) enhanced ATM
network is seamlessly interconnected to the PSTN, therefore allowing
connectivity to nearly anywhere in the United States.
- When fully deployed, VASP(TM) will allow for dynamic bandwidth
allocation and thereby permit carriers to offer variable capacity so
customers only pay for capacity actually used.
- VASP(TM) enables certain call-processing instructions to be moved
out of the LECs' central office, thereby enabling delivery of local
and long distance telecommunications services on a virtual basis
without the need for an extensive switching network.
- VASP(TM) offers electronic provisioning and real-time monitoring of
telecommunications traffic, which can reduce network downtime,
provisioning delays, maintenance costs and operating expenses, and
improve customer service.
1
<PAGE> 7
- VASP(TM)'s distinct data analysis capabilities and open architecture
will allow carriers to develop and implement new products and
services through software upgrades rather than requiring time-
consuming and expensive hardware modifications.
TeleHub operates through two principal subsidiaries: TeleHub Technologies
Corporation ("TTC"), which develops the commercial applications of VASP(TM), and
TeleHub Network Services Corporation ("TNS"), which operates the Company's ATM
network. TTC is marketing VASP(TM)-based voice and data products to potential
customers in the OEM segment, like Newbridge Networks Corporation ("Newbridge"),
Northern Telecommunications Ltd. ("Nortel") and Cisco Systems, Inc. ("Cisco"),
as well as in the carrier market, including ILECs, CLECs and IXCs. TNS's ATM
network, which utilizes VASP(TM) technology, is interconnected via leased lines
from WorldCom, Inc. ("WorldCom") and reaches approximately 64% of the telephone
exchanges in the United States directly and the remaining 36% through
contractual relationships with other carriers. With the inherent efficiencies in
carrying voice traffic over an ATM backbone and VASP(TM)'s ability to seamlessly
interconnect that traffic into the PSTN, TNS can offer switched wholesale voice
services to switchless resellers at rates generally lower than those currently
offered by competing wholesale service providers. TNS also expects to offer
wholesale long distance services to ILECs, CLECs, Independent Telephone
Companies ("ITCs") and international carriers terminating traffic in the United
States.
The Company is still developing and enhancing both VASP(TM) and the ATM
network, so unexpected difficulties could delay or prevent implementation of
VASP(TM) or the TNS ATM network. The Company also has incurred approximately $46
million of net losses since inception, primarily for development of VASP,
implementation of the ATM network and operations. TeleHub expects to continue
incurring significant losses while completing development activities,
commercially deploying its products and services and funding operations. Since
it is still in the development stage, the Company has generated only minimal
revenue from VASP licensing or wholesale long distance services. The Company
therefore must raise substantial debt and equity financing to fund such
continuing losses, which raises doubts about the Company's ability to continue
as a going concern.
The Company intends to become a leading provider of next generation
services and software solutions to the telecommunications industry. The
first-to-market position of VASP(TM) and the ATM network gives the Company an
opportunity to set industry standards, build market share and develop innovative
packaging and pricing plans. Management believes that TNS can offer wholesale
services that give its carrier customers generally lower rates and additional
revenue opportunities. Further enhancements of VASP(TM) are directed toward
offering a broader range of products and services to carriers and OEMs as well
as the continued integration of the Company's long distance ATM network with the
local services market. Because TNS is currently utilizing VASP(TM), potential
TTC customers can witness the benefits of a VASP(TM)-based platform in actual
operation, as well as utilize the TNS network for developing and testing new
products.
RISK FACTORS
The Company was recently formed and faces the substantial risks inherent to
a new technology business. Its business strategy is based upon the VASP platform
and demonstrating its viability through its VASP-managed ATM network. Since VASP
is not yet fully deployed and the TNS network is the first publicly-switched ATM
network, the Company's future depends on a product still being enhanced and a
network configuration not yet widely utilized in the telecommunications
industry. Also, unforeseen problems with the VASP platform, including the
Company's inability to protect or defend its proprietary rights or the ATM
network, could emerge and prevent realization of the Company's business plan.
The Company has generated only minimal VASP licensing or wholesale long distance
revenue and has a very limited operating history with which investors can
evaluate TeleHub's future performance.
The Company has reported substantial net losses since inception, primarily
expenses for development of VASP, implementation of the ATM network and
operations. TeleHub's cumulative net losses from inception until June 30, 1998,
were approximately $46 million. TeleHub expects to continue incurring
significant losses while completing development activities, commercially
deploying its products and services and funding
2
<PAGE> 8
operations until such time, if at all, as the Company begins to generate
positive cash flow. The Company currently does not anticipate that sufficient
traffic will be carried on its network to cover its operating expenses before
1999 at the earliest based on certain assumptions as to the growth of traffic on
TNS's network and the control of its operating expenses. Also TTC has yet to
achieve OEM or custom platform licensing revenues sufficient to sustain the
entity as a self-supporting, independent business unit. The Company must raise
substantial debt and equity financing to fund such continuing losses. Based on
these factors, the independent accountants expressed doubts about the Company's
ability to continue as a going concern. While the Company believes that its
proceeds from the Initial Note Offering should diminish such doubts, there is no
assurance that the Company can continue as a going concern.
The Company's ability to service and repay the Notes depends on achievement
of its business plan and generating adequate cash flow. Achievement of TeleHub's
business plan is subject to economic, financial, competitive and other risks
(especially those described in this Prospectus), some of which are beyond the
Company's control. The Company's high degree of leverage and its ability to
incur significant additional indebtedness magnifies these risks. Also, the
Company must pay substantial amounts to service this debt, which reduces the
funds available to the Company for business purposes. Since the Issuer conducts
substantially all of its business through subsidiaries, its cash flow will
depend upon the cash flow of its subsidiaries and payments to the Issuer. As a
result of these factors, the Company might not develop and maintain cash flow
from operations sufficient to permit it to service and repay the Notes. Also,
the Company may lack sufficient funds to redeem the Notes in the event of a
Change of Control. Since there is no public market for the Notes, holders might
be unable to liquidate their investment in the Notes.
The telecommunications industry is highly competitive, and subject to rapid
and significant changes in technology and regulation. At the same time, many of
the major IXCs and ILECs, which are potential customers of the VASP platform and
ancillary services, have demonstrated a tendency to be risk averse and slow to
accept technological innovations. These attributes would impede market
acceptance of the VASP platform. Many of the Company's competitors have strong
brand recognition, substantially greater financial and personnel resources, and
greater access to existing and potential customers, also new competitors are
continually entering the market. The long distance transmission market has been
characterized by over-capacity and declining prices. The telecommunications
industry is subject to significant regulation at the federal, state, local and
international levels which greatly effects the operations of the Company and the
position of competitors. Changes in regulation or interpretation of legislation
affecting the Company's operations could create competitive advantages for some
competitors.
The "Risk Factors" section of this Prospectus more extensively discusses
certain factors that prospective purchasers should consider when evaluating an
investment in the Notes.
3
<PAGE> 9
SUMMARY OF THE EXCHANGE OFFER
ISSUER..................... TeleHub Communications Corporation (the "Issuer").
SECURITIES OFFERED......... The Company is offering to exchange $1,000 in
principal amount (and any integral multiple
thereof) of New Notes for each $1,000 in principal
amount (and any integral multiple thereof) of Old
Notes that are validly tendered pursuant to the
Exchange Offer. The Company will issue the New
Notes promptly after the Expiration Date. On the
date of this Prospectus, $125,000,000 in aggregate
principal amount of Old Notes are outstanding. The
Company has not entered into any arrangement or
understanding to distribute the New Notes issued in
the Exchange Offer.
RESALE OF NEW NOTES........ The Company believes that the New Notes issued
pursuant to the Exchange Offer generally will be
freely transferable by their holders without
registration or any prospectus delivery requirement
under the Securities Act, except that a "dealer" or
any Company "affiliate" (as such terms are defined
under the Securities Act) that exchanges Old Notes
held for its own account may be required to deliver
copies of this Prospectus when reselling the
corresponding New Notes. See "The Exchange
Offer -- General" and "Plan of Distribution."
EXPIRATION DATE............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, unless
extended, in which case the term Expiration Date
means the latest date and time to which the
Exchange Offer is extended. The Company will accept
for exchange any and all Old Notes that are validly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date.
INTEREST ON THE NEW
NOTES...................... Cash interest on the New Notes will not accrue on
the Notes prior to July 31, 2001. The New Notes
will accrete at a rate of 13.875% from July 30,
1998, compounded semi-annually to an aggregate
principal amount of $125.0 million by July 31,
2001. Thereafter, interest on the New Notes will be
payable semi-annually on January 31 and July 31 of
each year commencing January 31, 2002.
TERMINATION................ The Company may terminate the Exchange Offer if it
determines that its ability to proceed with the
Exchange Offer could be materially impaired due to
any legal or governmental action, any new law,
statute, rule or regulation or any interpretation
by the staff of the Commission of any existing law,
statute, rule or regulation. Holders of Old Notes
will have certain rights against the Company under
the Registration Rights Agreement should the
Company fail to consummate the Exchange Offer. See
"The Exchange Offer -- Termination." No federal or
state regulatory requirements or approvals are
needed in connection with the Exchange Offer, other
than applicable requirements under federal and
state securities laws.
PROCEDURES FOR TENDERING
OLD NOTES.................. Each beneficial owner owning interests in Old Notes
("Beneficial Owner") through a DTC Participant (as
defined) must instruct such DTC Participant to
cause Old Notes to be tendered in accordance with
the procedures set forth in this Prospectus and in
the Letter of Transmittal. See "The Exchange
Offer -- Procedures for Tendering Old Notes". Each
participant (a "DTC Participant") in the Depository
Trust Company ("DTC") holding Old Notes through DTC
must (i) electronically
4
<PAGE> 10
transmit its acceptance to DTC through the DTC
Automated Tender Offer Program ("ATOP"), for which
the transaction will be eligible, and DTC will then
verify the acceptance, execute a book-entry
delivery to the Exchange Agent (as defined herein)
account at DTC and send an Agent's Message (as
defined herein) to the Exchange Agent for its
acceptance, or (ii) comply with the guaranteed
delivery procedures set forth in this Prospectus
and in the Letter of Transmittal. By tendering
through ATOP, DTC Participants will expressly
acknowledge receipt of the accompanying Letter of
Transmittal and agree to be bound by its terms and
the Company can enforce such agreement against such
DTC Participants. See "The Exchange
Offer -- Procedures for Tendering Old Notes".
Each holder of Old Notes must (i) complete and sign
a Letter of Transmittal, and mail or deliver such
Letter of Transmittal, and all other documents
required by the Letter of Transmittal, together
with certificate(s) representing all tendered Old
Notes, to the Exchange Agent at its address set
forth in this Prospectus and in the Letter of
Transmittal, or (ii) comply with the guaranteed
delivery procedures set forth in this Prospectus.
See "The Exchange Offer -- Procedures for Tendering
Old Notes".
By tendering, each holder of Old Notes will
represent to the Company that, among other things,
(i) it is not an affiliate of the Company, (ii) it
is not a broker-dealer tendering Old Notes acquired
directly from the Company for its own account,
(iii) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary
course of business of such holder and (iv) it has
no arrangements or understandings with any person
to participate in the Exchange Offer for the
purpose of distributing the New Notes. See "The
Exchange Offer -- General."
GUARANTEED DELIVERY
PROCEDURES............... DTC Participants holding Old Notes through DTC who
wish to cause their Old Notes to be tendered, but
who cannot transmit their acceptance through ATOP
prior to the Expiration Date, may effect a tender
in accordance with the procedures set forth in this
Prospectus and in the Letter of Transmittal. See
"The Exchange Offer -- Guaranteed Delivery
Procedures." Holders who wish to tender their Old
Notes but (i) whose Old Notes are not immediately
available and will not be available for tendering
prior to the Expiration Date, or (ii) who cannot
deliver their Old Notes, the Letter of Transmittal
or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a
tender in accordance with the procedures set forth
in this Prospectus. See "The Exchange
Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date, in accordance with the procedures
set forth in "the Exchange Offer -- Withdrawal of
Tenders".
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES.... Subject to certain conditions as summarized above
in "Termination" and described more fully in "The
Exchange Offer -- Termination", the Company will
accept for exchange any and all Old Notes that are
validly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the Exchange
5
<PAGE> 11
Offer will be delivered promptly following the
Expiration Date. See "The Exchange
Offer -- General."
FEDERAL INCOME TAX
CONSIDERATIONS........... Since the New Notes should not be considered as
materially differing from the Old Notes, the
exchange of Old for New Notes should not result in
any material federal income tax consequences to
holders exchanging Old Notes for New Notes. See
"Certain Federal Income Tax Considerations".
EXCHANGE AGENT............. The Trustee is also the Exchange Agent. The office
address of the Exchange Agent is: State Street
Bank, Two International Place -- 4th Floor, Boston,
Massachusetts 02110, Attention: Corporate Trust
Division: TeleHub Communications
Corporation -- 13.875% Senior Discount Notes due
2005. For information with respect to the Exchange
Offer, the telephone number for the Exchange Agent
is (617) 664-5587 and the facsimile number for the
Exchange Agent is (617) 664-5371.
USE OF PROCEEDS............ There will be no cash proceeds payable to the
Company from the issuance of the New Notes pursuant
to the Exchange Offer. The Company received net
proceeds from the Initial Note Offering of
approximately $78.7 million, after deducting the
Initial Purchaser's discount and estimated fees and
expenses from the Initial Offering. With those net
proceeds, the Company repaid a $11.4 million Bridge
Loan (the "Bridge Loan") from Comdisco, Inc.
("Comdisco"), and intends to use the remainder to
fund operating losses, to expand the TeleHub
network, for additional working capital and for
other general corporate purposes. See "Use of
Proceeds".
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes will
not bear transfer restriction legends. The New Notes will be obligations of the
Company entitled to the benefits of the Indenture. The Subsidiaries' guarantee
of repayment of the New Notes will be full, unconditional, joint and several.
See "Description of the Notes." Following the completion of the Exchange Offer,
the Old Notes will not be entitled to any rights under the Note Registration
Rights Agreement including, but not limited to, any contingent increase in the
interest rate. See "the Exchange Offer".
6
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for the period from
inception (January 18, 1996) to December 31, 1996 and for the year ended
December 31, 1997 have been derived from the Company's consolidated financial
statements (the "Consolidated Financial Statements") which have been audited by
PricewaterhouseCoopers LLP., independent accountants. The summary data as of and
for the six months ended June 30, 1997 and 1998, respectively, have been derived
from unaudited consolidated financial statements of the Company and, in the
opinion of the Company, include all adjustments, consisting of normal recurring
accruals necessary for a fair presentation of such information. Operating
results for the six months ended June 30, 1998 are not necessarily indicative of
the results that may be expected for the entire year. The following summary
consolidated financial data should be read in conjunction with "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and the related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
INCEPTION TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------------
1996 1997 1997 1998
------------ ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ -- $ 2,901,280 $ -- $ 3,159,265
Operating expenses other than
depreciation and amortization(1)..... 3,667,319 19,483,912 5,108,668 22,391,443
Depreciation and amortization.......... 68,556 784,548 126,506 2,097,518
----------- ------------ ----------- ------------
Total operating expenses... 3,735,875 20,268,460 5,235,174 24,488,961
Operating loss............. (3,735,875) (17,367,180) (5,235,174) (21,329,696)
Amortization of debt discount.......... (85,375) (546,875) (546,875) (973,525)
Interest expense, net(2)............... (66,973) (213,658) 35,836 (1,110,157)
Other income (expense)(3).............. (599,950) 34,889 76 10,758
----------- ------------ ----------- ------------
Net loss(4)................ $(4,488,173) $(18,092,824) $(5,746,137) $(23,402,620)
=========== ============ =========== ============
Basic and diluted loss per share(5).... $ (0.52) $ (1.70) $ (0.57) $ (1.85)
Weighted average shares outstanding
used in per share calculations --
basic and diluted.................... 8,614,815 10,624,251 10,078,734 12,634,450
OTHER FINANCIAL DATA:
EBITDA(6).............................. $(3,667,319) $(16,582,632) $(5,108,668) $(19,232,178)
Capital expenditures................... 3,028,715 18,221,327 14,534,818 2,877,412
Deficiency between earnings and fixed
charges(7)........................... 3,683,310 14,418,257 4,894,585 16,525,705
----------- ------------ ----------- ------------
CASH FLOW DATA:
Net cash used in operating
activities........................... $ 2,070,928 $ 16,624,763 $ 3,789,997 $ 15,507,359
Net cash used in investing
activities........................... 572,672 9,629,035 6,357,578 522,699
Net cash provided from financing
activities........................... 2,828,536 35,449,182 12,739,074 10,579,499
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF JUNE 30, 1998
1998 AS ADJUSTED(8)
-------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash.................. $ 4,629,010 $ 70,685,260
Total assets................................................ 27,571,452 93,627,702
Total debt, including current portions(9)................... 22,544,919 72,397,920
Stockholders' equity........................................ (2,695,615) 19,565,063
</TABLE>
- ---------------
See footnotes on following page.
7
<PAGE> 13
(1) Operating expenses consist of total operating expenses less depreciation
and amortization.
(2) Interest expense, net consists of the sum of interest expense and interest
income.
(3) Other income (expense) consists of the sum of indemnification expense and
other income.
(4) The Company has not recorded any benefit for income taxes due to the
uncertainty surrounding the realization of the favorable tax attributes in
future tax returns. Accordingly, the Company has recorded a valuation
allowance against its total net deferred tax assets.
(5) The Company computes loss per share pursuant to Statement of Financial
Accounting Standard No. 128, Earnings Per Share. The dilutive effect of
options, warrants, and the Preferred Stock have not been considered as
their effect would have been antidilutive for all periods presented. See
Note 15 to the Consolidated Financial Statements.
(6) EBITDA consists of earnings before interest, taxes, depreciation and
amortization. More specifically, the following balances were excluded from
EBITDA as defined: depreciation and amortization, amortization of debt
discount, interest expense and other income (see note 3). EBITDA is
commonly used in the telecommunications industry to enhance understanding
of operating results and does not represent cash flow or results of
operations in accordance with generally accepted accounting principles for
the periods indicated and may be calculated differently than similarly
titled measures for other companies. Management's discretionary use of
earnings depicted by EBITDA is principally limited by the Indenture
covenants, see "Description of Notes -- Certain Covenants" and by the need
to conserve funds for capital expenditures, software development, debt
service and other uncertainties.
(7) The Company's earnings were insufficient to cover its fixed charges. For
purposes of calculating ratio of earnings to fixed charges, earnings
consist of earnings (losses) before fixed charges. Fixed charges consist of
interest on debt, amortization of deferred financing costs, operating lease
expense, and that portion of rental expense the Company believes to be
representative of interest (i.e., one third rent expense). On a pro forma
basis, after giving effect to the Initial Note offering, the Company's
earnings would have been insufficient to cover fixed charges by $23.9
million, $35.7 million, $15.5 million, and $27.1 million for the period
from January 18, 1996 (inception) to December 31, 1996, for the year ended
December 31, 1997, for the six months ended June 30, 1997, and for the
period ended June 30, 1998, respectively.
(8) "As Adjusted" gives effect to the Initial Note Offering and the net
proceeds therefrom less approximately $11.4 million to be used to repay the
Bridge Loan. Based on the assumption used for the Initial Note Offering, a
value of $22.3 million has been ascribed to the Warrants. The value
ascribed to the Warrants will result in the Debt Discount, which will be
amortized to interest expense using the effective interest method over the
period that the Notes are outstanding.
(9) Total debt, including current portions, consists of capital lease
obligations and other long-term debt, including current portions. The Notes
are presented net of the Debt Discount and will accrete in value through
July 31, 2001 at a rate of 13 7/8% per annum compounded semi-annually. No
interest will be payable in cash on the Notes prior to January 31, 2002.
8
<PAGE> 14
RISK FACTORS
An investment in the New Notes involves substantial risks. Prospective
purchasers should consider carefully the specific factors set forth below as
well as the other information contained in this Prospectus in evaluating whether
to invest in the New Notes.
SUBSTANTIAL OPERATING LOSSES AND EXPECTED LOSSES
The Company has generated minimal VASP(TM) licensing or wholesale long
distance revenues and has a very limited operating history with which investors
can evaluate TeleHub's future performance. TeleHub has reported substantial net
losses since inception, primarily as a result of expenses associated with the
development of VASP(TM), implementation of the ATM network and operational
expenses. The Company's cumulative losses from inception until June 30, 1998,
were approximately $46 million. TeleHub's profitability depends on the demand
for its VASP(TM) software and its wholesale long distance services. There can be
no assurance that TeleHub will attain profitability in the future. Failure to be
profitable could impair TeleHub's ability to expand its long distance business,
continue additional technology development and raise additional equity or debt
financing. Such events could have a material adverse effect on TeleHub, the
value of the Securities and the Company's ability to repay the Notes.
EARLY COMMERCIAL STAGE OF THE COMPANY
The success of TNS in the wholesale long distance business depends upon
TNS's ability to generate significant customer traffic and to manage an
efficient long distance network and related customer service. The Company has
not previously managed a long distance network and there can be no assurance
that its wholesale long distance services can be sold at a profit. The failure
of TNS to generate significant customer traffic, implement VASP(TM) enhancements
in a timely manner, effectively manage the ATM network and related customer
services, or operate its business at a profit could have a material adverse
effect on the Company's business, operating results and financial condition.
TNS is a recent entrant into the long distance business and its three
switch locations and national ATM network became commercially operational only
in December 1997. The Company expects that it will incur substantial operating
losses and generate negative cash flow unless and until its customers route
sufficient traffic over the ATM network. The Company currently does not
anticipate that sufficient traffic will be carried on its network to cover its
cost of operations before 1999 at the earliest based on certain assumptions as
to the growth of traffic on TNS's network and the control of its operating
expenses. Such assumptions may prove to be inaccurate due to changes in the
businesses of TNS's wholesale customers, TNS's ability to attract new customers,
technical and/or logistical problems in the operation of the ATM network, TNS's
limited experience with wholesale long distance services, unanticipated
increases in operating expenses or other factors affecting TNS's revenues or
expenses.
TTC has yet to achieve OEM or custom platform licensing revenues sufficient
to sustain the entity as a self-supporting, independent business unit. Until
that occurs, its development efforts will continue to exert a negative impact on
the Company's overall financial performance. The Company has not previously
entered into OEM or custom platform licensing relationships. There can be no
assurance that it will successfully enter into such relationships in the future
or that it will be able to license its technology at a profit. The failure of
TTC to generate sufficient OEM or custom platform licensing revenues in a timely
manner, develop subsequent releases of its technology, or operate its business
at a profit could have a material adverse effect on the Company's business,
operating results and financial condition.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
As a result of the Initial Note Offering, the Company will be highly
leveraged. On a pro forma basis after giving effect to the Initial Note Offering
and the use of proceeds therefrom (including repayment of the Bridge Loan), the
Company would have had approximately $72.4 million of total consolidated
indebtedness outstanding at June 30, 1998 (including current portion but net of
Debt Discount). In addition, the Indenture permits the Company and its
subsidiaries to incur substantial additional indebtedness subject to certain
9
<PAGE> 15
restrictions. See "Description of Notes -- Certain Covenants." Although the
Company expects the proceeds from the Initial Note Offering to provide
sufficient funds to take the Company to positive cash flow, the Company may need
to incur substantial additional indebtedness to finance the continued
development, commercial deployment and expansion of its network and to fund
operating losses. The degree to which the Company is leveraged could have
important consequences to the holders of the Notes, including, but not limited
to, the following: (i) the Company's ability to obtain additional financing or
refinancing in the future for working capital, capital expenditures, service
development and enhancement, acquisitions, general corporate purposes and other
purposes may be materially limited or impaired; (ii) the Company's cash flow, if
any, may be unavailable for the Company's business since a substantial portion
of the Company's cash flow must be dedicated to the payment of principal and
interest on its indebtedness, including the Notes; (iii) the terms of future
permitted indebtedness may limit the Company's ability to redeem the Notes in
the event of a Change of Control; and (iv) the Company's high degree of leverage
may make it more vulnerable to economic downturns, may limit its ability to
withstand competitive pressures and may reduce its flexibility in responding to
changing business and economic conditions. No assurance can be given that the
Company will be successful in developing and maintaining a level of cash flow
from operations sufficient to permit it to pay the principal, premium, if any,
and interest on its indebtedness, including the Notes. The ability of the
Company to make scheduled payments with respect to indebtedness (including the
Notes) will depend upon, among other things: (i) the Company's ability to
achieve significant and sustained growth in cash flow; (ii) the rate of success
of the commercial deployment of its network; (iii) the market acceptance of,
customer demand for, rate of utilization of and pricing for the Company's
products and services; (iv) the future operating performance of the Company and
the extent to which the Company's products and services are subject to
performance problems; (v) the Company's ability to successfully complete
development, upgrades and enhancements of its technology products and its
network and (vi) the Company's ability to complete additional financings, as
necessary. Each of these factors is, to a large extent, subject to economic,
financial, competitive and other factors, many of which are beyond the Company's
control. If the Company is unable to generate sufficient cash flow to service
its indebtedness, including the Notes, it may have to reduce or delay network
deployments or product development, restructure or refinance its indebtedness or
seek additional equity capital. There can be no assurance that any of these
strategies could be effected on satisfactory terms, if at all, in light of the
Company's high leverage, or that any such strategy would yield sufficient
proceeds to service and repay the Company's indebtedness, including the Notes.
Any failure by the Company to satisfy its obligations with respect to the
Notes at maturity or prior thereto would constitute a default under the
Indenture and could cause a default under agreements governing other
indebtedness of the Company. In the event of such default, the holders of such
indebtedness would have enforcement rights, including the right to accelerate
such debt and the right to commence an involuntary bankruptcy proceeding against
the Company. Absent successful commercial introduction of VASP(TM), ongoing
technical development of the ATM network to achieve scalability and reduced
costs and significant growth of its cash flow, the Company will not be able to
service or repay its indebtedness, including the Notes.
HOLDING COMPANY STRUCTURE; RESTRICTIONS ON ACCESS TO SUBSIDIARY CASH FLOW
The Issuer is a holding company that conducts substantially all of its
operations through its subsidiaries. Because the Issuer conducts operations
through subsidiaries, the Issuer's cash flow and its ability to service its
indebtedness, including the Notes, will depend upon the cash flow of its
subsidiaries and payments of funds by those subsidiaries to the Issuer in the
form of repayment of loans, dividends or otherwise. In addition, the Indenture
will permit these subsidiaries to incur indebtedness or become parties to
financing arrangements, which may contain limitations on the ability of such
subsidiaries to pay dividends or to make loans or advances to the Issuer.
Further, any holders of secured indebtedness (including trade payables) of the
Issuer's subsidiaries would be entitled to repayment of such indebtedness from
the assets of the affected subsidiaries before such assets were made available
for distribution to the Issuer. See "Description of Notes -- Certain Covenants."
10
<PAGE> 16
ABILITY TO CONTINUE AS A GOING CONCERN
The independent accountants' audit report on the Company's consolidated
balance sheets as of December 31, 1996 and 1997 and the consolidated statements
of operations, stockholders equity (deficit) and cash flows for the period from
January 18, 1996 (date of inception) to December 31, 1996 and for the year ended
December 31, 1997, expressed substantial doubts about the Company's ability to
continue as a going concern. These doubts were based on the Company's
accumulation of losses from development of its products and services and the
Company's need for substantial additional debt and equity financing to execute
its business plan. The Company believes that its proceeds from the Initial Note
Offering should diminish doubts about the Company's ability to continue as a
going concern. However, there is no assurance that the Company can continue as a
going concern.
TECHNOLOGICAL UNCERTAINTY
TeleHub's business strategy is based upon the VASP(TM) platform and
demonstrating its viability through the VASP(TM)-managed ATM network.
Enhancements to the VASP(TM) platform are continually under development. The
chosen ATM technology for the TeleHub network is not yet widely utilized in
publicly switched voice or data networks. ATM technical standards are still
being developed and the projected savings from increased transmission
capabilities have yet to be validated in actual performance. Unforeseen problems
could emerge with respect to the VASP(TM) platform or the ATM network. The
results of TNS's operations, to date, do not necessarily prove the viability or
efficacy of the network when fully deployed under a load of heavy
telecommunications traffic transmission. The telecommunications industry is
subject to rapid and significant changes in technology; for example, other
competitive techniques for implementing ATM could be developed. There can be no
assurance that TNS will maintain competitive services or that TTC will develop
new technologies on a timely basis or on satisfactory terms. Such an increase in
supply or failure by TNS to maintain competitive services or TTC to develop new
technologies could have a material adverse effect on the Company's business,
operating results and financial condition.
RISKS INHERENT IN RAPID GROWTH
TeleHub's strategy envisions rapid growth through entering the wholesale
long distance business through TNS and the technology market through TTC. That
expected growth will place a significant strain on TeleHub's management and
operational and financial resources. To manage its growth effectively, TeleHub
must continuously improve its operational and financial systems, forecasting and
controls. Any substantial inaccuracies in the forecasts of product usage and
growth could produce a shortage or excess of personnel and facilities that would
adversely affect TeleHub's financial and service performance. If growth is not
effectively managed and the quality of service or support is not maintained at
acceptable levels, the business may be negatively impacted. Rapid growth will
require: (i) training and retaining of new personnel; (ii) satisfactory
performance of TeleHub's customer interface and billing systems; (iii)
development and introduction of new products; and (iv) control of TeleHub's
expenses related to the expansion into the wholesale long distance business. The
Company's failure to satisfy these requirements, or otherwise to manage its
growth effectively, would have a material adverse effect on the Company's
business, operating results and financial condition.
PATENTS, PROPRIETARY RIGHTS AND THE RISK OF LITIGATION
The Company relies on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality and non-disclosure agreements and other
contractual provisions to protect its proprietary rights, measures that provide
only limited protection. The Company currently has several pending patent
applications. There can be no assurances that the Company's means of protecting
its proprietary rights in the United States or abroad will be adequate or that
competitors will not independently develop similar technologies. The Company's
future success will depend in part on its ability to protect its proprietary
rights to the technologies used by VASP(TM). Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's products or obtain and use information that the Company regards
as proprietary. The Company has applied to register certain of its trademarks in
the United States and other countries. There can be no assurances that the
Company will obtain registrations of principle marks in key
11
<PAGE> 17
markets. Failure to obtain registrations could compromise the Company's ability
to fully protect its trademarks and brands and could increase the risk of
challenge from third parties to its use of its trademarks and brands. In
addition, the laws of some foreign countries do not protect proprietary rights
as fully as do the laws of the United States. There can be no assurance that any
issued patent will preserve the Company's proprietary position, or that others
will not be able to develop technologies similar to or superior to the Company's
technology. The Company licenses from third parties certain technology used in
and for its products and services. There can be no assurances that such
technology will remain available to the Company on terms beneficial to the
Company. Failure of the Company to enforce and protect its intellectual property
rights or obtain from third parties the right to use necessary technology could
have a material adverse effect on the Company's business, operating results and
financial condition.
From time to time, third parties, including competitors of the Company,
have asserted patent, copyright or other intellectual property rights to
technologies that are important to the Company or that are relevant to products
that might be of interest to the Company. From time to time, the Company
receives notice from such third parties of the intellectual property rights such
parties have obtained. The Company expects that it will increasingly receive
such notices and may, at times, be subject to infringement claims as the number
of products and competitors in the telecommunications industry grows and the
functionality of products overlaps. Any infringement claim or other litigation
against or by the Company could cause the Company to incur substantial costs and
diversion of management resources, and could have a material adverse effect on
the Company's business, financial condition and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief that could
effectively block the Company's ability to license its products in the United
States or abroad. Such a judgment would have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company is obligated under certain agreements to indemnify the other party
in connection with infringement by the Company of the proprietary rights of
third parties. In the event the Company is required to indemnify parties under
these agreements, it could have a material adverse effect on the business,
financial condition and results of operations of the Company. In the event a
claim relating to proprietary technology or information is asserted against the
Company, the Company may seek licenses to such intellectual property. There can
be no assurance, however, that licenses could be obtained on commercially
reasonable terms, if at all, or that the terms of any offered licenses would be
acceptable to the Company. If forced to cease using such technology, there can
be no assurance that the Company would be able to develop or obtain alternate
technology. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
the Company from manufacturing, using or selling certain of its products and
services, which could have a material adverse effect on the Company's business,
financial condition, competitive position and results of operations and its
ability to pay the interest on and principal of the Notes.
RISK OF MARKET ACCEPTANCE
The software-based VASP(TM) technology is new and a dramatic departure from
the embedded network switching and control components used by the major IXCs and
ILECs that are potential consumers of the VASP(TM) platform and ancillary
services. As a class, they have demonstrated a tendency to be risk averse and
are unaccepting of change or technological innovation without cautious,
time-consuming testing and evaluation. They also tend to purchase from major
hardware and software vendors that they have utilized previously and with whom
they have ongoing business relationships. This phenomenon, sometimes referred to
as "the inertia of capital commitment" is a barrier to market acceptance of
VASP(TM). Without some level of market acceptance, the probability of TeleHub's
long-term success is greatly diminished.
LONG DISTANCE PRICING PRESSURES AND RISKS OF INDUSTRY OVERCAPACITY
The long distance transmission industry generally has been characterized by
over-capacity and declining prices since shortly after the 1984 divestiture by
AT&T of its Regional Bell Operating Companies ("RBOCs"). The Company believes
that, in the last several years, increasing demand has reduced the over-
capacity and downward pricing pressure. However, the Company anticipates that
prices for TNS's services
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may decline over the next several years. The Company is aware that certain long
distance carriers are expanding their capacity and believes that other long
distance carriers, as well as other potential new entrants to the industry, are
constructing and installing switches and new fiber optic cable, and other long
distance transmission networks. Further, recent technological advances, such as
ATM and wave division multiplexing, have shown the potential to greatly expand
the capacity of existing and new fiber optic cable. If industry expansion
results in capacity that exceeds demand overall or along any of TNS's routes,
additional downward pricing pressure could develop. In addition, strategic
alliances or strategic transactions, such as the recently announced long
distance capacity purchasing alliance among certain RBOCs, could result in
additional price competition among long distance carriers. Such pricing pressure
could have a material adverse effect on the Company's business, operating
results and financial condition.
COMPETITION
Overview. The communications services industry is highly competitive,
rapidly evolving and subject to constant technological change. In particular,
there are numerous companies offering long distance services, and the Company
expects competition to increase in the future. The Company believes that
existing competitors are likely to continue to expand their service offerings to
appeal to existing or potential customers of the Company. Many of the Company's
existing competitors have financial, personnel and other resources, including
brand name recognition, substantially greater than that of the Company. New
competitors are likely to enter the communications market, some of whom may have
financial, personnel and other resources, including brand name recognition,
substantially greater than that of the Company.
In addition, the regulatory environment in which the Company operates is
undergoing significant change. As this regulatory environment evolves, changes
may occur which could create greater or unique competitive advantages for all or
some of the Company's current or potential competitors, or could make it easier
for additional parties to provide services. Many communications companies
operate generally in the long distance market in which the Company operates, and
there are numerous companies that offer wholesale long distance services, which
are offered by the Company. As a service provider in the long distance industry,
the Company competes with several well-established providers, as well as many
other long distance providers with less significant market shares. Moreover,
certain of the Company's competitors may be better situated to negotiate more
favorable contracts with suppliers.
Domestic and International Long Distance. The long distance communications
industry is intensely competitive and significantly influenced by the marketing
and pricing decisions of the larger industry participants such as AT&T, MCI
Communications Corp. ("MCI"), Sprint and WorldCom. Moreover, the industry is
undergoing significant consolidation that has created and will continue to
create numerous other entities with substantial resources to compete for long
distance business. In addition, as a result of the Telecommunications Act, RBOCs
are able or will be able in the future to enter the long distance market. New
technologies could also give rise to new regulation or new competitors. The
Company's larger competitors have significantly greater name recognition,
financial, technical, network and marketing resources. They may also offer a
broader portfolio of services and have long standing relationships with
customers targeted by the Company and long standing relationships with
regulators.
The Company has entered into telecommunications services agreements with
its wholesale long distance customers which do not contain minimum usage
commitments and which are cancellable upon short notice without penalties. If
these service agreements are cancelled, or are not renewed upon expiration, the
loss of customers could have a material adverse effect on the Company's
business, operating results and financial condition. Although the Company
believes that TNS offers switched wholesale services at rates generally lower
than those offered by other competing wholesale service providers, prices for
domestic and international long distance calls have decreased in recent years
and are likely to continue to decrease. There can be no assurance that the
Company will be able to compete effectively in the domestic or international
long distance markets.
Networks. The Company believes that its VASP(TM)-managed ATM network is
unique in that it allows for the first ATM service in commercial operation that
can be switched into the PSTN. Other telecommunications
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providers can provide their own networks and can provide those networks to other
carriers. Numerous established and start-up national and regional fiber optic
networks are owned by IXCs, ILECs and CLECs, including AT&T, MCI and Sprint,
each of whom has greater name recognition and financial, personnel, technical
and marketing resources than the Company. Other established companies including
AT&T Corporation ("AT&T"), Sprint Corp. ("Sprint") and Bell Atlantic Corp.
("Bell Atlantic") have announced or may be planning the construction of ATM
networks that can be switched into the PSTN.
TTC faces competition from some of the most experienced companies engaged
in the development of telecommunications equipment and related software.
Examples include switch vendors (Lucent, Nortel and Siemens Corporation
("Siemens")), ATM vendors (Nortel, Siemens, Alcatel (as defined), Cisco and
Ascend Communications, Inc. ("Ascend")), signaling products vendors (Nortel and
Tekelec (as defined)), and OSS providers (Hewlett-Packard Inc. and Applied
Digital Access Inc.). The Company believes that existing competitors are likely
to continue to expand their product offerings to appeal to existing or potential
customers of the Company. Many of the Company's existing competitors have
financial, personnel and other resources, including brand name recognition,
substantially greater than the Company.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that its available cash resources
combined with the net proceeds of the Initial Note Offering and funds from
operations will be sufficient to meet its anticipated working capital and
capital expenditure requirements for at least the next twelve months. However,
there can be no assurance that such resources will be sufficient for its
anticipated working capital and capital expenditure requirements. The Company
may need to raise additional funds through public or private debt or equity
financings in order to take advantage of opportunities, including more rapid
expansion or acquisitions of complementary business or technologies, or to
develop new products or otherwise respond to unanticipated competitive
pressures. The Company may also raise additional funds through public or private
debt or equity financings if such financings become available on favorable
terms. If it is necessary to raise additional funds, there can be no assurance
that additional financing will be available on terms favorable to the Company,
or at all. If adequate funds are not available on acceptable terms, the Company
may not be able to take advantage of opportunities, develop new products or
otherwise respond to competitive pressures. Such inability could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company's forecast of the period of time through which its
financial resources will be adequate to support its operations is a forward
looking statement that involves risks and uncertainties, and actual results
could vary materially as a result of a number of factors, including those set
forth above in this paragraph. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SUBSTANTIAL FUTURE CAPITAL REQUIREMENTS
The Company will require substantial additional funds for the continued
development, commercial deployment and expansion of its network. As of June 30,
1998, the Company had $4.6 million in cash, cash equivalents and restricted
cash. From inception until June 30, 1998, the Company incurred operating
expenses of approximately $48.5 million in the development of its business,
development of technology and operating support systems, deployment of sales and
marketing activities and establishment of its management team. In addition, the
Company has made and expects to continue to make significant capital outlays in
order to continue required development activities, commercially deploy its
products and services and fund operations until such time, if at all, as the
Company begins to generate positive EBITDA. The Company believes the proceeds
from the Initial Note Offering will be sufficient to fund the Company's
aggregate capital expenditures and working capital requirements, including
operating losses, associated with the rollout of its products and services.
While the Company believes that the net proceeds from the Initial Note Offering,
together with cash on hand, will be sufficient to finance its rollout, it may
need to secure additional financing to enter new markets for its products and
services. If demand for the Company's products and services is less than
expected, the Company may require additional financing at an earlier date. There
can be no assurance that the Company will be able to implement its rollout
strategy in a timely fashion, if at all. There can be no
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assurance that the Company's current estimates of EBITDA, which will depend on
numerous future factors and conditions described elsewhere in "Risk Factors,"
many of which are outside of the Company's control, will be accurate, and it is
likely that actual results will vary materially from such estimates. The Company
has no present commitments or arrangements assuring it of any future equity or
debt financing, and there can be no assurance that any such equity or debt
financing will be available to the Company on favorable terms or at all. In
addition, the Indenture contains certain covenants restricting the Company's
ability to incur further indebtedness, and future borrowing instruments such as
credit facilities are likely to contain similar or more restrictive covenants
and could require the Company to pledge assets as security for borrowings
thereunder. In the event that the Company is unable to obtain such additional
capital or is required to obtain it on unsatisfactory terms, the Company will be
required to delay the expansion of its business or take or forego actions that
could materially adversely affect the Company's business, prospects, operating
results, financial condition and its ability to service and repay its
indebtedness, including the Notes. In the event that the Company is unable to
generate sufficient cash flow and is otherwise unable to obtain funds necessary
to meet required payments on its indebtedness, the Company could be in default
under the terms of the agreements governing its indebtedness, including the
Notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will be
entitled to require the Company to repurchase any or all of the Notes held by
such holder at a premium of 101% of the aggregate principal amount plus accrued
and unpaid interest (101% if the Accreted Value if the Change of Control occurs
before July 31, 2002). However, the Company's ability to repurchase the Notes
upon a Change of Control may be limited by the terms of then-existing
contractual obligations of the Issuer and its subsidiaries. In addition, the
Company may not have adequate financial resources to effect such a repurchase,
and there can be no assurance that the Company would be able to obtain such
resources through a refinancing of the Notes to be repurchased or otherwise. If
the Company fails to repurchase all of the Notes tendered for repurchase upon
the occurrence of a Change of Control, such failure will constitute an Event of
Default under the Indenture.
With respect to the sale of assets referred to in the definition of Change
of Control, the phrase "all or substantially all" as used in such definition
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under the relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of a Person (as defined)
and therefore it may be unclear whether a Change of Control has occurred and
whether the Notes are subject to an offer to repurchase.
The Change of Control provisions may not necessarily afford the holders
protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or other similar transaction involving the
Company that may adversely affect the holders, because such transactions may not
involve a shift in voting power or beneficial ownership or, even if they do, may
not involve a shift of the magnitude required under the definition of Change of
Control to trigger such provisions. Except as described under "Description of
Notes -- Repurchase at the Option of Holders -- Change of Control," the
Indenture does not contain provisions that permit the holders of the Notes to
require the Company to repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
CONSEQUENCES OF ORIGINAL ISSUE DISCOUNT ON NOTES
The Notes will be issued at a substantial discount and a portion of the
issue price of the Old Notes was allocated to the warrants resulting in the
Notes having a deemed issue price less than their principal amount. U.S. federal
income tax laws will therefore treat the Notes as having original issue discount
("OID"). Consequently, U.S. purchasers of the Notes generally must recognize OID
amounts as gross income for U.S. federal tax purposes and pay taxes on such
deemed income before receiving the cash payments representing that income. If
the Notes are treated as "applicable high yield discount obligations," the
Company's
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<PAGE> 21
deductions with respect to the OID on the Notes will be either deferred until
the Company makes the related payments or possibly, in part, disallowed.
If a bankruptcy proceeding is commenced by or against the Company under the
United States Bankruptcy Code after the issuance of the Notes, the claim of a
holder of Notes may be limited to an amount equal to the sum of (i) the initial
offering price for the Notes and (ii) that portion of the OID that is not deemed
to constitute "unmatured interest" for purposes of the United States Bankruptcy
Code. Any OID that was not amortized as of the commencement of any such
bankruptcy proceeding would constitute "unmatured interest."
DEPENDENCE ON KEY PERSONNEL
TeleHub is managed by a small number of key executive officers, the loss of
whose services could have a material adverse effect on the Company. TeleHub
believes that its growth and future success will depend in large part on its
continued ability to attract and retain highly skilled and qualified personnel
and consultants. The loss of senior management or the failure to recruit
additional qualified personnel and consultants in the future could significantly
impede TeleHub's ability to achieve its financial, expansion, marketing and
other objectives. TeleHub has employment contracts with certain key executives.
See "Management."
RECENT LEGISLATION AND REGULATORY UNCERTAINTY
Certain of TeleHub's operations are subject to regulation by the FCC and
state public utility commissions. The FCC is restructuring access rates and
universal service mechanisms which will affect TNS's costs and rates. Changes in
the regulation or interpretation of legislation affecting TeleHub's operations
could have a material adverse effect on the Company's business, operating
results and financial condition.
REGULATION
Telecommunications services are subject to significant regulation at the
federal, state, local and international levels, affecting the Company and its
existing and potential competitors. Delays in receiving the required regulatory
approvals or the enactment of new and adverse legislation, regulations or
regulatory requirements may have a material adverse effect on the Company's
business, operating results and financial condition. In addition, future
legislative, judicial and regulatory agency actions could alter competitive
conditions in the markets in which the Company intends to operate, in ways
disadvantageous to the Company.
The Company currently is subject to federal and state regulation of its
wholesale long distance telephone services, and may be subject to regulation of
any future services that are deemed local exchange services. To provide
international services, carriers must obtain a certificate from the FCC which
TNS has obtained. At the federal level, the Company is regulated by the FCC and
must maintain both interstate and international tariffs containing the currently
effective rates, terms and conditions for those services. Although the FCC
eliminated the tariffing requirements for interstate non-dominant carriers, such
carriers must continue to file interstate tariffs until a federal court
completes reviewing such detariffing and declares that the detariffing order is
lawful. TNS has filed interstate and international tariffs with the FCC.
Intrastate long distance services and local exchange services are subject to
various state laws and regulations, including certification, notification,
registration and tariffing requirements. The FCC and numerous state agencies
also impose prior approval requirements on transfers of control of certificated
carriers and assignments of regulatory authorizations. States also often require
prior approvals or notifications for the issuance of stock, bonds or other forms
of indebtedness. As a result, in certain states, TNS requested approvals, made
notifications of or took other actions relating to its issuance of a Guarantee
pursuant to the Initial Note Offering. While TNS expects to obtain all necessary
approvals for the Exchange, there can be no assurance that such approvals will
be obtained, or that they will be obtained on a timely basis. The FCC and state
regulatory agencies generally retain the right to sanction a carrier, impose
forfeitures, mandate refunds or impose other penalties in the event of
regulatory non-compliance by a carrier. There can be no assurance that future
regulatory, judicial or legislative activities will not have a material adverse
effect on the business, operating results and financial
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<PAGE> 22
condition of the Company or that domestic or international regulators or third
parties will not raise material issues with regard to the Company's compliance
or non-compliance with applicable laws and regulations.
CONCENTRATION OF STOCK OWNERSHIP
As of September 30, 1998, assuming the exercise of all options and warrants
and conversion of Preferred Stock, the key executives and major stockholders
beneficially owned approximately 70% of the outstanding voting power of the
Company. As a result, these stockholders, if they act together, could elect all
Directors and exercise control over TeleHub's business, policies and affairs,
and could approve or disapprove all actions requiring shareholder approval,
including amendments to the Issuer's Articles of Incorporation (the "Articles")
and Bylaws, certain mergers or similar transactions. This concentration of stock
ownership could delay, prevent or discourage a change in control of TeleHub or
the removal of existing management. See "Security Ownership of Certain
Beneficial Owners and Management."
ABSENCE OF PUBLIC MARKET
There has not been any public market for the Old Notes. The Company does
not intend to list the New Notes on any securities exchange or to seek approval
for quotation through any automated quotation system. There can be no assurance
that an active trading market will develop or be sustained in the New Notes. If
a market for the New Notes does develop, the market value of the New Notes will
depend on market conditions (such as yields on alternative investments, general
economic conditions, the Company's financial condition and other conditions.
Such conditions might cause the New Notes, to the extent they are actively
traded, to trade at a significant discount from face value.
CONSEQUENCE OF FAILURE TO EXCHANGE
Untendered Old Notes that are not exchanged for New Notes pursuant to the
Exchange Offer will remain subject to the existing restrictions on transfer of
such Old Notes. Additionally, holders of any Old Notes not tendered in the
Exchange Offer will not have any rights under the Note Registration Rights
Agreement to cause the Company to register the Old Notes, and the interest rate
on the Old Notes will remain at its initial rate of 13.875% per annum.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Articles, the Bylaws and Nevada law could
discourage, delay or prevent a change in control of management of TeleHub. Those
provisions limit the ability of shareholders to remove incumbent directors or to
change the composition of the Board of Directors (the "Board"). Consequently,
incumbent directors may be able to retain their positions even after a change in
control. The Articles and Bylaws also limit the ability of the shareholders to
act independently from the Board. The Articles authorize the issuance of
preferred shares with such designations, rights and preferences as the Board may
determine without further shareholder approval (See "Description of Capital
Stock -- Preferred Stock"); the issuance of preferred shares could adversely
affect the voting power or other rights of holders of shares of Common Stock and
could be used to discourage, delay or prevent a change in control. The General
Corporation Law of Nevada (the "Nevada Act") prohibits a Nevada corporation from
engaging in any of a broad range of business combinations with any interested
shareholder (10% or more voting power) without Board approval for a period of
three years after the shareholder became an interested shareholder. The Nevada
Act also requires Board or shareholder approval to acquire a controlling
interest in TeleHub. See "Description of Capital Stock -- Special Provisions of
the Company's Articles, Bylaws and Nevada Corporate Law."
YEAR 2000 INCOMPATIBILITY
The term "Year 2000 Issue" generally describes the various problems that
might result from improper processing of dates and date-sensitive calculations
involving dates in the Year 2000 and beyond. The "Year 2000 issue" results from
computer programs using two digits rather than four digits to define the
applicable year, so that all dates are interpreted as being between 1900 and
1999. Computers and other equipment using
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<PAGE> 23
such programs will incorrectly interpret dates after the year 1999. Such
misinterpretation might cause system failures or miscalculations and thereby
disrupt operations, for example; temporary inability to process transactions, to
send invoices, to operate computer systems and equipment or to engage in other
normal business activities. The Company believes that its computer systems,
including VASP(TM), are Year 2000 compatible; however, the Company has not
completed assessing the Year 2000 compatibility of its equipment or of third
parties. The Company has established a task force to evaluate Year 2000
compatibility of its computer systems and of third party computer products which
the Company uses in its network, VASP, or other business applications and the
potential impact of non-compatibility. The Company believes that adequate
resources have been allocated for this purpose and does not expect to incur
significant expenditures to address this issue. However, there can be no
assurance that the Company will identify all Year 2000 problems in its systems
in advance of their occurrence or that the Company can successfully remedy any
problems that are discovered. The expenses of the Company's efforts to address
such problems, or the expenses or liabilities to which the Company may become
subject as a result of such problems, could materially adversely affect the
Company's business, prospects, operating results, financial condition and its
ability to service and repay indebtedness, including the Notes. In addition, the
revenue stream and financial stability of existing customers may be adversely
impacted by Year 2000 problems, which could cause fluctuations in the Company's
revenues and operating profitability. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Year 2000 Readiness."
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<PAGE> 24
THE EXCHANGE OFFER
While the following discussion summarizes material provisions of the Note
Registration Rights Agreement Noteholders may wish to read the actual provisions
of the Note Registration Rights Agreement, which was filed as an exhibit to the
Registration Statement of which this Prospectus constitutes a part and copies of
the Note Registration Rights Agreement are available upon request to the
Company.
PURPOSE AND EFFECT
The Old Notes were sold by the Issuer to the Initial Purchaser on July 30,
1998. The Initial Purchaser subsequently resold the Old Notes in reliance on
Rule 144A under the Securities Act. The Issuer and the Initial Purchaser entered
into the Note Registration Rights Agreement, pursuant to which the Issuer
agreed, with respect to the Old Notes and subject to the Issuer's determination
that the Exchange Offer is permitted under applicable law, to (i) file, on or
before September 28, 1998, a registration statement with the Commission under
the Securities Act concerning the Exchange Offer, and (ii) use its best efforts
(a) to cause such registration statement to be declared effective by the
Commission on or before December 12, 1998, and (b) to consummate the Exchange
Offer on or before January 26, 1999. The Issuer will keep the Exchange Offer
open for at least 30 days (or longer if required by applicable law) after the
date the notice of the Exchange Offer is mailed to the holders of the Old Notes.
This Exchange Offer is intended to satisfy the Issuer's exchange offer
obligations under the Note Registration Rights Agreement.
If applicable interpretations of the Commission staff would not permit the
Company to effectuate the Exchange Offer or, if for any other reason the
Exchange Offer is not consummated prior to January 26, 1999, the Company will
register the resale of the Old Notes and use its best efforts to have such
resale registration statement become effective within 90 days after filing. The
Company will keep this resale registration effective until July 30, 2000, or
until all Old Notes have been resold pursuant to such resale registration
statement.
TERMS OF THE EXCHANGE OFFER
The Issuer hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange up to
(i) $125.0 million aggregate principal amount of New Notes for up to $125.00
million aggregate principal amount of outstanding Old Notes. The Issuer will
accept for exchange any and all Old Notes that are validly tendered on or prior
to 5:00 p.m., New York City time, on the Expiration Date. The Issuer will issue
$1,000 principal amount of New Notes in exchange for each $1,000 principal
amount of outstanding Old Notes accepted in the Exchange Offer. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer. However,
Old Notes may be tendered only in integral multiples of $1,000. Tenders of the
Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date with respect to the Exchange Offer applicable to such Old
Notes. The Exchange Offer is not conditioned upon any minimum principal amount
of Old Notes being tendered for exchange. However, the Exchange Offer is subject
to the terms and provisions of the Note Registration Rights Agreement. See
"-- Conditions of the Exchange Offer."
As of the date of this Prospectus, (i) $125.0 million in aggregate
principal amount of the Old Notes is outstanding. As of , there were
registered holders of the Old Notes, and DTC participants.
Only a holder of the Old Notes (or such holder's legal representative or
attorney-in-fact) may participate in the applicable Exchange Offer. The record
date for determining holders of the Old Note entitled to participate in the
applicable Exchange Offer will be the day before the notice of the Exchange
Offer is sent to Noteholders. The Issuer believes that, as of the date of this
Prospectus, no holder of an Old Note is an affiliate (as defined in Rule 405
under the Securities Act) of the Issuer.
The Issuer shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuer has notified the Exchange Agent. The Exchange Agent
will act as agent for the tendering holders of Old Notes and for the purposes of
receiving the New Notes from the Issuer. If any tendered Old Notes are not
accepted for exchange because of an invalid tender, the occurrence of certain
other events set forth herein or otherwise, certificates for any such unaccepted
Old Notes will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
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EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1998, at 5:00 p.m., New York City
time, unless the Issuer, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended. In order to extend the Exchange Offer, the Issuer
will notify the Exchange Agent of any extension by oral or written notice and
will make a public announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
The Issuer reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer and (iii) to amend
the terms of the Exchange Offer in any manner. If the Exchange Offer is amended
in a manner determined by the Issuer to constitute a material change, the Issuer
will promptly disclose such amendments by means of a prospectus supplement that
will be distributed to the registered holders of the Old Notes subject to the
Exchange Offer. Modifications of the Exchange Offer, including but not limited
to extension of the period during which the Exchange Offer is open, may require
that at least five business days remain in the Exchange Offer.
Without limiting the manner in which the Company may choose to publicly
announce any delay in acceptance, extension, termination or amendment of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by timely release
to the Dow Jones News Service.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, the Exchange Offer is
conditioned upon the Commission's declaring the effectiveness of the
Registration Statement of which this Prospectus constitutes a part.
ACCRUED INTEREST
Cash interest on the New Notes will not accrue on the Notes prior to July
31, 2001. The Notes will accrete at a rate of 13.875%, compounded semi-annually
to an aggregate principal amount of $125.0 million by July 31, 2001. Thereafter,
interest on the New Notes will be payable semi-annually on January 31 and July
31 of each year commencing January 31, 2002. See "Description of the
Notes -- Maturity, Interest and Principal."
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's Old Notes as set forth below and the Issuer's
acceptance will constitute a binding agreement between the tendering holder and
the Issuer upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal. Except as set forth
below, a holder who wishes to tender Old Notes for exchange pursuant to the
applicable Exchange Offer must transmit such Old Notes, together with a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to the Exchange Agent at the address set
forth on the back cover page of this Prospectus prior to 5:00 p.m., New York
City time, on the Expiration Date. THE METHOD OF DELIVERY OF SERIES A NOTES,
LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND
RISK OF THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED.
INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT
OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may use book-entry delivery of the Old Notes by
directing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedures for such transfer. In connection with a
book-entry transfer, a
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Letter of Transmittal need not be transmitted to the Exchange Agent, provided
that the book-entry transfer procedure is made in accordance with DTC's ATOP (as
defined below) procedures for transfer and such procedures are complied with
prior to 5:00 a.m., New York City time, on the Expiration Date.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the applicable Exchange Offer
through ATOP, participants in DTC must send electronic instructions to DTC
through DTC's communication system, prior to 5:00 p.m., New York City time, on
the Expiration Date (in place of sending an executed Letter of Transmittal). DTC
is obligated to communicate those electronic instructions sent to DTC and
transmitted by DTC to the Exchange Agent by an "Agent's Message." To tender Old
Notes through ATOP, the electronic instructions sent to DTC and forwarded to the
Exchange Agent must contain the participant's acknowledgment of its receipt of
and agreement to be bound by the Letter of Transmittal for such Old Notes.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" in the
Letter of Transmittal, or (ii) by an Eligible Institution (as defined below). In
the event that a signature on a Letter of Transmittal or a notice of withdrawal,
as the case may be, is required to be guaranteed, such guarantee must be by a
firm which is a member of a registered national securities exchange or the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or otherwise be
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (collectively, "Eligible Institutions"). If the Letter of
Transmittal is signed by a person other than the registered holder of the Old
Notes, the Old Notes surrendered for exchange must either (i) be endorsed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution or (ii) be accompanied by a bond power, in satisfactory form as
determined by the Issuer in its sole discretion, duly executed by the registered
holder, with the signature thereon guaranteed by an Eligible Institution. The
term "registered holder" as used herein with respect to the Old Notes means any
person in whose name the Old Notes are registered on the books of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Issuer in its sole discretion, which determination shall be
final and binding. The Issuer reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Issuer's
acceptance of which might, in the judgment of the Issuer or its counsel, be
unlawful. The Issuer also reserves the absolute right to waive any defects or
irregularities or conditions of the applicable Exchange Offer as to particular
Old Notes either before or after the Expiration Date (including the right to
waive the ineligibility of any holder who seeks to tender Old Note in such
Exchange Offer). The interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) by the
Issuer shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Issuer shall determine. The Issuer will
use reasonable efforts to give notification of defects or irregularities with
respect to tenders of Old Notes for exchange but shall not incur any liability
for failure to give such notification. Tenders of the Old Notes will not be
deemed to have been made until such irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Issuer, proper evidence satisfactory to the Issuer, in its sole discretion, of
such person's authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the applicable
Exchange Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangement to register ownership of the Old Notes in such
Beneficial
21
<PAGE> 27
Owner's name. Beneficial Owners should be aware that the transfer of registered
ownership may take considerable time.
By tendering, each registered holder will represent to the Issuer that,
among other things, (i) the New Notes to be acquired in connection with the
applicable Exchange Offer by the holder and each Beneficial Owner of the Old
Notes are being acquired by the holder and each Beneficial Owner in the ordinary
course of business of the holder and each Beneficial Owner, (ii) the holder and
each Beneficial Owner are not participating, do not intend to participate, and
have no arrangement or understanding with any person to participate, in the
distribution of the New Notes, (iii) the holder and each Beneficial Owner
acknowledge and agree that any person participating in such Exchange Offer for
the purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes acquired by such person and cannot
rely on the position of the staff of the Commission set forth in non-action
letters that are discussed herein under "Resales of New Notes," (iv) that if the
holder is a broker-dealer that acquired Old Notes as a result of market making
or other trading activities, it will deliver a prospectus in connection with any
resale of New Notes acquired in such Exchange Offer, (v) the holder and each
Beneficial Owner understand that a secondary resale transaction described in
clause (iii) above should be covered by an effective registration statement
containing the selling security holder information required by item 507 of
Regulation S-K of the Commission, and (vi) neither the holder nor any Beneficial
Owner is an "affiliate," as defined under Rule 405 of the Securities Act, of the
Issuer except as otherwise disclosed to the Issuer in writing. In connection
with a book-entry transfer, each participant will confirm that it makes the
representations and warranties contained in the Letter of Transmittal.
LETTERS OF TRANSMITTAL AND OLD NOTES MUST BE SENT ONLY TO THE EXCHANGE
AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR OLD NOTES TO THE COMPANY OR TO THE
DTC.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the procedure for book-entry transfer on a
timely basis), may tender their Old Notes according to the guaranteed delivery
procedures set forth in the Letter of Transmittal. Pursuant to such procedures:
(i) such tender must be made by or through an eligible Institution and a Notice
of Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed
by such Holder, (ii) on or prior to the Expiration Date, the Exchange Agent must
have received from the Holder and the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
date of delivery of the Notice of Guaranteed Delivery, the tendered Old Notes, a
duly executed Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed documents required by the Letter of Transmittal
and the tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC)
must be received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiation Date. Any Holder who wishes to tender Old Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery and letter of
Transmittal relating to such Old Notes prior to 5:00 p.m., New York City time,
on the Expiration Date. DTC participants may also submit the Notice of
Guaranteed Delivery through ATOP.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to an Exchange Offer, the
Issuer will accept any and all Old Notes that are properly tendered in such
Exchange Offer prior to 5:00 p.m., New York City time, on the
22
<PAGE> 28
Expiration Date. The New Notes issued pursuant to the Exchange Offer will be
delivered promptly after acceptance of the Old Notes. For purposes of the
Exchange Offer, the Issuer shall be deemed to have accepted validly tendered Old
Notes when, as, and if the Issuer has given oral or written notice thereof to
the Exchange Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC);
provided, however, that the Issuer reserves the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Notes are not accepted for any reason, such unaccepted Old
Notes will be returned without expense to the tendering Holder thereof as
promptly as practicable after the expiration or termination of the Exchange
Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written notice
(or for DTC participants, transmission of notice through ATOP) to the Exchange
Agent, at its address set forth on the back cover page of this Prospectus, at
any time prior to 5:00 p.m., New York City time, on the applicable Expiration
Date. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Note to be withdrawn (the "Depositor"), (ii) identify
the Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes, as applicable); (iii) be signed by the
Holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by a bond power in the name of the person
withdrawing the tender, in satisfactory form as determined by the Issuer in its
sole discretion, duly executed by the registered holder, with the signature
thereon guaranteed by an Eligible Institution together with the other documents
required upon transfer by the Indenture; and (iv) specify the name in which such
Old Notes are to be re-registered, if different from the Depositor, pursuant to
such documents of transfer. Any questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Issuer, in its sole discretion. The Old Notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the applicable
Exchange Offer. Any Series A Notes which have been tendered for exchange but
which are withdrawn will be returned to the Holder thereof without cost to such
Holder as soon as practicable after withdrawal. Properly withdrawn Old Notes may
be re-tendered by following one of the procedures described under "-- Procedure
for Tendering Old Notes" at any time on or prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange New Notes for any Old Notes not
theretofore accepted for exchange, and may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Old Notes if: (i) any action or
proceeding is instituted or threatened in any court of by or before any
governmental agency with respect to the Exchange Offer, which, in the Company's
judgment, might materially impair the Company's ability to proceed with the
Exchange Offer or (ii) any law, statute, rule or regulation is proposed, adopted
or enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the commission in a manner, which, in the Company's judgment, might
materially impair the Company's ability to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes, or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will
23
<PAGE> 29
be distributed to each registered holder of Old Notes, and the Company will
extend the Exchange Offer for a period of five business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Old Notes, if the Exchange Offer would otherwise expire during
such period.
THE EXCHANGE AGENT; ASSISTANCE
State Street Bank is the Exchange Agent. All tendered Old Notes, executed
Letters of Transmittal and other related documents should be directed to the
Exchange Agent. Questions and requests for assistance and requests for
additional copies of the Prospectus, the Letter of Transmittal and other related
documents should be addressed to the Exchange Agent as follows:
By Overnight Mail or Courier:
STATE STREET BANK & TRUST COMPANY, EXCHANGE AGENT
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Jim Schultz
Facsimile Transmissions (Eligible Institutions Only):
---------------------
To confirm by telephone or for information call:
(617) 664-5587
By Mail:
STATE STREET BANK & TRUST COMPANY, EXCHANGE AGENT
P.O. Box 778
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Jim Schultz
FEES AND EXPENSES
All expenses incident to the Issuer's consummation of the Exchange Offer
and compliance with the Registration Rights Agreement will be borne by the
Issuer, including, without limitation: (i) all applicable Securities and
Exchange Commission, stock exchange or National Association of Securities
Dealers, Inc. ("NASD") registration and filing fees; (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
(including reasonable fees and disbursements of one counsel for holders that are
Initial Purchasers in connection with blue sky qualifications of any of the New
Notes) and compliance with the rules of the NASD; (iii) all applicable expenses
incurred by the Issuer in preparing or assisting in preparing, word processing,
printing and distributing any registration statement, any prospectus and any
amendments or supplements thereto, and in preparing or assisting in preparing
any other documents relating to the performance of and compliance with the
Registration Rights Agreement; (iv) all rating agency fees, if any; and (v) the
fees and disbursements of counsel for the Issuer.
The Issuer has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers of others
soliciting acceptance of the Exchange Offer. The Issuer, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the
24
<PAGE> 30
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption is not submitted
with the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Issuer's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized by the Issuer for accounting
purposes. The expenses of the Exchange Offer will be amortized over the term of
the respective New Notes.
RESALES OF THE NEW NOTES
Based on the position of the staff of the Commission as set forth in
certain interpretive letters issued to third parties in other transactions, the
Issuer believes that the New Notes issued pursuant to the Exchange Offer to any
holder of Old Notes in exchange for New Notes may be offered for resale, resold
and otherwise transferred by such holder (other than (i) a broker-dealer who
purchased Old Notes directly from the Issuer for resale pursuant to Rule 144A
under the Securities Act or any other available exemption under the Securities
Act, or (ii) a person that is an affiliate of the Issuer within the meaning of
Rule 405 under the Securities Act) without further compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such holder is acquiring the New Notes in the ordinary course of business
and is not participating and has no arrangement or understanding with any person
to participate, in the distribution of the New Notes. However, the Issuer has
not sought its own interpretive letter and there can be no assurance that the
Commission would make a similar determination with respect to the Exchange
Offer. The Issuer and holders of Old Notes are not entitled to rely on
interpretive advice provided by the staff of other persons, which advice was
based on the facts and conditions represented in such letters. However, the
Exchange Offer is being conducted in a manner intended to be consistent with the
facts and conditions represented in such letters. If any holder acquires New
Notes in an Exchange Offer for the purpose of distributing or participating in a
distribution of the New Notes, such holder cannot rely on the position of the
staff of the Commission enunciated in Morgan Stanley & Co. Incorporated
(available June 5, 1991) and Exxon Capital Holdings Corporation (available May
13, 1989) or interpreted in the Commission's letter to Shearman and Sterling
(available July 2, 1993), or similar no-action or interpretive letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless an
exemption from registration is otherwise available. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
It is expected that the New Notes will be freely transferable by the
holders thereof, subject to the limitations described in the immediately
preceding paragraph. Sales of New Notes acquired in the Exchange Offer by
holders who are "affiliates" of the Issue within the meaning of the Securities
Act will be subject to certain limitations on resale under Rule 144 of the
Securities Act (if applicable). Such persons will only be entitled to sell New
Notes in compliance with the volume limitations set forth in Rule 144, and sales
of New Notes by affiliates will be subject to certain Rule 144 requirements as
to the manner of sale, notice and the availability of current public information
regarding the Issuer. The foregoing is a summary only of Rule 144 as it may
apply to affiliates of the Issuer. Any such persons must consult their own legal
counsel for advice as to any restrictions that might apply to the resale of
their New Notes.
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
the New Notes pursuant to the Exchange Offer. The Company received net proceeds
from the Initial Note Offering of approximately $78.7 million, after deducting
the Initial Purchaser's discount and estimated fees and expenses. With those net
proceeds, the Company repaid a $11.4 million Bridge Loan from Comdisco, Inc.,
and intends to use the
25
<PAGE> 31
remainder to fund future operations, to expand the TeleHub network, for
additional working capital and for other general corporate purposes. The amounts
actually expended by the Company will depend upon several factors, including
future revenue growth, the amount of cash generated by the Company's operations
and the progress of the Company's product development efforts. The Company may
also use a portion of such net proceeds to acquire or invest in businesses,
products and technologies that are complementary to those of the Company;
however, no specific acquisitions are planned at this time and no portion of the
net proceeds has been allocated for any particular acquisition. Pending these
uses, the Company intends to invest those net proceeds in short-term,
interest-bearing, U.S. investment-grade and government securities.
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Note Registration Rights Agreement. In consideration for
issuing the New Notes as contemplated in this Prospectus, the Issuer will
receive in exchange Old Notes in like principal amount, the form and terms of
which are the same in all material respects as the form and terms of the New
Notes except that the New Notes will be registered under the Securities Act and
hence do not include certain rights to registration thereunder. The Old Notes
surrendered in exchange for New Notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the New Notes will not result in any increase
in the indebtedness of the Company.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock and Preferred Stock,
and the Board intends to continue a policy of retaining earnings to finance its
growth and for general corporate purposes. The Indenture limits the Company's
ability to pay cash dividends. In addition, the Company's future loan agreements
could limit the Company's ability to pay cash dividends. The Company does not
anticipate paying any dividends in the foreseeable future.
26
<PAGE> 32
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998, and as adjusted to reflect the Initial Note Offering. This table
should be read in conjunction with the "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and the related notes thereto
contained elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------
As
Actual Adjusted(1)
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Cash, cash equivalents and restricted cash.................. $ 4,629,010 $ 70,685,260
============ ============
Current portions of long-term debt and capital leases....... $ 13,831,154 $ 2,391,083
Long-term debt.............................................. 9,200,527 9,200,527
13 7/8% Senior Discount Notes due 2005(2)................... -- 83,553,750
Debt discount............................................... (486,762) (22,747,440)
------------ ------------
Total debt........................................ 22,544,919 72,397,920
------------ ------------
Stockholders' equity:
Preferred stock........................................... 3,500 3,500
Common stock.............................................. 12,634 12,634
Common stock warrants..................................... 4,348,698 26,609,376
Additional paid-in capital................................ 39,100,803 39,100,803
Deferred compensation..................................... (177,633) (177,633)
Deficit accumulated during development stage.............. (45,983,617) (45,983,617)
------------ ------------
Total stockholders' equity........................ (2,695,615) 19,565,063
------------ ------------
Total capitalization.............................. $ 19,849,304 $ 91,962,983
============ ============
</TABLE>
- ---------------
(1) "As Adjusted" gives effect to the Initial Note Offering and the net proceeds
therefrom, less approximately $11.4 million to be used to repay the Bridge
Loan. Based on the assumptions used for the Initial Note Offering, a value
of $22.3 million has been ascribed to the Warrants. The value ascribed to
the Warrants will result in Debt Discount, which will be amortized to
interest expense using the effective interest method over the period that
the Notes are outstanding.
(2) The Notes are presented net of Debt Discount and will accrete in value
through July 31, 2001 at a rate of 13 7/8% per annum compounded
semi-annually. No interest will be payable in cash on the Notes prior to
January 31, 2002.
27
<PAGE> 33
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the period from
inception (January 18, 1996) to December 31, 1996 and for the year ended
December 31, 1997 have been derived from the Consolidated Financial Statements
which have been audited by PricewaterhouseCoopers LLP., independent accountants.
The selected data as of and for the six months ended June 30, 1997, and 1998,
respectively, have been derived from unaudited consolidated financial statements
of the Company and, in the opinion of the Company, include all adjustments,
consisting of normal recurring accruals necessary for a fair presentation of
such information. Operating results for the six months ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the entire
year. The following selected consolidated financial data should be read in
conjunction with "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the related notes thereto included elsewhere in this Offering
Memorandum.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
INCEPTION TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------------
1996 1997 1997 1998
------------ ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ -- $ 2,901,280 $ -- $ 3,159,265
Operating expenses other than depreciation
and amortization(1)..................... 3,667,319 19,483,912 5,108,668 22,391,443
Depreciation and amortization............. 68,556 784,548 126,506 2,097,518
----------- ------------ ----------- ------------
Total operating expenses...... 3,735,875 20,268,460 5,235,174 24,488,961
Operating loss................ (3,735,875) (17,367,180) (5,235,174) (21,329,696)
Amortization of debt discount............. (85,375) (546,875) (546,875) (973,525)
Interest expense, net(2).................. (66,973) (213,658) 35,836 (1,110,157)
Other income (expense)(3)................. (599,950) 34,889 76 10,758
----------- ------------ ----------- ------------
Net loss(4)................... $(4,488,173) $(18,092,824) $(5,746,137) $(23,402,620)
=========== ============ =========== ============
Basic and diluted loss per share(5)....... $ (0.52) $ (1.70) $ (0.57) $ (1.85)
Weighted average shares outstanding used
in per share calculations -- basic and
diluted................................. 8,614,815 10,624,251 10,078,734 12,634,450
OTHER FINANCIAL DATA:
EBITDA(6)................................. $(3,667,319) $(16,582,632) $(5,108,668) $(19,232,178)
Capital expenditures...................... 3,028,715 18,221,327 14,534,818 2,877,412
Deficiency between earnings and fixed
charges(7).............................. 3,683,310 14,418,257 4,894,585 16,525,705
CASH FLOW DATA:
Net cash used in operating activities..... $ 2,070,928 $ 16,624,763 $ 3,789,997 $ 15,507,359
Net cash used in investing activities..... 572,672 9,629,035 6,357,578 522,699
Net cash provided from financing
activities.............................. 2,828,536 35,449,182 12,739,074 10,579,499
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF JUNE 30, 1998,
1998 AS ADJUSTED(8)
-------------- --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash.................. $ 4,629,010 $ 70,685,260
Total assets................................................ 27,571,452 93,627,702
Total debt, including current portions(9)................... 22,544,919 72,397,920
Stockholders' equity........................................ (2,695,615) 19,565,063
</TABLE>
- ---------------
See footnotes on following page.
28
<PAGE> 34
(1) Operating expenses consist of total operating expenses less depreciation
and amortization.
(2) Interest expense, net consists of the sum of interest expense and interest
income.
(3) Other income (expense) consists of the sum of indemnification expense and
other income.
(4) The Company has not recorded any benefit for income taxes due to the
uncertainty surrounding the realization of the favorable tax attributes in
future tax returns. Accordingly, the Company has recorded a valuation
allowance against its total net deferred tax assets.
(5) The Company computes loss per share pursuant to Statement of Financial
Accounting Standard No. 128, Earnings Per Share. The dilutive effect of
options, warrants, and the Preferred Stock have not been considered as
their effect would have been antidilutive for all periods presented. See
Note 15 to the Consolidated Financial Statements.
(6) EBITDA consists of earnings before interest, taxes, depreciation and
amortization. More specifically, the following balances were excluded from
EBITDA as defined: depreciation and amortization, amortization of debt
discount, interest expense and other income (see note 3). EBITDA is
commonly used in the telecommunications industry to enhance understanding
of operating results and does not represent cash flow or results of
operations in accordance with generally accepted accounting principles for
the periods indicated and may be calculated differently than similarly
titled measures for other companies. Management's discretionary use of
earnings depicted by EBITDA is principally limited by the Indenture
covenants, see "Description of Notes -- Certain Covenants" and by the need
to conserve funds for capital expenditures, software development and debt
service.
(7) The Company's earnings were insufficient to cover its fixed charges. For
purposes of calculating ratio of earnings to fixed charges, earnings
consist of earnings (losses) before fixed charges. Fixed charges consist of
interest on debt, amortization of deferred financing costs, operating lease
expense, and that portion of rental expense the Company believes to be
representative of interest (ie., one third rent expense). On a pro forma
basis, after giving effect to the Initial Note offering, the Company's
earnings would have been insufficient to cover fixed charges by $23.9
million, $35.7 million, $15.5 million, and $27.1 million for the period
from January 18, 1996 (inception) to December 31, 1996, for the year ended
December 31, 1997, for the six months ended June 30, 1997, and for the
period ended June 30, 1998, respectively.
(8) "As Adjusted" gives effect to the Initial Note Offering and the net
proceeds therefrom less approximately $11.4 million to be used to repay the
Bridge Loan. Based on the assumption used for the Initial Note Offering, a
value of $22.3 million has been ascribed to the Warrants. The value
ascribed to the Warrants will result in Debt Discount, which will be
amortized to interest expense using the effective interest method over the
period that the Notes are outstanding.
(9) Total debt, including current portions, consists of capital lease
obligations and other long-term debt, including current portions. The Notes
are presented net of Debt Discount and will accrete in value through July
31, 2001 at a rate of 13 7/8% per annum compounded semi-annually. No
interest will be payable in cash on the Notes prior to January 31, 2002.
29
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto included elsewhere
in this Prospectus. The results shown herein are not necessarily indicative of
the results to be expected in any future periods. This discussion contains
forward-looking statements based on current expectations which involve risks and
uncertainties. Actual results and timing of certain events may differ
significantly from those projected in such forward-looking statements due to a
number of factors, including those set forth in the section entitled "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
After three years of research and development, the Company was formed in
January 1996. The Company has developed what it believes is the first universal
ATM-based network with the potential to integrate the delivery of voice, data
and video on one network. The Company launched commercial voice services on its
network in December 1997 and since then has entered into seventeen contracts,
ranging from one to three year terms, to provide interstate and intrastate long
distance services to switchless resellers. As customers transition their traffic
onto TeleHub's network, the Company expects significant growth in revenues. The
Company expects that as revenues increase, the variable costs associated with
operating the TeleHub network should decline as a percentage of total revenues,
and accordingly margins will improve. The Company believes that the TeleHub
network should have positive EBITDA at approximately $15 million a month in
revenues, although there is no assurance that the Company will be able to
achieve such revenues. Additionally, the Company has signed several memoranda of
understanding and has distributed several proposals to license its VASP(TM)
services. The Company expects to license its technology to multiple carriers and
OEMs by the end of 1998. The Company expects significant growth in revenues from
the licensing of VASP(TM) over the next two years. The foregoing expectations
are forward-looking statements that involve risks and uncertainties, and actual
results could vary as a result of a number of factors including the Company's
operating results, the results and timing of the Company's launch of new
products and services, governmental, legislative or regulatory changes, the
ability of the Company to meet product and project demands, the success of the
Company's marketing efforts, competition and acquisitions of complementary
businesses, technologies or products.
Since inception, the Company has incurred net losses and experienced
negative cash flow from operations and expects to continue to operate at a net
loss and to experience negative cash flow at least through 1998. However, the
Company's ability to achieve profitability and positive cash flow from
operations is dependent upon the Company's ability to substantially grow its
revenues and achieve other operating efficiencies. The Company experienced net
losses of approximately $4.5 million and $18.1 million for the period from
January 18, 1996 through December 31, 1996 and for the year ended December 31,
1997, respectively. At December 31, 1997, the Company had approximately $9.2
million of net deferred tax assets comprised primarily of start up costs which
are capitalized for tax purposes and net operating loss carry-forwards. Due to
uncertainty of realization, a valuation allowance has been provided to eliminate
the net deferred tax asset at both December 31, 1997 and 1996. Pursuant to the
provisions of the Tax Reform Act of 1986 (the "Tax Reform Act"), utilization of
the net operating loss carryforwards may be subject to an annual limitation as
defined in the Tax Reform Act. Furthermore, the Company believes that it is more
likely than not that it will not generate taxable income through 1998, and
possibly beyond, and accordingly will not realize the Company's deferred tax
assets through 1998, and possibly beyond. The Company will continue to assess
the realizability of the deferred tax assets based on actual and forecasted
operating results. See Note 5 to the Consolidated Financial Statements.
To fund its operations, the Company has raised gross proceeds of
approximately $43.5 million of equity capital through two private placements
(the "Spring 1997 Offering" and the "Fall 1997 Offering") and an equity
investment from an affiliate of the Initial Purchaser. In addition, the Company
has incurred debt financing through both operating and capital leases relating
to the purchase of network equipment and, further the Company has obtained a $12
million Bridge Loan from an affiliate. See "Certain Relationships and
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Related Transactions." A portion of the proceeds from the Initial Note Offering
were used to repay this Bridge Loan.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenue
Revenue totaled $3.2 million for the six months ended June 30, 1998. There
was no revenue for the six months ended June 30, 1997. TTC licensed VASP(TM) to
Newbridge for $5.0 million, $3.0 million of which was recorded during the six
months ended June 30, 1998, and TNS generated $159,000 of revenue from network
operations during the six months ended June 30, 1998.
Operating expenses
Operating expenses increased $19.3 million to $24.5 million from $5.2
million for the six months ended June 30, 1998 and 1997, respectively. Personnel
costs, monthly recurring network circuit costs, network equipment lease
payments, depreciation expense, facility costs, and consulting services
increased by $5,623,000, $5,371,000, $4,106,000, $1,971,000, $815,000 and
$677,000, respectively. Higher personnel costs reflect an increase in headcount
from twenty as of June 30, 1997 to 162 as of June 30, 1998. Increased operating
costs were necessary to expand the network to efficiently handle anticipated
subscriber traffic, and to manage the financial and administrative aspects of
the business. All operating expenses are primarily variable and are expected to
increase in future periods as revenue increases. Research and development
expenses increased by $2,146,000 to $3,668,000 from $1,522,000 for the six
months ended June 30, 1998 and 1997, respectively. Research and development
costs will increase in future periods to continue the development of the
Company's product and service offerings.
Amortization of debt discount
Amortization of debt discount for the six months ended June 30, 1998
amounted to $974,000 and related to the warrants issued in connection with the
Comdisco loan. For the six months ended June 30, 1997, amortization of debt
discount was $547,000, which related to premiums paid to Hartford Holdings Ltd.
("HHL") in connection with the settlement of all outstanding bridge loans and
notes issued to the Company.
Interest income (expense), net
Net interest expense for the six months ended June 30, 1998 was $1,110,000
as compared to net interest income of $36,000 for the six months ended June 30,
1997. Gross interest expense increased approximately $1,217,000 as a result of
the Bridge Loan agreement. Interest income increased $71,000 as a result of
increased cash and equivalent balances available for short term investments.
Net loss
The Company reported a net loss of $23.4 million and $5.7 million for the
six months ended June 30, 1998 and June 30, 1997, respectively. The Company has
not recorded any benefit for income taxes due to the uncertainty surrounding the
realization of the favorable tax attributes in future tax returns. Accordingly,
the Company has recorded a valuation allowance against its total net deferred
tax assets.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO PERIOD FROM JANUARY 18, 1996
(INCEPTION)
TO DECEMBER 31, 1996
Revenues
The Company commercially introduced its services in December 1997. Revenues
were first recognized in 1997 for licensing fees, consulting services and
network services. Revenues for the year ended December 31, 1997 were $2.9
million. TTC recorded $2.0 million in November 1997 under a licensing agreement
with Newbridge. TNS recognized $900,000 for consulting services and generated
$1,300 of network revenues in
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December 1997. No revenues were generated during the period from January 18,
1996 (inception) to December 31, 1996.
Operating expenses
Total operating expenses increased approximately $16.6 million to $20.3
million from $3.7 million for the year ended December 31, 1997 and the period
from January 18, 1996 (inception) to December 31, 1996, respectively. Personnel
costs, consulting services, network equipment lease payments, monthly recurring
network circuit costs, facility costs, and depreciation expense increased by
$5,616,000, $2,216,000, $2,193,000, $2,164,000, $1,087,000, and $716,000,
respectively. The significant increase reflects the implementation of the
Company's business plan which resulted in accelerated development efforts and
network expansion and build-out, as well as infrastructure growth of the
Company. All operating expenses are primarily variable and are expected to
increase in future periods as revenue increases. Research and development
expenses increased $2,638,000 to $4,245,000 from $1,607,000 for the six months
ended June 30, 1998 and 1997, respectively. Research and development costs will
increase in future periods reflecting the continuing development of the
Company's product and service offerings.
Total TNS operating expenses increased approximately $11.7 million to $13.8
million from $2.1 million for the year ended December 31, 1997 and the period
from January 18, 1996 (inception) to December 31, 1996, respectively. This
increase was due to the network expansion, as well as infrastructure growth for
the segment. Total TTC operating expenses increased approximately $4.9 million
to $6.5 million from $1.6 million for the year ended December 31, 1997 and the
period from January 18, 1996 (inception) to December 31, 1996, respectively.
This increase related primarily to the accelerated research and development
efforts discussed previously.
Depreciation and amortization
Depreciation and amortization expense increased approximately $716,000 to
$784,000 from $68,000 for the year ended December 31, 1997 and the period from
January 18, 1996 (inception) to December 31, 1996, respectively. This reflects
significant capital expenditures made in 1997, primarily for network equipment
and leasehold improvements relating to the build out of the network, including
three switch sites located in Chicago, Los Angeles and New York.
Amortization of debt discount
Amortization of debt discount increased approximately $462,000 to $547,000
from $85,000 for the year ended December 31, 1997 and the period from January
18, 1996 (inception) to December 31, 1996, respectively. Amortization of debt
discount is related to premiums paid to HHL in connection with the settlement of
all outstanding bridge loans and notes issued to the Company. The Company began
amortizing the total premiums of $632,000 during the fourth quarter of 1996. The
remaining unamortized balance of the debt discount was paid during the first
quarter of 1997 when these obligations were settled.
Interest expense, net
Net interest expense increased approximately $147,000 to $214,000 from
$67,000 for the year ended December 31, 1997 and the period from January 18,
1996 (inception) to December 31, 1996, respectively. Gross interest expense
increased approximately $453,000 primarily due to increased capital lease
balances associated with the purchase of three switching platforms. This
increase was partially offset by interest income during the year ended December
31, 1997 of $306,000 related to higher cash and equivalents balances.
Other income (expense)
Other income was $35,000 for the year ended December 31, 1997 as compared
to other expense of $600,000 for the period from January 18, 1996 (inception) to
December 31, 1996. In 1996, other expense related to the termination of a
proposed merger whereby the Company indemnified HHL from certain claims
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and liabilities. The Company issued a note payable to HHL for $600,000 which was
later settled through the issuance of Preferred Stock. See "Certain
Relationships and Related Transactions."
Net loss
Net loss increased approximately $13.6 million to $18.1 million from $4.5
million for the year ended December 31, 1997 and the period from January 18,
1996 (inception) to December 31, 1996, respectively.
The TNS net loss increased approximately $10.8 million to $13.7 million
from $2.9 million for the year ended December 31, 1997 and the period from
January 18, 1996 (inception) to December 31, 1996, respectively. The TTC net
loss increased approximately $2.8 million to $4.4 million from $1.6 million for
the year ended December 31, 1997 and the period from January 18, 1996,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
To date the Company has satisfied its cash requirements primarily through
lease financing, the sale of capital stock, loans from affiliates and the
Initial Note Offering. The Company's principal uses of cash are to fund working
capital requirements and capital expenditures and to service its lease financing
obligations.
For the six months ended June 30, 1998, net cash used in operations was
$15,507,000 primarily related to net losses, offset by increases in accounts
payable and accrued expenses. Net cash used for investment activities was
$523,000 for the six month period ended June 30, 1998. This related to capital
expenditures for network equipment, offset by proceeds from the sale and
lease-back of equipment and a decrease in restricted cash. Net cash provided by
financing activities was $10,579,000 for the six months period ended June 30,
1998 and related primarily to proceeds from a $12 million Bridge Loan offset by
payments on capital leases and debt obligations. The Company obtained additional
capital lease financing of $103,000 during the first half of 1998. Total
payments on capital lease obligations and long-term debt were approximately
$1,671,000 during the first half of 1998. The Company is committed to make
payments under various operating leases. See Note 6 to the Consolidated
Financial Statements.
On July 30, 1998, the Company completed a high yield debt offering
("Initial Note Offering") yielding approximately $67,300,000 in net proceeds
after offering expenses and repaying the Bridge Loan. Additionally, BancBoston
Securities Inc. made a $1 million equity investment in the Company.
For the twelve month period ended December 31, 1997, net cash used for
operating activities was $16,625,000 primarily related to net losses, offset by
increases in accounts payable and accrued liabilities. Net cash used for
investing activities was $9,629,000. This related to capital expenditures for
network equipment, leasehold improvements and an increase in restricted cash.
Net cash provided by financing activities was $35,449,000 relating to proceeds
received from two private placements of equity securities during 1997.
Approximately 80% of the cash requirements were utilized by TNS as compared to
20% by TTC in 1997. The cash requirements related to funding working capital
needs as well as capital expenditures.
The Company anticipates funding most of its future capital expenditures
through operating leases. Projected operating lease expenditures and capital
expenditures over the next twelve months are $17 million and $4 million,
respectively. The Company's research and development activities are expected to
be approximately $10 million over the next twelve months. The Company employs a
"smart-build" strategy whereby deployment and expansion of the company's network
will be predicated upon volume and related traffic patterns. These costs are
primarily semi-variable circuit costs for both the backbone and feature group D
access into the local exchange carriers' networks.
The Company expects to incur additional operating losses through 1998 and
during 1999. The Company believes that the net proceeds from Initial Note
Offering will be sufficient to meet anticipated cash needs for working capital
and for the acquisition of capital equipment for at least the next twelve
months. The terms of the Initial Note Offering require the Company to complete
an initial public offering for gross proceeds of at least $25 million
("Qualified IPO") before August 1, 1999, otherwise the Company must issue
warrants which entitle the Noteholders to purchase an additional 4% of the
outstanding capital stock. The Company therefore plans to conduct a Qualified
IPO prior to August 1, 1999. Based upon anticipated sales terms and
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projections, the Company estimates that the proceeds from the Qualified IPO and
a standard bank revolving line of credit secured against receivables will be
sufficient to complete product development and achieve profitable operations.
However, there can be no assurance that the Company will not require additional
financing within this time frame. The Company's forecast of the period of time
through which its financial resources will be adequate to support its operations
is a forward-looking statement that involves risks and uncertainties, and actual
results could vary materially as a result of a number of factors, including
those set forth below under the caption "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Financing." The Company may be required to raise
additional funds through a public or private financing, strategic relationships
or other arrangements. There can be no assurance that such additional funding,
if needed, will be available on terms attractive to the Company, or at all.
YEAR 2000 READINESS
The term "Year 2000 Issue" generally describes the various problems that
might result from improper processing of dates and date-sensitive calculations
involving dates in the Year 2000 and beyond. The "Year 2000 issue" results from
computer programs using two digits rather than four digits to define the
applicable year, so that all dates are interpreted as being between 1900 and
1999. Computers and other equipment using such programs will incorrectly
interpret dates after the year 1999. Such misinterpretation might cause system
failures or miscalculations and thereby disrupt operations, for example,
temporary inability to process transactions, to send invoices, to operate
computer systems and other equipment or to engage in other normal business
activities. Year 2000 issues could affect the Company through the Year 2000
incompatibility of its own computer systems and equipment as well as that of
third parties with whom the Company conducts business.
READINESS TASK FORCE
Since the Company's formation, management has been aware of Year 2000
issues and has sought Year 2000 compatibility in the development of VASP(TM) and
the TNS network. The Company has created a task force to evaluate its Year 2000
readiness as it may affect the Company's operations. The task force has
established a five-step process in order to achieve Year 2000 readiness. These
steps are (1) identification, (2) assessment, (3) remediation, (4)
implementation and (5) maintenance.
Identification. The task force is inventorying of all technologies used in
its business. These technologies including hardware, software and embedded
microchips. The task force is reviewing both internal systems (including
VASP(TM), information technology assets, equipment and other systems); and
external systems (i.e., third-party manufactured products used by the Company,
and issues with customers, vendors and suppliers).
Assessment. As the inventory discloses different technologies used by the
Company, the task force is assessing the Year 2000 compatibility of each
inventoried item. The task force will verify Year 2000 compatibility through
testing or from the manufacturer's documentation. To obtain such manufacturer
documentation, the task force is searching the manufacturer's web site or
soliciting an official Year 2000 compatibility certificate. Of particular
importance in this assessment step is monitoring the Year 2000 readiness efforts
of the Company's critical vendors and customers. The Company does not yet have
enough information to evaluate whether potential Year 2000 issues with
third-parties might have a material adverse effect on operations.
Remediation. When finding systems that are Year 2000 incompatible, the task
force will then determine the appropriate remedial action for that system; this
determination will be performed on a case-by-case basis. Remedial actions could
involve replacement, upgrading, software patches, and substitution with other
products. The Company anticipates that remedial actions will require use of the
Company's internal resources, third-party manufacturers, suppliers and vendors
and potentially additional third-party consultants, as necessary. The
remediation will then be performed and thoroughly tested. The task force has not
yet encountered any items requiring a major remediation effort.
Implementation. After successfully completing remediation and testing, the
Company will implement the Year 2000 ready technology. The Company expects to
complete all implementations and be fully Year
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2000 ready by March 31, 1999. However, the Company could encounter a significant
internal or external Year 2000 issue which, if not remediated in a timely
manner, could have a material adverse effect on the Company's business,
financial condition and results of operations.
Maintenance. To maintain Year 2000 compatibility after completion of the
compliance plan, the task force is drafting Year 2000 business rules. These
rules will cover both internally created applications and purchases of
technologies. Company employees will be required to ensure the applications they
create are Year 2000 compatible, with the assistance of the Company's
information systems department. All future purchases of hardware, software and
other technologies will require Year 2000 compatibility certification or similar
documentation. The Company expects to circulate these rules during the fourth
quarter of 1998.
CONTINGENCY PLANNING
The Company will address contingency planning in the second quarter of
1999. The Company currently does not foresee extensive contingency planning
efforts. Principal activities will include backing up all data bases, keeping
the information systems department's docket clear in January 2000, and
increasing working capital.
COSTS
Other than time spent by the task force personnel which could be spent on
other matters, the Company has not yet incurred any significant costs in
identifying Year 2000 issues. The Company does not anticipate any significant
further costs in the Identification or Assessment stages by the task force. The
Company believes that total costs for becoming 100% Year 2000 compatible will
not be significant. Hardware upgrades will come out of the normal capital budget
and software changes should not involve material amounts. However, since no
material Year 2000 issues have yet been identified or assessed and therefore no
contingency plans have been finalized, the costs for remediation of any Year
2000 issues might be significant. As the Company continues to gather information
on its Year 2000 issues, the Company will re-evaluate its ability to estimate
costs associated with the Year 2000. There can be no assurance that as
additional Year 2000 issues are addressed, the Company's costs to correct such
issues will be consistent with historical costs.
The Company believes that adequate resources have been allocated for this
purpose and does not expect to incur significant expenditures to resolve Year
2000 issues. However, there can be no assurance that the Company will identify
all Year 2000 problems in its systems in advance of their occurrence or that the
Company can successfully remedy any problems that are discovered. Failure to
achieve Year 2000 compatibility could disrupt operation of the network, or
impact the Company's ability to bill or collect revenues. The expenses of the
Company's efforts to address such problems, or the expenses or liabilities to
which the Company may become subject as a result of such problems, could
materially adversely affect the Company's business, prospects, operating
results, financial condition and its ability to service and repay indebtedness,
including the Notes. The revenue stream and financial stability of existing
customers may be adversely impacted by Year 2000 issues, which could cause
fluctuations in the Company's revenues and operating profitability.
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BUSINESS
GENERAL
TeleHub believes it has the only universal ATM-based telecommunications
network in commercial operation that is capable of seamlessly interconnecting
with the PSTN. The Company's first-to-market proprietary software, VASP(TM),
will enable telecommunications service providers to (i) integrate the delivery
of voice, video and data over a single platform; (ii) seamlessly interconnect
with the PSTN; (iii) provide real-time monitoring of telecommunications traffic;
and (iv) facilitate the unbundling of the local loop. The Company's
VASP(TM)-managed ATM network, which began carrying commercial traffic in
December 1997, acts as a "proof of concept" for VASP(TM) and generates revenues
to support the Company's growth.
The Company believes the VASP(TM) platform addresses significant needs
throughout the telecommunications industry for improved systems and less
reliance on legacy hardware. While the legacy network evolved principally for
voice transmission, demand for data, video and advanced voice services has grown
rapidly over the past ten years. The legacy network, designed to handle the
lower bandwidth requirements of voice traffic, has inherent service and cost
inefficiencies when carrying data and video transmissions. Incumbent Local
Exchange Carriers ("ILEC") granted access to the local loop only on a "bundled"
basis (where carriers must purchase an entire package of local service
elements), rather than offering access to individual local exchange service
elements. Recent regulatory changes have introduced competition in both local
and long distance telephone services. In particular, requirements that ILECs
"unbundle" the local loop and permit other carriers to purchase individual local
exchange elements should facilitate market entry. To be competitive in this new
environment and to meet growing demand for high speed data and video
transmission services, telecommunications carriers are seeking to enter new
markets rapidly and to introduce differentiated services in a cost-effective
manner. Three major carriers, Sprint, AT&T and Bell Atlantic, have recently
announced plans to deploy, over the next two years, voice-over-ATM services that
will interconnect with the PSTN, a service which TeleHub already offers. While
such networks would compete directly with the Telehub ATM network, those
networks are potential customers for VASP(TM). In addition, OEMs such as Lucent
Technologies Inc. and Nortel have recently announced major acquisitions
attempting to provide network solutions needed for transporting carrier-class
voice transmissions over more efficient data networks. The Company believes that
its VASP(TM) technology provides ILECs, CLECs, IXCs and OEMs with the ability to
accelerate the introduction of new products and services, to reduce costs and to
enter into new markets rapidly.
TeleHub operates two principal subsidiaries: TTC, which develops the
commercial applications of VASP(TM), and TNS, which operates the Company's ATM
network. TTC is marketing VASP(TM)-based voice and data products to potential
customers in the OEM segment, like Newbridge, Nortel and Cisco, as well as in
the carrier market, including ILECs, CLECs and IXCs. The ability to carry voice
quality transmissions over an ATM backbone, and VASP(TM)'s ability to offer toll
and certain central office switching capabilities on a software basis, open the
multi-billion dollar voice switch market to ATM switch manufacturers. For
example, Newbridge has purchased a "right-to-use" perpetual license for a trial
system of VASP(TM) for $5.0 million. In addition, pilot programs for a
VASP(TM)-based virtual local exchange network are expected to commence with two
North American CLECs. Moreover, with future enhancements, the Company expects
VASP(TM) to allow LECs to unbundle the local loop and offer local number
portability ("LNP") using existing facilities, while protecting LECs'
proprietary customer databases, an issue which management believes has
significantly delayed the implementation of local exchange competition.
TNS, which utilizes VASP(TM) technology, currently offers wholesale long
distance services to the switchless reseller market. Because of the inherent
efficiencies in carrying voice traffic over an ATM backbone and VASP(TM)'s
ability to seamlessly interconnect that traffic into the PSTN, TNS is able to
offer switched wholesale voice services at rates generally 10%-40% lower than
those currently offered by competing wholesale service providers. As a result,
TeleHub's wholesale customer base has been expanding and, as of September 30,
1998, includes nineteen switchless resellers who have transitioned approximately
200,000 pre-subscribed lines to TNS's network. The Company estimates that these
reseller customers will transition approximately 1.5 million presubscribed long
distance lines onto TNS's network during 1999. TNS also expects to offer
wholesale long distance services to ILECs, CLECs, ITCs and international
carriers
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terminating traffic in the United States. TeleHub's network, interconnected via
leased lines from WorldCom, reaches approximately 64% of the telephone exchanges
in the United States directly and the remaining 36% through contractual
relationships with other carriers.
Management believes that the integration of the VASP(TM) technology on an
ATM backbone provides the following competitive advantages:
- The Company believes that TeleHub's VASP(TM)-enhanced network is the only
publicly-switched ATM network in commercial operation which allows for
seamless interconnection with the PSTN without requiring additional
telephone equipment or modified dialing procedures. A VASP(TM)-enhanced
ATM network allows for increased capacity and efficiencies, thereby
lowering costs as compared to networks utilizing legacy technology.
- When fully deployed, VASP(TM) will allow for dynamic bandwidth
allocation. VASP(TM) will enable TeleHub to replace a customer's fixed
leased-line data network with one which (i) is variable, where the
customer only pays for capacity used, and (ii) can be publicly switched,
and therefore connected nearly anywhere in the United States, which
management believes is an improvement over competitors' existing service
offerings.
- VASP(TM) enables certain call-processing instructions to be moved out of
the LECs' central office, thereby reducing the traditional dependence on
the local exchange switch. The synergy between an ATM-based network and
VASP(TM) enables the delivery of expanded telecommunications services on
a virtual basis without the need for an extensive switching network.
- VASP(TM) provides real-time monitoring of telecommunications traffic, a
feature which the Company believes no other carrier offers. VASP(TM)
allows real-time access to billing information and customer calling
patterns and also provides for electronic order entry and trouble
ticketing. Management believes these capabilities reduce network
downtime, provisioning delays, maintenance costs and operating expenses,
and improve customer service.
- VASP(TM)'s distinct data analysis capabilities and open architecture will
enable carriers to develop and implement new products and services such
as millisecond billing. The open architecture design of the VASP(TM)
software allows carriers to program and deploy these new services more
quickly than legacy systems, which are dependent on time-consuming
hardware vendor modifications.
INDUSTRY OVERVIEW
According to 1996 industry data released by the FCC, the U.S.
telecommunications industry served more than 90 million households and 25
million businesses (approximately 158 million access lines), and generated
revenues approaching $196.3 billion. Telecommunications wireline services are
provided in three principal markets: long distance, local exchange and data
products and services. While VASP(TM)'s technology is applicable to nearly all
aspects of telecommunications services, as well as OEMs who sell their products
to carriers, TNS markets its products and services to customers principally in
the wholesale long distance services market.
The Long Distance Market. The FCC's Statistics of Common Carriers reports
that the domestic long distance industry generated revenue of approximately
$88.6 billion in 1997. The long distance market is comprised of three tiers. The
first tier consists of facilities-based long distance carriers, such as AT&T,
MCI, WorldCom and Sprint, who provide long distance communications services
using their own equipment to transmit telephone calls. These carriers
collectively accounted for approximately 80% of all toll revenues in 1997.
"Second tier" carriers, consisting primarily of switched resellers such as Excel
Communications Inc., Cable and Wireless, plc., LCI International Inc. and
Frontier Corporation ("Frontier"), accounted for approximately 6.0% of toll
revenue in 1997. The remaining market share, or "third tier," is held by smaller
companies primarily consisting of switchless resellers.
TNS is marketing wholesale long distance services, which consist of
providing bulk transmission capacity to resellers. According to the Yankee
Group, wholesale long distance services constitute a market with estimated 1997
revenues of $5.4 billion, growing at a rate approximately between 10% and 15%
annually. The
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Company estimates that the market for the wholesale "switchless" resale segment
of the wholesale long distance resale market was approximately $2.4 billion in
1997 and continues to grow at a rate of 10% to 12% annually.
The Local Exchange Market. According to FCC data, total revenue from local
telecommunications services in 1997 was approximately $103.0 billion. The
Telecommunications Act was enacted in large part to increase competition in the
local telecommunications industry and provide a framework for other carriers to
compete with LECs by reselling local telephone service, leasing unbundled
elements of the ILECs' networks or building new local service facilities. The
Telecommunications Act has created many opportunities for alternative providers
in the local services market. The Company believes that large telecommunications
users will increasingly demand diversity in local telecommunications providers,
as has been the case in long distance and private-line telecommunications
services, and that VASP(TM) will facilitate other carriers' entrance into the
local exchange market and their utilization of unbundled network elements.
The Data Products and Services Market. Data products and services has been
the highest growth segment of the telecommunications industry in the 1990s.
According to Data Communications, data-related products and services accounted
for revenues of almost $79.0 billion in 1997 -- a growth rate of approximately
17% from 1996. According to the Yankee Group, current trends suggest that data
revenues will double over the next three years and will grow five times faster
than voice revenues. TNS is targeting the data market through both private line
and bandwidth-on-demand products, which will be integrated on TeleHub's
VASP(TM)-managed ATM network.
TECHNOLOGY
Circuit, Packet and Cell Switching Technologies
There are three switching technologies used in communications networks:
circuit-switched systems, packet-switched systems and cell-switched systems.
Circuit-switched systems establish a dedicated channel for each communication
(such as a telephone call for voice or facsimile), maintain the channel for the
duration of the call, and disconnect the channel at the conclusion of the call.
Packet-switched communications systems, including voice-over-Internet Protocol
networks, format the information to be transmitted (such as e-mail, voice,
facsimile or data) into a series of shorter digital messages called "packets."
Packet-switched systems offer several advantages over circuit-switched systems,
particularly the ability to commingle packets from several communications
sources simultaneously onto a single channel. Cell-switched technology, which
includes ATM, combines elements of both circuit and packet switching. ATM
closely resembles packet switching in that it breaks a communication
transmission into cells, which are packets of a fixed size, which are then
placed on channels that are shared by several data streams. ATM resembles
circuit switching in that it provides connection-oriented service. Each
connection has a set-up phase, during which a "virtual circuit" is created.
There are many Internet Protocol ("IP") networks currently in operation.
While generally adequate for data transmission needs, these networks usually are
not configured to provide the voice quality of a traditional telephone call.
With current technology, this quality can only be achieved by a combination of a
substantial cushion of communications capacity, customized end-user equipment,
dial-up "access codes," and/or other special procedures to initiate a call.
There are also concerns about the quality, reliability and security of
packet-switched systems. Packets are transported on a first-come, first-served
basis with no guarantee of success. Some packets may experience severe delays,
while others may be dropped and never arrive. Certain data communications, such
as e-mail and file transfers, require 100% accuracy, but can easily tolerate
delay. Real-time voice transmissions can tolerate only minor delays, but can
tolerate some distortion. Real-time video broadcasts have very low tolerance for
both delay and distortion.
Cell switching can resolve most of the problems inherent in packet-switched
networks: (i) a cell will not be delayed behind an unusually large packet and
(ii) the addressing information contained in the cell can
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include prioritizing and sequencing data, which eliminates delays and
distortion. Thus, an ATM carrier can offer quality of service performance
guarantees.
The fact that the ATM circuit is virtual, not physical, provides two major
advantages. First, it is not necessary to reserve exclusive network resources
for a given connection, and thus the economic efficiencies of statistical
multiplexing of several simultaneous data transmissions can be realized. Second,
once a virtual circuit path is established, switching time is minimized,
allowing much higher network throughput. TeleHub decided to deploy VASP(TM) over
an ATM network because of ATM's superior capabilities as compared to alternative
circuit and packet switching systems.
Voice Switching Over ATM
With the development of voice switching over ATM, efficiencies can be
achieved through integrated, consolidated networks for voice, data and video
connected via leased lines or public networks. ATM delivers operational
simplicity equivalent to that of the virtual private network ("VPN") and adds
the superior bandwidth economics of multiplexing. Voice calls may be efficiently
transported via virtual circuits, with voice quality assured due to
sophisticated voice adaptation techniques and quality of service support. The
Company believes the communications industry is moving rapidly towards
consolidated networks based on ATM switching because these networks offer the
advantages of speed, economy, and interoperability for the spectrum of
networking applications.
Signaling System Number 7
Technology has changed the architecture of telephone switching systems. The
Signaling System Number 7 ("SS7") is the current telecommunications
industry-accepted system of protocols and procedures used to control telephone
communication and provide routing information. SS7 is also used to provide
vertical calling features such as calling card validation, 800 number
portability (i.e., the routing of 800 numbers to a new location) and calling
name delivery. By storing information, such as routing data, billing information
and technical system data and controls at the Signal Control Point ("SCP"), an
SS7 network allows call set-up and routing to be accomplished independent of the
voice circuits.
SS7 is characterized by high-speed packet data and out-of-band signaling
(signaling that does not take place over the same path as the transmission
itself, such as a voice conversation). Traditional telephony was in-band, where
the signals to set up a call between one switch and another always took place
over the same trunk that would eventually carry the call. Out-of-band signaling
establishes a separate digital channel for the exchange of signaling
information. This channel is called a signaling link. When a call is placed, the
dialed digits, trunk selected and other pertinent information are sent between
switches using their signaling links, rather than the trunks.
Out-of-band signaling has several advantages over traditional in-band
signaling: (i) it allows for the transport of more data at higher speeds; (ii)
it allows for signaling at any time during the call, not only at the beginning;
(iii) it enables signaling to network elements to which there is no direct trunk
connection; and (iv) it provides both error correction and retransmission
capabilities to allow continued service in the event of signaling point or link
failures. However, under traditional circuit-switched systems, SS7 signaling
identifies the trunk to which a call must be routed to and that trunk must be
present and available at all times. Therefore, the bandwidth is reserved and
paid for whether it is used or not. Moreover, that leased line is engineered for
the busy hour model, so that little or no call blocking occurs. In contrast,
VASP(TM) has features of SS7 imbedded within it and, therefore, transactions
which are sent over a VASP(TM)-managed network can be switched directly into the
PSTN. TeleHub improves upon the traditional SS7 call model because VASP(TM)
interprets the SS7 messages on a dynamic basis, so that ATM connections are
created "on-demand." On the ATM backbone, only a portion of the busy hour
capacity is permanently connected.
Operational Support Systems
OSS encompass a broad array of software and systems that perform critical
functions for telecommunications carriers, including ordering, provisioning,
service assurance and billing. Ordering systems allow carriers to
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collect customer information, retrieve current service information, capture and
validate new service requests, verify the availability of selected services and
transmit completed orders to one or more provisioning operational supporting
systems. Carriers use provisioning systems to install services for new customers
and to change or add services for existing customers. Service assurance systems
allow carriers to perform the testing, monitoring and reporting necessary to
maintain network availability and feed operational data to other business
systems. Billing systems are used by carriers to collect, collate, manage and
report billing information.
Historically, as carriers have added new services, such as wireless or
Internet-based services, they have developed multiple, distinct operational
supporting systems. These legacy, proprietary OSS have typically been
mainframe-based systems that in many cases utilize incompatible software and
technologies, making communication among systems difficult. These OSS are
further strained by the many incremental changes that have been made in order to
accommodate new technologies, such as client/server technology and advancements
in data networking, and the proliferation of value-added services, such as call
waiting, call forwarding and voice mail. Despite these difficulties, carriers
are unable to replace completely existing OSS due to the large investments and
vast amounts of historical data contained in these systems. As a result,
carriers continue to make incremental modifications to these OSS, further
increasing their complexity and interoperability difficulties.
In contrast to the current telecommunications environment in which carriers
use disparate OSS systems for each aspect of a call transaction (e.g., call
processing, billing, traffic monitoring and decision support systems), TeleHub's
VASP(TM) integrates all of these functions into one system that is compatible
with legacy systems. VASP(TM) is capable of processing all information regarding
a call in real-time, is scalable to a carrier-class level, and has the
flexibility to integrate new services and products quickly and seamlessly.
THE TELEHUB SOLUTION
TeleHub was formed to capitalize on the demand for advanced network
features and capabilities resulting from the telecommunications industry's
changing competitive and regulatory environment. Existing carriers must develop
new OSS that are interoperable with their legacy systems, not only to support
initiatives like LNP and the unbundling requirements of the Telecommunications
Act, but also to enable carriers to respond to increasing competitive
challenges.
VASP(TM) addresses several shortcomings of legacy networks including: (i)
the inability to switch packet-and cell-based traffic into the PSTN; (ii) the
lack of real-time management, billing and monitoring capabilities; (iii) the
inflexibility of hardware-based network architectures; and (iv) the lack of
integrated OSS capabilities. VASP(TM) creates virtual switching capabilities,
permits real-time network supervision and facilitates the introduction of new
service offerings. When fully deployed, VASP(TM) will integrate voice, video and
data on a single switched network and enable the provisioning of
bandwidth-on-demand services.
Key benefits of the Company's solution include:
New Market Opportunities. VASP(TM) allows customers to overcome some of the
traditional barriers to entry in the telecommunications service markets such as
hardware limitations and the high cost of facilities. Management expects
VASP(TM)-enhanced carriers to be able to enter the local, long distance, voice,
video and data transmission markets using one integrated network. Utilizing
TeleHub's ATM network, switchless resellers soon will be able to offer video and
data services in addition to their customary voice services. Similarly, by
incorporating VASP(TM) into their products, ATM switch manufacturers can enter
the voice switch market.
Flexible and Scalable Architecture. VASP(TM) is a software solution in
contrast to the hardware-based configuration of legacy networks. The Company
believes that VASP(TM)'s open architecture and integrated OSS capabilities can
be adapted to most existing vendor hardware and are easily and readily scalable,
so that carriers, both small and large, can quickly and inexpensively develop
and implement new products and services. Existing switching platforms do not
have this flexibility and often require costly and time consuming hardware
modifications to add or change services.
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Rapid Market Entry and Cost Avoidance. Management believes that VASP(TM)
offers the capabilities of a facilities-based network on a virtual basis and
therefore will allow carriers to enter markets quickly and avoid the time and
expense associated with procuring and installing costly central office, tandem
and distribution facilities. Also, OEMs could readily adapt their existing
products for multiple markets rather than incur significant expense to develop
separate products for each market.
Improved Time-to-Market for New Products and Services. Historically, new
product and service offerings required extensive testing to insure compatibility
with existing network configurations. VASP(TM) allows such testing to be
completed in less time than with the legacy-based systems and allows new
products and services to be rolled out electronically to the entire network from
one central location.
Improved Network Management. VASP(TM) allows real-time access to billing
information and customer calling patterns, and also provides for electronic
order entry and trouble ticketing. With real-time supervision of network
activity, VASP(TM)-managed networks can monitor customer traffic, and the
specific network elements involved in carrying a particular call while the call
is in-process. Such networks can also recover from line errors, transmission
faults and even catastrophic failures much more quickly than legacy systems
allow currently. Network maintenance and repair personnel can use this data to
build more efficient routing and restoration functions. These capabilities
should reduce network downtime, provisioning delays, maintenance costs and
operating expenses, as well as enable carriers to improve the quality of their
services and to offer more responsive customer care.
Increased Revenue from Existing Customers. VASP(TM)-equipped carriers are
able to store, maintain and access relevant information about customers and
their calling patterns on-line. The Company believes that such real-time market
research could be harnessed to generate additional revenues or identify new
marketing opportunities.
Increased Value to Resellers. VASP(TM) enhances the competitive position of
resellers. TNS offers voice-over-ATM services at rates generally lower than
traditional circuit-based voice rates or other point-to-point advanced voice
services. TNS's reseller customers will also soon be able to expand their
service offerings to include video and data services without the need to procure
high cost private data networks. With bandwidth-on-demand pricing, end-user
customers are charged only for actual bandwidth used, which makes video and data
services affordable for small end-user customers (a reseller's principal
market). Using VASP(TM)'s advanced information management capabilities, TNS can
electronically provision new customers and diagnose delays much more quickly
than legacy systems, so new customers can quickly start generating revenue for
the reseller.
BUSINESS STRATEGY
The Company's objective is to become a leading provider of next generation
services and software solutions to the telecommunications industry. Key elements
of the Company's strategy include:
Leverage its First-to-Market Advantage. The Company will continue
leveraging its proprietary technology to influence industry standards, build
market share quickly and develop innovative packaging and pricing plans.
Build Market Share on the TNS Network. The Company will continue to build
TNS's customer base by leveraging the competitive advantages of its
VASP(TM)-managed ATM network. TNS expects to continue offering its enhanced
services at rates generally lower than competing carriers while also providing
superior services, including real-time access to billing and customer
information, electronic provisioning and trouble ticketing, and soon, the
ability to offer switched video and data services.
Expand Strategic Alliances. The Company will continue to enhance its joint
marketing and technology development efforts through strategic alliances with
leading equipment manufacturers and carriers. The Company has formed strategic
alliances with manufacturers, such as Newbridge, to assist the Company in
introducing its VASP(TM) technology into the next generation of
telecommunications equipment. In addition, the Company has formed a strategic
relationship with Comdisco, a network services provider, to accelerate entry
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into targeted corporate markets and to stimulate growth of the Company's
customer base. The Company continues to pursue additional relationships with
other telecommunications industry participants.
Operate and Enhance the Next Generation Platform. The Company will continue
to enhance VASP(TM) to offer a broader range of products and services to
carriers and OEMs. Further enhancements of VASP(TM) are also directed toward the
continued integration of the Company's long distance ATM network with the local
services market. Because TNS is currently utilizing VASP(TM), potential TTC
customers can witness the benefits of a VASP(TM)-based platform in operation, as
well as utilize the TNS network for developing and testing new products.
Attract Experienced Management. The Company will continue to attract highly
qualified individuals with proven expertise from various segments of the
telecommunications and related industries. The Company's management team has
extensive and diverse experience. Management has demonstrated its expertise by
deploying and operating TeleHub's ATM network and by developing a growing
customer base for its wholesale services, as well as by developing, enhancing
and licensing the VASP(TM) technology.
PRODUCTS AND SERVICES
TELEHUB TECHNOLOGIES CORPORATION
VASP(TM)
VASP(TM)'s applications are designed to administer, operate, control and
manage switching devices and network elements in the public carrier services
market. The Company believes that VASP(TM) provides telecommunications carriers
with superior billing, management and control capabilities. VASP(TM) has been
designed to be integrated with any carrier's customer care, billing,
provisioning and network management applications. VASP(TM) accumulates
information about network events for each phone call and generates a Transaction
Detail Record ("TDR"). The TDR can be converted into the standard industry call
detail record or into customized information that allows service providers to
bill innovatively (e.g., millisecond billing). In addition, service providers
can access their databases containing customer information and individual call
records in real-time to trouble shoot problems and identify customer calling
patterns. This information can be obtained by simple dial-up access from a
personal computer, as opposed to the current network process of downloading
information from each switch in the network, which can take more than a day to
complete. The carrier can use such information as a strategic advantage for
pricing and offering targeted products based upon real-time market feedback. The
Company's software can also be used as a network surveillance monitoring device.
The software has the ability to track phone calls from end-to-end and,
therefore, can locate the specific network element that may be causing a
problem. These advantages, coupled with the capability to provision circuits
electronically, will significantly reduce carriers' operating costs.
The Company expects that future releases of VASP(TM) will allow for the
replacement of the Class 4/tandem switch and Class 5/end-office switch. Based
upon engineering studies, the Company believes that by using ATM and VASP(TM) in
place of traditional switch fabrics, the reduction in tandem switching
investment will lower the overall cost of multi-city interconnections by 45% to
60%. The VASP(TM) open system architecture is scalable from small sizes up to
hundreds of phone calls per second, and its underlying hardware platforms and
control center designs are selected to meet the operating objectives by
accumulating no more than one hour of downtime during each twenty year period of
service (99.999% uptime service level objective). VASP(TM) is also adaptable to
other transmission mediums such as IP, cable and wireless.
TTC's products and services include the following:
Virtual Class 4/Tandem Switching (expected to be available in the third
quarter of 1998). The Company expects that its software, combined with an ATM
switching platform, will be capable of replacing the traditional Class 4/tandem
switch. This capability will enable data service providers to offer voice
products over their existing networks. VASP(TM), running on a Sun Microsystems
server and controlling ATM switches, offers a 30% to 40% savings over the cost
of purchasing and installing traditional tandem switches. In addition,
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TeleHub's VASP(TM)-based software solution offers other benefits, including cost
effective scalability, customization to specific customer requirements and
applications, and faster introduction of new products.
Local Switch Bypass (expected to be available in the third quarter of
1998). TTC is engineering solutions to identify Internet data and other
long-holding time calls (e.g., voice mail) and route them directly to called
parties, thereby bypassing end-office and tandem switches. The Company expects
this technology to address carriers' growing problem of congestion at end-office
and tandem switches caused by Internet traffic. TTC's solution allows carriers
to manage existing traffic levels and flow without purchasing additional switch
capacity.
Virtual Class 5/End-Office Switching (expected to be available in
1999). TeleHub is in the process of enhancing its VASP(TM) solution to duplicate
the basic functionality of a Class 5/end-office switch. TeleHub expects its
virtual Class 5 solution to provide carriers with the capability to enter the
local market with a voice product at a fraction of the cost of buying and
installing a conventional Class 5/end-office switch. The same advantages offered
by TeleHub's Class 4/tandem switch solution apply here -- reduced capital
expenditures, customization and faster time-to-market for new products. As an
example, many CLECs have data Points of Presence ("POPs") which currently
utilize ATM switches. TeleHub expects its solution to allow CLECs to carry and
switch voice traffic using their existing ATM networks without purchasing Class
5/end-office switches.
Virtual STP/SCP Signaling (available today). Signal Transfer Points
("STPs") and SCPs are key elements of the underlying SS7 network. Messages, such
as telephone number, calling card validation, 800 number routing, and calling
name delivery are transmitted to STPs that route the messages to the proper SCPs
where call processing information is stored. Embodied within the VASP(TM) design
today are both SCP and STP functionality, thereby allowing carriers to perform
their own SS7 signaling, without purchasing signaling services or expensive
equipment. VASP(TM) contains translation and routing instructions needed to
deliver advanced network services and can be further enhanced as new services or
requirements are identified. The necessary STP functions are also incorporated
in the VASP(TM) design to handle the signaling and management of "on-net"
traffic. The conventional STP is deployed in the TeleHub design as an interface
to the other carriers in the PSTN and to act as a firewall to protect both
parties proprietary information from compromise.
Mediated Access Services ("MAS") (expected to be available in 1999). The
Telecommunications Act and subsequent FCC mandates will require service
inter-operability between the various proprietary systems of existing
telecommunications carriers. Local and long distance carriers and their current
software vendors are therefore expending significant design and software
development resources trying to create the inter-operability solutions that can
be achieved through VASP(TM). TeleHub expects many carriers to select TeleHub as
a service supplier and VASP(TM) as a standard product to integrate the various
operating overlays.
TeleHub expects its MAS capability to provide neutral "third-party" access
to service management system and OSS databases throughout the industry. Any
service provider (virtual or facilities-based) will be able to obtain the key
call treatment information necessary to process customer calls, while the
proprietary information of the database owner is protected from compromise. The
first requirement for mediation results from the FCC's mandated LNP that
requires the RBOCs and GTE Corporation ("GTE") to permit their customers to
switch to another competing LEC and still retain their same telephone number.
The Company believes its MAS will encourage the LECs to offer unbundled local
service elements to other carriers as required by the Telecommunications Act.
Management believes this is currently the greatest hurdle for the RBOCs to
overcome in achieving their long standing goal of entry into the long distance
business within their regions.
Switched Virtual Circuit ("SVC") (expected to be available in 1999). The
Company is in the process of developing an SVC product expected to provide
carriers with a cheaper alternative to permanent virtual circuit (i.e.,
point-to-point) products offered today. The advantage of an SVC is that when the
circuit is not utilized, the capacity can be allocated for another use. A
permanent virtual circuit must allocate bandwidth to the user regardless of
whether there is traffic flowing over the circuit.
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The following tables summarize the manner in which the Company expects
VASP(TM), when fully deployed, to meet industry needs:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CUSTOM PLATFORM SEGMENT CURRENT INDUSTRY ENVIRONMENT TTC OFFERING
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLECs - Local focus -- out-source wide area - Provide WAN/long distance transport
networking ("WAN") and long distance - Switch voice and data into PSTN
services - Provide software to integrate voice
- Inability to switch packet-based and data on one network
traffic - One integrated platform for all OSS
- Different networks for voice and functions with real-time billing,
data management and control
- Multiple OSS - Local switch bypass for Internet (and
- Bottleneck at end-office due to other long-holding time) traffic
impact of Internet traffic on - Greatly accelerates time to market
switch/port capacity - 30-40% cost savings for Class 4
- Time to market critical functionality
- Capital intensive - Significant cost savings for Class 5
- LNP difficulties functionality
- Proprietary switch architecture - MAS facilitates unbundling of the
local loop, including LNP
- Open architecture
- ----------------------------------------------------------------------------------------------------------------
ILECs - Inability to switch packet-based - Switch voice and data into PSTN
traffic - Provide software to integrate voice
- Different networks for voice and and data on one network
data - One integrated platform for all OSS
- Multiple OSS functions with real-time billing,
- Bottle neck at end-office due to management and control
impact of Internet traffic on - Local switch bypass for Internet (and
switch/port capacity other long-holding time) traffic
- Regulatory pressure to meet the - MAS facilitates unbundling of the
FCC's 14 point checklist local loop, including LNP
- LNP not widely implemented - Open architecture
- Proprietary switch architecture
- ----------------------------------------------------------------------------------------------------------------
IXCs - Inability to switch packet-based - Switch voice and data into PSTN
traffic - Provide software to integrate voice
- Different networks for voice and and data on one network
data - Better management of network
- Intense price competition correlates to lower network costs
- Multiple OSS - One integrated platform for all OSS
- Expensive to penetrate the local functions with real-time billing,
loop management and control
- Proprietary switch architecture - Virtual STP/SCP signaling
- MAS provides cheaper alternative to
entering the local loop
- Open architecture
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
OEM SEGMENT CURRENT INDUSTRY ENVIRONMENT TTC OFFERING
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ATM Switch - Developed to transmit data only - Ability to integrate, bill, manage
Manufacturers - Inability to integrate, bill, and switch voice traffic
manage and switch voice traffic - Virtual Class 4 and Class 5 switching
- Extremely expensive and time opens multi-billion dollar voice
consuming to integrate new products switch market to ATM switch
into the switching platform manufacturers
- 30-40% cost savings for Class 4
functionality
- Significant cost savings for virtual
Class 5 functionality
- Object oriented software
significantly improves time to market
for new products
- Provides ATM switches with virtual
STP/SCP signaling and service logic
for multi-media transactions
- ----------------------------------------------------------------------------------------------------------------
Digital Loop Carrier - Bottleneck at end office due to - Local switch bypass for Internet (and
Manufacturers impact of Internet traffic on other long-holding time) traffic
switch/port capacity - Software based solution to provide
- Hardware based environment with hardware manufacturers with the
limited intelligence intelligence to route, analyze and
- Treats all traffic the same -- bill based upon the type of traffic
cannot differentiate
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
TTC CUSTOMER RELATIONSHIPS
Since the initial release of VASP(TM), the Company has actively pursued
OEMs, CLECs and other network service providers to license its proprietary
technology. As of September 30, 1998, the Company had signed memoranda of
understanding with a digital loop carrier manufacturer, an ATM switch
manufacturer, and a network service provider. In addition, TTC has submitted
proposals to two CLECs. TTC anticipates entering definitive contracts during
1998. For example, in the OEM market, TeleHub and Newbridge have signed an
agreement whereby Newbridge has purchased a "right-to-use" license for a trial
system of VASP(TM) for $5.0 million for use in its laboratory and has proposed a
VASP(TM)-enhanced solution to an RBOC.
The Company has formed a joint venture that will use VASP(TM) to manage
satellite telecommunications delivery in the Australasian region (Australia, New
Zealand, Southeast Asia, India, and the Philippines). The Company contributed a
non-exclusive VASP(TM) license and associated technical support and received a
49% interest, while the joint venture partner will contribute $5.0 million for
operating funds and is initially managing the joint venture. The Company
believes that the joint venture will introduce the VASP(TM) technology into a
new geographic market and demonstrate VASP(TM)'s benefit for satellite networks
just as TNS demonstrates VASP(TM)'s ability for wireline networks.
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TELEHUB NETWORK SERVICES CORPORATION
Network. TeleHub's VASP(TM) solution has been developed to converge voice,
data and video on its single network (depicted below).
[Picture of U.S.]
TNS's backbone is centered on three ATM switching platforms located in
Chicago, New York and Los Angeles. The three sites are connected via DS-3
(growing to OC-12) fiber optic lines leased from WorldCom. TNS's network,
utilizing WorldCom's backbone circuits to connect TNS's planned POPs, is
designed to ultimately reach over 90% of U.S. telephone exchanges (currently at
64%). The use of TNS's ATM backbone between its switches, as compared to
conventional legacy technologies, is estimated to yield a 3:1 (or more) increase
in traffic carrying capacity and significant savings. TeleHub believes that its
savings on the backbone are achieved via an ability to use available contracted
permanent bandwidth in an "on-demand" fashion. TeleHub's backbone bandwidth
allocation strategy assumes that only a portion of the busy hour bandwidth needs
to be permanently connected, an assumption based upon standard industry traffic
engineering models. The rest of the bandwidth can be used to handle busy hour
traffic between other signaling service providers. It is VASP(TM)'s ability to
create or tear down network connections remotely "on-demand" that enables
TeleHub to most efficiently utilize available bandwidth. For example, in a
network with cross-country switches, busy hour bandwidth would be allocated on
the East Coast at a different time than it would be required on the West Coast.
Available bandwidth could be shifted to follow the traffic peaks, resulting in a
lower overall bandwidth requirement than would be necessary in a fixed facility
network.
Long Distance. TNS provides wholesale long distance services to ILECs,
CLECs and international telephone companies that terminate telephone calls in
the United States. TNS offers its customers competitive pricing yet maintains
margins higher than its competitors because of the efficiencies of its ATM
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backbone. The inherent advantages of ATM coupled with VASP(TM) enables TNS to
better manage and control its network, therefore further enhancing its cost
advantage. In addition, TNS provides its carrier customers with real-time access
to end user billing information and calling patterns, thereby allowing them to
market enhanced services to their customer bases.
Bandwidth-on-Demand (expected to be available in 1999). TNS expects to
provide a bandwidth-on-demand product utilizing a VASP(TM) SVC product. With
bandwidth-on-demand, end-user customers are charged only for actual bandwidth
used, which makes video and data services affordable for small end-user
customers (resellers' principal market).
The following table summarizes the manner in which the Company expects
TNS's services to meet industry needs:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
SERVICES SEGMENT CURRENT INDUSTRY ENVIRONMENT TNS OFFERING
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wholesale Long - Predominately voice offering - Integrated voice, video and data
Distance - Fixed capacity pricing - Bandwidth-on-demand pricing
- Limited and delayed access to - Real-time access to customer
customer information (including information (calling patterns and
calling patterns) billing)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
TNS CUSTOMER RELATIONSHIPS
TNS has targeted the switchless reseller segment, which in 1997, consisted
of approximately 500 service providers with annual revenues estimated at $2.1
billion. Additionally, TNS is targeting ILECs, CLECs and international telephone
companies that terminate traffic in the United States. TNS is also marketing its
data services to large Fortune 1000 companies. TNS has entered into a memorandum
of understanding with Comdisco, whereby the companies will jointly market long
distance services to Comdisco's existing customer base.
As of September 30, 1998, the Company had entered into nineteen contracts
to provide long distance services to switchless resellers who have transitioned
approximately 200,000 end-user lines onto TNS's network. The Company estimates
that these reseller customers will transition approximately 1.5 million end-user
telephone lines to TNS's network during 1999. In addition, the Company is
currently in active contract negotiations with multiple other service carriers.
SALES AND MARKETING
TELEHUB TECHNOLOGIES CORPORATION
TTC utilizes a small and experienced internal sales force, strategic
alliances, and co-marketing agreements to market its VASP(TM) software. In
addition, TeleHub leverages the sales forces of its strategic partners and OEM
vendors to further penetrate its targeted markets. The TeleHub sales force
focuses its selling efforts on potential customers in the OEM segment, such as
Newbridge, Ascend, General Datacom Industries Inc., World Access, Fore Systems
Inc., Coyote Network Systems Inc., Lucent, Siemens, Telefonekitieboleset LM
Ericsson ("Tekelec"), Nortel and Cisco. TTC markets custom platform services to
RBOCs and CLECs, and to network service providers such as Comdisco.
TELEHUB NETWORK SERVICES CORPORATION
TNS has an experienced internal sales department that works with several
experienced external sales agents. TNS's sales effort is directed at many of the
same carrier customers as TTC, but offers transport and switching services as
opposed to software solutions. TNS markets the capability of its
VASP(TM)-enhanced ATM network, thereby allowing its customers to offer a broader
range of services than current product offerings encompass. For example, TNS has
been able to market voice services to Comdisco's existing customers, to whom it
previously only offered data services.
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COMPETITION
The telecommunications industry is highly competitive, rapidly evolving and
subject to constant technological change. In particular, there are numerous
companies offering long distance products and services, and the Company expects
competition to increase in the future. The Company believes that existing
competitors are likely to continue to expand their product and service offerings
to appeal to existing or potential customers of the Company. Moreover, the
Company expects that new competitors are likely to enter the communications
market and some of these new competitors may market communications services
similar to the Company's products and services, which would result in greater
competition. However, increased competition also creates additional
opportunities for the Company to market its VASP(TM)-based products to current
and future participants in the local exchange, long distance, data and video
markets.
Many competitors (such as AT&T, MCI, Sprint, WorldCom, Qwest Communications
International Inc. and others) and potential competitors have substantially
greater financial, personnel, technical, marketing and other resources than the
Company. The Telecommunications Act allows the RBOCs and others (such as
electric utilities and cable television companies) to enter the long distance
market. A continuing trend toward consolidation, mergers, acquisitions and
strategic alliances in the telecommunications industry could give rise to
significant new competitors to TeleHub or its customers. TeleHub anticipates
that certain entrants will be strong competitors because, among other reasons,
they may (i) be well capitalized; (ii) already have substantial end-user
customer bases and brand name recognition; and/or (iii) enjoy cost advantages
relating to local loops and access charges. The introduction of additional
strong competitors into the switched long distance business could mean that
TeleHub and its customers would face substantially increased competition. As a
new entrant, TeleHub will compete primarily by providing superior service and
support and on price.
In addition, the regulatory environment in which the Company operates is
undergoing significant change. As this regulatory environment evolves, changes
may occur which could create greater or unique competitive advantages for all or
some of the Company's current or potential competitors, or could make it easier
for additional parties to provide services.
In the United States, price competition in the long distance business has
generally been intensive. AT&T, the leading long distance carrier, was
reclassified as a non-dominant carrier, which allows AT&T substantial pricing
flexibility. Long distance carriers, including AT&T as well as other
non-dominant carriers such as TNS, currently must file tariffs at the FCC for
domestic interstate services and for international services. However, such
tariffs can be amended on one day's notice; therefore, price changes by one
carrier can be matched readily by the others. The long distance communications
industry is significantly influenced by the marketing and pricing decisions of
larger industry participants such as AT&T, MCI, Sprint and WorldCom. TNS
believes that its wholesale customers generally price their service offerings at
or below the prices charged by AT&T for its long distance reseller services.
Rate reductions by AT&T and other first-tier carriers may necessitate similar
price decreases by the Company.
Under the Telecommunications Act, RBOCs have the opportunity to provide
out-of-region long distance services immediately and in-region long distance
services if certain conditions are met. RBOC entry into the domestic and
international long distance business and the emergence of other new local
competitors could result in substantial competition to the Company and may have
a material adverse effect on the financial condition, results of operations or
cash flow of the Company. In December 1997, a federal court ruled that the
Telecommunications Act's pre-conditions to the RBOCs' entry into the in-region
long distance telecommunications services are unconstitutional (the "SBC
Decision"). Other federal courts have reached contrary decisions, and the SBC
Decision has been stayed pending appellate review. The result of the appellate
review cannot be predicted. If the SBC Decision were upheld on appeal, it could
have an adverse effect on the Company and other carriers because it would speed
the entry of the RBOCs into the in-region long distance market and would reduce
the primary incentive for RBOCs to open their local markets to competition.
The long distance industry is undergoing significant consolidation that has
created and will continue to create numerous other entities with substantial
resources to compete for long distance business. New technologies could also
give rise to new regulation or new competition. The Company's larger competitors
have significantly greater name recognition, financial, technical, network and
marketing resources. They also
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<PAGE> 54
may offer a broader portfolio of services and have long standing relationships
with customers targeted by the Company.
The Company has entered into telecommunications services agreements with
its wholesale long distance customers which do not contain minimum usage
commitments and which are cancellable upon short notice without penalties. If
these services agreements are canceled or are not renewed upon expiration, the
loss of customers could have a material adverse effect on the Company's
business, operating results and financial condition. Prices for domestic and
international long distance calls have decreased in recent years and are likely
to continue to decrease. There can be no assurance that the Company will be able
to compete effectively in the domestic or international long distance markets.
TTC faces competition from some of the most experienced companies engaged
in the development of telecommunications equipment and related software.
Examples include switch vendors (Lucent, Nortel and Siemens), ATM vendors
(Nortel, Siemens, Alcatel NA Cable Systems Inc. ("Alcatel"), Cisco and Ascend),
signaling products vendors (Nortel and Tekelec), and OSS providers
(Hewlett-Packard Inc. and Applied Digital Access Inc.). The Company believes
that existing competitors are likely to continue to expand their product
offerings to appeal to existing or potential customers of the Company. Many of
the Company's existing competitors have financial, personnel and other
resources, including brand name recognition, substantially greater than the
Company. TTC may well find itself both a strategic partner and a competitor with
some of these companies.
In the future, the Company may be subject to intense competition due to the
development of new technologies, such as ATM and wave division multiplexing,
resulting in an increased supply of domestic and international transmission
capacity. The telecommunications industry is experiencing a period of rapid and
significant technological evolution marked by the introduction of new product
and service offerings. The introduction of new products or emergence of new
technologies may cause capacity to greatly exceed the demand, reducing the
pricing of certain services to be provided by the Company. The effect on the
Company's operations of technological changes cannot be predicted, and if the
Company is unable to keep pace with advances, it could have a material adverse
effect on the financial condition, results of operations and cash flow of the
Company.
The Company believes that its proprietary software is unique in that it
provides for the only ATM service in commercial operation that can be switched
into the PSTN. Other telecommunications carriers can provide their own networks
and can provide those networks to other carriers. Numerous established and
start-up national and regional fiber optic networks are owned by IXCs, ILECs and
CLECs, including AT&T, MCI and Sprint, each of whom has greater name
recognition, financial, personnel, technical and marketing resources than the
Company. Other companies have announced or may be planning the construction of
additional networks.
REGULATION
The following summary of regulatory developments and legislation does not
purport to describe all present and proposed federal, state and local
regulations and legislation affecting the telecommunications industry. Other
existing federal, state and local legislation and regulations are currently the
subject of judicial proceedings, legislative hearings and administrative
proposals which could change, in varying degrees, the manner in which this
industry operates. Neither the outcome of these proceedings, nor their impact
upon the telecommunications industry or the Company, can be predicted at this
time. This section also sets forth a brief description of regulatory and tariff
issues pertaining to the operation of the Company.
TeleHub's services are subject to federal, state, and local regulation. The
Company's business strategy is to continue to operate TNS as a wholesale
telecommunications service provider. To the extent the Company's business
strategy changes, the Company could become subject to additional regulatory
requirements. Pursuant to the Communications Act of 1934, as amended (the
"Communications Act") including as amended by the Telecommunications Act, the
FCC exercises jurisdiction over all of TNS's facilities and services used to
provide, originate, or terminate interstate or international communications.
State regulatory agencies have jurisdiction over all of TNS's facilities and
services used for intrastate communications. Local governments
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<PAGE> 55
often require communications carriers to obtain licenses or franchises to
utilize public rights-of-way necessary to install and to operate networks,
equipment, and other facilities. In addition to regulation by multiple
government agencies, different regulatory requirements apply to long distance
services than apply to local exchange services. For example, long distance
carriers must pay regulatorily determined access charges to LECs. Communications
carriers must also contribute to universal service support mechanisms, which are
being developed by federal and state agencies. The jurisdictional reach of
federal, state and local regulatory authorities is subject to continuous change,
controversy and judicial review. TNS is unable to predict the effect or outcome
of such changes, controversy or judicial review.
The Telecommunications Act eliminates many of the pre-existing barriers to
competition in telecommunications markets, preempts state and local barriers to
entry into the local exchange and other telecommunications markets, and
establishes relationships between and among telecommunications carriers and
providers. The Telecommunications Act delegates to the FCC and state regulatory
agencies broad authority to implement the law.
The Company is subject to the authority of the FCC and the state regulatory
agencies to enforce applicable regulatory requirements. The FCC and state
regulatory agencies may address regulatory non-compliance with a variety of
enforcement mechanisms, including monetary forfeitures, refund orders,
injunctive relief, license conditions and/or license revocation.
The regulation of the telecommunications industry is changing rapidly and
the regulatory environment varies substantially from state to state. There can
be no assurance that future regulatory, judicial or legislative activities will
not have a material adverse effect on the financial condition, results of
operation, or cash flow of the Company or that domestic or international
regulators or third parties will not raise material issues with regard to the
Company's compliance or non-compliance with applicable laws and regulations.
Long Distance Services. TNS's wholesale long distance services are subject
to federal regulation governing interstate and international telecommunications
services. As a communications common carrier, TNS must comply with the
requirements of the Communications Act, as well as the FCC's regulations
promulgated under the Communications Act.
Pursuant to the Communications Act, among other things, common carriers
such as TNS must offer service on a non-discriminatory basis at just and
reasonable rates. Such carriers are also subject to the FCC's complaint
jurisdiction. IXCs providing international services are required to obtain
authority under Section 214 of the Communications Act and to file a tariff
containing the rates, terms and conditions applicable to their services prior to
initiating their international telecommunications services. The Company holds a
Section 214 certificate from the FCC for global facilities-based and global
resale authority. The Company is a non-dominant international carrier and also
must comply with the federal statutory and regulatory requirements of common
carriage in the offering of its international services. International
telecommunications service providers are also required to file copies of their
contracts with other carriers, including foreign carrier agreements, and a
variety of reports regarding their international revenue, traffic flows and use
of international facilities. Carriers holding Section 214 authority are subject
to FCC rules requiring, among other things, prior approval for transfers of
control and assignments, and notifications or approvals of certain foreign
carrier investments.
Because the interstate long distance services market has become
sufficiently competitive, the FCC has streamlined the regulation of interstate
carriers. Thus, the FCC has ordered that non-dominant IXCs do not need to file
tariffs offering their services. While the Order is being reviewed by a Federal
appeals court, the court has stayed the FCC's de-tariffing decision. As a
result, IXCs must continue to file interstate tariffs (as well as international
tariffs). TNS has filed tariffs with the FCC. In addition, TNS can install and
operate non-radio facilities for the transmission of interstate communications
without prior FCC authorization.
TNS's intrastate long-distance services are also subject to state
regulations. TNS has obtained or applied for authority to provide intrastate
services from various state regulatory agencies and has filed and is in the
process of filing tariffs specifying the rates, terms and conditions for its
wholesale intrastate services.
Local Exchange Services. Although TeleHub does not intend to provide local
exchange services directly to end users, certain of TNS's proposed services will
make local exchange features and capabilities available to
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<PAGE> 56
other carriers. To offer its local exchange-related services, TNS may need to
obtain certifications to provide local exchange services from and file tariffs
with state regulatory agencies, and negotiate agreements with the ILECs for
interconnection, co-location and unbundled access.
State Requirements. Most states require a certification or other
authorization to offer local exchange and long distance intrastate services.
These certifications generally require a showing that the carrier has adequate
financial, managerial and technical resources to offer the proposed services in
a manner consistent with the public interest. In addition to tariff
requirements, most states require that common carriers charge just and
reasonable rates and not discriminate among similarly situated customers. Some
states also require the filing of periodic reports, the payment of various
regulatory fees and surcharges, and compliance with service standards and
consumer protection rules. States also often require prior approvals or
notifications for certain transfers of assets, customers or ownership and for
the issuance of stock, bonds or other forms of indebtedness. As a result, in
certain states TNS requested approvals, made notifications or took other actions
relating to its issuance of a guarantee pursuant to the Initial Note Offering.
While TNS expects to obtain all necessary approvals for the Exchange Offer,
there can be no assurance that such approvals will be obtained, or that they
will be obtained on a timely basis. States generally retain the right to
sanction a carrier or to revoke certifications if a carrier violates relevant
laws and/or regulations. If any state regulatory agency were to conclude that
the Company is or was providing intrastate service without the appropriate
authority, the agency could initiate enforcement actions, which could include
the imposition of fines, the disgorging of revenues, or the refusal to grant the
regulatory authority necessary for the future provision of intrastate
telecommunications services.
State regulatory agencies also regulate access charges and other pricing
for telecommunications services within each state. If regulations are changed to
allow variable pricing of access charges based on volume, the Company could be
placed at a competitive disadvantage over larger long distance carriers.
The Communications Act was substantially amended by the Telecommunications
Act, which provides for comprehensive reform of the United States'
telecommunications laws. The Telecommunications Act may have potentially
significant effects on the financial condition, results of operations or cash
flow of the Company. The Telecommunications Act is designed to enhance
competition in, among other markets, the local telecommunications marketplace
by, among other things: (i) removing state and local entry barriers, (ii)
requiring ILECs to provide interconnection to their facilities, (iii)
facilitating the end users' choice to switch service providers from ILECs to
CLECs, and (iv) requiring access to rights-of-way. The legislation is also
designed to increase local competition by newer competitors such as long
distance carriers, cable companies and public utility companies. In addition,
the Telecommunications Act imposes certain conditions upon all LECs, including
CLECs. To the extent the Company is required to obtain certifications as a CLEC,
these obligations would apply to the Company. Among these requirements are the
duties to establish number portability, dialing parity and reciprocal
compensation arrangements. These requirements may cause the Company to incur
additional administrative and regulatory expenses.
On August 8, 1996, the FCC released the Interconnection Decision, which
established a framework of minimum, national rules enabling state commissions
and the FCC to begin implementing many of the local competition provisions of
the Telecommunications Act. Among other things, the Interconnection Decision
prescribed certain minimum points of interconnection, adopted a minimum list of
unbundled network elements that ILECs must make available to competitors, and
adopted a methodology for states to use when setting wholesale prices for retail
services. The U.S. Court of Appeals for the Eighth Circuit issued a decision
vacating certain portions of the Interconnection Decision and the United States
Supreme Court has agreed to consider the challenges to the Eighth Circuit's
decision filed by the FCC and interested carriers. Whether the Eighth Circuit's
decision will stand, or what further actions the FCC may or may not take in
response to these decisions cannot be predicted.
Local Government Authorizations. Because TNS is selling wholesale services
to other carriers, permitting and franchising requirements are usually handled
by those carriers. However, TNS has obtained necessary local government
authorizations for the installation and operation of facilities that it owns.
The termination of the existing local government authorizations prior to their
expiration dates or failure to renew such authorizations where applicable could
have a material adverse effect on the financial condition, results of operations
and cash flow of the Company. In some municipalities, carriers must pay license
or franchise fees.
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<PAGE> 57
Universal Service Charges. In 1997, the FCC released an order establishing
a significantly expanded federal universal service subsidy regime to be funded
by interstate carriers and certain other entities. The FCC established new
universal service funds to support telecommunications and information service
provided to qualifying schools, libraries and rural health care providers, and
expanded the federal subsidies for local telephone service provided to
low-income consumers. In accordance with the Telecommunications Act, the FCC
adopted plans to implement the recommendations of a Federal-State Joint Board to
preserve universal service, including a definition of services to be supported,
and defining carriers eligible for contributing to and receiving from universal
service subsidies. The FCC plans to revise its rules of subsidizing service
provided to consumers in high cost areas, which may result in further
substantial increase in the overall cost of the subsidy program. The FCC issued
a public notice in April 1998 seeking comment on proposals to revise the
methodology for determining universal service support. The outcome of the FCC's
pending and future proceedings relating to universal service or their effect on
the Company cannot be predicted. Several parties have appealed the FCC's order
and those appeals are pending before a federal appeals court. The outcome of the
further FCC proceedings or of the pending judicial appeals or petitions for FCC
reconsideration on the Company's operations cannot be predicted.
EMPLOYEES
The Company employed 207 full time personnel as of September 30, 1998.
TeleHub has an employment contract with its Chief Executive Officer ("CEO") and
President, key executives denoted under "Management -- Executive Employment
Agreements" and other executives. For employees without employment contracts,
the Company has arranged for a third party contractor to hire those employees
and handle payroll and benefits. None of TeleHub's employees are members of any
labor unions. TeleHub also utilizes independent contractors and consultants.
INTELLECTUAL PROPERTY
The VASP(TM) software is one of the Company's primary assets. Management is
seeking to protect the Company's intellectual property rights in the VASP(TM)
software under applicable law including using, when and as appropriate, trade
secret and patent protections. Specifically the Company has several patents
pending relating to the VASP(TM) technology. There can be no assurances that the
Company's means of protecting its proprietary rights in the United States or
abroad will be adequate or that competitors will not independently develop
similar technologies. The Company's future success will depend in part on its
ability to protect its proprietary rights to the technologies used by VASP(TM).
PROPERTIES
The Company leases 4,771 square feet of office space in Walnut Creek,
California for its corporate office pursuant to a lease expiring in 2002. The
Company leases 34,920 square feet of office space in Gurnee, Illinois, for its
TNS and TTC offices, technology development and network operations center
pursuant to a lease expiring in 2003. TNS leases 15,341 square feet in downtown
Chicago for its Chicago telecommunications switches, pursuant to a lease
expiring in 2001, another 14,705 square feet in downtown Los Angeles, California
for its Los Angeles telecommunications switch pursuant to a lease expiring in
2007, and conduit and co-location space in downtown Los Angeles pursuant to a
lease agreement expiring in 2007. TNS leases 15,217 square feet in downtown New
York City for its New York telecommunications switches, pursuant to a lease
expiring in 2007. TeleHub Leasing Corporation leases office space in Bedford,
New Hampshire on a month-to-month lease.
LITIGATION
The Company is not currently engaged in any legal proceedings. The Company
is, however, subject to state commission, FCC and court decisions as they relate
to the interpretation and implementation of the applicable federal and state
laws and regulations, such as the Communications Act, as amended, including the
Telecommunications Act. In some cases, the Company may be deemed to be bound by
the results of ongoing proceedings before these bodies.
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MANAGEMENT
DIRECTORS AND KEY EXECUTIVE OFFICERS
Each Director holds office until the next meeting of shareholders for
election of such Director's class and until successors have been elected and
qualified or until such Director's death, resignation or removal. The Company's
officers are appointed by, and serve at the discretion of, the Board. Set forth
in the table below are the names, ages, and current positions of the Directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
William W. Becker(1).................... 69 Chairman of the Board
Donald H. Sledge(2)..................... 58 President, Vice Chairman, Chief Executive Officer and
Director
Michael G. McLaughlin(3)................ 36 Chief Technology Officer and Director
Herbert H. Swinburne.................... 56 President of TNS
John A. Strand III...................... 53 Acting President of TTC
Richard M. Harmon(2).................... 48 Chief Financial Officer, Treasurer, Corporate
Secretary and Director
Barry C. Lescher(2)..................... 43 Assistant Secretary and Director
John F. Slevin(3)....................... 61 Director
Oz Pedde(1)............................. 56 Director
John R. Snedegar(3)..................... 49 Director
Martin R. Walsh(1)...................... 45 Director
</TABLE>
- ---------------
(1) Class C Director -- term expires 1999.
(2) Class A Director -- term expires 2000.
(3) Class B Director -- term expires 2001.
WILLIAM W. BECKER joined TeleHub in March 1996 and serves as Chairman of
the Board. Mr. Becker is a principal of HHL, the Company's largest shareholder.
He also serves as Chairman of SkyConnect Inc., AirCell Communications, Inc.,
Trans Digital Inc., VR-1 Inc., E-Star Inc. and Northern Cable Inc. Prior to
joining TeleHub, Mr. Becker founded a number of companies involved in
telecommunications, cable TV, oil and gas, real estate development, and other
industries. From 1993 to 1995, Mr. Becker was a principal of WWB Oil & Gas Ltd.
Mr. Becker was a significant investor in IntelCom Group, Inc. (now, ICG
Communications, Inc.) for which he served as chairman and CEO from 1987 to June
1995.
DONALD H. SLEDGE joined the Company in January 1996 as President, Vice
Chairman, CEO and Director and is the CEO and a Director of TTC and TNS. From
1994 to 1995, Mr. Sledge served as President and Chief Operating Officer ("COO")
of West Coast Telecommunications, Inc., a NASDAQ listed long distance company
purchased by Frontier. From 1993 to 1994, Mr. Sledge served as Head of
Operations for New T&T, a Hong Kong-based start-up company. Mr. Sledge was
Chairman and CEO of Telecom New Zealand International from 1991 to 1992. Mr.
Sledge was a member of the board of advisors of Calex and is currently a
director of DataProse, CyWorld Talk, which currently trades on the Alberta Stock
Exchange, AirCell Communications Inc. and Executive Telecard, Inc., a
telecommunications company traded on NASDAQ, and serves as an advisor and board
member to several small technology-based start-up companies. In addition, Mr.
Sledge serves as the Chairman of United Digital Network Inc. ("United Digital"),
a long distance switch based reseller, which is under an agreement to be
acquired by Star Telecommunications, Inc.
MICHAEL G. MCLAUGHLIN founded TeleHub in January 1996 and serves as Chief
Technology Officer ("CTO") and a Director of TeleHub, TTC and TNS. From 1994 to
1995, Mr. McLaughlin served as President and a director of Access Point
Communications Corporation. In 1992, he formed The McLaughlin Group, Inc. (now
"T.M.G.I., Inc.") which provided consulting services to large corporate clients
involving cost reduction and analysis, network configuration strategies and
negotiation of communication carrier contracts. From 1983 to 1991, Mr.
McLaughlin worked for ROLM, a business unit of IBM Corporation
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("ROLM"), where he was a communications engineer responsible for the design,
development and implementation of communications networks for ROLM's largest
accounts, including The Sears Network, General Electric Company, IBM and Baxter
Laboratories Inc.
HERBERT H. SWINBURNE joined TeleHub in January 1998 and serves as President
of TNS. From 1991 until he joined TeleHub, Mr. Swinburne was the Director and
General Manager of Major Account Network Design for AT&T Canada, which provides
long distance services. From 1989 to 1991, Mr. Swinburne was Director of
Proposal Engineering at Sprint, and from 1988 to 1989, Mr. Swinburne was
Director of the Technical Advisory Center at Sprint. Prior to joining Sprint,
Mr. Swinburne was a Program Manager for Telenet Communications Corporation where
he was responsible for managing the nationwide packet services for the
Department of Agriculture.
JOHN A. STRAND III joined TeleHub as TTC's Acting President in June 1998.
From 1991 to 1998, Mr. Strand was the Director of Technology Planning and
Integration for Sprint. Prior to his position with Sprint, he was a regional
manager for SRI International, an international research institute.
RICHARD M. HARMON joined TeleHub in March 1997 as the Chief Financial
Officer ("CFO"), Treasurer and Corporate Secretary and became a Director in
March 1998. Mr. Harmon is the Treasurer and Corporate Secretary of TNS. From
1992 to 1996, Mr. Harmon was the CEO of Education Finance Corporation, a company
he founded to provide student loans to vocational trade students. From 1990 to
1992, Mr. Harmon served as President of Clean Air Transit. From 1985 to 1990,
Mr. Harmon founded and was President of Network Media Corporation, a cable
network advertising sales group. Between 1980 and 1985, Mr. Harmon was a
principal with Network Development Corporation, a consulting and investment
company emphasizing telecommunications and cable television. Prior to that, Mr.
Harmon served as CFO and COO for Franklin Supply. Mr. Harmon also worked for
Allstate Insurance Company, where he made private equity investments in early
stage companies.
BARRY C. LESCHER joined TeleHub as a Director in 1996 and serves as
Executive Vice President of TTC, a Director of TNS and Assistant Secretary. From
1994 to 1997, Mr. Lescher held engineering positions at telecommunications
companies which included American Teletronics, TMGI and Access Point
Communications Corporation. From 1989 to 1994, Mr. Lescher was a communications
engineer with ROLM. Prior to that, Mr. Lescher worked for a family-owned
business that was involved in the installation and operation of communication
systems.
JOHN (JACK) F. SLEVIN is Chairman, President, and CEO of Comdisco, a New
York Stock Exchange ("NYSE") listed company and was appointed to the TeleHub
Board in July 1997. He has been Comdisco's Chairman of the Board since January
1996 and was named Comdisco's President and CEO in July 1994. Mr. Slevin served
as Comdisco's COO from 1993 through 1994 and was executive vice president of
Comdisco's North American Sales since 1992. He has been a member of Comdisco's
board of directors since 1979. Mr. Slevin is also a director of Media One, a
NYSE listed company, and Interworld Corp.
OZ (OSWALD) PEDDE, a Director of TeleHub since March 1998, has been
President and CEO of Watson & Associates, a Toronto based telecommunications
service and consulting firm since January 1, 1998. From 1995 to 1998, Mr. Pedde
was self-employed as a consultant. From 1991 to 1995, Mr. Pedde was President
and CEO of Manitoba Telephone Systems, a diversified Canadian telecommunications
company and was one of the founding members of the Council of CEOs that created
the "Stentor Alliance," an association of Canada's major telephone companies.
During such period, Mr. Pedde was also a director of Telesat, Canada's satellite
carrier.
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JOHN R. SNEDEGAR joined TeleHub's Board in March 1998. He has been
President and CEO of United Digital, which trades on the Vancouver Stock
Exchange since 1990. He was also the President and CEO of AmeriTel Management,
Inc. ("AmeriTel"), a California based provider of long distance
telecommunications and management services from 1980 to 1992. In 1992, Mr.
Snedegar led AmeriTel through the acquisition of West Coast Telecommunications,
Inc., forming WCT Communications, Inc. Mr. Snedegar served on the board of
directors of this carrier until its sale to Frontier in early 1995. He is also a
director for StarBase Corporation, a California-based software development
company which trades on NASDAQ, Star Telecommunications, Inc., a long distance
carrier specializing in international services which trades on NASDAQ. Mr.
Snedegar also serves as President of Kendall Venture Funding, Ltd., a reporting
company based in Alberta, Canada.
MARTIN R. WALSH has been the President of Walsh & Associates, an Illinois
high technology consulting firm since January 1, 1998 and joined TeleHub's Board
in March 1998. Previously, Mr. Walsh had been a Comdisco executive, serving as
Executive Vice President of Marketing and a member of the Office of the
President of Comdisco since 1996, President of the Large Systems Division from
1993 to 1996, and Senior Vice President -- Trading between 1985 and 1993, and a
Vice President from 1982 to 1985. Mr. Walsh originally joined Comdisco in 1978.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries to or on behalf
of Donald H. Sledge, President and CEO of the Company, and the four most highly
compensated executive officers of the Company (the "Named Officers") for the
fiscal year ended December 31, 1997 and for the period from January 18, 1996
(inception) to December 31, 1996. The Company has not granted stock appreciation
rights.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION($)
----------------------------------------------- ------------------------ ---------------
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION($) WARRANTS(#) OPTIONS(#)
- --------------------------- ------ -------- ------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald H. Sledge.............. 1997 $175,000 $87,500(1) $10,800(2) -- 150,000 $ 9,804(3)
President and Chief 1996 70,000 -- -- -- -- 110,500(4)
Executive Officer of TeleHub
Michael G. McLaughlin......... 1997 175,000 87,500(1) 17,645(2) -- 150,000 --
Chief Technology Officer of 1996 -- -- -- -- -- --
TeleHub
Timothy Carey Chandler........ 1997 150,000(5) 75,000(1) 333(6) -- 50,000 --
Senior Vice President -- 1996 68,750 -- -- -- -- --
Software Development of TTC
Barry C. Lescher.............. 1997 136,320(5) 68,268(1) 701(2) -- 100,000 --
Executive Vice President 1996 -- -- -- -- -- --
of TTC
Richard M. Harmon............. 1997 106,250(5) 62,466(1) -- 150,000 100,000 61,859(7)
Chief Financial Officer and 1996 -- -- -- -- -- --
Secretary of TeleHub
</TABLE>
- ---------------
(1) Related to 1997 accrued bonus with an option to be paid either in cash or by
a combination of cash and stock options in 1998.
(2) Car allowance.
(3) Consists of $5,000 set aside in a 401(k) plan by the Company and $4,804 paid
for life insurance premium.
(4) Consulting fees for services prior to commencement of employment on August
1, 1996.
(5) Consists of pro rated annual base salary for the portion of the year
actually worked.
(6) Allowance in lieu of certain employee benefits.
(7) Consists of $29,359 for relocation expenses and $32,500 consulting fees for
services prior to executing Mr. Harmon's employment agreement.
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<PAGE> 61
OPTIONS GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
% OF TOTAL OF STOCK PRICE
OPTIONS MARKET APPRECIATION
GRANTED TO EXERCISE PRICE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN OR BASE ON DATE EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR PRICE ($/SH) OF GRANT DATE 10%($)
- ---- ---------- ------------ ------------ -------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Donald H. Sledge................ 70,000 4.7 5.00 2.50(1) 5/1/2007 103,900
80,000 5.5 5.50 2.50(1) 5/1/2007 78,700
Michael G. McLaughlin........... 150,000 10.2 5.00 2.50(1) 5/1/2007 222,700
Timothy C. Chandler............. 50,000 3.4 5.00 2.50(1) 5/1/2007 74,200
Barry C. Lescher................ 100,000 6.8 5.00 2.50(1) 5/1/2007 148,400
Richard M. Harmon............... 100,000 6.8 5.00 2.50(1) 5/1/2007 148,400
</TABLE>
- ---------------
(1) Valued at one half of the $5.00 per share offering price of Preferred Stock
in the Spring 1997 Offering, which closed on April 30, 1997.
(2) The 5% column has been excluded since the potential realizable value would
be negative for executive grants at a 5% annual appreciation rate.
AGGREGATED OPTIONS EXERCISABLE IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
FY-END (MARKET PRICE OF
VALUE REALIZED NUMBER OF UNEXERCISED SHARES AT FY-END ($8.83)
(MARKET PRICE AT OPTIONS AT FY-END(#) LESS EXERCISE PRICE)(1)
SHARES ACQUIRED EXERCISE LESS --------------------------- ---------------------------
NAME ON EXERCISE(#) EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald H. Sledge........... -- -- 37,500 112,500 $133,625 $400,875
Michael G. McLaughlin...... -- -- 37,500 112,500 $143,625 $430,875
Timothy C. Chandler........ -- -- 12,500 37,500 $ 47,875 $143,625
Barry C. Lescher........... -- -- 25,000 75,000 $ 95,750 $287,250
Richard M. Harmon.......... -- -- 25,000 75,000 $ 95,750 $287,250
</TABLE>
- ---------------
(1) Based on the common stock offering price in the Fall 1997 Offering which
closed on December 8, 1997.
COMPENSATION PLAN
1997 STOCK OPTION PLAN. The Company's 1997 Stock Option Plan (the "Plan")
was adopted by the Board and approved by the stockholders in May 1997. A total
of 4,600,000 shares of Common Stock have been reserved for issuance under the
Plan, as amended on March 18, 1998 by the Board. As of September 30, 1998,
options to purchase 3,715,878 shares of Common Stock were outstanding under the
Plan, and no shares had been issued upon exercise of previously granted options.
The Plan provides for grants to employees of the Company (including officers and
employee directors) of "incentive stock options" ("ISOs") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
for grants of nonstatutory stock options to employees (including officers and
employee directors and non-employee directors) of the Company or any subsidiary
of the Company. The Plan is administered by the Board or a committee of the
Board (the "Administrator"). The Plan is currently being administered by the
Board. The Administrator may determine the terms of the options granted,
including the exercise price, the number of shares subject to each option and
the exercisability of the option. The Administrator also has the full power to
select the individuals to whom options will be granted and to make any
combination of grants to any participants.
Options granted generally vest immediately as to 25% of the shares subject
to the option and then at a rate of 25% of the shares subject to the option on
January 1(st) of the subsequent 3 years following the grant
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<PAGE> 62
date. The term of an option is determined by the specific option agreement. No
option may be exercised by any person after its term or the Plan expires.
MANAGEMENT INCENTIVE PLAN
In June 1998, the Board directed the Compensation Committee to develop a
Management Incentive Plan that provides stock option awards to senior
management. If the Company achieves specified market valuations based upon the
value of its Common Stock from June 2, 1998 to June 2, 2000, eligible
participants may receive stock options exercisable at $14.58 per share (the
estimated fair market value of the Company's Common Stock on June 2, 1998). The
aggregate number of stock options that may be awarded under the Management
Incentive Plan increases from approximately 500,000 shares if the Company's
Common Stock value is $20.00 per share to a maximum of approximately two million
shares if the Company's Common Stock value increases to $60.00 per share.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Sledge and
McLaughlin, commencing January 2, 1997, Mr. Lescher commencing on January 1,
1997, Mr. Harmon commencing on May 4, 1998, Mr. Swinburne commencing January 1,
1998 and Mr. Chandler commencing April 17, 1997. The Company also has employment
agreements with certain other executives.
The Company's employment agreements with Messrs. Sledge and McLaughlin
provide for an initial five year term and Mr. Lescher's employment agreement
provides for an initial two year term. After the initial term each agreement is
automatically renewed for an additional one-year term until either party
provides 30 days notice of termination prior to the end of a term. The
agreements provide for an annual base salary and an incentive bonus determined
by the Board. Messrs. Sledge and McLaughlin also receive stock options under the
Company's Plan. If the Company terminates any of the employment agreements
without cause or if the Company or the employee terminates the respective
employment agreement upon the occurrence of a major transaction involving the
Company, then Messrs. Sledge and McLaughlin will receive a termination fee equal
to 200% of their annual salaries plus benefits and specified bonuses and Mr.
Lescher will receive 100% of his annual salary plus benefits plus a specified
bonus. Each of Messrs. Lescher, Sledge and McLaughlin is subject to a
confidentiality covenant and Messrs. Sledge and McLaughlin are each subject to a
one-year non-competition commitment following the termination of his employment.
Mr. McLaughlin may also be reimbursed for the annual premiums that he incurs for
his disability and $5,000,000 term life insurance policies.
The Company has employment agreements with Messrs. Harmon and Swinburne
which provide for an initial four-year term and thereafter one-year terms until
either party provides 30 days notice of termination prior to the end of a term.
The agreements provide for an annual base salary and an incentive bonus
determined by the Board. Messrs. Swinburne and Harmon also receive stock options
under the Company's Plan. Mr. Swinburne receives performance options if certain
criteria are met. If the Company terminates the employment agreement without
cause or if the Company or the employee terminates the employment agreement upon
the occurrence of a major transaction involving the Company, then Messrs.
Swinburne and Harmon shall each receive a termination fee equal to 100% of his
annual salary plus benefits plus a specified bonus. Payments shall only be made
upon the employee's execution of a standard release waiving all claims against
the Company. Messrs. Swinburne and Harmon are each subject to a confidentiality
covenant. In addition, Mr. Harmon is subject to a one year non-competition
commitment following termination of his employment. The Company's employment
agreement with Mr. Harmon also provides that the Company would loan Mr. Harmon
up to $400,000 for the purchase of a home upon his permanent relocation to
Illinois. This loan, made in August 1998, is evidenced by a seven year
promissory note at 7% interest, collateralized by a second mortgage on Mr.
Harmon's home.
The Company's employment agreement with Mr. Chandler provides for an
initial two-year term and thereafter one-year terms until either party provides
30 days notice of termination prior to the end of a term. The agreement provides
for an annual base salary and an incentive bonus determined by the Board. If the
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<PAGE> 63
Company terminates the employment agreement without cause, or if the Company or
Mr. Chandler terminates the employment agreement upon the occurrence of a major
transaction involving the Company, then Mr. Chandler shall receive a termination
fee equal to 50% of his annual salary plus benefits plus a specified bonus.
Payments shall only be made upon Mr. Chandler's execution of a standard release
waiving all claims against the Company. Mr. Chandler is subject to a
confidentiality covenant.
The Company has employment agreements with certain other executives. These
agreements generally have a two-year initial term and thereafter one-year
renewal terms until either party provides 30 day notice of termination prior to
the end of a term. The agreements provide for an annual base salary and an
incentive bonus determined by the Board, plus eligibility for awards under the
Company's Plan. If the Company terminates the employment without cause or if the
employment is terminated upon the occurrence of a major transaction involving
the Company, then the executive shall receive a termination fee equal to 50% to
100% of his annual salary plus benefits plus a specified bonus. Payments shall
only be made upon execution of a standard release waiving all claims against the
Company. The agreements also contain a confidentiality covenant. Certain of
these employment agreements contain a one year non-competition covenant
DIRECTOR COMPENSATION
TeleHub currently does not provide cash compensation to its Directors who
are not also employees for attendance at Board or committee meetings, but does
reimburse expenses related to such attendance (e.g., airfare or telephone
charges). Directors annually receive options to purchase 20,000 shares of Common
Stock under the stock option plan; the exercise price is market price at the
time of grant and the options vest at the start of the next fiscal year.
COMPENSATION COMMITTEE INTERLOCKS; AUDIT COMMITTEE
During 1997 and until May 31, 1998, the entire Board served as the
Compensation Committee, which determines the compensation of the Company's
executive officers. Two executive officers, Messrs. Sledge and McLaughlin served
on the Board and therefore also the Compensation Committee during 1997, while
Messr. Harmon, the Company's CFO, joined the Board (and the Compensation
Committee) in March 1998. Since June 1998, Messrs. Slevin and Pedde have been
the only members of the Compensation Committee. Since February 1996, Mr. Sledge
has served as the Chairman of United Digital and as a member of its compensation
committee. Mr. Snedegar has served as the President and a director of United
Digital since 1990. The Board has also established an Audit Committee composed
of Messrs. Walsh, Snedegar and Slevin, which recommends to the Board the
selection of independent accountants, and reviews the scope and results of the
audit and other services provided by the independent accountants.
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<PAGE> 64
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 30, 1998 the number of
shares of Common Stock and Preferred Stock owned by (i) each executive officer
and Director and each person who owned of record, or was known to own
beneficially, more than five percent of the Company's outstanding Common Stock
or Preferred Stock, and (ii) executive officers and Directors as a group. Unless
otherwise indicated, the address for each of the following persons or entities
is c/o TeleHub Communications Corporation, 2033 North Main Street, Suite 340,
Walnut Creek, California 94596.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES OUTSTANDING
NAME BENEFICIALLY OWNED SHARES(1)
---- ------------------ -----------
<S> <C> <C>
5% STOCKHOLDERS:
Hartford Holdings, Ltd...................................... 5,191,950(2) 31.5%
Box 143, Cayman Islands
British West Indies
Roseville Computer Projects Limited......................... 4,100,000 25.4%
P.O. Box 556, Charleston, Nevis
West Indies
Sledge Family Trust......................................... 1,494,167(3) 9.3%
27 Cherry Hill Court
Alamo, California
EXECUTIVE OFFICERS AND DIRECTORS(4):
William W. Becker........................................... 5,266,950(5) 31.8%
Chairman of the Board of Directors
Donald H. Sledge............................................ 1,577,917(6) 9.7%
Vice-Chairman of the Board, Chief Executive Officer and
President
Michael G. McLaughlin....................................... 583,750(7) 3.5%
Chief Technology Officer and Director
Herbert H. Swinburne........................................ 25,000(8) 0.2%
President of TNS
Richard M. Harmon........................................... 506,246(9) 3.0%
Chief Financial Officer, Treasurer, Secretary and Director
Barry C. Lescher............................................ 50,000(10) 0.3%
Assistant Secretary and Director
John F. Slevin.............................................. 670,500(11) 4.0%
Director
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP (7 BENEFICIAL
OWNERS)................................................... 8,680,363(12) 47.6%
</TABLE>
- ---------------
(1) Based on 16,203,037 shares of Common Stock outstanding as of September 30,
1998 (which includes full conversion of the 3,500,000 shares of Preferred
Stock outstanding as of September 30, 1998 at the rate of 1 for 1) plus
shares of Common Stock that may be acquired by the indicated person
pursuant to any options and warrants exercisable within 60 days. Beneficial
ownership is determined in accordance with the rules of the SEC. Such
shares, however, are not deemed outstanding for purposes of computing the
percentage ownership of the other stockholders or groups of stockholders.
(2) Includes 4,384,450 shares of Common Stock, 480,000 shares of Preferred
Stock and 327,500 shares of Common Stock issuable upon the exercise of
warrants.
(3) Includes 1,479,167 shares of Common Stock, 10,000 shares of Preferred Stock
and 5,000 shares of Common Stock issuable upon exercise of warrants.
(4) Oz Pedde, John Snedegar, Martin Walsh and John Strand are Directors or
executive officers of TeleHub, however, as of September 30, 1998, they did
not beneficially own any interests in TeleHub.
(5) Includes 75,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days and all shares owned by HHL, of which Mr.
Becker, the Company's Chairman, is the principal shareholder.
(6) Includes 83,750 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days and all shares owned by the Sledge Family Trust,
of which Mr. Sledge is trustee and a beneficiary.
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<PAGE> 65
(7) Includes 83,750 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days and 500,000 shares of Common Stock issuable upon
exercise of warrants.
(8) Includes 25,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(9) Includes 450,000 shares of Common Stock issuable upon exercise of warrants
and 56,246 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(10) Includes 50,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(11) Includes 10,000 shares of Common Stock, 30,000 shares of Preferred Stock,
165,000 shares of Common Stock issuable upon exercise of warrants, 20,000
shares of Common Stock issuable pursuant to stock options exercisable
within 60 days, all personally owned by Mr. Slevin. Also includes 200,000
shares of Common Stock and 245,500 shares of Common Stock issuable pursuant
to warrants that are owned by Comdisco, for which Mr. Slevin serves as
Chairman and CEO.
(12) Includes 6,073,617 shares of Common Stock, 520,000 shares of Preferred
Stock, 1,693,000 shares issuable upon the exercise of warrants and 393,746
shares issuable pursuant to options exercisable within 60 days.
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<PAGE> 66
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1998, the Company loaned $400,000 to Mr. Harmon for the purchase
of a home upon his permanent relocation to Illinois, in accordance with Mr.
Harmon's employment agreement. Mr. Harmon gave the Company a seven year
promissory note at 7% interest, collateralized by a second mortgage on Mr.
Harmon's home.
In August 1998, the Company also loaned $235,340 to Mr. McLaughlin, who
gave the Company a six month promissory note at 18% interest. If Mr. McLaughlin
defaults on this note, then the Company may setoff unpaid amounts against the
amounts to be paid under Mr. McLaughlin's employment contract. While this note
is not secured, the Company believes its potential setoff rights exceed the
amount of the note.
On June 2, 1998, the Company issued to Mr. Slevin, a Director of TeleHub
and President and CEO of Comdisco, a warrant to purchase 100,000 shares of
Common Stock for $12.50 per share, exercisable until the later of ten years
after issuance or five years after an initial public offering.
On May 13, 1998, Mr. Harmon sold warrants to purchase 150,000 shares of
Common Stock, with an exercise price of $7.50, for $4.91 per warrant to three
individuals, including Mr. Slevin who purchased warrants for 50,000 shares of
Common Stock.
In May 1998, the Company received a $12 million Bridge Loan from Comdisco.
The Bridge Loan was collateralized by all of the Company's intangible property,
including VASP(TM). Comdisco also received a warrant to purchase 240,000 shares
of Common Stock for $10.00 per share, exercisable until May 5, 2005. The Company
repaid this Bridge Loan, including approximately $98,600 of accrued interest,
from the proceeds of the Initial Note Offering.
In March 1998, the Company granted to Mr. Martin Walsh, a Director, a
warrant to purchase 15,000 shares of Common Stock for $10.00 per share,
exercisable until March 4, 2001. Later in March 1998, Mr. Walsh joined TeleHub's
Board.
In February 1998, the Company loaned $112,029 to Mr. Swinburne, TNS's
President. Mr. Swinburne gave the Company an unsecured, non-interest bearing
promissory note in exchange for the loan. In May 1998 Mr. Swinburne repaid this
loan.
In December 1997, Comdisco received a warrant to purchase 5,500 shares of
Common Stock at a price of $10.00 per share, exercisable at the earlier of seven
years after issuance or two years after an initial public offering of the
Company's capital stock. Mr. Wheatley, a Comdisco executive, also received a
warrant to purchase 1,750 shares of Common Stock at a price of $7.50 per share.
In the Fall 1997 Offering, Mr. Slevin purchased one unit (10,000 shares of
Common Stock and warrants to purchase 3,500 shares of Common Stock) and Comdisco
purchased 20 units (200,000 shares of Common Stock and 70,000 warrants to
purchase Common Stock).
In November 1997, the Company loaned $250,000 to Mr. Harmon, its CFO and a
Director. Mr. Harmon gave the Company a promissory note bearing interest at 1%
over the prime rate, secured by warrants to purchase 150,000 shares of Common
Stock at $7.50 per share. Mr. Harmon repaid this loan in May 1998.
In the Spring 1997 Offering, Mr. Slevin purchased 1.5 units (30,000 shares
of Preferred Stock and warrants to purchase 5,000 shares of Common Stock). See
"Security Ownership of Certain Beneficial Owners and Management."
In April 1997, the Company entered into an equipment lease financing
facility with Comdisco. As of March 31, 1998, the Company had utilized four
installments of this facility for a total of $6,156,407. These installments have
quarterly lease rate factors ranging from 8 1/2% to 9 1/2%, have terms of 3 to 4
years, have aggregate quarterly payments of approximately $460,000 and a
repurchase option for fair market value at the end of the term.
In December 1996, HHL agreed to provide a bridge loan of up to $1.0 million
to the Company with an interest rate of 17% per annum. The Company repaid the
principal and accrued interest on this loan in
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<PAGE> 67
March 1997 from the net proceeds of the Spring 1997 Offering. Concurrently, the
Company issued to HHL 134,450 additional shares of Common Stock pursuant to the
terms of obligations owed by the Company to HHL, including the bridge loan and
the Indemnification Obligation (as defined). In connection with the issuance of
these shares, the Company accepted a note from HHL for $40,000 which was
subsequently paid.
During 1996, HHL provided consulting services to the Company with a value
of $169,000, which the Company paid through the Spring 1997 Offering issuance of
33,800 shares of Preferred Stock. HHL is the Company's largest shareholder and
Mr. William Becker, the Company's Chairman, is a principal and the primary
shareholder of HHL. The Company also has a consulting agreement with
International Telecommunications Consultants, an affiliate of HHL. This
agreement provides for a $175,000 annual consulting fee. The Company has been
informed that HHL is in preliminary negotiations for a business transaction
involving the Australasian joint venture partner. See "Business -- TTC Customer
Relationships." HHL is also a client of Watson & Associates, an affiliate of
Director Oz Pedde.
During 1996, the Company agreed to indemnify HHL (the "Indemnification
Obligation") from any claims and liabilities that might be incurred by HHL
through its efforts to assist in the placement of $3.0 million of securities of
Cam-Net Communications Network Inc. ("Cam-Net"), a Canadian company which
proposed merging with the Company. Parties unrelated to HHL had advanced
$600,000 on a private placement of securities of Cam-Net. When the proposed
merger was terminated, the securities offering by Cam-Net was also canceled, and
HHL was required to repay $600,000 pursuant to its arrangement with the
advancing party. The Company fulfilled its Indemnification Obligation to HHL by
issuing 120,000 shares of Preferred Stock and 60,000 warrants to purchase Common
Stock at $7.50 per share in the Spring 1997 Offering.
In January 1996, Roseville Computer Projects Ltd. ("Roseville") contributed
software to the Company in exchange for 151 shares of capital stock of TNS. In
March 1996, Roseville assigned all right, title and interest in the VASP(TM)
software to TNS in exchange for an additional 274 shares of capital stock of
TNS. In January 1997, Roseville exchanged all of its TNS shares for 4,250,000
shares of TeleHub Common Stock. In July 1997, Roseville sold its network
databases and libraries and assigned all associated right, title and interest to
the Company for $485,000, of which $200,000 was paid in August 1997 and the
$285,000 balance of which, plus interest at the rate of 12% per annum, was paid
in January 1998. A Roseville subsidiary provided consulting services (primarily
maintenance of the network data bases and libraries) to the Company for a
$20,000 monthly fee. The Roseville subsidiary received a total of $325,000 under
this consulting arrangement, which was terminated on January 1, 1998.
During 1996, the Company contracted for software development services with
Access Point Communications Corporation ("APCC"), an entity controlled by Mr.
McLaughlin, a Director and the CTO of TTC. The Company paid APCC $974,915 for
these services during 1996, and also reimbursed APCC $36,309 for operating
expenses advanced by APCC. The Company also incurred $550,000 in management fees
to APCC for services provided by Messrs. McLaughlin and Lescher and other TNS
principals and for network library maintenance fees. Of the $974,915 paid to
APCC, a subsidiary of Roseville received $300,000 as a subcontractor to APCC.
The Company's relationship with APCC terminated at the end of 1996, at which
time Messrs. McLaughlin and Lescher became full-time Company employees.
HHL and the Sledge Family Trust (the "Trust"), significant Company
shareholders, advanced initial funding for development of the Company's
business. Mr. Donald Sledge, the Company's Vice Chairman, CEO and President, is
a trustee and beneficiary of the Trust. During 1996, HHL loaned the Company
$1,350,000, evidenced by two 7.5% promissory notes, and $411,243, evidenced by a
12% promissory note, and the Trust made a $50,000 loan to the Company, evidenced
by a 7.5% promissory note. Concurrently with the Spring 1997 Offering, HHL
exchanged the promissory notes, related accrued interest, the Indemnification
Obligation and accounts payable balances totaling $2.4 million for 480,000
shares of Preferred Stock and the Trust exchanged its $50,000 promissory note
for 10,000 shares of Preferred Stock. In conjunction with the exchange, HHL and
the Trust also received warrants to purchase, respectively, 240,000 and 5,000
shares of Common Stock at $7.50 per share.
The Company believes that each of these transactions was on terms no less
favorable to the Company than it could have obtained in transactions with
unrelated third parties.
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<PAGE> 68
DESCRIPTION OF THE NOTES
The following discussion summarizes certain provisions of the Notes; except
where otherwise indicated, this summary applies to both the Old Notes and the
New Notes. The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the Exchange Offer
will be registered under the Securities Act, and therefore the New Notes will
not be subject to certain transfer restrictions and registration rights
applicable to the Old Notes. See "The Exchange Offer."
The Notes are issued under the Indenture, which is subject to and governed
by the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act, and to all of the provisions of the Indenture,
including the definitions of certain terms therein and those terms made a part
of the Indenture by reference to the Trust Indenture Act, as in effect on the
date of the Indenture. The definitions of certain capitalized terms used in the
following summary are set forth below under "Certain Definitions." A copy of the
Indenture may be obtained upon request from the Issuer, 1375 Tri-State Parkway,
Suite 250, Gurnee, Illinois, 60031; (847) 782-2000.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not be treated as an exchange or other taxable event for U.S. Federal income tax
purposes because, under the Regulations, the New Notes do not differ materially
in kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such holder.
As a result, there should not be any U.S. Federal income tax consequences to
holders from the exchange of Old Notes for New Notes pursuant to the Exchange
Offer and any such holder will have the same tax basis and holding period in the
New Notes as it had in the Old Notes immediately before the exchange.
GENERAL
The Old Notes were issued pursuant to the Indenture among the Company, the
Guarantors and State Street Bank and Trust Company, as trustee (the "Trustee"),
in a private transaction that was not subject to the registration requirements
of the Securities Act. The New Notes will be issued pursuant to the Indenture in
the Exchange Offer, which will be registered under the Securities Act. The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Notes, the Indenture
and the Note Registration Rights Agreement does not purport to be complete and
is qualified in its entirety by reference to the Notes, the Indenture and the
Note Registration Rights Agreement, including the definitions therein of certain
terms used below. A copy of the proposed forms of Notes, the Indenture and the
Note Registration Rights Agreement is available as set forth below under
"-- Additional Information." The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions." For
purposes of this "Description of Notes," the term "Company" refers only to
TeleHub Communications Corporation and not to any of its Subsidiaries.
The Notes are general unsecured obligations of the Company ranking senior
to all existing and future subordinated Indebtedness of the Company and pari
passu in right of payment with all other existing and future Debt of the
Company. As of June 30, 1998, after giving pro forma effect to the Initial Note
Offering and the application of the net proceeds therefrom (including repayment
of the Bridge Loan), the Company would have had approximately $72.9 million of
total indebtedness outstanding ($11.6 million of which would have constituted
secured indebtedness) and none of which would have constituted subordinated
indebtedness. The Indenture permits the Company and its Subsidiaries to incur
additional indebtedness, including additional Senior Debt, subject to certain
restrictions. See "-- Certain Covenants -- Limitations on Incurrence of
Indebtedness." A significant portion of the consolidated operations of the
Company are conducted through its Subsidiaries and, therefore, the Company is
dependent upon the cash flow of its Subsidiaries to meet its obligations,
including its obligations under the Notes.
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<PAGE> 69
The Company's payment obligations under the Notes are fully, jointly and
severally guaranteed, on a senior unsecured basis, by all of the Company's
existing Subsidiaries and all Subsidiaries created or acquired by the Company in
the future. The guarantee of each of the Guarantors ranks senior in right and
priority of payment to all subordinated indebtedness of such Guarantor and ranks
pari passu in right and priority of payment with all other indebtedness of such
Guarantor that is not expressly so subordinated to such guarantee, except to the
extent of any collateral securing such other indebtedness. See "-- Guarantees."
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount at maturity to $125
million and mature on July 31, 2005. The Notes were issued at a substantial
discount from their principal amount at maturity, to generate gross proceeds of
approximately $83.6 million. Cash interest on the Notes will not accrue prior to
July 31, 2001. Through July 31, 2001, the Notes will accrete at a rate of
13 7/8% compounded semi-annually. Thereafter, interest on the Notes will accrue
at a rate of 13 7/8% per annum and will be payable semi-annually, in cash, on
January 31 and July 31 of each year, commencing on January 31, 2002, to Holders
of record on the immediately preceding January 15 and July 15. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal or Accreted Value of and premium, interest and Liquidated Damages, if
any, on the Notes will be payable at the office or agency of the Company
maintained for such purpose or, at the option of the Company, payment of
interest and Liquidated Damages, if any, may be made by check mailed to the
Holders of the Notes at their respective addresses set forth in the register of
Holders of Notes; provided that all payments with respect to Notes, the Holders
of which have given wire transfer instructions to the Company, will be required
to be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency will be the office of the Trustee maintained for such
purpose. The Notes were issued in denominations of $1,000 and integral multiples
thereof.
GUARANTEES
The obligations of the Company under the Notes are guaranteed, fully,
jointly and severally, by its Subsidiaries and such other Persons that become
Subsidiaries after the Issue Date and each of their respective successors. The
Guarantee issued by each Guarantor ranks senior in right and priority of payment
to all other Indebtedness of such Guarantor that is expressly subordinated to
the guarantee of the Notes and ranks pari passu in right and priority of payment
with all other Indebtedness of such Guarantor that is not expressly so
subordinated to such Guarantee, except to the extent of any collateral securing
such other Indebtedness.
The Indenture contains provisions the intent of which is to provide that
the obligations of each Subsidiary with respect to its Guarantee will be limited
to the maximum amount that will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary and after giving effect to any collections
from, rights to receive contribution from, or payments made by or on behalf of
any other Subsidiary in respect of the obligations of such other Subsidiary
under its Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary under its Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under any applicable
federal or state law. Each Subsidiary that makes a payment or distribution under
a Guarantee is entitled to contribution from each other Subsidiary so long as
the exercise of such right does not impair the rights of the Holders of the
Notes under the Guarantees.
The Indenture provides that in the event of: (i) a sale or other
disposition of all or substantially all of the assets of any Subsidiary or the
sale of a Subsidiary, by way of merger, consolidation or otherwise or (ii) a
sale or other disposition of all of the Capital Stock of any Subsidiary, then
such Subsidiary or the entity acquiring the assets, as applicable, shall be
released and relieved of any obligations under its guarantee, provided that the
Company complies with the provisions of the covenant entitled "-- Asset Sales."
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option before July 31, 2002.
Thereafter, the Notes are subject to redemption at the option of the Company, in
whole or in part, upon not less than 30 nor more than
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60 days' notice, at the redemption prices (expressed as percentages of principal
amount at maturity) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on July 31 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2002........................................................ 106.9375%
2003........................................................ 103.46889%
2004 and thereafter......................................... 100.0000%
</TABLE>
Notwithstanding the foregoing, upon the occurrence of a TNS/TTC
Transaction, the Company may, at its option, by giving notice of redemption at
any time not less than 30 nor more than 60 days prior to such transaction,
redeem all, but not less than all, of the outstanding Notes concurrently with
the consummation of such transaction at a redemption price equal to, at any time
on or prior to July 31, 2002, 100% of the Accreted Value thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon, and the applicable
Make-Whole Premium and after such date at the amount that would be payable to
the holders if the Company on such date were to redeem the Notes. On the date
fixed for redemption in connection with a TNS/TTC Transaction, the Company will
deposit with the Trustee sufficient monies to redeem in full the Notes and
deliver to the Trustee a solvency opinion (from a nationally recognized
investment bank with expertise in giving solvency opinions) dated the date of
the consummation of such transaction and stating that after giving effect to the
redemption of the Notes the Company will be solvent.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount at
maturity thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
shall cease to accrue on Notes or portions thereof called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control or a TNS/TTC Transaction
Upon the occurrence of a Change of Control, the Company will be required to
make an offer (a "Change of Control Offer") to repurchase all or any part (equal
to $1,000 face amount or an integral multiple thereof) of each Holder's Notes at
an offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of repurchase (or, in the case of repurchase of Notes prior to July 31,
2002, at a purchase price equal to 101% of the Accreted Value thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of repurchase) (the "Change of Control Payment").
Upon the occurrence of a TNS/TTC Transaction, if the Company has not
exercise its right to redeem the Notes concurrently with the consummation of the
TNS/TTC Transaction or has not made an offer to each Holder of Notes to
repurchase the Notes concurrently with the consummation of such transaction in a
manner that otherwise complies with the notice requirements and clauses (a) and
(b) of this provision, the Company
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will be required to (a) deposit with the Trustee upon consummation of such
transaction sufficient monies to redeem in full the Notes, (b) deliver to the
Trustee a solvency opinion (from a nationally recognized investment bank with
expertise in giving solvency opinions) dated the date of the consummation of
such transaction and stating that after giving effect to the redemption of the
Notes the Company will be solvent and (c) within ten days of the consummation of
such transaction make an offer (a "TNS/TTC Put Option Offer") to each Holder to
repurchase all or any part (equal to $1,000 face amount or an integral multiple
thereof) of each Holder's Notes at an offer price in cash equal to, at any time
on or prior to July 1, 2002, the Accreted Value thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon, and the applicable Make-Whole
Premium and after such date an amount that would be payable to the Holders for
each Note to be purchased if the Company on such date were to redeem the Notes
(the "TNS/TTC Put Option Payment").
Within ten days following any Change of Control the Company will mail a
notice to each Holder describing the transaction that constitutes the Change of
Control and offering to repurchase the Notes on the date specified in such
notice, which date shall be no earlier than 30 days and no later than 60 ways
from the date such notice is mailed (the "Change of Control Payment Date"). At
any time within 60 days prior to or within 10 days after a TNS/TTC Transaction,
the Company may and in certain circumstances will mail a notice to each Holder
describing the transaction that constitutes the TNS/TTC Transaction and offering
to repurchase the Notes on the date specified in such notice, which date shall
be no earlier than 30 days and no later than 60 days from the date such notice
is mailed (the "TNS/TTC Put Option Payment Date"). The Company will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control or TNS/TTC Transaction, as the case may be.
On the Change of Control Payment Date or the TNS/TTC Put Option Payment
Date, as the case may be, the Company will, to the extent lawful, (i) accept for
payment all Notes or portions thereof properly tendered pursuant to the Change
of Control Offer or TNS/TTC Put Option Offer, as the case may be, (ii) deposit
with the paying agent appointed by the Company as contemplated by the Indenture
(the "Paying Agent"), unless previously deposited, an amount equal to the Change
of Control Payment or TNS/TTC Put Option Payment, as the case may be, in respect
of all Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent will promptly mail to each
Holder of Notes so tendered the Change of Control Payment or TNS/TTC Put Option
Payment, as the case may be, for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount at maturity of $1,000 or an integral multiple thereof. The Indenture
provides that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will either
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the repurchase
of Notes required by this covenant. The Company will publicly announce the
results of the Change of Control Offer or TNS/TTC Put Option Offer, as the case
may be, on or as soon as practicable after the Change of Control Payment Date or
the TNS/TTC Put Option Payment Date, as the case may be.
Except as described above with respect to a Change of Control or a TNS/TTC
Transaction, the Indenture does not contain provisions that permit the Holders
of the Notes to require that the Company repurchase or redeem the Notes in the
event of a takeover, recapitalization or similar transaction.
Due to the leveraged structure of the Company and the effective
subordination of the Notes to secured Indebtedness of the Company and of the
Company's Subsidiaries, the Company may not have sufficient funds available to
purchase the Notes tendered in response to a Change of Control Offer. In
addition, agreements relating to Indebtedness of the Company or the Company's
Subsidiaries may contain prohibitions or restrictions on the Company's ability
to effect a Change of Control Payment.
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The Company will not be required to make a Change of Control Offer or
TNS/TTC Put Option Offer, as the case may be, upon a Change of Control or a
TNS/TTC Transaction if a third party makes the Change of Control Offer or
TNS/TTC Put Option Offer, as the case may be, in the manner, at the times and
otherwise in compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer or TNS/TTC Put Option Offer, as the case
may be, made by the Company and purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer or TNS/TTC Put Option Offer, as the
case may be.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, engage in an Asset Sale unless (i) the Company or such
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 80% of the consideration therefor received by the Company
or such Subsidiary is in the form of Cash Equivalents; provided that the amount
of (a) any liabilities (as shown on the Company's or such Subsidiary's most
recent balance sheet) of the Company or any Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes)
that are assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Company or such Subsidiary from further
liability and (b) any notes or other obligations received by the Company or such
Subsidiary from such transferee that are immediately converted by the Company or
such Subsidiary into Cash Equivalents (to the extent of the cash received) shall
be deemed to be Cash Equivalents for purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Subsidiary may apply such Net Proceeds (i) to permanently
reduce borrowings under the Bank Credit Facility (and to correspondingly reduce
commitments with respect thereto) or (ii) to make capital expenditures or
acquire long-term assets in the same line of business as the Company was engaged
immediately prior to such Asset Sale or, in the case of a sale of accounts
receivable in connection with any accounts receivable financing, for working
capital purposes. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce senior indebtedness or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $2.0 million, the Company will
be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to
purchase the maximum principal amount at maturity of Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to 101%
of the Accreted Value thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon and if such purchase occurs after July 31, 2001,
accrued and unpaid interest to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate Accreted
Value of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes (subject to the restrictions of the Indenture). If the
Accreted Value of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
CERTAIN COVENANTS
Limitations on Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's or any of
its Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company), other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or dividends or distributions payable to the
Company or any Wholly Owned Subsidiary of the Company; (ii) purchase, redeem or
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otherwise acquire or retire for value (including, without limitation, any
payment in connection with any merger or consolidation involving the Company)
any Equity Interests of the Company or any Subsidiary or other Affiliate of the
Company (other than any such Equity Interests owned by the Company or any Wholly
Owned Subsidiary of the Company); (iii) make any principal payment on, or
purchase, redeem, defease or otherwise acquire or retire for value, prior to a
scheduled mandatory sinking fund payment date or final maturity date, any
Indebtedness that is subordinated to the Notes or any Guarantee; or (iv) make
any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter measurement
period, have been permitted by virtue of the Company's Consolidated
Leverage Ratio, to incur at least $1.00 of additional Indebtedness pursuant
to the Consolidated Leverage Ratio test set forth in the covenant described
below under the caption "--Limitations on Incurrence of Indebtedness"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries on or after
the Issue Date (excluding Restricted Payments permitted by clauses (ii),
(iii) and (iv) of the next succeeding paragraph), is less than the sum of
(1) 50% of the Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of the Company's most recently
ended fiscal quarter for which financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit), plus (2) 100% of the
aggregate net cash proceeds received by the Company as capital
contributions or from the issue or sale since the Issue Date of Equity
Interests of the Company or of debt securities of the Company that have
been converted into such Equity Interests (other than (A) Equity Interests
(or convertible debt securities) sold to a Subsidiary of the Company,(B)
Disqualified Stock or debt securities that have been converted into
Disqualified Stock and (C) any such net cash proceeds utilized as the basis
to incur Indebtedness under clause (viii) of the covenant "-- Limitations
on Incurrence of Indebtedness"), plus (3) to the extent that any Restricted
Investment that was made after the Issue Date is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investments (but, in
either case, only to the extent not included in subclause (1) of this
clause (c)).
The foregoing provisions will not prohibit: (i) the payment of any dividend
or other distribution within 60 days after the date of declaration thereof, if
at said date of declaration such payment would have complied with the provisions
of the Indenture; (ii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c) of the preceding paragraph; (iii)
the defeasance, redemption or repurchase of subordinated Indebtedness with the
net cash proceeds from an incurrence of Permitted Refinancing Debt or the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c) of the preceding paragraph; (iv) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests held by any member
of the Company's (or any of its Subsidiaries') management pursuant to any
management equity subscription agreement, stock option or similar employee
incentive arrangement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.0 million in any twelve-month period; and provided, further, that such
repurchase, redemption or other
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acquisition or retirement may not include any Equity Interests owned, directly
or indirectly, by the Principals; and (v) any dividend or distribution in the
form of all of the capital stock of TNS or TTC or all or substantially all of
the assets comprising TNS's ATM Network or TTC's business, provided that no
assets of the Company or any of its other Subsidiaries shall have been or will
be transferred or licensed to the Subsidiary being divested by the Company other
than on an arm's-length basis and in the ordinary course and provided, further,
that concurrently with the consummation of such transaction (i) the Company
deposits with the Trustee sufficient monies to redeem in full the Notes and
concurrently therewith redeems the Notes as set forth under "-- Optional
Redemption" or if the Company has prior to such transaction given holders of the
Notes the right to put the Notes to the Company concurrently with the
consummation of such transaction, then the Company will only be obligated to
deposit with the Trustee sufficient monies to redeem in full those Notes as to
which Holders have demanded redemption and (ii) the Company delivers to the
Trustee a solvency opinion (from a nationally recognized investment bank with
expertise in giving solvency opinions), dated the date of the consummation of
such transaction and stating that after giving effect to the redemption of the
Notes as described above the Company will be solvent, provided, that any such
dividend or distribution shall nonetheless be treated as a Restricted Payment
for all other purposes including without limitation under clause (c).
The amount of all Restricted Payments other than cash shall be the fair
market value (evidenced by an Officers' Certificate delivered to the Trustee) on
the date of the Restricted Payment of the asset(s) or securities proposed to be
transferred by the Company or such Subsidiary, as the case may be, pursuant to
the Restricted Payment. The fair market value of any non-cash Restricted Payment
in excess of $2.5 million shall be determined by the Board of Directors of the
Company whose resolution with respect thereto shall be delivered to the Trustee,
such determination to be based upon an opinion or appraisal issued by an
unaffiliated accounting, appraisal or investment banking firm of national
standing. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt); provided, however, that, so long as no Default or Event of
Default has occurred and is continuing, the Company and any Guarantor may incur
Indebtedness (including Acquired Debt) if the Consolidated Leverage Ratio is
less than or equal to 5.50 to 1.00.
The foregoing provisions will not apply to:
(i) the incurrence by the Company and the Guarantors of Indebtedness
pursuant to the Bank Credit Facility in an aggregate principal amount not
to exceed 80% percent of the Company's receivables that are less than 60
days past due at any one time outstanding less any Net Proceeds of Asset
Sales applied to permanently reduce the Bank Credit Facility pursuant to
the provisions of the Indenture described under "Repurchase at the Option
of Holders -- Asset Sales;"
(ii) the incurrence by the Company and its Subsidiaries of Existing
Indebtedness;
(iii) the incurrence by the Company and its Subsidiaries of
Indebtedness represented by the Notes, the Guarantees, the Exchange Notes
and the Guarantees thereunder, and the Indenture;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness (A) represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Subsidiary or (B) in connection with the
acquisition of assets or a new Subsidiary; provided, that the aggregate
principal
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amount (or accreted value, as applicable) of Indebtedness incurred pursuant
to clause (A) and (B) of this clause (iv), together with any other
outstanding Indebtedness incurred pursuant to this clause (iv), does not
exceed $10 million at any one time outstanding;
(v) the incurrence of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Subsidiaries; provided that any
subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a Wholly
Owned Subsidiary of the Company, or any sale or other transfer of any such
Indebtedness to a Person that is neither the Company nor a Wholly Owned
Subsidiary of the Company, shall be deemed to constitute an incurrence of
such Indebtedness by the Company or such Subsidiary, as the case may be;
(vi) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund
Indebtedness that was permitted by the Indenture to be incurred (other than
Indebtedness incurred under clause (i) above);
(vii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate indebtedness that is
permitted by the terms of the Indenture to be outstanding; and
(viii) the incurrence by the Company of Indebtedness (other than
secured Acquired Debt) in an aggregate principal amount not to exceed 1.0
times the sum of the net cash proceeds received by the Company after the
date of the Indenture (other than in respect of Disqualified Stock) in
connection with any Public Offerings; provided that such Indebtedness (i)
does not mature prior to the maturity of the Notes , (ii) has a Weighted
Average Life to Maturity greater than the Notes, and (iii) is made
expressly subordinated to the Notes.
LIMITATIONS ON LIENS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom, or assign or convey any right to receive income therefrom,
unless the Notes are directly secured equally and ratably with the obligation or
liability secured by such Lien and except Permitted Liens.
LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries on its (1) Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the Indenture, the Notes and the Guarantees, (c) applicable law,
(d) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted to
be incurred by the terms of the Indenture, (e) customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (f) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, or (g)
Permitted Refinancing Debt, provided that the restrictions contained in the
agreements governing such
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Permitted Refinancing Debt are no more restrictive taken as a whole than those
contained in the agreements governing the Indebtedness being refinanced.
LIMITATIONS ON MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity, unless (i) the Company is the surviving entity or
the entity or the Person formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the Notes,
the Guarantees and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after such
transaction, no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (a) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (b) at the time of such transaction and
immediately after giving effect to such transaction, would be able to incur at
least $1.00 of additional Indebtedness pursuant to the Consolidated Leverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "-- Limitations on Incurrence of Indebtedness." The Company
will not be obligated to comply with provisions of this covenant in connection
with a TNS/TTC Transaction so long as concurrently with the consummation of such
transaction (i) the Company deposits with the Trustee sufficient monies to
redeem in full the Notes and concurrently therewith redeems the Notes as set
forth under "-- Optional Redemption" or if the Company has prior to such
transaction given holders of the Notes the right to put the Notes to the Company
concurrently with the consummation of such transaction, then the Company will
only be obligated to deposit with the Trustee sufficient monies to redeem in
full those Notes as to which Holders have demanded redemption and (ii) the
Company delivers to the Trustee a solvency opinion (from a nationally recognized
investment bank with expertise in giving solvency opinions) dated the date of
the consummation of such transaction and stating that after giving effect to the
redemption of the Notes as described above the Company will be solvent.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction (as determined in good faith by
the Board of Directors) with an unrelated Person and (ii) the Company delivers
to the Trustee (a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an unaffiliated accounting, appraisal or investment banking firm of
national standing. Notwithstanding the foregoing, transactions between or among
the Company and its Subsidiaries and Restricted Payments and Permitted
Investments
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that are permitted by the provisions of the Indenture described under the
caption "Restricted Payments," in each case shall not be deemed Affiliate
Transactions.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not permit
any of its Subsidiaries to, transfer, convey, sell or otherwise dispose of any
Capital Stock of any Subsidiary of the Company to any Person (other than the
Company or a Wholly Owned Subsidiary of the Company), unless (a) such transfer,
conveyance, sale or other disposition is of all of the Capital Stock of such
Subsidiary owned by the Company and its Subsidiaries and (b) such transaction is
conducted in accordance with the covenant described above under the caption
"-- Asset Sales" and (ii) will not permit any Subsidiary of the Company to issue
any of its Equity Interests (other than, if required by law, shares of its
Capital Stock constituting directors' qualifying shares) to any Person other
than to the Company or a Wholly Owned Subsidiary of the Company. The Company
will not be obligated to comply with the provisions of this covenant in
connection with the sale, assignment, transfer, lease, conveyance or other
disposition of up to 50% of the capital stock of TNS provided that no assets of
the Company or any of its other Subsidiaries shall have been or will be
transferred or licensed to TNS other than on an arm's-length basis and in the
ordinary course and immediately after giving effect to such transaction and any
Restricted Payment made from the Net Proceeds of such transaction (assuming for
purposes of such definition that such transaction was an Asset Sale) the Notes
are rated investment grade by Moody's or Standard & Poor's and the Company
otherwise complies with the covenant "-- Asset Sales."
BUSINESS ACTIVITIES
The Indenture provides that the Company may not, directly or indirectly,
engage in any business other than the Telecommunications Business.
PAYMENTS FOR CONSENT
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries or Affiliates to, directly or indirectly, pay or cause to be
paid any consideration, whether by way of interest, fee or otherwise, to any
Holder of any Notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders of the Notes that
consent, waive or agree to an amendment in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the SEC, so long as any Notes are outstanding, the Company will
furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the SEC on
Forms 10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its Subsidiaries and, with respect to the annual information
only, a report thereon by the Company's certified independent accountants and
(ii) all current reports that would be required to be filed with the SEC on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the SEC, the Company will file a
copy of all such information and reports with the SEC for public availability
(unless the SEC will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, the Company has agreed that, for so long as any Notes remain
outstanding, it will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to the Notes; (ii) default in payment
when due of the principal of or premium on the Notes; (iii) failure by the
Company or a Guarantor, if applicable, to comply with the provisions described
under the captions "-- Change of Control," "-- Asset Sales," "-- Limitations on
Restricted Payments," "-- Limitations on Issuances and Sales of Capital Stock of
Subsidiaries," or "Limitations on Merger, Consolidation or Sale of Assets;" (iv)
failure by the Company or a Guarantor, if applicable, for 30 days after notice
to comply with any of its other agreements in the Indenture or the Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness
or guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay the principal of or premium, if any,
or interest on such Indebtedness prior to the expiration of the grace period
provided in respect of such Indebtedness (a "Payment Default") or (b) results in
the acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $2.0
million or more; (vi) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $2.0 million and either (a) any
creditor commences enforcement proceedings upon any such judgment or (b) such
judgments are not paid, discharged or stayed for a period of 60 days; (vii) any
of the Guarantees of the Guarantors ceases to be in full force and effect or any
of such Guarantees is declared to be null and void and unenforceable or any of
such Guarantees is found to be invalid or any Guarantor, or any Person acting on
behalf of a Guarantor, denies such Guarantor's liability under its Guarantee
(other than by reason of release of a Guarantor in accordance with the terms of
the Indenture); and (viii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount at maturity of the then outstanding
Notes may declare the Notes to be due and payable immediately. Upon such
declaration, the principal of (or, if prior to July 31, 2001, the Accreted Value
of), and Liquidated Damages and accrued and unpaid interest on the Notes, if
any, shall be due and payable immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company or any Subsidiary of the Company, the
foregoing amount shall ipso facto become due and payable without further action
or notice. Holders of the Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount at maturity of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company or the
Guarantors with the intention of avoiding payment of the premium that the
Company would have had to pay if the Company then had elected to redeem the
Notes pursuant to the optional redemption provisions of the Indenture, an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the Notes. If an Event of
Default occurs prior to July 31, 2004 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company or the Guarantors
with the intention of avoiding the prohibition on redemption of the Notes prior
to such date, then the premium specified in the Indenture shall also become
immediately due and payable to the extent permitted by law upon the acceleration
of the Notes.
The Holders of a majority in aggregate principal amount at maturity of the
Notes then outstanding by notice to the Trustee may on behalf of the Holders of
all of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of the principal amount (or on or prior to July 31, 2001 the
Accreted Value) of or premium, interest or Liquidated Damages, if any, on the
Notes.
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary (other than the Company and its Subsidiaries), as such, shall
have any liability for any Obligations of the Company or the Guarantors under
the Notes, the Guarantees or the Indenture or for any claim based on, in respect
of, or by reason of, such Obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws, and it is the
view of the SEC that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of and
premium, interest and Liquidated Damages, if any, on the Notes when such
payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee and the Company's obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company released
with respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership and insolvency events) described under "Events of
Default and Remedies" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of and premium, interest and Liquidated
Damages, if any, on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance will not result in a breach or
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violation of, or constitute a default under any material agreement or instrument
(other than the Indenture) to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an opinion of counsel to the effect
that after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; (vii) the Company shall
have delivered to the Trustee an Officers' Certificate stating that the deposit
was not made by the Company with the intent of preferring the Holders of Notes
or any Guarantee over the other creditors of the Company or any Guarantor with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or any Guarantor or others; and (viii) the Company shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each stating
that all conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes and the Guarantees in accordance
with the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer
or exchange any Note for a period of 15 days before a selection of Notes to be
redeemed. The registered Holder of a Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Notes or the Guarantees may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount at maturity of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the Holders of a majority in principal amount
at maturity of the then outstanding Notes (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount at maturity of Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes (other than provisions relating to the covenants
described above under the caption "-- Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of interest or
Liquidated Damages on any Note, or change or have the effect of changing the
definition of Accreted Value, (iv) waive a Default or Event of Default in the
payment of principal or Accreted Value of or premium, interest or Liquidated
Damages, if any, on the Notes (except a rescission of acceleration of the Notes
by the Holders of at least a majority in aggregate principal amount at maturity
of the Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal or Accreted Value of or premium, interest or Liquidated Damages, if
any, on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (viii) release any Guarantor
from any of its obligations under its Guarantee or the Indenture otherwise than
in accordance with the terms of the Indenture, or (ix) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Guarantors and the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's and the Guarantors'
obligations to Holders of Notes in the case of a merger or consolidation, to
make any change that would provide any additional rights or benefits to the
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Holders of Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with requirements of the SEC in order
to effect or maintain the qualification of the Indenture under the Trust
Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the SEC for permission to continue or resign.
The Holders of a majority in principal amount at maturity of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Notes, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to TeleHub Communications Corporation, 1375 Tri-State
Parkway, Suite 250, Gurnee, Illinois 60031; attention: Richard Harmon, Chief
Financial Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accreted Value" means as of any date of determination prior to July 31,
2001, an amount per $1,000 principal amount at maturity of any Note that is
equal to the sum of (a) the initial offering price of such Note and (b) the
portion of the excess of the principal amount at maturity of such Note over such
initial offering price which shall have been accreted thereon through such date,
such amount to be so accreted on a daily basis at the rate of 13 7/8% per annum
on the initial offering price of such Note, compounded semi-annually on each
January 31 and July 31 from the Issue Date through the date of determination,
computed on the basis of a 360-day year of twelve 30-day months.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback),
other than sales of inventory in the ordinary course of business
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consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "Repurchase at the Option of
Holders -- Change of Control" and/or the provisions described above under the
caption "Certain Covenants -- Limitations on Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Subsidiaries of Equity Interests of
any of the Company's Subsidiaries, whether in a single transaction or a series
of related transactions (a) that have a fair market value in excess of $1.0
million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the
foregoing: (i) a transfer of assets by the Company to a Wholly Owned Subsidiary
or by a Wholly Owned Subsidiary to the Company or to another Wholly Owned
Subsidiary, (ii) a Restricted Payment that is permitted by the covenant
described above under the caption "-- Limitations on Restricted Payments" and
(iii) a TNS/TTC Transaction will not be deemed to be an Asset Sale.
"Bank Credit Facility" means (i) one or more revolving credit facilities
entered into by the Company and/or its Subsidiaries, (ii) each instrument
pursuant to which the Obligations under the agreement described in clause (i)
above are amended, deferred, extended, renewed, replaced, refunded or
refinanced, in whole or in part, and (iii) each instrument now or hereafter
evidencing, governing, guaranteeing or securing any Indebtedness under any
agreements described in clause (i) or (ii) above, in each case, as modified,
amended, restated or supplemented from time to time.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
Eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million, and whose short-term debt has a
rating at the time of any such investment of at least "A-1" or the equivalent
thereof by Standard & Poor's or at least "P-1" or the equivalent thereof by
Moody's, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having the highest rating obtainable
from Moody's or Standard'& Poor's and in each case maturing within one year
after the date of acquisition and (vi) securities that are registered under the
Securities Act and are sold within forty-five (45) days of any acquisition by
the Company or any of its Subsidiary for cash (to the extent of the cash
received by the Company or such Subsidiary net of all transaction costs and
taxes).
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries, taken as a
whole, to any "person" or "group" (as such terms are used in Section'13(d)(3)
and Section'14(d)(2) of the Exchange Act) other than the Principals, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any person or group (as
defined above), other than the Principals, becomes the "beneficial owner" (as
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of more of the voting power of the voting stock of the Company than
at that time is beneficially owned by the Principals, (iv) after the
consummation of any Public Offering, any person or group (as defined above),
other
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than the Principals, becomes the "beneficial owner" of 35% or more of the voting
power of the voting stock of the Company; or (v) the first day on which more
than a majority of the members of the board of directors of the Company are not
Continuing Directors. For purposes of this definition, any transfer of an equity
interest of an entity that was formed for the purpose of acquiring voting stock
of the Company will be deemed to be a transfer of such portion of such voting
stock as corresponds to the portion of the equity of such entity that has been
so transferred. "Change of Control" shall not mean a TNS/TTC Transaction.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Subsidiaries for such period
plus, without duplication, to the extent deducted in computing Consolidated Net
Income, (i) an amount equal to any extraordinary loss plus any net loss realized
in connection with an Asset Sale, (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, (iii) consolidated
interest expense of such Person and its Subsidiaries for such period, whether
paid or accrued (including, without limitation and without duplication,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (iv) depreciation and amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) of such Person and its Subsidiaries
for such period, in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on
the income or profits of, and the depreciation and amortization of, a Subsidiary
of the referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended, directly or indirectly, to the
Company by such Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Subsidiary or
its stockholders.
"Consolidated Debt" means, with respect to any Person as of any date of
determination, the sum, without duplication of (i) the total amount of Debt of
such Person and its Subsidiaries, plus (ii) the total amount of Debt of any
other Person, to the extent that such Debt has been guaranteed by the referent
Person or one or more of its Subsidiaries, plus (iii) the aggregate liquidation
value of all preferred stock of Subsidiaries of such Person, in each case,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Leverage Ratio" means, as of any date of determination, the
ratio of (a) the Consolidated Debt of the Company as of such date to (b) two
times the Consolidated Cash Flow of the Company for the two most recent full
fiscal quarters ending immediately prior to such date for which internal
financial statements are available but in no event ending more than 135'days
prior to the date of such determination (the "Measurement Period"), determined
on a pro forma basis after giving effect to all acquisitions or dispositions of
assets made by the Company and its Subsidiaries from the beginning of such
two-quarter period through and including such date of determination (including
any related financing transactions) as if such acquisitions and dispositions had
occurred at the beginning of such two-quarter period. In addition, for purposes
of making the computation referred to above, (i) acquisitions that have been
made by the Company or any of its Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
two-quarter Measurement Period or subsequent to such Measurement Period and on
or prior to the date of calculation (the "Calculation Date") shall be deemed to
have occurred on the first day of the two-quarter Measurement Period and
Consolidated Cash Flow for such Measurement Period shall be
calculated without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, (iii) if the transaction giving rise to the need to calculate the
Consolidated Leverage Ratio is an incurrence of Indebtedness, the amount of
Indebtedness outstanding at the end of the Measurement Period shall be
calculated after giving effect on a pro forma basis to the incurrence of such
Indebtedness as if such
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Indebtedness had been outstanding as of the end of the Measurement Period and to
the discharge of any other Indebtedness to the extent it was outstanding as of
the end of the Measurement Period and is to be repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
Indebtedness had been discharged as of the end of the Measurement Period, and
(iv) if the Company or any Subsidiary has repaid, repurchased, defeased or
otherwise discharged any Indebtedness that was outstanding as of the end of the
Measurement Period or if any Indebtedness that was outstanding as of the end of
the Measurement Period is to be repaid, repurchase, defeased or otherwise
discharged on the date of the transaction giving rise to the need to calculate
the Consolidated Leverage Ratio, the aggregate amount of Indebtedness
outstanding as of the end of the Measurement Period shall be calculated on a pro
forma basis as if such discharge had occurred as of the end of the Measurement
Period and the Consolidated Cash Flow shall be calculated as if the Company or
such Subsidiary had not earned the interest income, if any, actually earned
during the period of the most recent two consecutive fiscal quarters for which
financial statements have been made publicly available but in no event ending
more than 135 days prior to the date of such determination in respect of cash or
Cash Equivalents (excluding clause (vi) thereof) used to repay, repurchase,
defease or otherwise discharge such Indebtedness.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Wholly Owned
Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Subsidiary of such Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common equity holders of such
Person and without duplication its Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (a) all write-ups (other than
write-ups resulting from foreign currency transactions and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (b)
all Investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (c)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the board of directors of the Company who (i) was a member of the board of
directors on the date of the Indenture or (ii) was nominated for election to the
board of directors with the approval of at least a majority of the Continuing
Directors who were members of the board of directors at the time of such
nomination or election.
"Debt" means, with respect to any Person, any indebtedness of such Person,
whether or not contingent, in respect of borrowed money or evidenced by bonds,
notes, debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or bankers' acceptances or representing the
balance deferred and unpaid of the purchase price of any property or
representing Hedging Obligations.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
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"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of the Indenture, until such amounts are
repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantors" means any Subsidiary that executes a Guarantee in accordance
with the provisions of the Indenture, and their respective successors and
assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest and currency rate swap agreements, interest rate
cap agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest or
currency exchange rates (except that if any agreement relating to such
obligation provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount thereof).
"Indebtedness" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or bankers' acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, (ii) all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) in which case the amount of such Indebtedness shall
be deemed to be the lesser of (a) the amount of such Indebtedness and (b) the
fair market value of the asset that secures such Indebtedness, (iii)
Disqualified Stock of such Person, (iv) preferred stock of any Subsidiary of
such Person (other than Preferred Stock held by such Person or any of its
Subsidiaries) and (v) to the extent not otherwise included, the guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), directly or indirectly, in any manner (including, without
limitation, letters of credit and reimbursement agreements in respect thereof),
of all or any part of any Indebtedness by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall be
(i) the accreted value thereof, in the case of any Indebtedness that does not
require current payments of interest, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30'days past due, in the
case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of
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Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that an acquisition of assets, Equity Interests
or other securities by the Company or any of its Subsidiaries for consideration
consisting of common equity securities of the Company shall not be deemed to be
an Investment. If the Company or any Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
of the Company such that, after giving effect to any sale or disposition, such
Person is no longer a Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Subsidiary not sold or
disposed of in an amount determined as provided in the covenant described above
under the caption "-- Limitations on Restricted Payments."
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.
"Make-Whole Premium" means, with respect to a Note, an amount equal to the
excess of (a) the present value of the remaining interest, Liquidated Damages,
if any, and principal payments due on such Note as if such Note was redeemed on
July 31, 2002, computed using a discount rate equal to the Treasury Rate plus
100 basis points, over (b) the outstanding Accreted Value of such Note as of the
date of determination. "Treasury Rate" is defined as the yield to maturity at
the time of the computation of United States Treasury securities with a constant
maturity (as compiled by and published in the most recent Federal Reserve
Statistical Release H.15(519)), which has become publicly available at least two
Business Days prior to the date fixed for prepayment (of, if such Statistical
Release is no longer published, any publicly available source of similar market
data) most nearly equal to the then remaining average life of the Notes for
which a Make-Whole Premium is being calculated; provided, however, that if the
average life of such Notes is not equal to the constant maturity of the
applicable United States Treasury securities for which a weekly average yield is
given, the Treasury Rate shall be obtained by linear interpolation (calculated
to the nearest one-twelfth of a year) from the weekly average yields of United
States Treasury securities for which such yields are given, except that if the
average life of such Notes is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends, excluding,
however, (i) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with (a) any Asset
Sale (including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the disposition of any securities by such Person or any of
its Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not
loss), together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions), any relocation expenses incurred as a
result thereof, any taxes paid or payable by the Company or any of its
Subsidiaries as a result thereof (after taking into account any available tax
credits or deductions and any tax
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sharing arrangements), amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company; (ii) any Investment in Cash Equivalents;
(iii) any Investment by the Company or any of its Subsidiaries in a Person if,
as a result of such Investment, (a) such Person becomes a Wholly Owned
Subsidiary of the Company or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of
the Company; (iv) any Investment existing on the date of the Indenture; (v) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-- Repurchase at the Option of Holders --
Asset Sales," and (vi) other Investments in any Person (other than an Affiliate
that is not Subsidiary or a Person that is controlled by an Affiliate that is
not a Subsidiary) engaged in a line of business that is similar, complementary
or ancillary to the business of the Company on the Issue Date, when taken
together with all other Investments made pursuant to this clause (vi) that are
at the time outstanding, not to exceed $3.0 million.
"Permitted Liens" means (i) Liens securing the Bank Credit Facility; (ii)
Liens in favor of the Company or any of its Subsidiaries; (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any of its Subsidiaries, provided that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company or any such Subsidiary; (iv) Liens
on property existing at the time of acquisition thereof by the Company or any of
its Subsidiaries, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens to secure Indebtedness permitted by clause (iv)(A) (including Capital
Lease Obligations) of the second paragraph of the covenant entitled "Incurrence
of Indebtedness" covering only the assets acquired with such Indebtedness; (vii)
Liens existing on the date of the Indenture excluding Liens on Indebtedness to
be repaid with the proceeds of the Offering; (viii) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (ix)
Liens incurred in the ordinary course of business of the Company or any of its
Subsidiaries with respect to obligations that do not exceed $2.0 million at any
one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or any such Subsidiary; (x)
renewals or refundings of any Liens referred to in clauses (iii) through (ix)
above provided that any such renewal or refunding does not extend to any assets
or secure any Indebtedness not securing or secured by the Liens being renewed or
refinanced; (xi) any Lien consisting of a deposit or pledge made in the ordinary
course of business in connection with, or to secure payment of, obligations
under worker's compensation, unemployment insurance or similar legislation; and
(xii) any Lien constituting a renewal, extension or replacement of a Lien
constituting a Permitted Lien, but only if (1) at the time such Lien is granted
and immediately after giving effect thereto, no Default would exist, (2) such
Lien is limited to all or a part of the property or asset that was subject to
the Lien so renewed, extended or replaced and to fixed improvements thereafter
erected on such property or asset, (3) the principal amount of the obligations
secured by such Lien does not exceed the principal amount of the obligation
secured by the Lien so renewed, extended or replaced, (4) the obligations
secured by such Lien bear interest at a rate per annum no exceeding the rate
borne by the obligations secured by the Lien so renewed, extended or replaced
except for any increase that is commercially reasonably at the time of such
increase and (5) the principal amount of the obligations has a final maturity
date of, and has a
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Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of the obligation secured by the Lien so renewed, extended or
replaced.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of the Company or any such Subsidiary; provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Debt does not
exceed the principal amount (or accreted value, if applicable) of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith); (ii)
such Permitted Refinancing Debt has a final maturity date no earlier than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Debt has a final maturity date no earlier than the final maturity date of, and
is subordinated in right of payment to, the Notes on terms at least as favorable
to the Holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred only by the Company or the
Subsidiary that is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited liability
company, limited liability partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
"Principals" mean William W. Becker or Donald H. Sledge, their lineal
descendants and any trust, corporation, partnership, association, limited
liability company or other entity in which William W. Becker or Donald H. Sledge
and/or their lineal descendants hold at least 80% of the total, combined
outstanding voting power or similar controlling interest.
"Public Offering" means an underwritten primary public offering of common
stock (other than Disqualified Stock) of the Company registered under the
Securities Act (other than a public offering registered on Form S-8 under the
Securities Act).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Standard & Poor's" means Standard and Poor's, a division of The
McGraw-Hill Companies, and its successors.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person and/or one or more
Subsidiaries of such Person (or any combination thereof).
"Telecommunications Business" means, when used in reference to any Person,
that such Person is engaged primarily in the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) creating, developing or marketing
communications related network equipment, software and other devices for use in
a Telecommunications Business, or (iii) evaluating, participating or pursuing
any other activity or opportunity that is related to those identified in (i) or
(ii) above; provided that the determination of what constitutes a
Telecommunications Business shall be made in good faith by the Board of the
Company.
"TNS" means TeleHub Network Services Corporation, an Illinois corporation,
substantially all of the assets of which include an ATM Network.
"TNS/TTC Transaction" means (i) a sale, assignment, transfer, lease,
conveyance or other disposition of all of the capital stock of TNS or all or
substantially all of the assets comprising TNS's ATM Network, and/or
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(ii) a sale, assignment, transfer, lease, conveyance or other disposition of all
of the capital stock of TTC or all or substantially all of the assets comprising
TTC's business; provided that no assets of the Company or any or its
Subsidiaries shall have been or will be transferred or licensed to the
Subsidiary or business being divested by the Company other than on an arm's
length basis and in the ordinary course.
"TTC" means TeleHub Telecommunications Corporation, a Nevada corporation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person and one or more Wholly Owned Subsidiaries of such Person.
BOOK-ENTRY; DELIVERY AND FORM
The New Notes initially will be issued in the form of one or more global
notes (the "Global Notes"). The Global Notes will be deposited with, or on
behalf of, The Depository Trust Company (the "Depositary") and registered in the
name of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Note Holder"). Notes transferred subsequent to the
consummation of the Offering to institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7)) who are not "qualified institutional buyers"
(as defined in Rule 144A) will be represented by an interest in one or more
permanent global Units in definitive, fully registered form without interest
coupons (each an "Accredited Investor Global Unit" and together with the
Regulation S Global Unit and the Restricted Global Unit, the "Global Units") and
will be deposited with the Trustee as custodian for, and registered in the name
of, Cede & Co., as nominee for the DTC. Transfers of beneficial interests in
Global Notes will be subject to the applicable rules and procedures of the DTC
and its direct or indirect participants which may change from time to time.
Except as set forth below regarding "Certificated Securities," owners of
beneficial interests in the Global Notes will not be entitled to receive
physical delivery of Certificated Securities (as defined below).
The DTC is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "DTC's Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. The DTC's Participants
include securities brokers and dealers, banks and trust companies, clearing
corporations and certain other organizations. Access to the DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "DTC's Indirect Participants")
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly. Persons who are not Participants may beneficially
own securities held by or on behalf of the DTC only through the DTC's
Participants or the DTC's Indirect Participants.
The Company expects that pursuant to procedures established by the DTC (i)
upon deposit of the Global Notes the DTC will credit the accounts of holders of
New Notes with portions of the principal amount of the Global Notes and (ii)
ownership of the Notes evidenced by the Global Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the DTC (with respect to the interests of the DTC's Participants), the DTC's
Participants and the DTC's Indirect Participants (with respect to other owners
of beneficial interest in the Global Notes). Prospective purchasers are advised
that the laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer Notes evidenced by the Global Notes will be limited to such extent. For
certain other restrictions on the transferability of the Notes, see "Notice to
Investors."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Security Holder will be considered the sole holder under the Indenture of
any Notes evidenced by the Global Notes. Beneficial
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owners of any Notes evidenced by the Global Notes under the Indenture will not
be considered the owners or holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records of the DTC or
for maintaining, supervising or reviewing any records of the DTC relating to the
Notes.
Payments in respect of the Accreted Value or principal of, and premium,
interest and Liquidated Damages, if any, on any Notes registered in the name of
the Global Security Holder on the applicable record date will be payable by the
Trustee to or at the direction of the Global Security Holder in its capacity as
the registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names Notes, including
the Global Notes, are registered as the owners thereof for the purpose of
receiving such payments. Consequently, neither the Company nor the Trustee has
or will have any responsibility or liability for the payment of such amounts to
beneficial owners of Notes. The Company believes, however, that it is currently
the policy of the DTC to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the DTC. Payments by the DTC's Participants and the DTC's Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practice and will be the responsibility of the DTC's
Participants or the DTC's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Notes may, upon request to the trustee, exchange such beneficial
interest for Notes in registered form without interest coupons ("Certificated
Securities"). Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof). In addition, if (i) the
Company notifies the Trustee in writing that the DTC is no longer willing or
able to act as a depositary and the Company is unable to locate a qualified
successor within 90 days or (ii) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Notes in the form of
Certificated Securities under the Indenture, then, upon surrender by the Global
Note Holder of its Global Notes, Certificated Securities will be issued to each
person that the Global Note Holder and the DTC identify as being the beneficial
owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the DTC in identifying the beneficial owners of Notes and
the Company and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Note Holder or the DTC for all
purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes
represented by the Global Securities (including principal or Accreted Value and
premium, interest and Liquidated Damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the Global Security
Holder. With respect to Certificated Securities, the Company will make all
payments of principal or Accreted Value and premium, interest and Liquidated
Damages, if any, by wire transfer of immediately available funds to the accounts
specified by the holders thereof or, if no such account is specified, by mailing
a check to each such holder's registered address. The Notes represented by the
Global Securities are expected to trade in the DTC's Same Day Funds Settlement
System, and any permitted secondary market trading activity in such Notes will
therefore be required by the DTC to be settled in immediately available funds.
The Company expects that secondary trading in the Certificated Securities will
also be settled in immediately available funds.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, of which 12,703,037 shares were outstanding on September 30,
1998, and 100,000,000 shares of preferred stock, of which 4,000,000 shares were
designated as Series A Convertible Preferred Stock (the "Preferred Stock") and
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3,500,000 shares were outstanding on September 30, 1998. As of September 30,
1998, the Company had issued warrants initially entitling the holders thereof to
purchase 7,412,649 shares of Common Stock.
COMMON STOCK
12,703,037 shares of Common Stock were outstanding as of September 30,
1998. Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of shareholders and do not have cumulative
voting rights. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as the Board may declare out of funds legally available
therefor. The Company, however, intends to retain its earnings, if any, to
finance the development and expansion of its business and, therefore, does not
anticipate paying any dividends in the foreseeable future. Upon the liquidation,
dissolution or winding-up of the Company, holders of Common Stock are entitled
to receive ratably the net assets of the Company available after the payment of
all debts, other liabilities and payments to the holders of preferred stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights.
PREFERRED STOCK
The Company is authorized to issue up to 100,000,000 shares of preferred
stock, with respect to which the Board shall have the authority, without further
action by the shareholders, to issue in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any series
or the designation of such series. The issuance of preferred stock could
adversely affect the voting power of holders of Common Stock and the likelihood
that such holders would receive dividends or payments upon liquidation. The
issuance of preferred stock could be utilized, under certain circumstances, as a
method of discouraging, deferring or preventing a change in control of the
Company.
SERIES A CONVERTIBLE PREFERRED STOCK
There are 3,500,000 shares of Preferred Stock currently issued and
outstanding, which represented approximately 21.7% of the voting power of the
Company's outstanding capital stock. Each share of Preferred Stock may be
converted into one share of Common Stock at any time. The Preferred Stock
outstanding after the completion of an initial public offering will
automatically convert into Common Stock on a one-for-one basis. Holders of
Preferred Stock are entitled to vote on all matters submitted to a vote of the
shareholders. Each share of Preferred Stock has one vote, but does not have
cumulative voting rights. The Preferred Stock has a $5.00 per share liquidation
preference over the Common Stock and any junior class of capital stock.
WARRANTS
The Company authorized and issued warrants to purchase an aggregate of
2,625,000 shares of Common Stock with an exercise price of $7.50 per share in
the Spring 1997 Offering and Fall 1997 Offering, which are exercisable from the
first to the third anniversary of their issuance date. As of September 30, 1998,
the Board had separately authorized and issued warrants to purchase an
additional 2,704,917 shares of Common Stock to directors, vendors, placement
agents and service providers ("Vendor Warrants"). These Vendor Warrants have
exercise prices ranging from $5.50 to $14.58, and have terms ranging from three
to ten years. In the Initial Note Offering, the Company issued warrants ("Summer
1998 Warrants") to purchase an aggregate of 2,082,732 shares of Common Stock for
a nominal exercise price, which are exercisable until July 31, 2005. In
addition, the Summer 1998 Warrants are exercisable for an aggregate of 1,084,756
additional shares of Common Stock under certain circumstances.
Warrants do not confer upon the holder any voting rights, preemptive rights
or any other rights as a Company shareholder.
STOCK OPTIONS
As of September 30, 1998, the Company had reserved a total of 4,600,000
shares of Common Stock for issuance under the Plan and has awarded options to
purchase a total of 3,715,878 shares of Common Stock.
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The exercise price of these options range from $5.00 to $10.00, and have terms
of ten years. The Plan and the option agreements impose limits on
transferability and exercise.
MANAGEMENT INCENTIVE PLAN
The Board directed the Compensation Committee to develop a Management
Incentive Plan that provides stock option awards to senior Company management.
If the Company achieves specified market valuations based upon the value of its
common stock from June 2, 1998 to June 2, 2000, then eligible participants may
receive stock options exercisable at $14.58 per share (the estimated fair market
value of the Company's Common Stock on June 2, 1998). The aggregate number of
stock options that may be awarded under this management incentive plan increases
from approximately 500,000 shares if the Company's Common Stock value is $20.00
per share to a maximum of approximately two million shares if the Company's
Common Stock value increases to $60.00 per share.
TRANSFER RESTRICTIONS
The Company's securities are "restricted securities." Accordingly, they may
not be transferred or resold except pursuant to registration or qualification
under federal and state securities law or exemption from registration
thereunder. Holders should consult legal counsel before offering, reselling
pledging or transferring these securities.
REGISTRATION RIGHTS
In connection with the Spring 1997 Offering and Fall 1997 Offering, the
Company agreed to file a registration statement under the Securities Act with
respect to the resale of the shares of Common Stock issuable upon conversion of
the Preferred Stock or upon exercise of the associated warrants (including the
warrant issued to the Placement Agent) within 90 days after the completion of an
initial public offering of the Company's Common Stock and to use all
commercially reasonable efforts to complete that registration.
Shares of Common Stock issuable upon exercise of Vendor Warrants have
"piggy-back" registration rights.
In the Initial Note Offering, the Company agreed to file a registration
statement to register the resale of the common stock underlying the Summer 1998
Warrants, upon demand by one-quarter of the warrant holders given 180 days after
the Company's initial public offering or July 31, 1999, whichever is earlier.
SPECIAL PROVISIONS OF THE COMPANY'S ARTICLES, BYLAWS AND NEVADA CORPORATE LAW
The Company believes that its ultimate success will depend upon adherence
to its long-range business plan. Moreover, implementation of the Company's
long-term business strategies will require experienced and stable management.
Accordingly, the Company's Articles and Bylaws attempt to provide continuity for
the Board and to assure that proposals are consistent with the Company's
long-term interests.
Board of Directors
To promote continuity, stability and experience of the Board, the Company
has a classified Board whereby the directors serve staggered three-year terms.
Shareholders must submit nominations for directorships in advance to the Board.
Shareholders do not have cumulative voting rights in the election of directors
and, as a result, holders of a majority of the Company's voting stock at any
election of directors may elect all of the directors standing for election at
that meeting. Only the Board (not the shareholders) can change the number of
directors or fill vacant directorships. Changing the size of the Board by more
than two directorships per fiscal year requires unanimous Board approval.
Directors may only be removed for cause and upon the affirmative vote of
two-thirds of the Company's holders of capital stock entitled to vote.
The Company believes that these provisions permit directors to develop
expertise and provide continuity on the Board, thereby permitting the Company to
formulate and implement long-term objectives. However, in the event of a change
in control, these provisions would enable incumbent directors to retain their
positions for
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up to two years because at least two annual shareholders' meetings would be
necessary to effectuate a change in the majority of the Board given its current
size. Such potential delay may discourage, delay or prevent a change in control
of the management of the Company.
Stockholder Meetings and Voting
The Articles and Bylaws establish procedures concerning stockholder
meetings, submission of proposals to shareholders, nominations to the Board and
voting. These procedures allow the Board to organize these activities in an
orderly fashion but may restrict shareholders' ability to challenge the Board.
Only the Chairman, Vice Chairman, CEO or COO can call a stockholders
meeting and stockholders may not act by written consent after the Company
becomes subject to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Matters presented for stockholder approval are classified as
either ordinary resolutions or special resolutions; approval of ordinary
resolutions require that affirmative votes exceed negative votes, while approval
of special resolutions requires the affirmative vote of two-thirds (unless a
higher amount is specified in the Articles and Bylaws) of the voting power
entitled to vote. Special resolutions include removal of Directors for cause and
proposals lacking Board recommendation.
The Articles and Bylaws also require that stockholders submit nominations
for the Board and proposals to be submitted for stockholder approval in advance.
The Bylaws also specify the form and timing of shareholder nominations for the
Board. The Articles and Bylaws require that stockholders submit any proposal,
including amendments to the Articles and Bylaws first to the Board for its
recommendation and in accordance with the form and timing specified. If the
Board adopts a resolution expressly recommending the proposal, then the proposal
will be deemed an ordinary resolution, otherwise the proposal will be designated
as a special resolution requiring an affirmative vote of two-thirds of the
Company's shares entitled to vote. The Company believes these procedures
appropriately permit the Board to determine whether proposals are consistent
with the Company's business plan and require a clear shareholder mandate to
overrule the Board's business judgment.
Nevada Corporate Law
Under the Nevada Act, prior board approval is required for combinations
with interested shareholders and for acquisition of a controlling interest.
These provisions may discriminate against existing or prospective shareholders
that own a substantial amount of securities or may prevent change of control of
the Company.
Nevada Act sections 78.411-.444 generally require Board approval of
business combinations between interested shareholders (generally, owners of more
than 10% of the outstanding voting shares) and the Company. Business
combinations include mergers, acquisitions, sales of assets, issuance of more
than 5% of the Company's stock, liquidation or dissolution, recapitalization, or
other activities. During the three years after a person acquired a 10% interest
in the Company thus becoming an interested shareholder, the Board must approve
all business combinations with that interested shareholder; after three years,
either the Board or the majority of the disinterested shareholders must approve
all business combinations.
Nevada Act sections 78.378-.3792 require that any person seeking to acquire
a "controlling interest" in the Company obtain shareholder approval of that
acquisition before obtaining any voting rights in the "control shares." The
Bylaws provide that the Company will become subject to these requirements when
it becomes subject to the reporting requirements of the Exchange Act. In
addition, the Bylaws provide that the acquiring person must deliver a statement
to the Board, which reviews the statement and decides whether to accord voting
rights to the acquiring person. If the Board does not approve the proposed
acquisition, the disinterested shareholders by special resolution, may confer
voting rights on the acquiring person's shares. The Bylaws specify procedures
governing this process. The Nevada Act establishes three different levels of
"controlling interest": 1/5 to 1/3; 1/3 to 1/2; over 1/2 voting power. Thus,
both initial acquisition of substantial ownership and subsequent increases in
ownership will be subject to approval process.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles contain provisions eliminating the personal liability of
Company directors and officers for damages for breach of fiduciary duty. These
provisions, however, do not limit liability for acts or omissions involving
intentional misconduct, fraud, a knowing violation of the law, or illegal
payment of distributions. These provisions offer persons serving as Company
directors or officers protection against monetary damage awards for breach of
fiduciary duty and thereby reduce the ability of Company shareholders to
prosecute actions against a director or officer based on such breach.
Nonetheless, equitable remedies, such as an injunction or rescission, may still
be available. Furthermore, the SEC has taken the position that these limitations
do not affect claims arising under federal securities laws.
Subject to certain limited exceptions, the Articles and the Nevada Act also
provide for mandatory indemnification by the Company of any of the Company's
directors, officers or agents who is involved in any legal proceeding arising
from such person's actions or inactions as a director, officer or agent. Such
indemnification includes reimbursement of expenses incurred by such person in
advance of such legal proceeding.
FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes material U.S. federal income
tax aspects of the exchange of Old Notes for New Notes. This discussion is based
upon the Internal Revenue Code ("Code"), as amended, applicable existing
Treasury regulations, judicial authority, current administrative rulings and
pronouncements of the Internal Revenue Service ("IRS") and facts concerning the
Company described in this Prospectus. There can be no assurance that the IRS
will concur with this discussion and the Company will not obtain a ruling from
the IRS with respect to the U.S. federal income tax consequences of investing in
the Notes. Future legislative, judicial or administrative changes or
interpretations could alter the tax consequences identified in this discussion.
Any such changes or interpretations might be retroactive and therefore affect
the tax consequences of this investment.
This discussion pertains only to U.S. Holders, which means (i) citizens or
residents (within the meaning of Section 7701 (b) of the Code) of the U.S., (ii)
corporations, partnerships or other entities created or organized in or under
the laws of the U.S. or any political subdivision thereof, (iii) estates the
income of which is subject to U.S. federal income taxation regardless of its
source, (iv) in general, trusts subject to the primary supervision of a court
within the U.S. and to the control of a U.S. person as described in Section
7701(a)(30) of the Code, and (v) any other person whose income or gain is
effectively connected with the conduct of a U.S. trade or business. Also,
certain types of investors (such as dealers in securities, banks, insurance
companies, financial institutions, tax-exempt organizations, and persons holding
Notes as part of a hedging or conversion transaction or straddle or persons
deemed to sell Notes under the constructive sale provisions of the Code) may be
subject to special rules. This discussion assumes that the Notes are held (or
would be held if acquired) as capital assets within the meaning of Section 1221
of the Code. This discussion does not address tax considerations applicable to
subsequent purchasers. Particular Holders may incur other U.S. federal income
tax consequences resulting from their personal investment or tax circumstances
(for example, persons subject to the Code's alternative minimum tax provisions).
The discussion also does not address any aspect of state, local or foreign law.
PROSPECTIVE HOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS
ABOUT THE SPECIFIC TAX CONSEQUENCES TO THEM (INCLUDING THE TAX EFFECTS OF ANY
STATE, LOCAL, FOREIGN, OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS)
RESULTING FROM THE EXCHANGE OFFER, OR FROM PURCHASING, HOLDING AND TRANSFERRING
THE NOTES.
EXCHANGE OFFER
Under certain circumstances, modification of debt instruments may
constitute a taxable exchange of the existing debt instrument for a new debt
instrument. Since the terms of the New Notes do not significantly
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modify the terms of the Old Notes, IRS regulations should treat each New Note as
a continuation of the corresponding Old Note. Consequently, the issuance of the
New Note will be disregard for federal income tax purposes, and a holder
exchanging an Old Note for a New Note (as well as a non-exchanging holder) will
not recognize any gain or loss as a result of the Exchange (or the Exchange
Offer).
STATED INTEREST
Interest earned on a New Note must be recognized as income for federal
income tax purposes in accordance with the holder's method of tax accounting.
Holders using the accrual method of accounting for tax purposes generally must
include interest in ordinary income as such interest accrues, while holders
using a cash basis must include interest income when the holder receives the
cash payments.
ORIGINAL ISSUE DISCOUNT
For debt instruments such as the Notes, the amount by which the debt
instrument's "stated redemption price at maturity" exceeds its "original issue
price" is called the Original Issue Discount ("OID"). The OID generally is
treated as ordinary interest income that accrues at a constant yield to maturity
(i.e., every year the holder recognizes a portion of the OID as income so that
by maturity the holder has recognized the entire amount of the OID). Since the
OID is only received when the debt instrument is redeemed, holders recognize OID
income before receiving the OID. Moreover, the holder must pay federal income
taxes on this imputed OID income as it accrues. Since interest on the Notes
accretes until July 2001, the Notes were issued with OID. Consequently, each
Holder will annually recognize OID income, include any OID income in the
Holder's taxable gross income and pay taxes on the OID income before receiving
any cash from such imputed OID income. The Company annually will furnish the IRS
and record Note holders with information concerning OID accruing during a
calendar year, based upon the Notes' adjusted issue price as though the Holder
were the original Note holder.
The amount of OID that accrues for any semi-annual accrual period equals
the Note's "adjusted issue price" at the start of the accrual period multiplied
by the Note's "yield to maturity". OID that accrues during any accrual period
must be allocated ratably among the days in the accrual period. For each day in
a taxable year in which it holds a Note, a Holder must recognize the daily
allocation of OID as income. The "adjusted issue price" at the start of any
accrual period equals the Note's "original issue price" increased by the accrued
OID for all previous accrual periods and reduced by all cash paid (excluding
"qualified stated interest") in prior accrual periods; the "yield to maturity"
of a Note is the discount rate that, when applied to all payments due under the
Note, produces a present value equal to the Note's original issue price; the
"stated redemption price at maturity" is the sum of the Note's principal amount
plus all payments except for "qualified stated interest" payments; "qualified
stated interest" is stated interest that is unconditionally payable at least
annually at a single fixed rate in either cash or property (excluding other
Company debt instruments).
The tax basis of a Note in the hands of each Holder will be increased by
the amount of any OID that is included in Holder's gross income and will be
reduced by the amount of any cash payments on the Note (other than qualified
stated interest) whether such payments are denominated as principal or interest.
If a bankruptcy proceeding is commenced by or against the Company after the
issuance of the Notes, claims by Holders of Notes may be limited to an amount
equal to the sum of (i) the Notes' initial offering price and (ii) that portion
of the OID that the Holder had amortized as of the bankruptcy filing. The IRS
has taken the position that a holder of an OID obligation must continue to
accrue OID even if there is no prospect of payment of the obligation. However,
the Holder may be able to offset such OID by accrual by claiming a deduction for
such accrual as part of a claim for total or partial worthlessness of the
obligation under sec.166 of the Code.
SALE, EXCHANGE, OR REDEMPTION OF A NOTE
Upon the sale, exchange (other than the Exchange Offer) or redemption of a
Note, a holder will recognize taxable gain or loss equal to the difference
between (i) the amount of cash and the fair market value of property received
(other than amounts received attributable to interest not previously taken into
account,
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which amount will be treated as interest received), and (ii) the holder's
adjusted tax basis in the Note. A holder's adjusted tax basis in a Note
generally will equal the cost of the Note to the holder, increased by the amount
of any OID previously included in income by the holder with respect to the Note
and reduced by any payments previously received by the holder with respect to
the Note, other than qualified stated interest payments, and by any premium
amortization deductions previously claimed by the holder. Provided the Note is a
capital asset in the hands of the holder and has been held for more than one
year, any gain or loss recognized by the holder will generally be a long-term
capital gain or loss.
BACKUP WITHHOLDING
Under the backup withholding rules, a holder of a Note may be subject to a
backup withholding at the rate of 31% on interest paid on the Note or on any
other cash payment with respect to the sale or redemption of the Note, unless
(i) such holder is a corporation or comes under certain other exempt categories
and when required demonstrates this fact or (ii) such holder provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules in the Treasury Regulations. Prospective holders of the Notes
(who did not previously furnished a Form W-9 with respect to the Old Notes) will
be required to complete a Form W-9 in order to provide the required information
to the Company. A holder of a Note who does not provide the Company with the
holder's correct taxpayer identification number may be subject to penalties
imposed by the IRS. Any amounts withheld under the backup withholding rules will
be allowed as a refund or a credit against the holder's federal income tax
liability, provided that the required information is furnished to the IRS.
The Company will report to the holders of the Notes and to the IRS the
amount of any "reportable payments" for each calendar year and the amount of tax
withheld, if any, with respect to payments on the Notes.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER SHOULD
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
EXCHANGE, OWNERSHIP, AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY
AND EFFECT OF STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes are acquired as a result of market-making activities or other
trading activities. The Company has agreed that it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale for a period of 180 days from the date of the Prospectus,
or such shorter period as will terminate when all Old Notes acquired by
broker-dealers for their own accounts as a result of market-making activities or
other trading activities have been exchanged for New Notes and resold by such
broker-dealers.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own accounts
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market or, in negotiated transactions or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"Underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions
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received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days from the date of this Prospectus, or such shorter
period as will terminate when all Old Notes acquired by broker-dealers for their
own accounts as a result of market-making activities or other trading activities
have been exchanged for New Notes and resold by such broker-dealers, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Haligman Lottner Rubin & Fishman, P.C., Denver, Colorado. Attorneys
at Haligman Lottner Rubin & Fishman, P.C., beneficially own warrants to purchase
a total of 112,500 shares of Common Stock. In addition, Mr. Michael L. Glaser, a
director and shareholder of Haligman Lottner Rubin & Fishman, P.C., served as
the Company's corporate Secretary from January 1, 1997, to March 3, 1997.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1997 and the
consolidated statements of operations, retained earnings, and cash flows for the
period from January 18, 1996 (date of inception) to December 31, 1996 and for
the year ended December 31, 1997, included in this Prospectus, have been
included herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is not currently subject to the periodic reporting and other
informational requirement of the Exchange Act. The Company has agreed that,
whether or not it is required to do so by the rules and regulations of the SEC,
for so long as any of the Securities remain outstanding, it will furnish to the
holders of the Securities and, if accepted by the SEC, file with the SEC (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were
required to file such forms, including a "Management's Discussion and Analysis
of Results of Operations and Financial Condition" and, with respect to the
annual information only, a report thereon by the Company's independent auditors
and (ii) all reports that would be required to be filed with the SEC on Form 8-K
if the Company were required to file such reports, in each case, within the time
periods set forth in the rules and regulations of the SEC. In addition, for so
long as any of the Securities remain outstanding, the Company has agreed to make
available to the holders of the Securities, securities analysts, prospective
purchasers of the Securities or beneficial owners of the Securities in
connection with any sale thereof, the information required by Rule 144A(d)(4)
under the Securities Act.
This Prospectus constitutes a part of a registration statement on Form
S-4(together with all amendments thereto, the "Registration Statement") filed by
the Company with the SEC under the Securities Act. This Prospectus, which forms
a part of the Registration Statement, does not contain all the information set
forth in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the SEC. Reference is hereby made
to the Registration Statement and related exhibits and schedules filed therewith
for further information with respect to the Company and the New Notes offered
hereby. Statements contained herein concerning the provisions of any document
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement or
otherwise filed by the Company with the SEC and each such statement is qualified
in its entirety by such reference. The Registration Statement and the exhibits
and schedules thereto may be inspected and copied at the public reference
facilities maintained by the SEC: 450 Fifth Street, N.W., Washington, D.C.;
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20549 New York Regional Office, Seven World Trade Center, New York, New York
10048; and Chicago Regional Office, 500 West Madison Street, Chicago, Illinois
60661. The SEC maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. Copies of the Registration Statement may be obtained from the
SEC's Internet address at http://www.sec.gov.
Statements made herein concerning the contents of any contract or other
documents are not necessarily complete. Requests for relevant documents or other
information should be submitted in writing to the Company at the Company's
principal executive offices at 1375 Tri-State Parkway, Suite 250, Gurnee,
Illinois 60031; telephone (800) TELEHUB; Attention: Chief Financial Officer.
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GLOSSARY
Ancillary Services Options available to an enhanced service provider,
which support and complement the provision of
enhanced services. Examples include protocol
conversion and DID with third number billing
inhibited.
Asynchronous Transfer Mode
(ATM) Asynchronous Transfer Mode -- A fast cell-switched
technology based on a fixed-length 53-byte cell.
ATM is capable of handling voice, data, and video
transmissions over the same facility.
Client End user computer on a network (local or Internet).
Competitive Access Provider
(CAP) A new term coined by the FCC to describe a
facilities-based local carrier (such as MFS, MCI,
Metro, etc.) competing directly with the incumbent
carrier. A CAP can also be referred to as a CLEC.
Competitive Local Exchange
Carrier (CLEC) A new term coined by the FCC to describe a
facilities-based local carrier (defined in 1996 FCC
Interconnection Order). Such carrier may also be
referred to as a CAP.
DS-3 Digital service, Level 3. Equipment of 28 T-1
channels, and operating at 44.736 Mbps. Also called
T-3.
End-Office A Central Office to which a telephone subscriber is
connected -- frequently referred to as a Class 5
office -- that actually delivers dial tone to the
subscriber.
Incumbent LEC (ILEC) With respect to an area, the local exchange carrier
that, on February 8, 1996, provided telephone
exchange service in such area and on that date was
deemed to be a member of the exchange carrier
association or is a person or entity that, on or
after February 8, 1996, became a successor or
assign of a member of the foregoing. RBOCs are
considered ILECs.
Independent Telephone
Company (ITC) A telephone company not affiliated with one of the
former RBOCs.
Interexchange Carrier (IXC) These are carriers providing connections between
Local Access and Transport Areas (LATAs) and
serving areas where the calling and called
customers are located in different LATAs.
Internet Protocol (IP) Part of the TCP/IP family of protocols describing
software that tracks the Internet address of nodes,
routes, outgoing message, and recognizes incoming
messages.
InterLATA Telecommunications services that originate in one
LATA and terminate in another.
Leased Lines A carrier or reseller leases T3, T1, or OC-level
trunks for use between switching facilities. The
carrier or reseller is responsible for ensuring
that there is enough capacity to support the
requisite traffic.
LEC Local Exchange Carrier -- any company that is
engaged in the provision of local telephone
exchange service or exchange access.
Network Element A facility or the equipment used in the provision
of a telecommunications service. The term includes
subscriber numbers, databases, signaling systems,
and information sufficient for billing and
collection or used in
94
<PAGE> 100
the transmission, routing, or other provision of a
telecommunications service.
Number Portability The technology that will allow a telephone number
to travel with a customer from place to place and,
for 800 numbers, from one long distance carrier to
another.
Operational Support Systems
(OSS) Methods and procedures (generally mechanized) that
directly support the daily operation of the
telecommunications provider's infrastructure, e.g.,
order processing, equipment assignment, etc. A
typical LEC will have hundreds of OSSs.
Public Switch Telephone
Network (PSTN) Usually refers to the worldwide voice telephone
network accessible to all those with telephones and
access privileges (i.e., in the United States, it
was formerly called Bell System Network or the AT&T
long distance network).
Regional Bell Operating
Company (RBOC) Originally seven regional telephone companies
created by the divestiture of AT&T in 1984. Each
company consists of two or more Bell Operating
Companies.
Reseller Company that uses and buys the transmission
facilities and capacity of another carrier. The
price at which it buys services is the wholesale
rate.
Service Control Point (SCP) Also called Signal Control Point. A remote database
within the SS7 network.
Server The main computer on a network, including local
area networks (LANs) and hosts on the Internet. So
called because it "serves" software or information
to the "client" computers on the network.
Service Provider A carrier or other organization that provides dial
tone, access lines, transport, e-mail or Internet
connectivity, typically for a fee.
Signaling System 7 (SS7) An internationally standardized, general purpose
signaling system. It is a dedicated signaling
network that is separate from the regular message
network. The message network still carries the
voice and/or data between the calling and called
parties.
Signal Transfer Points
(STP) Highly reliable packet switches that route
signaling messages between signaling end points on
the network. STPs are the "signaling tandems" of
the signaling network. STPs provide translation and
routing functions for signaling messages received
from the network.
Synchronous Optical Network
(SONET) A family of fiber-optic transmission rates from
51.84 Mbps to 13.22 Gbps. SONET is an optical
interface standard that allows internetworking of
transmission products from multiple vendors.
Switchless Resellers Like aggregators, these companies have no
facilities, but they assume their own identity
through billing and customer care services-earning
their revenues on the difference between wholesale
and retail rates.
Telecommunications The transmission between or among points specified
by the user, of information of the user's choosing
(including voice, data, image, graphics, and video)
without change in the form or content of the
information.
95
<PAGE> 101
Telecommunication Carrier Any provider of telecommunications services.
Third-Tier Carriers Also known as switch-based resellers or carriers.
These companies lease networks to interconnect one
or more of their own switches. Revenues vary
dramatically -- from under $1 million to over $100
million annually.
Virtual Access Services
Platform (VASP(TM)) The Company's proprietary software and database
which provide an Advanced Intelligence Network
platform front-end database integrator for billing,
management and control interfacing adjuncts.
96
<PAGE> 102
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statement of Stockholders' Equity (Deficit).... F-5
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 103
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
TeleHub Communications Corporation:
We have audited the accompanying consolidated balance sheets of TeleHub
Communications Corporation and its subsidiaries (a development stage company)
(the Company) as of December 31, 1996 and December 31, 1997, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the period from January 18, 1996 (inception) to December 31, 1996 and
for the year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TeleHub
Communications Corporation and its subsidiaries (a development stage company) as
of December 31, 1996 and December 31, 1997, and the consolidated results of
their operations and their cash flows for the period from January 18, 1996
(inception) to December 31, 1996 and the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has accumulated losses from the development of
its products and services and must obtain substantial additional debt and equity
financings to execute its business plan. These factors raise substantial doubt
regarding the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Coopers & Lybrand L.L.P.
San Francisco, California
January 16, 1998
F-2
<PAGE> 104
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 (INCEPTION) TO JUNE 30, 1998, IS UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 184,936 $ 9,380,320 $ 3,929,761
Restricted cash........................................... -- 1,730,382 699,249
Accounts receivable, net.................................. -- -- 140,308
Prepayments on leases..................................... -- 905,268 905,268
Other assets.............................................. 810,212 505,333 927,901
----------- ------------ ------------
Total current assets............................... 995,148 12,521,303 6,602,487
Property and equipment, net................................. 2,960,159 19,446,322 19,108,277
Prepayments on leases....................................... -- 1,939,054 1,486,420
Other assets................................................ 73,947 351,721 374,268
----------- ------------ ------------
Total assets....................................... $ 4,029,254 $ 34,258,400 $ 27,571,452
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 791,107 $ 1,995,639 $ 3,380,684
Accrued liabilities....................................... 7,742 1,809,032 3,276,970
Accounts payable, related parties......................... 179,085 -- --
Notes payable, shareholders............................... 1,273,125 -- --
Accrued interest.......................................... 58,296 -- --
Current portion -- capital lease obligations.............. 56,347 2,028,898 2,132,084
Current portion -- long-term debt......................... -- 238,624 11,212,308
Deferred gain on sale/leaseback........................... -- 3,867 24,478
----------- ------------ ------------
Total current liabilities.......................... 2,365,702 6,076,060 20,026,524
Payable to equipment vendor................................. 2,273,972 -- --
Deferred revenue............................................ 1,350,000 -- --
Notes payable, shareholders................................. 911,243 -- --
Capital lease obligations................................... 103,760 9,655,461 8,659,013
Other long-term debt........................................ -- 676,316 541,514
Accrued liabilities......................................... -- 449,385 998,147
Deferred gain on sale/leaseback............................. -- 7,733 41,869
----------- ------------ ------------
Total liabilities.................................. 7,004,677 16,864,955 30,267,067
----------- ------------ ------------
Commitments and contingencies (Note 6)
Stockholders' equity (deficit):
Convertible preferred stock, $.001 par value; 100,000,000
shares authorized; 4,000,000 shares designated as Series
A; 3,500,000 shares issued and outstanding at December
31, 1997 and June 30, 1998; liquidation preference
$17,500,000............................................. -- 3,500 3,500
Common stock, $.001 par value; 100,000,000 shares
authorized; 10,000,000, 12,634,450, and 12,634,450
shares issued and outstanding at December 31, 1996 and
1997 and June 30, 1998, respectively.................... 10,000 12,634 12,634
Common stock warrants....................................... -- 1,831,234 4,348,698
Additional paid-in capital.................................. 991,000 38,613,919 39,100,803
Common stock committed to be issued......................... 512,250 -- --
Shareholder notes receivable................................ (500) -- --
Note receivable -- employee................................. -- (250,000) --
Deficit accumulated during development stage................ (4,488,173) (22,580,997) (45,983,617)
Deferred compensation....................................... -- (236,845) (177,633)
----------- ------------ ------------
Total stockholders' equity (deficit)............... (2,975,423) 17,393,445 (2,695,615)
----------- ------------ ------------
Total liabilities and stockholders' equity
(deficit)........................................ $ 4,029,254 $ 34,258,400 $ 27,571,452
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 105
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 (INCEPTION) TO JUNE 30, 1998, IS UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 18, JANUARY 18,
1996 SIX MONTHS ENDED 1996
(INCEPTION) TO YEAR ENDED -------------------------- (INCEPTION) TO
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1996 1997 1997 1998 1998
-------------- ------------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Telecommunications
services................. $ -- $ 1,280 $ -- $ 159,265 $ 160,545
Licenses.................... -- 2,000,000 -- 3,000,000 5,000,000
Consulting services......... -- 900,000 -- -- 900,000
----------- ------------ ----------- ------------ ------------
-- 2,901,280 -- 3,159,265 6,060,545
----------- ------------ ----------- ------------ ------------
OPERATING EXPENSES:
Operations.................. 401,878 9,676,095 1,641,309 14,572,538 24,650,511
General and
administrative........... 1,616,265 4,606,776 1,466,420 3,208,282 9,431,323
Research and development.... 1,606,608 4,245,347 1,521,648 3,668,105 9,520,060
Sales and marketing......... 42,568 955,694 479,291 942,518 1,940,780
Depreciation and
amortization............. 68,556 784,548 126,506 2,097,518 2,950,622
----------- ------------ ----------- ------------ ------------
Total operating
expenses(1)....... 3,735,875 20,268,460 5,235,174 24,488,961 48,493,296
----------- ------------ ----------- ------------ ------------
OPERATING LOSS................ (3,735,875) (17,367,180) (5,235,174) (21,329,696) (42,432,751)
----------- ------------ ----------- ------------ ------------
OTHER INCOME (EXPENSE):
Amortization of debt
discount................. (85,375) (546,875) (546,875) (973,525) (632,250)
Interest expense............ (66,973) (520,148) (80,209) (1,297,236) (2,857,882)
Indemnification expense..... (600,000) -- -- -- (600,000)
Interest income............. -- 306,490 116,045 187,079 493,569
Other income................ 50 34,889 76 10,758 45,697
----------- ------------ ----------- ------------ ------------
Net loss............ $(4,488,173) $(18,092,824) $(5,746,137) $(23,402,620) $(45,983,617)
=========== ============ =========== ============ ============
Basic and diluted loss per
share....................... $ (0.52) $ (1.70) $ (0.57) $ (1.85)
=========== ============ =========== ============
Weighted average shares
outstanding used in per
share calculations -- basic
and
diluted..................... 8,614,815 10,624,251 10,078,734 12,634,450
=========== ============ =========== ============
</TABLE>
- ---------------
(1) The following related party balances are included in total operating
expenses:
<TABLE>
<S><C>
Related party............... $ 1,926,027 $ 415,000 $ 120,000 $ 87,500 $ 2,428,527
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 106
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 (INCEPTION) TO JUNE 30, 1998, IS UNAUDITED)
<TABLE>
<CAPTION>
COMMON
STOCK
PREFERRED STOCK COMMON STOCK COMMON ADDITIONAL COMMITTED
------------------ --------------------- STOCK PAID-IN TO BE
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL ISSUED
--------- ------ ----------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 18, 1996 (INCEPTION):
Common stock issued in exchange for
contributed software on January 18,
1996..................................... 1,510,000 $ 1,510 $ (1,510)
Common stock ($.00066 per share) issued in
exchange for cash and note receivable on
January 18, 1996......................... 1,500,000 1,500 (500)
Common stock issued in exchange for
contribution of VASP(TM) software on
March 7, 1996............................ 2,740,000 2,740 (2,740)
Common stock ($.23529 per share) issued for
cash on March 7, 1996.................... 4,250,000 4,250 995,750
Common stock committed to be issued per
Bridge Loan Agreement dated December 10,
1996..................................... $ 512,250
Net Loss...................................
--------- ------ ----------- ------- ---------- ----------- ---------
BALANCES, DECEMBER 31, 1996.................. 10,000,000 10,000 991,000 512,250
Repayment of shareholder note receivable in
January 1997.............................
Common stock committed to be issued per
Bridge Loan Agreement dated December 10,
1996..................................... 120,000
Common Stock ($5.00 per share) issued per
Bridge Loan Agreement and in exchange for
note receivable on March 17, 1997........ 134,450 134 672,116 (632,250)
Series A convertible preferred stock ($5.00
per share) and warrant to purchase Common
Stock issued on conversion of notes
payable in February and March 1997....... 490,000 $ 490 2,449,510
Series A convertible preferred stock ($5.00
per share) and warrant to purchase Common
Stock issued for cash in February through
April 1997, net of cash issuance costs of
$2,005,921............................... 3,010,000 3,010 $ 72,240 13,041,069
Forgiveness of note receivable in exchange
for consulting services on August 31,
1997.....................................
Private placement of Common Stock and
warrant to purchase additional Common
Stock for cash during August and
September 1997 ($10.00 per share), net of
issuance cost of $1,848,720.............. 1,000,000 1,000 501,000 8,150,263
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
SHAREHOLDER NOTE DURING STOCKHOLDER'S
NOTES RECEIVABLE DEVELOPMENT DEFERRED EQUITY
RECEIVABLE EMPLOYEE STAGE COMPENSATION (DEFICIT)
----------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 18, 1996 (INCEPTION):
Common stock issued in exchange for
contributed software on January 18,
1996..................................... --
Common stock ($.00066 per share) issued in
exchange for cash and note receivable on
January 18, 1996......................... $ (500) $ 500
Common stock issued in exchange for
contribution of VASP(TM) software on
March 7, 1996............................ --
Common stock ($.23529 per share) issued for
cash on March 7, 1996.................... 1,000,000
Common stock committed to be issued per
Bridge Loan Agreement dated December 10,
1996..................................... 512,250
Net Loss................................... $ (4,488,173) (4,488,173)
-------- --------- ------------ --------- ------------
BALANCES, DECEMBER 31, 1996.................. (500) (4,488,173) (2,975,423)
Repayment of shareholder note receivable in
January 1997............................. 500 500
Common stock committed to be issued per
Bridge Loan Agreement dated December 10,
1996..................................... 120,000
Common Stock ($5.00 per share) issued per
Bridge Loan Agreement and in exchange for
note receivable on March 17, 1997........ (40,000) --
Series A convertible preferred stock ($5.00
per share) and warrant to purchase Common
Stock issued on conversion of notes
payable in February and March 1997....... 2,450,000
Series A convertible preferred stock ($5.00
per share) and warrant to purchase Common
Stock issued for cash in February through
April 1997, net of cash issuance costs of
$2,005,921............................... 13,116,319
Forgiveness of note receivable in exchange
for consulting services on August 31,
1997..................................... 40,000 40,000
Private placement of Common Stock and
warrant to purchase additional Common
Stock for cash during August and
September 1997 ($10.00 per share), net of
issuance cost of $1,848,720.............. 8,652,263
</TABLE>
F-5
<PAGE> 107
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 (INCEPTION) TO JUNE 30, 1998, IS UNAUDITED)
<TABLE>
<CAPTION>
COMMON
STOCK
PREFERRED STOCK COMMON STOCK COMMON ADDITIONAL COMMITTED
------------------ --------------------- STOCK PAID-IN TO BE
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL ISSUED
--------- ------ ----------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Supplemental private placement of Common
Stock for cash between October and
December 1997 ($10.00 per share), net of
issuance costs of $2,198,286............. 1,490,000 1,490 746,490 12,700,224
Common Stock issued for payment of note
payable in November 1997 ($10.00 per
share) net of issuance costs of
$14,010.................................. 10,000 10 5,010 85,980
Issuance of stock options at below fair
value and related deferred
compensation............................. 523,757
Amortization of deferred compensation
related to stock options.................
Issuance of stock warrants in return for
services and related deferred
compensation............................. 506,494
Amortization of deferred compensation
related to stock warrants................
Issuance of note receivable to employee in
December 1997............................
Net loss...................................
--------- ------ ----------- ------- ---------- ----------- ---------
BALANCES, DECEMBER 31, 1997.................. 3,500,000 3,500 12,634,450 12,634 1,831,234 38,613,919 --
Amortization of deferred compensation
related to stock options.................
Issuance of fully vested employee stock
options in lieu of bonus................. 486,884
Issuance of stock warrants relating to
financing and services provided.......... 2,517,464
Repayment of note receivable from
employee.................................
Net Loss...................................
--------- ------ ----------- ------- ---------- ----------- ---------
BALANCES, JUNE 30, 1998...................... 3,500,000 $3,500 12,634,450 $12,634 $4,348,698 $39,100,803 $ --
========= ====== =========== ======= ========== =========== =========
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
SHAREHOLDER NOTE DURING STOCKHOLDER'S
NOTES RECEIVABLE DEVELOPMENT DEFERRED EQUITY
RECEIVABLE EMPLOYEE STAGE COMPENSATION (DEFICIT)
----------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Supplemental private placement of Common
Stock for cash between October and
December 1997 ($10.00 per share), net of
issuance costs of $2,198,286............. 13,448,204
Common Stock issued for payment of note
payable in November 1997 ($10.00 per
share) net of issuance costs of
$14,010.................................. 91,000
Issuance of stock options at below fair
value and related deferred
compensation............................. $(523,757) --
Amortization of deferred compensation
related to stock options................. 286,912 286,912
Issuance of stock warrants in return for
services and related deferred
compensation............................. (14,450) 492,044
Amortization of deferred compensation
related to stock warrants................ 14,450 14,450
Issuance of note receivable to employee in
December 1997............................ $(250,000) (250,000)
Net loss................................... (18,092,824) (18,092,824)
-------- --------- ------------ --------- ------------
BALANCES, DECEMBER 31, 1997.................. -- (250,000) (22,580,997) (236,845) 17,393,445
Amortization of deferred compensation
related to stock options................. 59,212 59,212
Issuance of fully vested employee stock
options in lieu of bonus................. 486,884
Issuance of stock warrants relating to
financing and services provided.......... 2,517,464
Repayment of note receivable from
employee................................. 250,000 250,000
Net Loss................................... (23,402,620) (23,402,620)
-------- --------- ------------ --------- ------------
BALANCES, JUNE 30, 1998...................... $ -- $ -- $(45,938,617) $(177,633) $ (2,695,615)
======== ========= ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 108
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 (INCEPTION) TO JUNE 30, 1998, IS UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 18, SIX MONTHS ENDED JANUARY 18,
1996 TO YEAR ENDED JUNE 30, 1996 TO
DECEMBER 31, DECEMBER 31, -------------------------- JUNE 30,
1996 1997 1997 1998 1998
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operations:
Net Loss.................................... $(4,488,173) $(18,092,824) $(5,746,137) $(23,402,620) $(45,983,617)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization............. 68,556 784,548 126,506 2,097,518 2,950,622
Provision for bad debts................... -- -- -- 5,043 5,043
Amortization of deferred compensation..... -- 301,362 -- 546,096 847,458
Amortization of debt discount............. 85,375 546,875 546,875 973,525 1,605,775
Indemnification expense financed and
settled through issuance of stock....... 600,000 -- -- -- 600,000
Expenses financed through notes payable... 161,243 -- -- -- 161,243
Items settled through issuance of stock
and other equity transactions........... -- 820,801 188,757 1,543,939 2,364,740
Other items............................... -- (47,734) -- (102,758) (150,492)
Changes in assets and liabilities
(Increase) decrease in assets:
Accounts receivable................... -- -- -- (145,351) (145,351)
Prepayments on leases................. -- (2,844,322) (939,706) 452,634 (2,391,688)
Other assets.......................... (884,159) 27,105 499,688 (931,877) (1,788,931)
Increase (decrease) in liabilities
Deferred revenue...................... 1,350,000 (1,350,000) -- -- --
Accounts payable...................... 791,107 1,204,532 1,752,458 1,385,045 3,380,684
Accrued liabilities................... 7,742 2,250,675 18,943 2,016,700 4,275,117
Accounts payable -- related parties... 179,085 (179,085) (179,085) -- --
Accrued interest...................... 58,296 (58,296) (58,296) -- --
Deferred gain from sale and lease-back
of equipment........................ -- 11,600 -- 54,747 66,347
----------- ------------ ----------- ------------ ------------
Net cash used in operating
activities.......................... (2,070,928) (16,624,763) (3,789,997) (15,507,359) (34,203,050)
----------- ------------ ----------- ------------ ------------
Cash flows from investing activities:
Payments for property and equipment......... (572,672) (8,897,005) (4,867,911) (2,774,529) (12,244,206)
Proceeds from sale and lease-back of
equipment................................. -- 998,352 -- 1,220,697 2,219,049
Restricted cash............................. -- (1,730,382) (1,489,667) 1,031,133 (699,249)
----------- ------------ ----------- ------------ ------------
Net cash used in investing
activities.......................... (572,672) (9,629,035) (6,357,578) (522,699) (10,724,406)
----------- ------------ ----------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock...... 1,000,500 22,091,467 -- -- 23,091,967
Proceeds from issuance of preferred stock... -- 13,116,319 13,116,319 -- 13,116,319
Receipt of payment on shareholder notes
receivable................................ -- 500 500 -- 500
Proceeds from notes payable to
shareholders.............................. 1,850,000 650,000 650,000 -- 2,500,000
Repayment of shareholder notes.............. -- (1,000,000) (1,000,000) -- (1,000,000)
Payment for note receivable -- related
party..................................... -- (250,000) -- -- (250,000)
Repayment of note receivable -- related
party..................................... -- -- -- 250,000 250,000
Payments on capital lease obligations....... (21,964) (159,309) (27,745) (1,670,501) (1,851,774)
Proceeds from loans......................... -- 1,000,205 -- 12,000,000 13,000,205
----------- ------------ ----------- ------------ ------------
Net cash provided by financing
activities.......................... 2,828,536 35,449,182 12,739,074 (10,579,499) 48,857,217
----------- ------------ ----------- ------------ ------------
Net increase in cash and cash equivalents..... 184,936 9,195,384 2,591,499 (5,450,559) 3,929,761
Cash and cash equivalents balance -- beginning
of period................................... -- 184,936 184,936 9,380,320 --
----------- ------------ ----------- ------------ ------------
Cash and cash equivalents balance -- end of
period...................................... $ 184,936 $ 9,380,320 $2,776,435 $ 3,929,761 $ 3,929,761
=========== ============ =========== ============ ============
</TABLE>
See Note 14 for Supplemental Disclosure of Cash Flow Information.
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 109
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 (INCEPTION) TO JUNE 30, 1998, IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION:
TeleHub Communications Corporation was formed in January 1996 to develop a
wholesale long distance communications carrier network deploying its proprietary
technology. In September 1996, the name of TeleHub Communications was changed to
TeleHub Network Services ("TNS"). In addition, a new holding company, TeleHub
Communications Corporation (the "Company" or "TeleHub") was formed. TeleHub
initiated an exchange offer in which TNS stockholders received ten thousand
shares of TeleHub common stock for each share of TNS common stock on like terms.
This exchange offer closed on January 1, 1997. All of the shares in TNS were
exchanged in this manner. The Company possesses proprietary software and systems
known as the Virtual Access Services Platform ("VASP(TM)"), which have been
under development to allow the management, billing and control of voice, data
and video content using cell-based efficiencies of asynchronous transfer mode
("ATM"). The Company's wholly-owned subsidiary, TeleHub Technology Corporation
("TTC"), markets and enhances the VASP(TM) technology. The Company has installed
equipment in three switching centers located in Chicago, New York, and Los
Angeles. The Company's activities to date have consisted of product development,
raising capital, acquiring property and equipment, and marketing its products.
The Company is considered a development stage company as of December 31, 1997.
These financial statements reflect the financial position and results of
operations for TeleHub and its consolidated subsidiaries, TNS, TTC and TeleHub
Leasing Corporation ("TLC"). The capital structure of the new holding company,
TeleHub has been reflected on a retroactive basis for all periods presented.
Additionally, the name of the new holding company, TeleHub Communications
Corporation, has been applied on a retroactive basis.
At December 31, 1997, TLC has been incorporated but has had no activity.
TeleHub owns 100% of the common stock of TLC.
The telecommunications industry is highly competitive, as is the specific
wholesale long distance market the Company is entering. The success of the
Company in the wholesale long distance business is dependent upon the Company's
ability to generate significant customer traffic, to manage an efficient long
distance network and related customer service, and future enhancements of
VASP(TM). The Company has not previously managed a long distance network and
there can be no assurance that its long distance services can be sold at a
profit. Furthermore, the VASP(TM) platform is subject to substantial
technological uncertainty and there can be no assurance that the VASP(TM)
platform can be commercially successful.
BASIS OF PRESENTATION:
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company has accumulated losses since its
inception in 1996, related primarily to the development of its software and
construction of its network sites. Management has developed an operations plan
which requires substantial additional debt and equity financings to complete
product development and to successfully launch and market products in
development. The Company's continued existence is dependent upon obtaining
sufficient additional financing and achieving profitable operations. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The Company raised additional proceeds through the offering of
debt and equity securities (see Note 17). The Company believes that the proceeds
of that offering will be sufficient to fund its operations for the next twelve
months. However, there can be no assurance that the Company's efforts to achieve
profitable operations or raise capital will be successful. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
F-8
<PAGE> 110
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of the Company include the accounts
of TeleHub Communications Corporation and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
UNAUDITED INTERIM FINANCIAL INFORMATION:
The Consolidated Financial Statements as of and for the six month period
ended June 30, 1998 are unaudited, but, in the opinion of management, include
all adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the results for such period. The results of operations for
the six months ended June 30, 1998 are not necessarily indicative of results to
be expected for the full fiscal year.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION:
Telecommunications Services:
Revenues from telecommunications services provided to customers are
recognized as services are rendered.
Licenses:
Revenues from licenses are recognized when the user installs the product,
if there are no significant post-delivery obligations and collection of the
receivables is probable. Revenue from maintenance is recognized ratably
over the product's life cycle, which may exceed one year. Costs related to
insignificant obligations are accrued.
One customer accounted for all of the Company's licensing revenues during
fiscal year 1997 and the three month period ended March 31, 1998.
Consulting Services:
The Company's policy is to recognize revenue from consulting services as
such services are performed.
SOFTWARE DEVELOPMENT COSTS:
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, requires
that software development costs be capitalized once the technological
feasibility of the software product has been established. As of December 31,
1997 all software development costs have been charged to expense in the period
incurred as technological feasibility of the products under development has not
been established.
F-9
<PAGE> 111
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
RESEARCH AND DEVELOPMENT COSTS:
Costs related to research and development activities are expensed when
incurred.
PROPERTY AND EQUIPMENT:
Depreciation and amortization are computed on the straight-line basis over
the estimated useful lives of the assets or the length of the capital lease,
whichever is shorter. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Computer equipment......................... 3 years
Network equipment.......................... 5 years
Office furniture........................... 10 years
</TABLE>
Expenditures incurred for assets under construction are capitalized.
Leasehold improvements are amortized on a straight-line basis over the term of
the lease, or the useful life of the assets; whichever is shorter.
Maintenance and repairs are expensed as incurred. When assets are sold or
retired, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in operations.
The Company reviews property and equipment for impairment whenever events
or changes in circumstances indicate the carrying value of an asset may not be
recoverable. No such events have occurred to date. In performing the review for
recoverability, the Company would estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows is less than the carrying amount of the asset, an
impairment loss is recognized.
CASH AND CASH EQUIVALENTS:
All cash and cash equivalents are held in checking, money market accounts
or short-term investments with original maturities of 90 days or less, with two
banks. Cash equivalents are recorded at cost, which approximates fair value. As
of December 31, 1997, these balances exceed existing federally insured limits.
ISSUANCE OF EQUITY INSTRUMENTS TO NON-EMPLOYEES
The Company issues equity instruments to non-employees in consideration for
goods or services. Such transactions are accounted for based on the fair value
of the consideration received by the Company or the fair value of the equity
instrument issued, whichever is more reliably measurable, as required under the
provisions of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation.
INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Accordingly, deferred tax assets and liabilities arise from
the differences between the tax basis of an asset or liability and its reported
amount in the financial statements and net operating loss carryforwards.
Deferred tax amounts are determined by using the tax rates expected to be in
effect when the taxes will actually be paid or refunds received, as provided
under currently enacted tax law. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense or benefit is the tax payable or refundable, respectively,
for the period plus or minus the change in deferred tax assets and liabilities
during the period.
F-10
<PAGE> 112
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
NET LOSS PER SHARE:
The Company computes loss per share pursuant to Statement of Financial
Accounting Standards No. 128, Earnings per Share.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards ("FAS") Number 129, Disclosure of Information About Capital
Structure, FAS Number 130, Reporting Comprehensive Income, and FAS Number 131,
Disclosure About Segments of an Enterprise and Required Information, which are
effective for the year ending December 31, 1998. In 1998, the Accounting
Standards Executive Committee of the AICPA Issued Statement of Position Number
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, and Number 98-5, Reporting on the Costs of Start-up Activities,
which are effective for the year ending December 31, 1999. The Company has not
yet determined the impact of the implementation of these pronouncements on its
financial statements; however, it is not expected to be material.
RECLASSIFICATIONS:
Certain amounts in the financial statements have been reclassified to
conform with the current year's presentation.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
Equipment under capital lease:
Network equipment........................... $2,526,636 $12,740,048 $12,854,363
Computer equipment.......................... 25,403 182,072 182,072
Furniture................................... 156,668 151,787 151,787
Network equipment............................. 30,468 1,744,888 2,267,478
Computer and production equipment............. 207,206 2,026,160 2,587,082
Furniture..................................... 12,586 758,078 1,013,894
Leasehold improvements........................ 69,748 2,648,658 2,851,640
---------- ----------- -----------
Total property and equipment........ 3,028,715 20,251,691 21,908,406
Less accumulated depreciation and
amortization................................ (68,556) (805,369) (2,800,129)
---------- ----------- -----------
Property and equipment, net................... $2,960,159 $19,446,322 $19,108,277
========== =========== ===========
</TABLE>
Included in accumulated depreciation and amortization is $30,345, $312,737,
and $1,632,297 of accumulated amortization as of December 31, 1996 and 1997, and
June 30, 1998, respectively, related to leased furniture and equipment.
Depreciation and amortization expense was $68,556, $126,506, $784,548,
$2,097,518 and $2,950,622 for the period from January 18, 1996 (inception) to
December 31, 1996, the six months ended June 30, 1997, the year ended December
31, 1997, the six months ended June 30, 1998, and the period from January 18,
1996 (inception) to June 30, 1998, respectively.
F-11
<PAGE> 113
TELEHUB COMMUNICATIONS CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of and relating to the six months ended June 30, 1997 and June
30, 1998
and the period from January 18, 1996 to June 30, 1998, is unaudited)
4. ACCRUED LIABILITIES:
The primary components of accrued liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------- -----------
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Employee bonuses................................. -- $ 708,362 $ 957,262
Sales tax on purchased equipment................. -- 694,153 694,153
Other accrued expenses........................... $ 7,742 406,517 1,625,555
---------- ---------- ----------
Total Accrued Liabilities.............. $ 7,742 $1,809,032 $3,276,970
========== ========== ==========
</TABLE>
5. INCOME TAXES:
The primary components of temporary differences which give rise to deferred
taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------- -------------------------
FEDERAL STATE FEDERAL STATE
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
DEFERRED TAX ASSETS:
Capitalized R&D for tax purposes..... -- -- $ 4,800,000 $ 820,000
Net operating loss................... $ 560,000 $ 80,000 2,200,000 400,000
Other, including nondeductible
accruals........................... -- -- 1,000,000 230,000
--------- -------- ----------- -----------
Total deferred tax assets............ 560,000 80,000 8,000,000 1,450,000
Depreciable assets................... -- -- 200,000 30,000
--------- -------- ----------- -----------
Net deferred tax asset............... 560,000 80,000 7,800,000 1,420,000
Valuation allowance.................. (560,000) (80,000) (7,800,000) (1,420,000)
--------- -------- ----------- -----------
Net deferred tax asset............... $ -- $ -- $ -- $ --
========= ======== =========== ===========
</TABLE>
Due to uncertainty of realization, a valuation allowance has been provided
to eliminate the net deferred tax asset at both December 31, 1997 and 1996. The
increase in the valuation allowance was $8,580,000 and $640,000 during the year
ended December 31, 1997 and for the period from January 18, 1996 (inception) to
December 31, 1996, respectively.
At December 31, 1997, the Company had net operating loss (NOL)
carryforwards of approximately $6,500,000 and $6,650,000, for federal and state
income tax purposes, respectively. These carryforwards expire as follows:
<TABLE>
<CAPTION>
EXPIRING IN
YEAR ENDED NOL YEAR ENDING
DECEMBER 31, CARRYFORWARDS DECEMBER 31,
- ------------ ------------- ------------
<S> <C> <C>
Federal
1996...................................................... $1,650,000 2011
1997...................................................... 4,850,000 2012
State
1996...................................................... 165,000 2001
1997...................................................... 5,000,000 2002
</TABLE>
F-12
<PAGE> 114
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
Pursuant to the provisions of the Tax Reform Act of 1986, utilization of
the NOL carryforwards may be subject to an annual limitation if the Company
experienced a greater than 50% change in ownership of the Company within a
three-year period.
6. COMMITMENTS AND CONTINGENCIES:
LEASE OBLIGATIONS:
The Company is obligated under the terms of operating leases with various
parties for office space, switch room facilities, office equipment and vehicles.
These contracts may provide for adjustments or escalations based upon changes in
consumer price indices or operating expenses. A summary of such fixed
commitments at December 31, 1997 for the next five succeeding years and
thereafter is as follows:
<TABLE>
<CAPTION>
OPERATING
YEARS CAPITAL LEASES LEASES
- ----- -------------- -----------
<S> <C> <C>
1998....................................................... $2,896,366 $ 9,142,032
1999....................................................... 2,866,258 12,488,890
2000....................................................... 2,825,096 11,461,526
2001....................................................... 2,825,096 6,523,533
2002....................................................... 2,795,748 1,667,973
Thereafter................................................. -- 5,696,205
---------- -----------
Total minimum lease payments............................... 14,208,564 $46,980,159
===========
Less amount representing interest.......................... 2,524,205
----------
Present value of minimum lease payments under capital
leases................................................... 11,684,359
Less current portion....................................... 2,028,898
----------
Noncurrent portion......................................... $9,655,461
==========
</TABLE>
Rent expense under all operating lease agreements was $133,553, $374,366,
$3,397,635, $5,300,891, and $8,832,079 for the period from January 18, 1996
(inception) to December 31, 1996, the six months ended June 30, 1997, the year
ended December 31, 1997, the six months ended June 30, 1998, and the period from
January 18, 1996 (inception) to June 30, 1998, respectively.
PURCHASE COMMITMENTS:
During 1996 and 1997, the Company entered into equipment financing
arrangements with an equipment vendor to purchase equipment. At December 31,
1996, $2,273,972 was payable to the vendor. In January 1998, the Company
renegotiated the terms of its arrangements into a capital lease. The amount owed
at December 31, 1997 is reflected in the capital lease balances.
EMPLOYMENT AGREEMENTS:
The Company has entered into employment agreements with certain of its
executives. These agreements generally provide for two to four-year initial
terms and thereafter one-year renewal terms until either party provides 30 days
notice of termination prior to the end of a term. If the Company terminates the
employment without cause, or if the employment is terminated upon the occurrence
of a major transaction, as defined, involving the Company, then the executive
shall receive a termination fee equal to 50% to 200% of the executive's annual
salary plus benefits plus a specified bonus. Payments shall only be made upon
execution of a standard release waiving all claims against the Company. The
Company's total potential obligation under these employment agreements was
$1,902,500 at December 31, 1997.
F-13
<PAGE> 115
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
LITIGATION:
On April 15, 1997, Cam-Net Communications Network, Inc. ("Cam-Net") filed
an action against the Company in the United States District Court for the
Northern District of Illinois (Cam-Net Communications Network, Inc. v. TeleHub
Communications Corp. and TeleHub Network Services Corp., Cause No. 97 C 2578).
Cam-Net alleged, among other complaints, the breach of a September 1996
agreement under which TeleHub was to create a new network, billing, and
accounting system for Cam-Net's operations. Cam-Net further alleged that it paid
TeleHub a consulting fee of $1,350,000, but that TeleHub failed to complete the
system. The Company recorded the $1,350,000 it received from Cam-Net as deferred
revenue at December 31, 1996 pending resolution of this complaint. During 1997,
the Company settled its litigation with Cam-Net out of court. The terms of the
settlement required the Company to return $450,000 of the consulting fees it had
received to Cam-Net. The Company retained $900,000 in fees related to the
consulting services and recognized such fees as revenue during 1997.
7. RELATED PARTY TRANSACTIONS:
Hartford Holdings, Ltd. ("Hartford"), a substantial shareholder of the
Company, is controlled by the Chairman of the Board of Directors of the Company.
The Vice-chairman, President and Chief Executive Officer of the Company holds a
beneficial interest in the Sledge Family Trust which is a shareholder of the
Company. Hartford and the Sledge Family Trust advanced funds to further the
Company's growth and development in amounts further described in Note 9. The
Company has also indemnified Hartford from certain losses incurred in connection
with the matter discussed in Note 8.
During 1996, the Company paid the President of the Company $110,500 for
consulting services associated with the Cam-Net merger negotiations which were
subsequently abandoned (Note 8). The Company also incurred $169,304 in expenses
for consulting services provided by the Chairman of the Board of Directors. This
amount was payable to Hartford at December 31, 1996 and was settled on March 7,
1997 through the issuance of 33,800 shares of Series A Convertible Preferred
Stock.
In January 1996, Roseville Computer Projects Limited ("Roseville")
contributed certain software in exchange for shares of common stock in TNS which
were later converted into 1,510,000 shares of the Company's common stock. As a
result of this transaction, Roseville and the Company became entities under
common control. In March 1996, Roseville assigned all rights, title and interest
in the VASP(TM) to the Company in exchange for additional shares of common stock
in TNS which were later converted into 2,740,000 shares of the Company's common
stock. No value was assigned to the contributed software.
During 1997, Roseville sold certain network databases and libraries to the
Company for $485,000. Under a 1997 consulting agreement with the Company, a
subsidiary of Roseville provided consulting services and maintained those
network databases and libraries for the Company for a fee of $20,000 per month.
The Roseville subsidiary received a total of $325,000 under this consulting
agreement prior to being terminated on January 1, 1998.
During 1996, development efforts on the VASP(TM) were continued by
employees of the Company and programmers and system developers contracted by
Access Point Communications Corp. ("APCC"). APCC is controlled by the Chief
Technology Officer of the Company. APCC billed the Company $974,915 pursuant to
this arrangement during the period from January 18, 1996 (inception) to December
31, 1996. The Company began contracting directly with the programmers and
developers in January 1997. A subsidiary of Roseville received approximately
$300,000 in 1996 as a subcontractor of APCC. This fee also covered the 1996 use
of certain network databases and libraries owned by Roseville. During the year
ended December 31, 1997 and the period from January 18, 1996 (inception) to
December 31, 1996, the fees totaled $240,000 and
F-14
<PAGE> 116
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
$85,000, respectively, and were paid directly to the Roseville subsidiary. The
Company also reimbursed APCC $36,308 for other operating expenses during 1996.
During 1996, the Company also paid APCC management fees and library maintenance
fees of $550,000 of which $14,535 remained outstanding at December 31, 1996.
The Company's Chief Technology Officer has extended, without additional
consideration, personal guarantees to further support lender requirements on one
operating and one capital lease obligation.
The Company loaned the Chief Financial Officer $250,000 due in 1999. The
interest rate applied to this note receivable is 1% over the prime rate. The
executive pledged a warrant exercisable for the purchase of 150,000 shares at
$7.50 per share as collateral. In May 1998, the executive repaid the principal
of the loan and the related accrued interest.
During 1997, the Company contracted with International Telecom for
consulting services. International Telecom is owned by the Chairman of the Board
of Directors. Fees to International Telecom during 1997 totaled $175,000.
In February 1998, the Company loaned $112,029 to an executive in exchange
for an unsecured non-interest bearing promissory note. In May 1998, the
executive repaid this note.
8. INDEMNIFICATION EXPENSE:
During 1996, the Company agreed to indemnify Hartford (see Note 7) from any
claims and liabilities that Hartford might incur in assisting with the placement
of securities of Cam-Net. Parties unrelated to Hartford had previously advanced
$600,000 to Cam-Net in connection with a private placement of Cam-Net
securities. When the proposed merger was terminated, the securities offering by
Cam-Net was also rescinded, and Hartford was required to repay $600,000 pursuant
to its arrangement with the advancing party. The Company recognized its
obligation to indemnify Hartford as an expense during the period ending December
31, 1996. The Company issued a note payable to Hartford for this $600,000
obligation which is included in notes payable at December 31, 1996. The note was
settled through the issuance of 120,000 shares of Series A Convertible Preferred
Stock and a warrant to purchase 60,000 shares of the Company's common stock on
March 7, 1997 (see Note 9).
F-15
<PAGE> 117
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
9. LONG-TERM DEBT:
NOTES PAYABLE, STOCKHOLDERS:
As of December 31, 1996, the Company had the following notes payable
outstanding to stockholders:
<TABLE>
<S> <C>
Bridge loan payable -- Hartford Holdings, Ltd., commitment
for total advances of $1,000,000 by January 31, 1997,
interest compounded quarterly at 17% per annum, principal
and interest payable from proceeds of any security
offering by the Company, but not later than July 1,
1997...................................................... $ 400,000
Notes payable -- Hartford Holdings, Ltd., interest at 7.5%
per annum, compounded quarterly, interest and principal
payable from proceeds of any security offering by the
Company, but not later than August 30, 1997, convertible
into securities of the Company on same terms as extended
to other investors........................................ 1,300,000
Notes payable -- Hartford Holdings, Ltd., interest at 12%
per annum, compounded quarterly, interest and principal
payable from proceeds of any security offering by the
Company but not later than July 1, 1998................... 411,243
Note payable -- Hartford Holdings, Ltd., interest at 7.5%
per annum, compounded quarterly, interest and principal
payable from proceeds of any security offering by the
Company, but not later than August 1, 1998, convertible
into securities of the Company on same terms as extended
to other investors........................................ 450,000
Note payable -- Officer, interest at 7.5% per annum,
compounded quarterly, interest and principal payable from
proceeds of any security offering by the Company, but not
later than August 1, 1998, convertible into securities of
the Company on same terms as extended to other
investors................................................. 50,000
-----------
Total advances and notes, stockholders...................... 2,611,243
Less: unamortized discount on notes payable................. (426,875)
-----------
2,184,368
Less current portion........................................ (1,273,125)
-----------
Long-term portion........................................... $ 911,243
===========
</TABLE>
On March 7, 1997, the Company repaid $1 million of the loans and advances
in cash. The remaining balances were converted into 490,000 shares of the
Company's Series A Convertible Preferred Stock. In conjunction with the
exchange, the Company also issued warrants to purchase 245,000 shares of the
Company's common stock at a price of $7.50 per share.
In December 1996, the Company entered into a Bridge Loan Agreement with
Hartford Holdings. In consideration for the Bridge Loan, the Company agreed to
issue common stock to Hartford equal to 20% of the total amount of notes payable
and advances Hartford provided to the Company through March 1997. Pursuant to
the terms of the agreement, the Company issued 134,450 shares of common stock to
Hartford on March 7, 1997. In conjunction with the issuance of the common stock,
the Company accepted a note receivable from Hartford for $40,000. The estimated
fair value of the common stock issued to Hartford has been recognized by the
Company as a discount on the notes payable to Hartford. Amortization expense on
the discount was $546,875 and $85,375 for the three month period ended March 31,
1997 and for the period from January 18, 1996 (inception) to December 31, 1996,
respectively.
F-16
<PAGE> 118
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
In May 1998, the Company received a $12 million loan ("Bridge Loan") from a
financial institution. The Bridge Loan accrued interest at an annual rate of 12%
and was collateralized by all of the Company's intangible property. The
financial institution also received a warrant to purchase 240,000 shares of
Common Stock for $10.00 per share, exercisable until May 5, 2005 or two years
after an initial public offering. The Company recorded the loan at a discount of
approximately $1,460,000, which discount was allocated to the warrant. The
Company recorded a debt discount amortization charge of $973,525 during the six
month period ended June 30, 1998. Accrued interest on this loan amounted to
$220,320 as of June 30, 1998. The Company repaid this Bridge Loan in July 1998,
as discussed in Note 17.
OTHER LONG-TERM DEBT:
The Company has entered into an agreement to finance certain equipment
which is collateralized by the equipment. The loan bears interest at 16.5% per
annum, interest and principal payable monthly. Scheduled repayments of the loan
subsequent to December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
-----------
<S> <C>
1998............................. $ 238,624
1999............................. 281,116
2000............................. 269,384
2001............................. 125,816
---------
Total............................ 914,940
Less current portion............. (238,624)
---------
Long-term portion................ $ 676,316
=========
</TABLE>
10. LETTERS OF CREDIT:
At December 31, 1997, the Company has $1,682,350 available in standby
letters of credit with a financial institution. The letters of credit expire
from May 13, 1998 to October 27, 1998. The letters of credit are secured by
$1,730,382 of certificates of deposit, reflected as restricted cash in the
accompanying financial statements.
11. COMMON AND PREFERRED STOCK:
PREFERRED STOCK:
The Company has authorized 100,000,000 shares of Preferred Stock, of which
4,000,000 are designated Series A Convertible Preferred Stock ("Series A
Stock"). At December 31, 1997, there were 3,500,000 shares of Series A Stock
outstanding.
Preferred stockholders receive one vote for each common share into which
such preferred shares are convertible. Each share of Series A Stock is
convertible at the option of the stockholder into one share of the Company's
common stock. Shares of the Series A Stock have a liquidation preference of
$5.00 per share. All shares of Series A Stock automatically convert into common
stock in the event that the Company completes an initial public offering or
becomes subject to the reporting requirements of the Securities Exchange Act of
1934. The Series A Stock is noncumulative.
F-17
<PAGE> 119
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
COMMON STOCK:
The Company has authorized 100,000,000 shares of common stock. At December
31, 1997, there were 12,634,450 shares of common stock outstanding.
COMMON STOCK WARRANTS:
Issued in conjunction with equity financings:
In February 1997, the Company issued warrants to purchase 1,750,000 shares
of Company common stock to certain shareholders in connection with the issuance
of Series A Preferred Stock for cash. These warrants are exercisable at any time
from February 20, 1998 to February 20, 2000.
In August 1997, the Company issued warrants to purchase 875,000 shares of
Company common stock to certain shareholders in connection with the issuance of
common stock for cash. These warrants are exercisable through August 26, 2000.
Issued for services and financings:
The Company also issued warrants to purchase common stock to consultants,
and equipment lease providers. At December 31, 1997, the following warrants to
purchase common stock were outstanding:
<TABLE>
<CAPTION>
NUMBER OF
SHARES AGGREGATE
UNDER EXERCISE
WARRANT PRICE EXERCISE PERIOD
- --------- ---------- ---------------
<C> <C> <S>
301,000 $1,655,500 Exercisable at any time from April 30, 1998 to April 30,
2000
150,000 1,500,000 Exercisable at any time from April 30, 1998 to April 30,
2000
25,000 187,500 Exercisable at any time from May 15, 1997 to May 15, 2000
375,000 2,812,500 Exercisable at any time from August 26, 1998 to August 26,
2000
1,750 13,125 Exercisable at any time from December 25, 1998 to December
25, 2000
5,500 55,000 Exercisable at any time from December 15, 1997 until the
later of December 15, 2004 or second anniversary of an
initial public offering
4,667 35,000 Exercisable at any time from June 15, 1997 until the later
of June 15, 2007 or the fifth anniversary of an initial
public offering
45,000 337,000 Exercisable at any time from August 1, 1998 to November 14,
2000
80,070 600,525 Exercisable at any time; no expiration date
</TABLE>
As of December 31, 1997, none of the foregoing warrants had been exercised.
In March 1998, the Company issued a warrant to purchase 10,000 shares of
common stock for $10.00 per share. This warrant is exercisable at any time from
March 24, 1999 until March 24, 2000.
In May 1998, the Company issued a warrant to purchase 75,000 shares of
common stock for $10.00 per share. This warrant is exercisable at any time from
May 1, 1999 until May 1, 2001.
In May 1998, the Company issued a warrant to purchase 240,000 shares of
common stock for $10.00 per share to a financial institution in connection with
the $12 million loan financing as discussed in Note 9. In connection with this
financing, in June 1998, the Company also issued a warrant to purchase 100,000
shares of common stock for $12.50 per share to one of the Company's directors.
F-18
<PAGE> 120
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
The following table summarizes information with respect to stock warrants
issued to non-employees that were outstanding at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER WEIGHTED AVERAGE REMAINING NUMBER EXERCISE PRICE
RANGE OF OUTSTANDING FAIR VALUE OF CONTRACTUAL WEIGHTED AVERAGE EXERCISABLE OF EXERCISABLE
EXERCISE PRICES AT 12/31/97 OPTIONS/WARRANT LIFE (YEARS) EXERCISE PRICE AT 12/31/97 OPTIONS/WARRANTS
--------------- ----------- ---------------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 5.50 - $7.50....... 832,487 $1.77 2.2 $ 6.72 109,737 $ 7.50
$10.................. 155,000 $1.78 2.5 $ 10 5,500 $10.00
------- -------
987,987 115,237
======= =======
</TABLE>
The fair value of each non-employee grant is estimated on the date of grant
using the Black-Scholes model with the following assumptions; expected
volatility of 35%, risk-free interest rate ranging from 6.62% to 5.76%, expected
lives ranging from 2 to 10 years and no dividends. The Company charges the
related compensation costs to expense at the time the services are provided or
over the life of the related financing arrangement. The compensation expense for
the year ended December 31, 1997, amounted to $229,320. Warrants issued during
the six month period ended June 30, 1998 were valued using the same assumptions.
OPTION ISSUED TO NON-EMPLOYEE:
The Company has issued an option to purchase 10,000 shares of the Company's
common stock at an exercise price of $5.00 per share to a consultant in exchange
for services rendered. As of December 31, 1997, this option was exercisable
until August 1, 2007. The Company estimated the fair value of this option and
charged such amount to expense at the time the services were provided. The
Company reserved 10,000 shares of common stock for the exercise of this option
and as of December 31, 1997, the option had not been exercised.
12. EMPLOYEE STOCK OPTION PLAN:
In 1997, the Company created an Employee Stock Option Plan. Under this
plan, the Company may grant options for common stock to its employees,
directors, and consultants either as incentive stock options or nonstatutory
options. The exercise price of each option is determined by the Board of
Directors and an option's maximum term generally is 10 years. Options generally
vest 25% on the day of grant, and 25% annually on January 1st of each year
thereafter. 3,025,000 and 4,600,000 shares of stock were reserved for the
exercise of stock options at December 31, 1997 and June 30, 1998, respectively.
During 1997, the Company granted a warrant to purchase 150,000 shares at
$7.50 per share to an employee. This warrant expires on the fifth anniversary of
an initial public offering.
F-19
<PAGE> 121
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
The following table summarizes activity under the Company's stock option
plan for the period ended December 31, 1997 and the six month period ended June
30, 1998:
<TABLE>
<CAPTION>
OPTION AND WEIGHTED
NUMBER WARRANT PRICE AGGREGATE AVERAGE
OF SHARES PER SHARE PRICE EXERCISE
--------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Options and warrants:
Granted.................................. 1,626,000 $5.00-7.50 $ 7,460,000 $ 5.28
Exercised................................ -- -- -- --
Forfeited................................ (10,500) $5.00 (52,500) $ 5.00
Expired.................................. (1,500) $5.00 (7,500) $ 5.00
--------- -----------
Options and warrants outstanding at
December 31, 1997........................ 1,614,000 -- $ 7,400,000 $ 4.58
Granted.................................. 2,078,378 $5.00-12.50 22,296,890 $10.73
Exercised................................ -- -- -- --
Forfeited................................ -- -- -- --
Expired.................................. (2,000) $5.00 (10,000) $ 5.00
--------- -----------
Options and warrants outstanding at June
30, 1998................................. 3,690,378 $29,686,890 $ 8.04
========= ===========
</TABLE>
Employee options and warrants to purchase 512,500 and 2,214,878 shares of
common stock were exercisable at December 31, 1997 and June 30, 1998,
respectively, and 1,441,000 and 2,054,378 shares remained available for issuance
at December 31, 1997 and June 30, 1998, respectively.
The following table summarizes information with respect to stock options
and warrants outstanding at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
WEIGHTED AVERAGE EXERCISE
AVERAGE REMAINING WEIGHTED NUMBER PRICE OF
ON DATE OF GRANT, RANGE OF NUMBER FAIR VALUE CONTRACTUAL AVERAGE EXERCISABLE EXERCISABLE
THE EXERCISE EXERCISE OUTSTANDING OF OPTIONS/ LIFE EXERCISE AT OPTIONS/
PRICE WAS: PRICES AT 12/31/97 WARRANT (YEARS) PRICE 12/31/97 WARRANTS
- ---------------------- ---------- ----------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Below fair value of
the stock........... $5.00 409,000 $3.38 9.52 $5.00 98,750 $5.00
Below fair value of
the stock........... $7.50 150,000 $3.73 9.64 $7.50 150,000 $7.50
Above fair value of
the stock........... $5.00-5.50 1,055,000 $0.06 9.34 $5.08 263,750 $5.08
--------- -------
1,614,000 512,500
========= =======
</TABLE>
The fair value of each option and warrant grant is estimated on the date of
grant using the minimum value method with the following assumptions used for
grants in 1997: no expected volatility, risk-free interest rate of 5.693%,
expected life of 10 years, and no dividends.
The following information concerning the Company's stock option plan is
provided in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation. The Company accounts for the plan in accordance with APB No. 25
and related Interpretations. In accordance with APB No. 25, for the year ended
December 31, 1997, the Company incurred compensation expense in relation to
employee stock options and
F-20
<PAGE> 122
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
warrants totaling $262,012 and $151,500, respectively. Had the Company accounted
for compensation expense according to SFAS No. 123, the pro forma net loss would
be as follows:
<TABLE>
<S> <C>
Net loss -- as reported..................................... $18,092,824
Net loss -- pro forma....................................... $18,939,602
Net loss per share -- as reported........................... $ 1.70
Net loss per share -- pro forma............................. $ 1.78
</TABLE>
13. 401(K) PLAN:
In June 1997, the Company established a 401(k) Plan (the "Plan"). All
employees of the Company are eligible to participate in the Plan. The Company is
not obligated to make contributions to the Plan and made no such contributions
during fiscal 1997.
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
JANUARY 18, 1996 SIX MONTHS ENDED JANUARY 18, 1996
(INCEPTION) TO YEAR ENDED JUNE 30, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, --------------------- JUNE 30,
1996 1997 1997 1998 1998
---------------- ------------ ---------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Cash payment for interest................. $ 7,761 $ 487,379 $ 87,581 $660,450 $ 1,161,596
Noncash investing and financing
activities:
Property and equipment financed by
capital lease obligations............. 182,071 10,018,475 9,666,915 102,833 10,303,429
Property and equipment financed by
equipment vendor...................... 2,273,972 -- -- -- 2,273,972
Settlement of accounts payable, related
shareholders, through issuance of
preferred stock....................... -- 150,000 150,000 -- 150,000
Settlement of accrued interest through
issuance of preferred stock........... -- 38,757 38,757 -- 38,757
Settlement of notes payable, related
shareholders, through issuance of
preferred stock....................... -- 2,261,243 2,261,243 -- 2,261,243
Common stock issued per Bridge Loan
Agreement............................. -- 672,250 72,250 -- 672,250
Issuance of stock options to
employees............................. -- 262,013 -- -- 262,013
Issuance of stock options to
nonemployees.......................... -- 24,900 -- -- 24,900
Issuance of stock warrant to
employees............................. -- 151,500 -- -- 151,500
Issuance of stock warrant to
nonemployees.......................... -- 102,994 -- -- 102,994
</TABLE>
F-21
<PAGE> 123
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
15. NET LOSS PER SHARE:
In accordance with the requirements of Statement of Financial Accounting
Standards No. 128, Earnings Per Share, a reconciliation of the numerator and
denominator of basic and diluted EPS is provided as follows:
<TABLE>
<CAPTION>
JANUARY 18, 1996
(INCEPTION) TO YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------------
1996 1997 1997 1998
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator -- Basic and Diluted EPS
Net loss.......................... $ (4,488,173) $(18,092,824) $ (5,746,137) $(23,402,620)
============ ============ ============ ============
Denominator -- Basic and Diluted EPS
Weighted average common stock
outstanding.................... 8,614,815 10,624,251 10,078,734 12,634,450
============ ============ ============ ============
Basic and diluted loss per share.... $ (0.52) $ (1.70) $ (0.57) $ (1.85)
============ ============ ============ ============
</TABLE>
Options and warrants to purchase an additional 5,191,987 and 7,738,365
shares of common stock were outstanding as of December 31, 1997 and June 30,
1998, respectively, and were excluded from the loss per share calculation as
they have the effect of decreasing loss per share. In addition, the Company had
3,360,000, 3,500,000, and 3,500,000 shares of convertible preferred stock
outstanding as of June 30, 1997, December 31, 1997 and June 30, 1998. The effect
of the conversion of such shares of preferred stock was also excluded from the
loss per share calculation as the effect would have decreased the loss per
share.
16. SEGMENT INFORMATION:
The Company operates in two business segments: (i) telecommunications
software products; and (ii) telecommunications network services. The following
table presents revenues and other financial information by business segment for
the period from January 18, 1996 (inception) to December 31, 1996 and the year
ended December 31, 1997:
<TABLE>
<CAPTION>
SOFTWARE PRODUCTS NETWORK SERVICES CONSOLIDATED
----------------------- ------------------------ ------------------------
1996 1997 1996 1997 1996 1997
---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... -- $2,000,000 -- $ 901,280 -- $ 2,901,280
Operating loss............... $1,606,608 4,434,231 $2,129,267 12,932,949 $3,735,875 17,367,180
Identifiable assets.......... -- 7,359,999 4,029,254 26,898,401 4,029,254 34,258,400
Depreciation and
amortization............... -- 185,651 68,556 598,897 68,556 784,548
Capital expenditures......... -- 1,506,012 3,028,715 16,715,315 3,028,715 18,221,327
</TABLE>
Identifiable assets are those assets used exclusively in the operations of
each business segment, or which are allocated when used jointly.
17. SUBSEQUENT EVENTS (UNAUDITED):
Subsequent to June 30, 1998, the Company issued options to purchase
1,170,500 shares of common stock to employees at an exercise price of $14.58 per
share. Also subsequent to June 30, 1998, the Company issued warrants to purchase
157,000 shares of common stock with an exercise price of $14.58 per share,
exercisable through September 2000.
On July 30, 1998, TeleHub completed the sale of 125,000 units consisting of
13.875% Senior Discount Notes due 2005 and warrants to purchase 2,082,732 Shares
of common stock at an exercise price of $.01 per share ("Units"). Each Unit
consists of $1,000 principal amount at maturity of notes ("Notes") and one
F-22
<PAGE> 124
TELEHUB COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1998
AND THE PERIOD FROM JANUARY 18, 1996 TO JUNE 30, 1998, IS UNAUDITED)
warrant representing the right to purchase 16.662 shares of common stock. The
Notes were sold at a significant discount with gross proceeds to the Company of
$83,553,750.
In May 1998, the Company received the $12 million Bridge Loan from a
financial institution (see Note 9). The Bridge Loan accrued interest at an
annual rate of 12% and was collateralized by all of the Company's intangible
property. The financial institution received a warrant to purchase 240,000
shares of the Company's common stock at an exercise price of $10.00 per share,
exercisable until the later of May 5, 2005 or two years after an initial public
offering. In July 1998, the Company repaid the Bridge Loan with the proceeds
from the July 30, 1998 Offering.
In July 1998, a financial institution purchased 68,587 shares of the
Company's common stock at a price of $14.58 per share.
In July 1998, the Company formed a joint venture that will use the
Company's technology to manage satellite telecommunications delivery in the
Australasian region (Australia, New Zealand, Southeast Asia, India, and the
Philippines). The Company contributed a non-exclusive VASP(TM) license and
associated technical support and received a 49% interest, while the joint
venture partner will contribute $5.0 million for operating funds in cash for the
remaining 51% interest.
In August 1998, the Company loaned $400,000 to an executive in exchange for
an interest bearing promissory note, which is collateralized by a second
mortgage on prime residential real estate, pursuant to executive's relocation
and employment contract. Also in August 1998, the Company loaned $235,340 to
another executive; the Company has setoff rights against the amounts to be paid
under this executive's employment contract in the event of default.
F-23
<PAGE> 125
---------------------------------------------------
---------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER MADE HEREBY. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE COMPANY'S AFFAIRS SINCE THE
DATE OF THIS PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................ 1
Risk Factors....................... 9
The Exchange Offer................. 20
Use of Proceeds.................... 26
Dividend Policy.................... 27
Capitalization..................... 27
Selected Consolidated Financial
Data............................. 28
Management's Discussion And
Analysis of Financial Condition
And Results of Operations........ 31
Business........................... 37
Management......................... 54
Security Ownership of Certain
Beneficial Owners and
Management....................... 60
Certain Relationships and Related
Transactions..................... 62
Description of The Notes........... 64
Book-Entry; Delivery and Form...... 85
Description of Capital Stock....... 86
Certain Federal Income Tax
Considerations................... 90
Plan of Distribution............... 92
Legal Matters...................... 93
Experts............................ 93
Available Information.............. 93
Glossary........................... 95
Index to Consolidated Financial
Statements....................... F-1
</TABLE>
---------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
NOTES, WHETHER OR NOT PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO
DELIVER A PROSPECTUS.
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
OFFER TO EXCHANGE ALL OUTSTANDING
13.875% SENIOR NOTES
DUE 2005 ("OLD NOTES")
FOR
13.875% SENIOR NOTES
DUE 2005 ("NEW NOTES")
---------------------
TELEHUB
COMMUNICATIONS CORPORATION
---------------------
PROSPECTUS
---------------------
DATED OCTOBER , 1998
---------------------------------------------------
---------------------------------------------------
<PAGE> 126
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation ("Articles") contain provisions
eliminating the personal liability of Company directors and officers for damages
for breach of fiduciary duty. These provisions, however, do not limit liability
for acts or omissions involving intentional misconduct, fraud, a knowing
violation of the law, or illegal payment of distributions.
Subject to certain limited exceptions, the Articles and the Nevada Act also
provide for mandatory indemnification by the Company of any of the Company's
directors, officers or agents who is involved in any legal proceeding arising
from such person's actions or inactions as a director, officer or agent. Such
indemnification includes reimbursement of expenses incurred by such person in
advance of such legal proceeding.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List of Exhibits.
(1) Underwriting Agreement. None.
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession. None.
(3) Corporate Organization.
A. TELEHUB COMMUNICATIONS CORPORATION
+ (3.A.1) Articles of Incorporation filed with the Nevada Secretary
of State on September 26, 1998.
+ (3.A.1) Certificate of Designation for Series A Convertible
Preferred Shares filed with the Nevada Secretary of State
on January 31, 1997.
+ (3.A.2) Bylaws
(4) Instruments defining the rights of security holders
+ (4.1) Indenture dated July 30, 1998, between Registrant,
Subsidiaries and State Street Bank ("Bank").
+ (4.2) Forms of Series A/B Senior Discount Note due 2008 (included
in Exhibit 4.1).
+ (4.3) Form of Subsidiary Guarantees (included in Exhibit 4.1).
+ (4.4) Registration Rights Agreement dated July 30, 1998, among the
Registrant, Subsidiaries and BancBoston Securities Inc.
("BSI").
(5) Letter regarding Legality.
X
(5.1) Opinion of Haligman Lottner Rubin & Fishman, P.C.
(6) Opinion Regarding Discount on Capital Shares.
(7) Opinion regarding Liquidation Preference. Not Applicable.
(8) Opinion regarding Tax Matters. Not Applicable.
(9) Voting Trust Agreement. None.
(10) Material Contracts.
II-1
<PAGE> 127
+ (10.1) Purchase Agreement dated July 27, 1998, by and among
Registrant, Subsidiaries and BSI.
+ (10.2) Warrant Agreement dated as of March 11, 1998 between the
Registrant, Subsidiaries and Bank.
+ (10.3) Warrant Registration Rights Agreement dated July 30, 1998
among Registrant, Subsidiaries and BSI.
+ (10.4) Sales Agreement, dated as of October 31, 1997, by and
between Newbridge Networks Corporation and the TeleHub
Network Services Corporation.
+ (10.5) Equipment Lease, dated as of November 11, 1996, by and
between DSC Finance Corporation and the Company.
+ (10.6) Loan and Security Agreement, dated as of May 5, 1998, by
and between Comdisco, Inc. and the Company.
+ (10.7) The Company's 1997 Stock Option Plan.
+ (10.8) Form of Incentive Stock Option Certificate.
+ (10.9) Form of Non-statutory Stock Option Certificate.
+ (10.10) Employment Agreement between Registrant and Donald H.
Sledge dated January 2, 1997.
+ (10.11) Employment Agreement between Registrant and Michael
McLaughlin dated January 2, 1997.
+ (10.12) Employment Agreement between Registrant and Richard M.
Harmon dated May 4, 1998, as amended.
+ (10.13) Employment Agreement between TNS and Herb Swinburne, dated
January 1, 1998.
+ (10.14) Consulting Agreement, dated January 2, 1997, between
Registrant and International Telecom Consulting, Inc.
+ (10.15) Loan Agreement, dated August 26, 1996 by and between TNS,
Hartford Holdings Ltd ("HHL"), and Donald H. Sledge.
+ (10.16) Bridge Loan Agreement, dated December 10, 1996, by and
between TNS and HHL.
+ (10.17) Reimbursement & Assignment of Recovery dated November 30,
1996, among TNS, Hartford Holding Ltd. and Dovedale
Investments Ltd.
+ (10.18) Promissory Note dated February 13, 1998, for C$157,500
(US$112,029) by Mr. Swinburne to Registrant.
+ (10.19) Secured Promissory Note, dated November 1997 by Richard M.
Harmon to Registrant for $250,000, due November 1999.
X (10.20) Employment Agreement between TNS and Timothy Chandler,
dated April 17, 1997.
X (10.21) Employment Agreement between TNS and Barry Lescher, dated
January 1, 1997.
X (10.22) Loan Agreement between Registrant and Richard M. Harmon
dated August 7, 1998.
X (10.23) Promissory Note, dated August 7, 1998, by Richard M. Harmon
to Registrant for $400,000 due September 1, 2005.
X (10.24) Promissory Note, dated August 18, 1998, by Michael G.
McLaughlin to Registrant for $235,340 due February 19,
1999.
II-2
<PAGE> 128
X (10.25) Telecommunications Service Agreement between TNS and Comtel
International Corporation, dated March 19, 1998.
X (10.26) Telecommunications Service Agreement between TNS and Global
Telephone Corporation, dated April 13, 1998.
X (10.27) Telecommunications Service Agreement between TNS and
American Telephone Network LLC, dated July 8, 1998.
X (10.28) Amendment I, dated October 8, 1997, to Agreement between
Registrant and Worldcom, Inc.
X (10.29) [Transcend] Telecommunications Services Agreement, dated
July 14, 1997, between Registrant and Worldcom Network
Services, Inc.
X (10.30) Transcend Program Enrollment Terms, dated August 8, 1997,
between Registrant and Worldcom Network Services, Inc.
X (10.31) Transcend Service Schedule, dated August 8, 1997, between
Registrant and Worldcom Network Services, Inc.
X (10.32) Amendment No. 2, dated April 1, 1998, to Transcend Program
Enrollment Terms.
X (10.33) Collocate Agreement, dated April 3, 1998, between
Registrant and Worldcom Network Services, Inc.
X (10.34) License Agreement, dated December 24, 1997, between
Registrant and Newbridge Networks Corporation, together
with Addendum #1 dated March 1, 1998.
(11) Statement regarding Computation of Per Share Earnings. None.
(12) Statement regarding Computation of Ratios. None.
(13) Annual Report to Security Holders. None.
(14) Material Foreign Patents. None.
(15) Letter regarding Unaudited Interim Financial Information. Not
Applicable.
(16) Letter regarding Change in Certifying Accountant. None.
(17) Letter regarding Director Resignation. No Exhibit Required.
(18) Letter regarding Change in Accounting Principles. No Exhibit
Required.
(19) Report furnished to Security Holders. No Exhibit Required.
(20) Other Documents or Statements to Security Holders. No Exhibit
Required.
(21) Subsidiaries of Registrant.
(22) Published Report regarding Matters Submitted to Vote of Security
Holders. No Exhibit Required.
X (23) Consents.
X (23.1) Consent of PricewaterhouseCoopers LLP, independent
accountants.
X (23.2) Consent of Opinion of Haligman Lottner Rubin & Fishman, P.C.
(included in Exhibit 5.1).
II-3
<PAGE> 129
X (24) Power of Attorney.
+ (24.1) Power of Attorney (Signature Page to the Company's
Registration Statement on Form S-4 filed on August 14,
1998).
X (24.2) Power of Attorney for Company and Subsidiary Officers and
Directors dated October 7, 1998.
(25) Statement of Eligibility of Trustee.
X (25.1) T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of State Street Bank.
(26) Invitation for Competitive Bids. Not Applicable.
(27) Financial Data Schedule.
(28) Information from Reports Furnished to State Insurance Regulatory
Authorities. None.
(99) Other Exhibits.
X (99.1) Proposed Form of Letter of Transmittal with respect to
Exchange Offer.
X (99.2) Proposed Form of Notice of Guaranteed Delivery.
X (99.3) Proposed Form of Exchange Agent Agreement.
- ---------------
+ Incorporated by reference to the Company's Registration Statement on Form
S-4, as filed on August 14, 1998.
X Filed with this Amendment #1.
* To be filed by amendment.
(b) Financial Statement Schedules. Schedules not listed above were omitted
because the information to be set forth therein is not applicable or is
shown in the financial statements or accompanying notes.
(c) Report, Appraisal or Opinion from independent third party. None.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement.
II-4
<PAGE> 130
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of section 310 of the Trust Indenture Act ("Act") in accordance with the
rules and regulations prescribed by the SEC under section 305(b)(2) of the Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-5
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act, Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, California.
TELEHUB COMMUNICATIONS CORPORATION
TELEHUB NETWORK SERVICES CORPORATION
TELEHUB TECHNOLOGIES CORPORATION
TELEHUB LEASING CORPORATION
October 7, 1998 By: /s/ RICHARD M. HARMON
---------------------------------------
Richard M. Harmon, Chief Financial Officer
of each Registrant
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ WILLIAM W. BECKER Chairman of the Board of Directors of October 7, 1998
- ------------------------------------------ TeleHub Communications Corporation,
William W. Becker Director of TeleHub Network Services
Corporation, & Director of TeleHub
Technologies Corporation
/s/ DONALD H. SLEDGE Chief Executive Officer of each October 7, 1998
- ------------------------------------------ Registrant, Director of TeleHub
Donald H. Sledge Communications Corporation, Director
of TeleHub Network Services
Corporation, Director of TeleHub
Technologies Corporation & sole
director of TeleHub Leasing
Corporation
/s/ RICHARD M. HARMON Chief Financial Officer & Secretary of October 7, 1998
- ------------------------------------------ each Registrant, Director of TeleHub
Richard M. Harmon Communications Corporation
/s/ JOHN LAWSON Principal Accounting Officer of each October 7, 1998
- ------------------------------------------ Registrant
John Lawson
/s/ MICHAEL G. MCLAUGHLIN Director of TeleHub Communications October 7, 1998
- ------------------------------------------ Corporation, Director of TeleHub
Michael G. McLaughlin Network Services Corporation &
Director of TeleHub Technologies
Corporation
/s/ BARRY C. LESCHER Director of TeleHub Communications October 7, 1998
- ------------------------------------------ Corporation & Director of TeleHub
Barry C. Lescher Network Services Corporation
/s/ JOHN F. SLEVIN Director of TeleHub Communications October 7, 1998
- ------------------------------------------ Corporation Director of TeleHub
John F. Slevin Network Services Corporation &
Director of TeleHub Technologies
Corporation
</TABLE>
II-6
<PAGE> 132
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
* Director of TeleHub Communications October 7, 1998
- ------------------------------------------ Corporation
Oz Pedde
* Director of TeleHub Communications October 7, 1998
- ------------------------------------------ Corporation
John R. Snedegar
* Director of TeleHub Communications October 7, 1998
- ------------------------------------------ Corporation
Martin R. Walsh
*By: /s/ RICHARD M. HARMON October 7, 1998
- ------------------------------------------
Richard M. Harmon,
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 133
TELEHUB COMMUNICATIONS CORPORATION
(COMMISSION FILE NO. 333-61441)
EXHIBIT INDEX TO EXHIBITS PAGE
(1) Underwriting Agreement. None.
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession. None.
(3) Corporate Organization.
A. TELEHUB COMMUNICATIONS CORPORATION
+ (3.A.1) Articles of Incorporation filed with the Nevada Secretary
of State on September 26, 1998.
+ (3.A.1) Certificate of Designation for Series A Convertible
Preferred Shares filed with the Nevada Secretary of State
on January 31, 1997.
+ (3.A.2) Bylaws
(4) Instruments defining the rights of security holders
+ (4.1) Indenture dated July 30, 1998, between Registrant,
Subsidiaries and State Street Bank ("Bank").
+ (4.2) Forms of Series A/B Senior Discount Note due 2008 (included
in Exhibit 4.1).
+ (4.3) Form of Subsidiary Guarantees (included in Exhibit 4.1).
+ (4.4) Registration Rights Agreement dated July 30, 1998, among the
Registrant, Subsidiaries and BancBoston Securities Inc.
("BSI").
(5) Letter regarding Legality.
X
(5.1) Opinion of Haligman Lottner Rubin & Fishman, P.C.
(6) Opinion Regarding Discount on Capital Shares. Not Applicable.
(7) Opinion regarding Liquidation Preference. Not Applicable.
(8) Opinion regarding Tax Matters. Not Applicable.
(9) Voting Trust Agreement. None.
(10) Material Contracts.
+ (10.1) Purchase Agreement dated July 27, 1998, by and among
Registrant, Subsidiaries and BSI.
+ (10.2) Warrant Agreement dated as of March 11, 1998 between the
Registrant, Subsidiaries and Bank.
+ (10.3) Warrant Registration Rights Agreement dated July 30, 1998
among Registrant, Subsidiaries and BSI.
+ (10.4) Sales Agreement, dated as of October 31, 1997, by and
between Newbridge Networks Corporation and the TeleHub
Network Services Corporation.
+ (10.5) Equipment Lease, dated as of November 11, 1996, by and
between DSC Finance Corporation and the Company.
+ (10.6) Loan and Security Agreement, dated as of May 5, 1998, by
and between Comdisco, Inc. and the Company.
<PAGE> 134
+ (10.7) The Company's 1997 Stock Option Plan.
+ (10.8) Form of Incentive Stock Option Certificate.
+ (10.9) Form of Non-statutory Stock Option Certificate.
+ (10.10) Employment Agreement between Registrant and Donald H.
Sledge dated January 2, 1997.
+ (10.11) Employment Agreement between Registrant and Michael
McLaughlin dated January 2, 1997.
+ (10.12) Employment Agreement between Registrant and Richard M.
Harmon dated May 4, 1998, as amended.
+ (10.13) Employment Agreement between TNS and Herb Swinburne, dated
January 1, 1998.
+ (10.14) Consulting Agreement, dated January 2, 1997, between
Registrant and International Telecom Consulting, Inc.
+ (10.15) Loan Agreement, dated August 26, 1996 by and between TNS,
Hartford Holdings Ltd ("HHL"), and Donald H. Sledge.
+ (10.16) Bridge Loan Agreement, dated December 10, 1996, by and
between TNS and HHL.
+ (10.17) Reimbursement & Assignment of Recovery dated November 30,
1996, among TNS, Hartford Holding Ltd. and Dovedale
Investments Ltd.
+ (10.18) Promissory Note dated February 13, 1998, for C$157,500
(US$112,029) by Mr. Swinburne to Registrant.
+ (10.19) Secured Promissory Note, dated November 1997 by Richard M.
Harmon to Registrant for $250,000, due November 1999.
X (10.20) Employment Agreement between TNS and Timothy Chandler,
dated April 17, 1997.
X (10.21) Employment Agreement between TNS and Barry Lescher, dated
January 1, 1997.
X (10.22) Loan Agreement between Registrant and Richard M. Harmon
dated August 7, 1998.
X (10.23) Promissory Note, dated August 7, 1998, by Richard M. Harmon
to Registrant for $400,000 due September 1, 2005.
X (10.24) Promissory Note, dated August 18, 1998, by Michael G.
McLaughlin to Registrant for $235,340 due February 19,
1999.
X (10.25) Telecommunications Service Agreement between TNS and Comtel
International Corporation, dated March 19, 1998.
X (10.26) Telecommunications Service Agreement between TNS and Global
Telephone Corporation, dated April 13, 1998.
X (10.27) Telecommunications Service Agreement between TNS and
American Telephone Network LLC, dated July 8, 1998.
X (10.28) Amendment I, dated October 8, 1997, to Agreement between
Registrant and Worldcom, Inc.
X (10.29) [Transcend] Telecommunications Services Agreement, dated
July 14, 1997, between Registrant and Worldcom Network
Services, Inc.
X (10.30) Transcend Program Enrollment Terms, dated August 8, 1997,
between Registrant and Worldcom Network Services, Inc.
<PAGE> 135
X (10.31) Transcend Service Schedule, dated August 8, 1997, between
Registrant and Worldcom Network Services, Inc.
X (10.32) Amendment No. 2, dated April 1, 1998, to Transcend Program
Enrollment Terms.
X (10.33) Collocate Agreement, dated April 3, 1998, between
Registrant and Worldcom Network Services, Inc.
X (10.34) License Agreement, dated December 24, 1997, between
Registrant and Newbridge Networks Corporation, together
with Addendum #1 dated March 1, 1998.
(11) Statement regarding Computation of Per Share Earnings. None.
(12) Statement regarding Computation of Ratios. None.
(13) Annual Report to Security Holders. None.
(14) Material Foreign Patents. None.
(15) Letter regarding Unaudited Interim Financial Information. Not
Applicable.
(16) Letter regarding Change in Certifying Accountant. None.
(17) Letter regarding Director Resignation. No Exhibit Required.
(18) Letter regarding Change in Accounting Principles. No Exhibit
Required.
(19) Report furnished to Security Holders. No Exhibit Required.
(20) Other Documents or Statements to Security Holders. No Exhibit
Required.
+ (21) Subsidiaries of Registrant.
(22) Published Report regarding Matters Submitted to Vote of Security
Holders. No Exhibit Required.
X (23) Consents.
X (23.1) Consent of PricewaterhouseCoopers LLP., independent
accountants.
X (23.2) Consent of Opinion of Haligman Lottner Rubin & Fishman, P.C.
(included in Exhibit 5.1).
X (24) Power of Attorney.
+ (24.1) Power of Attorney (Signature Page to Company's Registration
Statement on Form S-4 filed on August 14, 1998).
X (24.2) Power of Attorney for Company and Subsidiary Officers and
Directors dated October 7, 1998.
(25) Statement of Eligibility of Trustee.
X (25.1) T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of State Street Bank.
(26) Invitation for Competitive Bids. Not Applicable.
(27) Financial Data Schedule.
(28) Information from Reports Furnished to State Insurance Regulatory
Authorities. None.
<PAGE> 136
(99) Other Exhibits.
X (99.1) Proposed Form of Letter of Transmittal with respect to
Exchange Offer.
X (99.2) Proposed Form of Notice of Guaranteed Delivery.
X (99.3) Proposed Form of Exchange Agent Agreement.
- ---------------
+ Incorporated by reference to the Company's Registration Statement on Form
S-4, as filed on August 14, 1998.
X Filed with this Amendment #1.
* To be filed by amendment.
<PAGE> 1
EXHIBIT 5.1
September 30, 1998
TeleHub Communications Corporation
TeleHub Network Services Corporation
TeleHub Technologies Corporation
TeleHub Leasing Corporation
2033 North Main Street, Suite 340
Walnut Creek, California 94596
We acted as counsel to TeleHub Communications Corporation, a Nevada
corporation ("Company"), TeleHub Network Services Corporation, an Illinois
corporation ("TNS"), TeleHub Technologies Corporation, a Nevada corporation
("TTC"), and TeleHub Leasing Corporation, a Nevada corporation ("TLC"; TNS, TTC
and TLC collectively are "Guarantors"; Company and Guarantors collectively are
"TeleHub"), in connection with TeleHub's preparation and filing of a
Registration Statement on SEC Form S-4 (No. 333-52657) (together with all
amendments thereto, the "Registration Statement") with the U.S. Securities and
Exchange Commission (the "SEC"). This Registration Statement registers,
pursuant to the Securities Act of 1933, the delivery of $125,000,000 aggregate
principal amount of the Company's 13.875% Senior Discount Notes Due 2005,
Series B (the "New Notes") in exchange for an equal principal amount of the
Company's outstanding 13.875% Senior Discount Notes Due 2005, Series A ("Old
Notes"). The New Notes will be issued under an Indenture, dated as of July 31,
1998 (the "Indenture"), among the Company, Guarantors and State Street Bank as
trustee (the "Trustee"). The New Notes will be fully and unconditionally
guaranteed on an unsecured senior subordinated basis, jointly and severally, by
the Guarantors pursuant to a guarantee in the form set forth in the Indenture
("Subsidiary Guarantee").
In acting as TeleHub's legal counsel, we made such legal and factual
examinations and inquiries as we deemed advisable or necessary to our opinions.
We examined copies of the Registration Statement, the Indenture, the
Subsidiary Guarantee and the form of New Note set forth in the Indenture. In
addition, we reviewed TeleHub's corporate records, certificates of public
officials, certificates from TeleHub's officers, and such other documents and
questions of law that we consider necessary or advisable to render this
opinion.
In our examinations, we assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. As to all questions of
fact material to this opinion that have not been independently established, we
relied upon certificates or comparable documents from officers and
representatives of the Company and the Subsidiary Guarantors. In addition, we
assumed that the New Notes and the Subsidiary Guarantee will be executed and
delivered substantially in the form examined by us.
<PAGE> 2
TeleHub Communications
September 30, 1998
Page 2
Our opinions are subject to the qualifications and limitations contained
in this letter and are limited to the extent of our actual knowledge,
information and belief. As of the date of this letter, it is our opinion that:
1. The issuance of the New Notes has been duly authorized. When
executed by the Company, authenticated by the Trustee and delivered in
exchange for the Old Notes as contemplated by the Registration
Statement, the New Notes will be validly issued and will constitute the
legal, valid and binding obligations of the Company entitled to the
benefits of the Indenture in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights
and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought
at law or in equity).
2. Each Guarantor has duly authorized the Subsidiary Guarantee. When
duly executed by each Guarantor, the Subsidiary Guarantee will
constitute the legal, valid and binding obligation of each Guarantor,
enforceable against such Guarantor in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights
and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought
at law or in equity).
We are members of the Bar of the State of Colorado, so our opinions are
limited to the laws of the State of Colorado, the federal laws of the United
States, and the corporate laws of the State of Illinois and the State of Nevada
(based solely upon our review of standard compilations of such law). We
express no opinion as to the effect on the matters covered by this opinion of
the laws of any other jurisdiction. Our opinions are based only on laws in
effect as of this date, and in all respects are subject to and may be limited
by future legislation as well as future case law. We specifically disclaim any
responsibility to update or supplement these opinions to reflect any events or
to state any facts which may come to our attention in the future, or any
changes in law which may occur in the future. These opinions should not be
construed as a guaranty that a court considering such matters would not rule in
a manner contrary to the opinions.
This letter is rendered only to TeleHub and is solely for its benefit in
connection with the Registration Statement. Without our prior written consent,
this letter may not be relied upon by anyone other than TeleHub or for any
purpose other than the Registration Statement. The opinions expressed in this
letter are limited to the matters set forth in this letter, and no other
opinion should be inferred beyond the matters expressly stated.
We hereby consent to filing a copy of this letter with the SEC as an
exhibit to the Registration Statement and to the references to our firm under
the caption "Legal Matters" in the Prospectus contained in the Registration
Statement.
Very truly yours,
HALIGMAN LOTTNER RUBIN & FISHMAN, P.C.
<PAGE> 1
EXHIBIT - 10.20
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is entered into by and between,
TELEHUB NETWORK SERVICES CORPORATION, an ILLINOIS corporation, with offices at
2033 North Main Street, Suite 340, Walnut Creek, California 94596 and 1375
Tri-State Parkway, Suite 250, Gurnee, Illinois 60031 (the "EMPLOYER"), and
TIMOTHY CAREY CHANDLER, an individual residing at 32495 TIMBER RIDGE COURT,
WESTLAKE VILLAGE, CALIFORNIA ("EXECUTIVE"). The effective date of this Agreement
is APRIL 17, 1997 ("EFFECTIVE DATE").
RECITALS
WHEREAS, Employer desires to hire and employ Executive.
WHEREAS, Executive desires to become an employee of Employer;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. EMPLOYMENT. Employer, its subsidiaries and Affiliates (collectively, the
"COMPANY") agree to employ Executive, and Executive hereby agrees to be employed
by the Company on a full-time basis. For the purpose of this Agreement, the term
"AFFILIATE" means a person, firm or corporation that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control of Employer. Executive represents and warrants that the execution
of this Agreement and his performance under this Agreement does not breach any
other agreement and does not require the consent of any other person.
2. DUTIES. Executive shall perform the duties as assigned by the Company from
time to time and shall serve the Company faithfully and to the best of
Executive's ability. The Executive will hold, without additional compensation,
such other positions for the Company to which Executive may be appointed or
elected from time to time. In its sole discretion the Company may, from time to
time, change Executive's title or responsibility. Executive's conduct must
promote the best interests of the Company and must not discredit the Company,
its products or services.
3. EXCLUSIVITY. Executive shall devote substantially his full business time,
efforts, attention, skill and energy to the Company's business. Executive shall
disclose all other business activities to the Company and Executive shall not
engage in any other business activity that requires significant personal
services by Executive. After notifying the Company, Executive may take
reasonable personal time for:
3.1. personal investments that do not require significant services by
Executive;
3.2. participation in volunteer or charitable activities;
3.3. participation in industry-related organizations;
3.4. with prior Board approval, serving as a Director for other companies:
and
3.5. activities approved in advance by the Board;
except that Executive shall cease any such outside activity if the Company
determines that such
1 of 6
<PAGE> 2
activity will interfere or conflict with the Company's interests.
4. CONFLICTS OF INTEREST. Executive shall not engage in any activity that, in
the Company's judgment, may interfere or conflict with the proper performance of
Executive's duties or the Company's interest. If Executive has any interest in a
proposed transaction involving the Company, that interest must be fully
disclosed to the Company and the Company must approve of the transaction.
5. INVENTIONS AND CONFIDENTIALITY. Executive acknowledges that TeleHub is in a
unique, world-wide business and has expended significant amounts to develop its
proprietary products and services and, by reason of Executive's position with
the Company, Executive will have access to Confidential Information, proprietary
information and other intellectual property of the Company. As a condition to
the Executive's employment with the Company, the Executive agrees to and has
executed and delivered to the Company, the Invention Assignment and
Confidentiality Covenant ("COVENANT"), the terms of which are hereby
incorporated into and made part of this Agreement. Executive agrees that the
restrictions contained in the Covenant are fair, reasonable and necessary.
6. COMPENSATION AND BENEFITS. In consideration of the services to be rendered
pursuant to this Agreement, Executive shall receive the following compensation
and benefits during the term of his employment:
6.1. Salary. The Company shall pay Executive an annual base salary, payable
semi-monthly in arrears. The annual base salary during the term hereof shall be
$150,000.00 ("SALARY").
6.2. BONUS. The Company will pay Executive an incentive bonus up to FIFTY
percent (50%) of Executive's base Salary per year ("BONUS") based upon
Executive's accomplishments of objectives that are mutually defined and agreed
upon between, and documented by, Executive and the Company. The Company shall
pay Executive's Bonus ninety (90) calendar days after the close of the Company's
fiscal year. The Company's Board of Directors, with the advice of Executive's
supervisor, shall annually review the amounts of Executive's base Salary and
Bonus.
6.3. BENEFITS. The Company may provide Executive with such insurance plans,
hospitalization plans, retirement plans and other executive benefits that are
generally provided to executive employees of the Company and for which Executive
is eligible under the terms and conditions thereof.
6.4. REIMBURSEMENT OF EXPENSES. Upon receipt of an itemized accounting of
such expenses with acceptable supporting documentation, the Company shall
promptly reimburse Executive for all reasonable and necessary out-of-pocket
expenses incurred by Executive in connection with the business of the Company
and in performance of Executive's duties under this Agreement in accordance with
Company policy.
7. DURATION. Executive's employment shall commence on the Effective Date and
continue until terminated in accordance with Section 8. The initial term of
Executive's employment shall be TWO (2) years ("INITIAL TERM"), and shall be
automatically renewed for additional terms of one (1) year unless earlier
terminated pursuant to the terms of this Agreement. After termination of
Executive's employment, the applicable provisions of Sections 5 and 8 shall
remain in full force
2 of 6
<PAGE> 3
and effect until the time specified in each such section.
8. TERMINATION. Executive's employment may be terminated as follows:
8.1. EXPIRATION OF TERM. Upon written notice by either party delivered at
least thirty (30) calendar days before the expiration of the Initial Term or
renewal term (collectively, "TERM"), Executive's employment will terminate at
the expiration of the then current Term.
8.2. DEATH. If Executive dies during the Term of his employment, the
Company shall pay his estate the compensation that would otherwise be payable to
him for the month in which his death occurs, and his employment shall be deemed
terminated on the last day of such month.
8.3. CAUSE. The Company may immediately terminate Executive's employment at
any time for:
8.3.1. non-performance or gross negligent performance by Executive of
any material duties which continues after fifteen (15) calendar
days' written notice specifying such non-performance or gross
negligent performance; or
8.3.2. the commission of any theft, fraud, embezzlement or similar
crime involving the commission of any felony; for acts of
dishonesty or moral turpitude; for violation of Company policy
or applicable local, state or federal laws or regulations,
including anti-discrimination laws or securities laws; or for
violation of other laws which causes material economic damage
to the Company or material damage to the business reputation of
the Company; or for a material breach of any provision of this
Agreement.
8.4. DEMOTION. The Executive may terminate Executive's employment with the
Company upon thirty (30) calendar days' written notice if the Company assigns
the Executive to a position of lower responsibility and Executive rejects such
assignment.
8.5. DISCRETION. Either party, in its sole discretion, may terminate
Executive's employment at any time upon thirty (30) calendar days' prior written
notice.
8.6. CHANGE OF CONTROL. Either party may terminate Executive's employment
upon at least thirty (30) calendar days' written notice upon the occurrence of
any of the following events:
8.6.1 sale by the Company of substantially all of its assets to a
single purchaser or associated group of purchasers who are not
Affiliates of the Company;
8.6.2. sale, exchange or other disposition in one transaction of 35%
or more of the outstanding voting stock of the Company to
persons, firms or corporations who are not Affiliates of the
Company;
8.6.3. merger or consolidation of the Company in a transaction not
involving an Affiliate of the Company in which the shareholders
of the Company receive less than 50% of the outstanding voting
stock of the new continuing corporation or successor entity;
8.6.4. a bona fide decision by the Company to terminate its business
and liquidate its assets (but only if such liquidation is not
part of a plan to carry on the Company's business through its
shareholders).
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8.7. SEVERANCE. If Executive's employment is terminated pursuant to
Subsection 8.4 or 8.6 hereof, or the Company terminates Executive's employment
pursuant to Subsection 8.5 hereof, the Company shall pay Executive a Termination
Fee equal to FIFTY percent (50%) of Executive's annual Salary, plus Benefits,
plus the Bonus specified in Section 6.2 hereof; if Executive's employment is
terminated during the first year of employment, the Bonus will be FIFTY percent
(50%) of Executive's annual Salary pro-rated for the portion of the year served;
otherwise the Bonus will be the amount of the previous year's Bonus pro rated
for the portion of the year served. Such Bonus shall be paid within ninety (90)
calendar days of Executive's termination. Payments to be made pursuant to this
paragraph shall only be made upon Executive's execution of a standard release
waiving all claims against the Company.
9. SECURITIES MATTERS. Since the Executive will have access to Confidential
Information, Executive's ability to engage in securities transactions (including
securities issued by the Company and by others) will be limited. Executive
agrees to:
9.1. not engage in any transactions that intentionally or knowingly violate
federal and state securities laws;
9.2. file all reports required by securities regulatory authorities;
9.3. provide information about securities transactions when requested by
the Company;
9.4. follow written Company policies concerning securities transactions;
9.5. execute any "lock-up" agreements or other restrictions on transactions
when requested by the Company; and
9.6. comply with securities law requirements for all transactions.
While Executive may request the Company's permission to engage in proposed
securities transactions, Executive is still responsible for compliance with
applicable legal requirements.
10. INJUNCTIVE RELIEF. Upon a material breach or threatened material breach by
Executive of any of the provisions of Sections 3, 4, 5 and 9 of this Agreement,
or any term of the Covenant, the Company shall be entitled to institute and
prosecute proceedings in any court of competent jurisdiction either in law or in
equity to obtain the specific performance thereof by Executive or to enjoin
Executive from violating the provisions hereof. Pending the outcome of any such
litigation, Company shall be entitled to obtain injunctive or other relief,
without bond. If the Company takes such legal action, the prevailing party, as
part of its damages, shall be entitled to recover its legal fees and expenses
incurred in such action from the other party.
11. SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any provision of this Agreement shall be
adjudicated to be invalid or unenforceable, then the remaining provisions will
continue in full force and effect.
12. NOTICES. All communications, requests, consents and other notices under
this Agreement shall be given in writing and delivered by courier, registered or
certified mail (postage prepaid), return receipt requested, and shall be
effective upon delivery. Notices to the Company shall be
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delivered to the attention of the General Counsel at TeleHub's Walnut Creek
address written above, and Notices to Executive shall be delivered to the
Executive's address written above.
13. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by CALIFORNIA
law, irrespective of choices of law principles. The parties agree that any
action brought pursuant to the terms of this Agreement shall be brought in, and
the parties hereby submit exclusively to, the personal jurisdiction and venue of
the state and federal courts in or presiding over WALNUT CREEK, CALIFORNIA.
14. ASSIGNMENT. The Company may assign its rights and obligations under this
Agreement to any successor corporation or to any acquirer of substantially all
of the business of the Company, and all covenants and agreements hereunder shall
inure to the benefit of and be enforceable by or against any such assignee.
Neither this Agreement nor any rights or duties hereunder may be assigned or
delegated by Executive.
15. NO WAIVER. A waiver by either party of any breach of this Agreement shall
not be a waiver for any preceding or succeeding breach. A waiver by either party
of any right under this Agreement shall not be construed as a waiver of any
other right.
16. AMENDMENTS. No provision of this Agreement shall be altered, amended,
revoked or waived, except by an instrument in writing, signed by the Company and
Executive.
17. BINDING EFFECT. Except as otherwise provided herein, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective legal representatives, heirs, successors and assigns.
18. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19. ENTIRE AGREEMENT. This Agreement together with the Invention Assignment and
Confidentiality Covenant set forth the entire agreement and understanding of the
parties related to the subject matter of this Agreement and supersede all prior
and contemporaneous understandings, agreements or representations by or between
the parties, whether written or oral.
20. DISPUTES. Other than an action brought under Section 10, which may be
brought directly in any court of competent jurisdiction, any dispute or
controversy arising under, out of, in connection with or in relation to this
Agreement or the employment of TIMOTHY CAREY CHANDLER and the Company or the
termination of employment of TIMOTHY CAREY CHANDLER with the Company, including
any claims under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Americans With Disabilities Act, the
Family and Medical Leave Act, and any other federal, state or local statute,
regulation or ordinance pertaining to employment, shall be finally determined
and settled by arbitration. Arbitration shall be initiated by one party making
written demand upon the other party and simultaneously filing the demand
together with required fees in the office of the American Arbitration
Association in WALNUT CREEK, CALIFORNIA. The arbitration proceeding shall be
conducted in WALNUT CREEK, CALIFORNIA
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by a single arbitrator in accordance with the National Rules for the Resolution
of Employment Disputes of the American Arbitration Association, except as
otherwise provided herein. Discovery shall be permitted to the extent ordered by
the arbitrator in compliance with and pursuant to the Employment Dispute
Resolution Rules of the American Arbitration Association. The arbitration award
shall be a final and binding determination of the dispute and shall be fully
enforceable as an arbitration award in any court having jurisdiction and venue
over such parties. The prevailing party (as determined by the arbitrator) shall
be awarded by the arbitrator such party's attorneys' fees, costs and expenses in
connection with such proceeding, in addition to any other relief that may be
granted.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the "EFFECTIVE DATE" as stated above.
COMPANY: TELEHUB NETWORK SERVICES CORPORATION,
an ILLINOIS corporation
Date: 11/13/97 Date: 11/13/97
------------ -------------
By: /s/ Michael G. McLaughlin By: /s/ Timothy Carey Chandler
------------------------------- ----------------------------
Michael G. McLaughlin Timothy Carey Chandler
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<PAGE> 1
EXHIBIT - 10.21
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("AGREEMENT") is entered into by and between,
TELEHUB NETWORK SERVICES CORPORATION, an ILLINOIS corporation, with offices at
2033 North Main Street. Suite 340, Walnut Creek, California 94596 and 1375
Tri-State Parkway, Suite 250, Gurnee, Illinois 60031 (the "EMPLOYER"), and BARRY
C. LESCHER, an individual residing at 8914 ALAMONTE DRIVE, SPRING GROVE,
ILLINOIS 60081 ("EXECUTIVE"). The effective date of this Agreement is JANUARY 1,
1997 ( "EFFECTIVE DATE ").
RECITALS
WHEREAS, Employer desires to hire and employ Executive.
WHEREAS, Executive desires to become an employee of Employer;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. EMPLOYMENT. Employer, its subsidiaries and Affiliates (collectively, the
"COMPANY") agree to employ Executive, and Executive hereby agrees to be employed
by the Company on a full-time basis. For the purpose of this Agreement, the term
"AFFILIATE" means a person, firm or corporation that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control of Employer. Executive represents and warrants that the execution
of this Agreement and his performance under this Agreement does not breach any
other agreement and does not require the consent of any other person.
2. DUTIES. Executive shall perform the duties as assigned by the Company from
time to time and shall serve the Company faithfully and to the best of
Executive's ability. The Executive will hold, without additional compensation,
such other positions for the Company to which Executive may be appointed or
elected from time to time. In its sole discretion the Company may, from time to
time, change Executive's title or responsibility. Executive's conduct must
promote the best interests of the Company and must not discredit the Company,
its products or services.
3. EXCLUSIVITY. Executive shall devote substantially his full business time,
efforts, attention, skill and energy to the Company's business. Executive shall
disclose all other business activities to the Company and Executive shall not
engage in any other business activity that requires significant personal
services by Executive. After notifying the Company, Executive may take
reasonable personal time for:
3.l personal investments that do not require significant services by
Executive;
3.2. participation in volunteer, charitable activities or national guard;
3.3. participation in industry-related organizations;
3.4 with prior Board approval, serving as a Director for other companies;
and
3.5. activities approved in advance by the Board;
except that Executive shall cease any such outside activity if the Company
determines that such
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activity will interfere or conflict with the Company's interests.
4. CONFLICTS OF INTEREST. Executive shall not engage in any activity that, in
the Company's judgment, may interfere or conflict with the proper performance of
Executive's duties or the Company's interest. If Executive has any interest in a
proposed transaction involving the Company, that interest must be fully
disclosed to the Company and the Company must approve of the transaction.
5. INVENTIONS AND CONFIDENTIALITY. Executive acknowledges that TeleHub is in a
unique, world-wide business and has expended significant amounts to develop its
proprietary products and services and, by reason of Executive's position with
the Company, Executive will have access to Confidential Information, proprietary
information and other intellectual property of the Company. As a condition to
the Executive's employment with the Company, the Executive agrees to and has
executed and delivered to the Company, the Invention Assignment and
Confidentiality Covenant ("COVENANT"), the terms of which are hereby
incorporated into and made part of this Agreement. Executive agrees that the
restrictions contained in the Covenant are fair, reasonable and necessary.
6. COMPENSATION AND BENEFITS. In consideration of the services to be rendered
pursuant to this Agreement, Executive shall receive the following compensation
and benefits during the term of his employment:
6.1. Salary. The Company shall pay Executive an annual base salary,
payable semi-monthly in arrears. The annual base salary during the term hereof
shall be $132,000.00 ("SALARY").
6.2. Bonus. The Company will pay Executive an incentive bonus up to
FIFTY percent (50%) of Executive's base Salary per year ("BONUS") based upon
Executive's accomplishments of objectives that are mutually defined and agreed
upon between, and documented by, Executive and the Company. The Company shall
pay Executive's Bonus ninety (90) calendar days after the close of the Company's
fiscal year. The Company's Board of Directors, with the advice of Executive's
supervisor, shall annually review the amounts of Executive's base Salary and
Bonus.
6.3. Benefits. The Company will provide Executive with such insurance
plans, hospitalization plans, retirement plans and other executive benefits that
are generally provided to executive employees of the Company and for which
Executive is eligible under the terms and conditions thereof.
6.4. Reimbursement of Expenses. Upon receipt of an itemized accounting
of such expenses with acceptable supporting documentation, the Company shall
promptly reimburse Executive for all reasonable and necessary out-of-pocket
expenses incurred by Executive in connection with the business of the Company
and in performance of Executive's duties under this Agreement in accordance with
Company policy.
7. DURATION. Executive's employment shall commence on the Effective Date and
continue until terminated in accordance with Section 8. The initial term of
Executive's employment shall be TWO (2) years ("INITIAL TERM"), and shall be
automatically renewed for additional terms of one (1) year unless earlier
terminated pursuant to the terms of this Agreement. After termination of
Executive's employment, the applicable provisions of Sections 5 and 8 shall
remain in full force and effect until the time specified in each such section.
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8. TERMINATION. Executive's employment may be terminated as follows:
8.1. Expiration of Term. Upon written notice by either party delivered at
least thirty (30) calendar days before the expiration of the Initial Term or
renewal term (collectively, "TERM"), Executive's employment will terminate at
the expiration of the then current Term.
8.2. Death. If Executive dies during the Term of his employment, the Company
shall pay his estate the compensation that would otherwise be payable to him for
the month in which his death occurs, and his employment shall be deemed
terminated on the last day of such month.
8.3. Cause. The Company may immediately terminate Executive's employment at
any time for:
8.3.1. non-performance or gross negligent performance by Executive of
any material duties which continues after fifteen (15) calendar
days' written notice specifying such non-performance or gross
negligent performance; or
8.3.2. the commission of any theft, fraud, embezzlement or similar
crime involving the commission of any felony; for acts of
dishonesty or moral turpitude; for violation of Company policy
or applicable local, state or federal laws or regulations,
including anti-discrimination laws or securities laws; or for
violation of other laws which causes material economic damage
to the Company or material damage to the business reputation of
the Company; or for a material breach of any provision of this
Agreement.
8.4. Demotion. The Executive may terminate Executive's employment with the
Company upon thirty (30) calendar days' written notice if the Company assigns
the Executive to a position of lower responsibility and Executive rejects such
assignment.
8.5. Discretion. Either party, in its sole discretion, may terminate
Executive's employment at any time upon thirty (30) calendar days' prior written
notice.
8.6. Change of Control. Either party may terminate Executive's employment
upon at least thirty (30) calendar days' written notice upon the occurrence of
any of the following events:
8.6.1. sale by the Company of substantially all of its assets to a
single purchaser or associated group of purchasers who are not
Affiliates of the Company;
8.6.2. sale, exchange or other disposition in one transaction of 35%
or more of the outstanding voting stock of the Company to
persons, firms or corporations who are not Affiliates of the
Company;
8.6.3. merger or consolidation of the Company in a transaction not
involving an Affiliate of the Company in which the shareholders
of the Company receive less than 50% of the outstanding voting
stock of the new continuing corporation or successor entity;
8.6.4. a bona fide decision by the Company to terminate its business
and liquidate its assets (but only if such liquidation is not
part of a plan to carry on the Company's business through its
shareholders).
8.7. Severance. If Executive's employment is terminated pursuant to
Subsection 8.4 or 8.6 hereof, or the Company terminates Executive's employment
pursuant to Subsection 8.5 hereof, the Company shall pay Executive a Termination
Fee equal to ONE HUNDRED percent (100%) of Executive's annual Salary, plus
Benefits for one full year from termination date, plus the Bonus
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specified in Section 6.2 hereof; if Executive's employment is terminated during
the first year of employment, the Bonus will be FIFTY percent (50%) of
Executive's annual Salary pro-rated for the portion of the year served;
otherwise the Bonus will be the amount of the previous year's Bonus pro-rated
for the portion of the year served. Such Bonus shall be paid within ninety (90)
calendar days of Executive's termination. Payments to be made pursuant to this
paragraph shall only be made upon Executive's execution of a standard release
waiving all claims against the Company.
9. SECURITIES MATTERS. Since the Executive will have access to Confidential
Information, Executive's ability to engage in securities transactions (including
securities issued by the Company and by others) will be limited. Executive
agrees to:
9.1. not engage in any transactions that intentionally or knowingly
violate federal and state securities laws;
9.2. file all reports required by securities regulatory authorities;
9.3. provide information about securities transactions when requested by
the Company;
9.4. follow written Company policies concerning securities transactions;
9.5. execute any "lock-up" agreements or other restrictions on
transactions when requested by the Company; and
9.6. comply with securities law requirements for all transactions.
While Executive may request the Company's permission to engage in proposed
securities transactions, Executive is still responsible for compliance with
applicable legal requirements.
10. INJUNCTIVE RELIEF. Upon a material breach or threatened material breach by
Executive of any of the provisions of Sections 3, 4, 5 and 9 of this Agreement,
or any term of the Covenant, the Company shall be entitled to institute and
prosecute proceedings in any court of competent jurisdiction either in law or in
equity to obtain the specific performance thereof by Executive or to enjoin
Executive from violating the provisions hereof. Pending the outcome of any such
litigation, Company shall be entitled to obtain injunctive or other relief,
without bond. If the Company takes such legal action, the prevailing party, as
part of its damages, shall be entitled to recover its legal fees and expenses
incurred in such action from the other party.
11. SEVERABILITY. It is the desire and intent of the parties that the provisions
of this Agreement shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any provision of this Agreement shall be adjudicated to
be invalid or unenforceable, then the remaining provisions will continue in full
force and effect.
12. NOTICES. All communications, requests, consents and other notices under this
Agreement shall be given in writing and delivered by courier, registered or
certified mail (postage prepaid), return receipt requested, and shall be
effective upon delivery. Notices to the Company shall be delivered to the
attention of the General Counsel at TeleHub's Walnut Creek address written
above, and Notices to Executive shall be delivered to the Executive's address
written above.
13. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by ILLINOIS
law, irrespective of choices of law principles. The parties agree that any
action brought pursuant to
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the terms of this Agreement shall be brought in, and the parties hereby submit
exclusively to, the personal jurisdiction and venue of the state and federal
courts in or presiding over CHICAGO, ILLINOIS.
14. ASSIGNMENT. The Company may assign its rights and obligations under this
Agreement to any successor corporation or to any acquirer of substantially all
of the business of the Company, and all covenants and agreements hereunder shall
inure to the benefit of and be enforceable by or against any such assignee.
Neither this Agreement nor any rights or duties hereunder may be assigned or
delegated by Executive.
15. NO WAIVER. A waiver by either party of any breach of this Agreement shall
not be a waiver for any preceding or succeeding breach. A waiver by either party
of any right under this Agreement shall not be construed as a waiver of any
other right.
16. AMENDMENTS. No provision of this Agreement shall be altered, amended,
revoked or waived, except by an instrument in writing, signed by the Company and
Executive.
17. BINDING EFFECT. Except as otherwise provided herein, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective legal representatives, heirs, successors and assigns.
18. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19. ENTIRE AGREEMENT. This Agreement together with the Invention Assignment and
Confidentiality Covenant set forth the entire agreement and understanding of the
parties related to the subject matter of this Agreement and supersede all prior
and contemporaneous understandings, agreements or representations by or between
the parties, whether written or oral.
20. DISPUTES. Other than an action brought under Section 10, which may be
brought directly in any court of competent jurisdiction, any dispute or
controversy arising under, out of, in connection with or in relation to this
Agreement or the employment of BARRY C. LESCHER and the Company or the
termination of employment of BARRY C. LESCHER with the Company, including any
claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act, the Americans With Disabilities Act, the Family and Medical
Leave Act, and any other federal, state or local statute, regulation or
ordinance pertaining to employment, shall be finally determined and settled by
arbitration. Arbitration shall be initiated by one party making written demand
upon the other party and simultaneously filing the demand together with required
fees in the office of the American Arbitration Association in CHICAGO, ILLINOIS.
The arbitration proceeding shall be conducted in CHICAGO, ILLINOIS by a single
arbitrator in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association, except as otherwise
provided herein. Discovery shall be permitted to the extent ordered by the
arbitrator in compliance with and pursuant to the Employment Dispute Resolution
Rules of the American Arbitration Association. The arbitration award shall be a
final and binding determination of the dispute and shall be fully enforceable as
an arbitration award in any court having jurisdiction and venue over
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such parties. The prevailing party (as determined by the arbitrator) shall be
awarded by the arbitrator such party's attorneys' fees, costs and expenses in
connection with such proceeding, in addition to any other relief that may be
granted.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the "EFFECTIVE DATE" as stated above.
COMPANY: TELEHUB NETWORK SERVICES CORPORATION,
an ILLINOIS corporation
Date: Jan 1, 1997 Date: Jan 1, 1997
------------ -------------
By: /s/ Michael G. McLaughlin By: /s/ Barry C. Lescher
----------------------- -----------------
Michael G. McLaughlin / Barry C. Lescher
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ADDENDUM TO JANUARY 1,1997 EMPLOYMENT AGREEMENT BY AND BETWEEN TELEHUB NETWORK
SERVICES CORPORATION AND BARRY C. LESCHER.
Effective October 1,1997, Executive's annual base salary is increased to
$ 150,000.00.
Executive will be provided with a Company leased vehicle during the term of his
employment and any employment extensions. All operating expenses of the vehicle
to be paid by TeleHub Network Services Corporation. Leased vehicle age will not
exceed three years. Vehicle model to be commensurate with executive's position.
/s/ Michael McLaughlin
----------------------------------------------
Michael McLaughlin, Chief Operating Officer
<PAGE> 1
EXHIBIT 10.22
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is executed as of the 7th day of
August, 1998, by and between TELEHUB COMMUNICATIONS CORPORATION, a Nevada
corporation ("Telehub") and RICHARD M. HARMON, an individual ("Borrower").
WITNESSETH:
WHEREAS, Telehub and Borrower entered into an Employment Agreement dated
May 4, 1998, as subsequently amended on even date therewith (collectively, as
amended the "Employment Agreement"), which provides the terms and conditions of
Borrower's employment with Telehub;
WHEREAS, pursuant to the terms and conditions of the Employment Agreement,
Telehub has agreed to loan Four Hundred Thousand Dollars ($400,000.00) to
Borrower for the purchase of a residence in Illinois (the "Loan");
WHEREAS, in consideration for Telehub making the Loan, Borrower has agreed
to execute and deliver to Telehub a promissory note in the principal amount of
Four Hundred Thousand Dollars ($400,000.00) in the form attached hereto as
Exhibit A and incorporated herein by this reference (the "Note"), and to secure
the Note by executing a deed of trust (the "Deed of Trust") for the Illinois
residence (the "Real Property") in favor of Telehub pursuant to the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the mutual convenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. LOAN TERMS AND CONDITIONS. Upon the mutual execution of this
Agreement and the performance by Borrower of all other requirements as set
forth herein, Telehub agrees to make the Loan to Borrower, subject to the
following terms and conditions:
1.1 Terms of Loan. The term of the Loan shall be for a period of
seven (7) years. Interest shall accrue on the Loan for the first three (3) years
and at the end of the three (3) year period, accrued interest shall be added to
the Principal Sum. Commencing on September 1, 2001, interest shall be payable
monthly, amortized over a period of thirty (30) years, with all sums, including
principal and all accrued interest, becoming due and payable on September 1,
2005.
1.2 Interest Rate. The loan shall be made at the rate of interest
of seven percent (7%) per annum, and shall not be readjusted during the term of
the Loan.
1.3 Non-Recourse Loan. No recourse shall be had to Borrower for
payment of principal and/or interest under the Note, and Telehub shall look
solely to the Real Property as security for payment of principal or interest
under the Note. In no event shall Borrower be held
Loan Agreement
Page 1
<PAGE> 2
personally liable for any payment of principal or interest under the
Note or for any Event of Default, as hereinafter defined, under the terms of
this Agreement, the Note or the Deed of Trust (collectively, the "Loan
Document").
1.4 Title Insurance. As a condition precedent to Telehub funding
the Loan, Borrower shall obtain a mortgagee's title insurance policy in the
amount of the Loan with TeleHub as the insured (the "Policy") insuring the Loan
as a valid lien against the Real Property, subject only to the Senior Loan, as
hereinafter defined.
1.5 Improvements. Within one (1) year of obtaining the Loan,
Borrower agrees to invest at least One Hundred Thousand Dollars ($100,000.00)
of his own funds ("Investment") into the Real Property. After this Investment
is made, Borrower will maintain this Investment during the term of the Loan.
1.6 Subordination. The Loan will be subordinate and subject to all
other loans relating to the Real Property (the "Senior Loans"), provided that
the aggregate outstanding balance of the Loan and the Senior Loans, including
all costs and fees associated with the Loan and Senior Loan, does not exceed
the purchase price paid by Borrower for the Real Property. If required,
TeleHub shall execute and deliver any subordination agreement and other
agreement to subordinate the Loan to the Senior Loans in a form reasonably
acceptable to TeleHub.
1.7 Due on Sale. All sums outstanding under the Note shall be
immediately due and payable upon the sale or transfer or refinance of all or any
part of the Real Property, or any interest in the Real Property. A "sale or
transfer" means the conveyance or leasing of the Real Property or any right,
title or interest therein; whether legal, beneficial or equitable; whether
voluntary or involuntary; whether by outright sale, deed, installment sale
contract, land contract, leasehold interest, lease-option contract, or by any
other method of conveyance.
1.8 Additional Loan. In the event Borrower sells or transfers the
Real Property during the term of the Loan and the Loan becomes immediately due
and payable pursuant to Section 1.7, TeleHub shall re-loan Borrower the sum of
Four Hundred Thousand Dollars ($400,000.00) for an additional seven (7) year
period in accordance with the terms and conditions contained in this Agreement
(the "Second Loan"), excluding this Section 1.8, subject to the following
conditions: (i) no Event of Default shall have occurred under the Loan
Documents which is continuing; (ii) Borrower shall acquire a replacement
property (the "Replacement Property") within one hundred fifty (150) days from
the date of the sale or transfer of the Real Property; and (iii) the Second
Loan is used solely for the acquisition of the Replacement Property.
1.9 Insurance. Throughout the term of the Loan, Borrower shall keep
the Real Property fully insured against hazard and liability in amounts
reasonably required by TeleHub.
2. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event of Default by Borrower under this
Agreement:
Loan Agreement
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<PAGE> 3
2.1 Failure to Pay. If Borrower fails to pay when due and payable
or when declared due and payable, any portion of the Note, whether principal or
interest or otherwise.
2.2 Failure to Perform. If Borrower fails or neglects to perform or
observe any term, provision or condition or breaches any representation,
warranty, covenant or agreement contained in the Loan Documents;
2.3 Levy or Attachment. If any material portion of Borrower's
assets is attached, seized, subject to a writ or distress warrant or is levied
upon or comes into the possession of any judicial officer or assignee.
2.4 Bankruptcy. Involuntary bankruptcy which is not terminated in
sixty (60) days.
2.5 Failure to Invest Equity. Borrower's failure to invest and
maintain at least One Hundred Thousand Dollars ($100,000.00) in equity in the
Real Property during the term of the Loan.
3. RIGHTS AND REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an
Event of Default, Telehub may, at its election, without demand or notice of
its election, do any one or more of the following, all of which are authorized
by Borrower: (i) declare all obligations, whether evidenced by the Note, the
Loan Documents or otherwise, immediately due and payable in full, and (ii)
exercise any and all rights and remedies available to Telehub under the Loan
Documents.
4. NOTICE. For purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given (i) when hand delivered, (ii) when
received if sent by overnight mail, overnight courier or facsimile
transmission, or (iii) two (2) business days after the date when mailed by
United States certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Borrower: Richard M. Harmon
1375 Tri-State Parkway, Suite 250
Gurnee, Illinois 60031
If to Telehub: Telehub Communications Corporation
1375 Tri-State Parkway, Suite 250
Gurnee, Illinois 60031
5. MISCELLANEOUS.
5.1 Entire Agreement. This Agreement and the other Loan Documents
contain the entire agreement between the parties with respect to the Loan and
supersede all prior and contemporaneous agreements, representations and
understandings of the parties with respect to the Loan. This Agreement may be
amended only by a written instrument signed by the parties hereto.
Loan Agreement
Page 3
<PAGE> 4
5.2. Further Assurances. Borrower shall promptly execute and deliver all
further instruments and documents, and perform all further actions, as may be
reasonably requested by Telehub in connection with this Agreement.
5.3. Binding Effect. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their respective heirs, legal
representatives, successors and assigns.
5.4. Inconsistencies Among Loan Documents. In the event of any
inconsistencies between the terms of this Agreement and any terms of any of the
other Loan Documents, the terms of this Agreement shall be controlling.
5.5. Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Illinois without giving effect to the conflict of laws principles thereof.
5.6 Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability
of any other provision or provisions of this Agreement, which shall remain in
full force and effect.
5.7. Titles and Headings. The titles and headings of sections of this
Agreement are intended for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.
5.8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument. Facsimile signatures
shall constitute original signatures for all purposes.
IN WITNESS WHEREOF, Telehub has caused its name to be subscribed to this
Agreement by its duly authorized representative and Borrower has executed this
Agreement as of the date and year first above written.
TELEHUB COMMUNICATIONS CORPORATION, a Nevada corporation
By: /s/ D.H. Sledge
--------------------------------------------
Its: CEO
------------------------------------------
Loan Agreement
Page 4
<PAGE> 5
"BORROWER"
/s/ Richard M. Harmon
--------------------------
Richard M. Harmon
Loan Agreement
Page 5
<PAGE> 6
EXHIBIT A
310 Saunders Road
Lake Forest, Illinois 60045
<PAGE> 1
EXHIBIT 10.23
PROMISSORY NOTE
U.S. $400,000.00 Gurnee, Illinois
August 7, 1998
FOR VALUE RECEIVED, the undersigned, RICHARD M. HARMON ("Borrower"),
promises to pay to the order of TELEHUB COMMUNICATIONS CORPORATION, a Nevada
corporation (the "Note Holder"), the principal sum of FOUR HUNDRED THOUSAND AND
00/100 Dollars ($400,000.00)(the "Principal Sum"), with interest thereon as
hereinafter set forth, at its office at 1375 Tri-State Parkway, Suite 250,
Gurnee, Illinois 60031, or such other place as the Note Holder may designate.
The Principal Sum shall bear interest at the rate of seven percent (7%)
per annum which is the market rate of thirty-year (30) fixed mortgage, and shall
not be readjusted during the term of this Note.
From the date hereof until the Payment Commencement Date, as hereinafter
defined, interest shall accrue and no principal or interest payments shall be
due and payable and on the Payment Commencement Date, all accrued and unpaid
interest shall be added to the Principal Sum, Commencing on September 1, 2001
(the "Payment Commencement Date"), and continuing on the first day of each
calendar month thereafter, Borrower shall pay monthly installments of interest
amortized over a period of thirty (30) years. Such payments shall continue until
the entire indebtedness evidenced by this Note is fully paid; provided, however,
if not sooner paid, the entire Principal Sum together with outstanding and
accrued interest thereon, shall be due and payable on September 1, 2005.
Borrower may prepay the Principal Sum outstanding under this Note and any
accrued interest thereon, in whole or part, at any time without penalty.
If any payment required by this Note is not paid within fifteen (15) days
after the payment is due, the entire principal amount outstanding and accrued
interest thereon shall at once become due and payable at the option of the Note
Holder ("Acceleration") and interest shall accrue thereafter on all outstanding
sums at the rate of twelve percent (12%) per annum. To exercise this option, the
Note Holder shall give Borrower notice of Acceleration specifying the amount of
the nonpayment. Borrower shall have thirty (30) days after the notice of
Acceleration has been given to reinstate the terms of this Note, as they were
immediately before such notice, by paying the amount of nonpayment specified in
the notice of Acceleration. The Note Holder shall be entitled to collect all
reasonable costs and expenses of collection and/or suit, including, but not
limited to, reasonable attorneys' fees.
Borrower hereby waives presentment, notice of dishonor and protest, and
hereby agrees to any extensions of time of payment and partial payments before,
at, or after maturity.
Any notice to Borrower provided for in this Note shall be in writing and
shall be given and be effective upon (1) delivery to Borrower or (2) two (2)
business days after the mailing of such notice by certified mail, return
receipt requested, addressed to Borrower at the Borrower's address
<PAGE> 2
stated below, or to such other address as Borrower may designate by notice to
the Note Holder. Any notice to the Note Holder shall be in writing and shall be
given and be effective upon (1) delivery to Note Holder or (2) two (2) business
days after the mailing of such notice by certified mail, return receipt
requested, to the Note Holder at the address stated in the first paragraph of
this Note, or to such other address as Note Holder may designate by notice to
Borrower.
The indebtedness evidenced by this Note is secured by a Deed of Trust of
even date herewith and until released, said Deed of Trust contains additional
rights of the Note Holder. Such rights may cause acceleration of the
indebtedness evidenced by this Note. Reference is made to said Deed of Trust
for such additional terms. Said Deed of Trust grants rights to the real
property more particularly described on Exhibit A, attached hereto and made a
part hereof by this reference (the "Real Property").
Without in any manner releasing, impairing or otherwise affecting this
Note or the Deed of Trust or the validity thereof or hereof or the liens
thereof, notwithstanding anything contained herein or therein, there shall be
no personal liability of Borrower under this Note or under the
Deed of Trust; provided, however, that a judgment may be sought against
Borrower to the extent necessary to enforce the rights of the Note Holder in,
to or against the Real Property, the rents and profits therefrom, and all
collateral securing the indebtedness evidenced by this Note.
Borrower:
/s/ Richard M. Harmon
--------------------------
Richard M. Harmon
Borrower's Address:
1375 Tri-State Parkway
Suite 250
Gurnee, Illinois 60031
<PAGE> 3
EXHIBIT A
REAL PROPERTY DESCRIPTION
310 Saunders Road
Lake Forest, Illinois 60045
<PAGE> 1
EXHIBIT - 10.24
PROMISSORY NOTE
U.S. $235,340.00 Gurnee, Illinois
August 18, 1998
FOR VALUE RECEIVED, the undersigned, MICHAEL G. MCLAUGHLIN ("Borrower"),
promises to pay to the order of TELEHUB COMMUNICATIONS CORPORATION, a Nevada
corporation (the "Note Holder"), the principal sum of TWO HUNDRED THIRTY FIVE
THOUSAND THREE HUNDRED FORTY FIVE DOLLARS ($235,340.00) (the "Principal Sum"),
together with interest on the outstanding Principal Amount at the annual rate of
18% per annum, at the Note Holder's office at 1375 Tri-State Parkway, Suite 250,
Gurnee, Illinois 60031, or such other place designated by the Note Holder
1. MATURITY. If not paid sooner, the entire outstanding Principal Sum plus
all accrued unpaid interest is due and payable upon the earlier of ("Maturity
Date"): (a) February 19, 1999 (six months after the date of this Note; or (b)
termination of Borrower's employment by Note Holder or its subsidiaries.
Borrower may prepay the outstanding Principal Sum plus any accrued interest, in
whole or in part, at any time without penalty.
2. DEFAULT INTEREST RATE. If payment required by this Note is not paid within
fifteen (15) days after the Maturity Date, interest shall accrue thereafter on
all outstanding sums at the rate of twenty-one per cent(21%) per annum. Borrower
agrees to pay all reasonable costs and expenses, including reasonable attorneys'
fees, incurred by the Note Holder in connection with any default or in any
proceeding to enforce the payment of this Note at trial and all appellate
levels.
3. RIGHT TO SET-OFF. After the Maturity Date, in addition to any other rights
it may have upon default, Note Holder may reduce any amounts payable to Borrower
(including but not limited to salary, bonuses or severance pay) by the amount of
any unpaid Principal Sum, accrued interest, costs and expenses.
4. WAIVER OF PRESENTMENT. Borrower and all sureties, endorsers and guarantors
of this Note hereby: (a) waive demand, presentment for payment, notice of
prepayment, protest, notice of protest and all other notice, filing of suit and
diligence in collecting the Note, in enforcing any security rights or in
proceeding against any security, except as expressly provided herein; (b) agree
to any substitution, exchange, addition or release of any security or the
addition or release of any party or person primarily or secondarily liable
herein; (c) agree that Note Holder shall not be required first to institute any
suit, or to exhaust his, their or its remedies against the Borrower or any other
person or party to become liable hereunder or against any security in order to
enforce payment of this Note; and (d) agree that, notwithstanding the occurrence
of any of the foregoing, it shall be and remain jointly and severally, directly
and primarily, liable for all sums due under this Note.
5. NOTICE. Any notice under this Note shall be in writing and shall be given
and be effective upon (a) hand delivery or (b) two business days after the
mailing of such notice by certified mail, return receipt requested. Notices to
Borrower shall be addressed to Borrower's as address stated below and notices to
Note Holder at the address stated in the first paragraph of this Note. Either
Borrower or Note Holder may designate another address by notice to the other.
<PAGE> 2
6. GOVERNING LAW. This Note is delivered in the State of Illinois and shall
be construed and enforced in accordance with the laws of the State of Illinois.
7. CONSENT TO JURISDICTION. The undersigned unconditionally submits to the
jurisdiction of the Illinois federal and state Courts and further
unconditionally stipulates and agrees that any competent state court sitting in
Lake County, Illinois, or the federal court for the Northern District of
Illinois, Eastern Division, shall have jurisdiction to hear and finally
determine any dispute, claim or controversy arising out of or connected with
this Note or any of the documents executed in connection herewith. Copies of
summons and complaints and any other process or papers which may be served in
any action or proceeding arising out of this Note or any of the other documents
executed in connection herewith shall be served on Borrower in accordance with
applicable law. Borrower's address is set forth beneath Borrower's signature at
the end of this Note. Nothing in this Note shall affect the right of the Note
Holder to bring any action or proceeding against the Borrower's property in the
courts of any other jurisdiction.
BORROWER AND THE NOTE HOLDER PER HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY AND IRREVOCABLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL
BY JURY IN RESPECT TO ANY LlTIGATlON, WHETHER IN CONTRACT OR TORT, AT LAW OR IN
EQUITY, BASED HEREIN, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT AND ANY OTHER DOCUMENT OR INSTRUMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ANY PARTY HERETO.
Borrower: /s/ Michael G. McLaughlin
--------------------------------
Michael G. McLaughlin
2501 West Aspen Drive
McHenry, Illinois 60050
<PAGE> 1
Exhibit 10.25
TELECOMMUNICATIONS SERVICE AGREEMENT
This agreement (the "AGREEMENT") is made this 19th day of March, 1998,
between TeleHub Network Services Corporation, an Illinois corporation with
offices at 2033 North Main Street, Suite 340, Walnut Creek, California 94596
("SUPPLIER"), and Comtel International Corporation, a Nevada corporation with
its principal place of business at 8542 Del Webb Blvd., Las Vegas, NV 89134
("CUSTOMER").
1. SCOPE.
A. Telecommunications Services. Supplier is authorized to use its best
efforts (considering the needs of its other customers) to start provisioning of
the telecommunications services described in Exhibit A attached hereto and
incorporated herein by reference, to the extent they are available ("SERVICES")
to Customer on or before April 1, 1998 (the "SERVICE COMMENCEMENT DATE"), so
that Customer may resell the Services to its customers ("END USERS").
B. Access Services. In conjunction with its provision of Services, Supplier
will obtain from incumbent local exchange carriers ("ILECs") and competitive
local exchange carriers ("CLECs") on Customer's behalf all associated and
necessary switched access services and special access services, and may act on
Customer's behalf to order other services, if requested. Supplier shall pass
through to Customer all associated ILEC and CLEC charges for such services, and
will be responsible for coordinating with said ILECs and CLECs in connection
with their provisioning and maintenance of switched and special access services.
Supplier shall promptly process requests to the appropriate ILEC and CLEC to
load Customer's carrier identification code ("CIC") at the central office level
in all areas in which Carrier uses the Services.
C. Call Records. Supplier will calculate and send to Customer Call Detail
Records ("CDR's") for Customer to rebill End Users for calls placed through
Supplier's network, based upon the specifications defined Exhibit B.
<PAGE> 2
2. CUSTOMER RESPONSIBILITIES.
A. General Duties. The Customer shall use its best efforts to solicit
customers and resell the Services to End Users. Customer shall at all time
conduct its efforts in a commercially reasonable and ethical manner. Customer
shall provide its own billing and customer service to the End Users. To the
extent Customer makes any statements or representations to third parties
(including End Users) with regard to Supplier, the Services, or the terms of
this Agreement, such statements or representations shall be true and not
misleading.
B. End User Notification. Customer shall obtain prior to connection to
Supplier's network, a letter of agency ("LOA") from each End-User for each
telephone line ("ANI") in compliance with applicable Federal Communications
Commission ("FCC") and state regulations. Customer shall be responsible for LEC
Primary Interexchange Carrier change charges ("PIC CHARGES") that may be imposed
on End Users as a result of End Users moving onto or off of the Supplier's
network. When applicable, Customer will be responsible for notifying each
End-User in writing (or by any other means approved by the FCC) that: (i) a
transfer charge will be reflected on such End-User's bill for effecting a change
in its primary interexchange carrier, (ii) the entity name under which such
End-User's interstate, intrastate and/or operator services will be billed (if
different from Customer), and (iii) the "primary" telephone number(s) to be used
for maintenance and questions concerning such End-User's long distance service
and/or billing. Customer agrees to send Supplier a copy of the documentation
Customer uses to satisfy the above requirements promptly upon request. Supplier
may change the foregoing requirements at any time in order to conform with
applicable FCC and state regulations. Notwithstanding the foregoing, however,
Customer shall be solely responsible for ensuring that the transfer of End Users
to the Supplier's network conforms with applicable FCC and state regulations,
including, without limitation, the regulations established by the FCC with
respect to verification of orders for long distance service generated by
telemarketing.
C. Records. Customer will maintain documents and records ("RECORDS")
supporting Customer's re-sale of Service, including, but not limited to,
appropriate and valid LOAs from End Users, for a period of not less than
-2-
<PAGE> 3
twelve (12) months or such other longer period as may be required by applicable
law, rule or regulation. Customer shall retain the signed LOA's and promptly
make originals available upon request of Supplier, any local exchange carrier
("LEC") or any regulatory agency. In the event of a disputed transfer to the
Supplier's network, including, but not limited to those resulting from
Customer's inability or refusal to provide original End-User LOA's when
requested, Customer shall indemnify Supplier against any loss, damage or
liability arising from such disputed transfer, including, without limitation,
PIC Charges.
D. Volume Forecasts. Prior to the Service Commencement Date and by the end
of each calendar quarter thereafter, Customer shall provide Supplier with
forecasts covering a good faith estimate of the monthly traffic volume and
distribution for the ordered Services for the next three calendar months. The
forecasts are to be in the format attached hereto as Exhibit C.
3. EXCLUDED ANIs. Supplier has the right to reject any ANI supplied by
Customer for any of the following reasons: (i) Supplier is not authorized to
provide or does not provide long distance services in the particular
jurisdiction in which the ANI is located; (ii) a particular ANI submitted by
Customer is not in proper format; (iii) Customer is not certified to provide
long distance services in the jurisdiction in which the ANI is located; (iv)
Customer is in default of this Agreement; (v) Customer fails to cooperate with
Supplier in implementing reasonable verification processes determined by
Supplier to be necessary or appropriate in the conduct of business; or (vi) any
other circumstances that Supplier reasonably determines could adversely affect
Supplier's performance under this Agreement or Supplier's general ability to
transfer its other customers or other End Users to the Supplier's network. In
the event Supplier rejects an ANI, Supplier will notify Customer within
forty-eight (48) hours of its decision specifically describing the rejected ANI
and the reason(s) for rejecting that ANI. Supplier is under no obligation to
accept ANIs within the three-month period preceding the scheduled expiration of
the term hereof.
4. CHARGES AND PAYMENT. Charges for Service ("USAGE CHARGES") shall be based
on: (i) the rates for Services set forth in Exhibit D, as applicable; and (ii)
actual usage of Supplier's network from establishment of a connection
-3-
<PAGE> 4
between the calling device and the called telephone number for termination.
Supplier shall not unreasonably discriminate against Customer with respect to
Usage Charges vis-a-vis other similarly situated customers. All Usage Charges
shall be due and payable by Customer to Supplier within thirty (30) days of the
date of invoice, without demand or set off by Customer; provided, however, that
to the extent Customer disputes a portion of an invoice because it has received
what it considers in good faith to be materially incorrect CDR's, the due date
for such disputed portion shall be delayed for up to fifteen (15) days, provided
Customer cooperates in good faith to resolve such dispute. Usage Charges are
billed and payable following the period in which actual usage has been incurred.
If any invoice is not paid when due: (i) a late charge shall accrue equal to 1
- -1/2% (or the maximum legal rate, if less) of the unpaid balance per month; (ii)
Supplier may suspend or terminate the Service; and (iii) Supplier may require
additional security deposits.
5. PERCENT INTERSTATE USAGE. In the event Supplier provides any Services under
this Agreement, the provision of which, or the rate chargeable for which, is
dependent on the percentage of traffic of Customer utilizing such service that
is intrastate or interstate, Supplier shall be entitled to determine the
percentage of interstate (including international) and intrastate minutes of use
relative to the minutes of traffic utilizing such service ("PIU") to the extent
Supplier can make such a determination from the call detail information. To the
extent Supplier cannot make such a determination, such as for Dedicated Service
on which Supplier does not know the call origination point, Customer shall
determine the PIU utilizing such service and shall provide Supplier with a
written certification ("PIU CERTIFICATION") of such percentage. PIU
Certifications may be modified from time to time by Customer, and are subject to
recertification upon the request of Supplier, which requests shall not be made
unilaterally by Supplier more than once each calendar quarter. Any such
modification(s) of PIU Certification(s) shall be effective as of the first day
of any calendar month following reasonable notice from Customer. Supplier will
provide Customer written notice of Customer's failure to provide requested PIU
Certification, after which Customer will have 30 days to provide said
certification to Supplier. In the event Customer fails to provide a requested
PIU Certification as to any Services, the rates chargeable for which are
dependent on the PIU, the
-4-
<PAGE> 5
relevant minutes of use will be deemed to be subject to the higher of the
interstate or intrastate rates for the Service. Supplier is authorized to (i)
rely on Customer's PIU Certification in its own PIU filings and (ii) file
Customer's PIU Certification with any governmental authority, any third
party carrier it uses or any ILEC or CLEC. In the event any governmental
authority requires an audit of Supplier's PIU Certifications or its interstate
and 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 Supplier solely for purposes of
verifying Customer's interstate and intrastate minutes of use. Customer agrees
to indemnify Supplier for any liability or costs (including, without limitation,
any back-billing or penalties and legal fees and expenses) Supplier incurs in
the event the percentages in any PIU Certification provided by Customer are
different than those determined by any such audit.
6. SECURITY DEPOSITS.
A. Amount. Subject to paragraph D of this Section 6, Customer shall furnish
Supplier simultaneously with the execution of this Agreement a security deposit
equal to the aggregate amount that Supplier estimates, in its sole discretion,
would be due hereunder for Services during one month (the "SECURITY DEPOSIT").
The Security Deposit shall be (i) cash in U.S. dollars in such amount to be held
by Supplier during the term of the Agreement, or (ii) an unconditional
irrevocable letter of credit for such amount, naming Supplier as the sole
beneficiary, issued in a form and by a bank reasonably acceptable to Supplier
and to remain outstanding at all times during the term of the Agreement, or
(iii) such other instrument or device as mutually agreed to by the parties.
Customer acknowledges and agrees that the Security Deposit is not a prepayment
to be applied against the future provision of Service and the entire Security
Deposit amount, subject to paragraphs B and D of this Section 6, is to remain
outstanding at all times during the term of this Agreement.
B. Adjustment. The adequacy of the Security Deposit will be reviewed by
Supplier on a quarterly basis and, in the event that Customer's actual aggregate
monthly charges for Service exceeds the amount of the Security Deposit, as
determined by Supplier in its sole discretion, Customer
-5-
<PAGE> 6
shall, within five days of receiving written notice from Supplier, provide
additional cash or increase the stated amount of the letter of credit in an
amount equal to the difference between such charges and the then-existing
Security Deposit.
C. Use and Replenishment. The Security Deposit shall not bear interest and
Customer shall bear all costs related to the issuance of the letter of credit
described above. Supplier shall have no obligation to return any portion of the
Security Deposit unless and until Customer has paid all amounts due to Supplier
hereunder or otherwise. Supplier shall have the right to apply all or part of
the Security Deposit to any amount that has become due hereunder and not
received by Supplier as set forth herein. Upon application of any part of the
Security Deposit, Customer shall, within five days of receiving written notice
from Supplier, replenish the part of the Security Deposit, so applied. Any
application of all or a part of the Security Deposit to any overdue amount does
not constitute a waiver of Supplier's right to terminate this Agreement under
Section 15.
D. Waiver. Supplier, in its sole discretion, may waive its right to require
a Security Deposit as set forth in this Section 6 or may reduce the required
amount of the Security Deposit, subject to its right to later require Customer
to fully comply with the provisions of this Section 6, upon a review of any
financial statements of Customer that Supplier may request and upon its
determination, in the sole discretion of Supplier, that Customer's financial
circumstances do not require a Security Deposit. Customer represents that any
financial statements provided to Supplier shall be prepared in accordance with
generally accepted accounting principles and will be true and correct.
7. LOCKBOX AGREEMENT. Customer shall direct all of Customer's End-Users to
deposit any money owed by such End-User to Customer directly into a lockbox
account at the Bank of Oklahoma, N.A. (the "BANK") owned jointly by Customer and
the Supplier, and authorize the Supplier to make automatic clearinghouse fund
transfers from such lockbox accounts to the account of Supplier and Customer
according to the terms and conditions of a lockbox agreement in form and
substance reasonably satisfactory to Customer and Supplier. The Bank shall
provide both Customer and Supplier with all records and statements with respect
to the lockbox account each month. Supplier shall be entitled to receive from
the
-6-
<PAGE> 7
lockbox account 80% of the amount in the lockbox paid twice monthly (the
"SUPPLIER LOCKBOX PAYMENT") as payment for the Services and Customer shall be
entitled to receive from the lockbox account, 20% of the amount in the lockbox
(the "CUSTOMER LOCKBOX PAYMENT") subject to the terms and conditions herein.
Once a month (the "COMPARISON DATE"), Supplier shall compare the Supplier
Lockbox Payment with the amount then owed for the Services provided hereunder
and shall provide a copy of such comparison to Customer within seven (7) days of
the Comparison Date. In the event the Supplier Lockbox Payment satisfies current
invoices prior to the Comparison Date, the Customer Lockbox Payment shall
increase to one hundred percent (100%) until such time as the next invoice is
rendered. In the event that the Supplier Lockbox Payment exceeds the amount owed
to Supplier during any month for the Services provided hereunder, Supplier shall
pay Customer the excess within ten (10) days of the Comparison Date. In the
event that the Supplier Lockbox Payment is insufficient to cover the amount owed
to Supplier during any month for the Services provided hereunder, (the aggregate
amount by which the payments have been insufficient is referred to as the
"SHORTFALL") the Supplier Lockbox Payment shall increase to one hundred percent
(100%) of the amount deposited in the lockbox and Customer shall pay Supplier
any additional amount needed to cover any Shortfall. When Supplier has received
sufficient funds from the lockbox account to reduce the Shortfall to zero, the
Supplier Lockbox and Customer Lockbox Payment shall revert to the percentages
applicable on the date the Shortfall first occurred. Supplier shall have the
right to audit Customer's books and records, including, without limitation,
Customer's invoicing records to assure Customer its compliance hereunder.
Customer shall be responsible for all fees and expenses associated with said
lockbox agreement. A lockbox agreement and fee schedule will be attached hereto
prior to execution of this agreement as a separate document.
8. EXOGENOUS CHARGES.
A. Telecommunications Charges. In addition to the rates and charges listed
in Exhibit D, Customer shall pay to Supplier, on a direct pass-through basis;
(i) primary interexchange carrier change charges; and (ii) the primary
interexchange carrier charge ("PICC"). Customer shall also reimburse (without
markup) Supplier for amounts paid to payphone service providers for toll-free
and access code calls originated by Customer's End Users from payphones and,
-7-
<PAGE> 8
with respect to toll-free numbers assigned to Customer's End Users, amounts paid
to the National Administrative Services Center. Customer shall also pay, without
markup, amounts paid by Supplier toward the universal service programs
established or imposed by the FCC or any state that are incurred directly on
account of the Service provided by Supplier to Customer.
B. Tax Exemption. Within ten (10) business days after the date hereof,
Customer shall furnish to Supplier, and keep current during the term of this
Agreement, valid and appropriate tax exemption certificates in the form attached
hereto as Exhibit E, for all applicable jurisdictions (federal, state and local)
in which it performs customer billing. Customer is responsible for properly
charging tax to its subscribers and for the proper and timely reporting and
payment of applicable taxes to the taxing authorities and shall defend and
indemnify Supplier from payment and reporting of all applicable federal, state
and local taxes, including, but not limited to, gross receipts taxes,
surcharges, franchise fees, occupational, excise and other taxes (and penalties
and interest thereon), relating to the Services. Such indemnification, includes
costs and expenses (including reasonable attorney's fees) incurred by Supplier
in settling, defending or appealing any claims or actions brought against it
relating to said taxes. If Customer fails to provide and maintain the required
certificates, Supplier may charge Customer and Customer shall pay such
applicable taxes.
9. FRAUDULENT CALLS. Supplier shall promptly notify customer of any notice it
receives from its own fraud detection systems or otherwise of any actual or
potential fraudulent usage of the Services provided to Customer's End Users.
Customer hereby authorizes Supplier to take any and all actions as may be
reasonably necessary to prevent or minimize toll fraud, including, but not
limited to, disabling numbers or authorization codes, and agrees to indemnify
and hold harmless Supplier for any and all claims arising out of such actions.
Notwithstanding anything to the contrary, Customer shall not be responsible for
any charges incurred as a result of fraudulent usage of the Services of which
Supplier has or receives knowledge, but Customer will be responsible for all
other fraudulent calls.
10. TERM. This Agreement is effective as of the date hereof and shall remain in
force and effect for a period of
-8-
<PAGE> 9
three (3) years from the Service Commencement Date, unless earlier terminated
pursuant to its terms. This Agreement will continue from year to year after the
end of the three year term until either party terminates this Agreement by
giving the other 30 days written notice of termination.
11. PROVISION OF BALANCE SHEET. Prior to Service Commencement Date, and within
sixty (60) days after the end of each fiscal quarter, Customer shall provide
Supplier with a consolidated balance sheet of Customer as of the end of such
quarter and consolidated statements of income and retained earnings for such
quarter and the fiscal year to date through such quarter, all in reasonable
detail and certified by Customer's chief financial officer as having been
prepared in accordance with generally accepted accounting principles,
consistently applied. Supplier has the right to review Customer's credit at any
time during the Term of this Agreement, and to require a cash deposit or other
security satisfactory to Supplier.
12. FAILURE OF PERFORMANCE. Customer shall immediately notify Supplier of any
problems or End-User complaints associated with the Service, including, but not
limited to, excess noise, echo or loss of service. The liability of Supplier for
damages for mistakes, omissions, interruptions, delays, errors or defects in
transmission ("FAILURE OF PERFORMANCE") occurring in the furnishing of Services
is limited to not charging Customer for any Services that Supplier has failed to
provide. Interruption for system maintenance does not constitute a Failure of
Performance. In the event of a Failure of Performance, Supplier shall use its
reasonable efforts to correct such failure as soon as reasonably practicable
after Supplier is notified of such failure. In the event (i) Supplier notifies
Customer that Supplier cannot correct a Failure of Performance; or (ii) Supplier
fails to deliver Services meeting industry standards of performance, which
failure is not cured within five (5) days of written notice thereof by Customer
to Supplier, Supplier and Customer, each in its sole discretion, shall have the
right to cancel the affected service(s). In the event all, or any portion of,
the Services are terminated pursuant to this paragraph, Customer shall remain
liable for the Usage Charges for the affected Services that were rendered prior
to the effective date of termination.
-9-
<PAGE> 10
13. LIMITATION OF LIABILITY. Supplier's liability arising out of delays in
restoration of the Services or out of mistakes, accidents, omissions,
interruptions, or errors or defects in transmission in the provision of
Services, shall be subject to the limitations in Section 12 above and in the
applicable Tariff. IN NO EVENT SHALL SUPPLIER BE LIABLE TO CUSTOMER OR ANY End
User OR ANY OTHER THIRD PARTY IN ANY RESPECT, INCLUDING, WITHOUT LIMITATION, FOR
ANY DAMAGES, EITHER DIRECT, INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL,
ACTUAL, PUNITIVE, OR ANY OTHER DAMAGES, OR FOR ANY LOST PROFITS OF ANY KIND OR
NATURE WHATSOEVER, ARISING OUT OF MISTAKES, ACCIDENTS, ERRORS, OMISSIONS,
INTERRUPTIONS, OR DEFECTS IN TRANSMISSION, OR DELAYS, INCLUDING THOSE WHICH MAY
BE CAUSED BY REGULATORY OR JUDICIAL AUTHORITIES, ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE OBLIGATIONS OF SUPPLIER PURSUANT TO THIS AGREEMENT.
SUPPLIER MAKES NO WARRANTY TO CUSTOMER OR ANY OTHER PERSON OR ENTITY, WHETHER
EXPRESS, IMPLIED, OR STATUTORY, AS TO THE DESCRIPTION, QUALITY, MERCHANTABILITY,
COMPLETENESS OR FITNESS FOR ANY PURPOSE OF ANY SERVICE PROVIDED HEREUNDER OR
DESCRIBED HEREIN, OR AS TO ANY OTHER MATTER, ALL OF WHICH WARRANTIES BY SUPPLIER
ARE HEREBY EXCLUDED AND DISCLAIMED. For purposes of this Section, the term
"Supplier" shall be deemed to include Supplier, its shareholders, directors,
officers and employees, and any person or entity assisting Supplier in its
performance pursuant to this Agreement.
14. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY.
A. Definition. "CONFIDENTIAL INFORMATION" means all information disclosed
orally or in writing by one party to the other party and which is clearly
identified by the disclosing party at the time of disclosure as confidential
information of the disclosing party. With respect to information orally
disclosed by one party to the other party, the disclosing party must provide the
recipient with a written summary of such information, designating such
information as confidential, within one week after the oral disclosure was made
in order for such information to be considered Confidential Information. All
information concerning either Supplier's or Customer's traffic
volume/distribution and the identity of Supplier's or Customer's customers given
to either party under this Agreement or learned in connection with this
Agreement or any other transaction between Supplier and Customer is hereby
acknowledged by both Supplier and Customer to be
-10-
<PAGE> 11
Confidential Information regardless of whether it is so identified by the party
supplying such information.
B. Obligation. Each party shall take reasonable steps to safeguard
Confidential Information of the other party utilizing at least the same degree
of care it utilizes in protecting its own confidential information. The
obligations of the recipient of Confidential Information set forth in this
Section do not apply to the extent that: (i) such Confidential Information
becomes generally available to the public other than as a result of unauthorized
disclosure by the recipient or persons to whom the recipient has made the
information available; (ii) a party received such Confidential Information on a
non-confidential basis, from a third party lawfully possessing and lawfully
entitled to disclose such information, prior to its receipt from the disclosing
party. Further, the recipient may disclose Confidential Information pursuant to
any judicial or governmental request, requirement or order. The recipient,
however, shall take reasonable steps to give the disclosing party sufficient
prior notice so he may contest such request, requirement or order. Confidential
Information shall remain the property of the disclosing party and shall be
returned to the disclosing party or destroyed upon request of the disclosing
party.
C. Intellectual Property. No patent, copyright, trademark or trade secret
protected right, or technology or other proprietary right is licensed, granted
or otherwise transferred by this Agreement, except for the right to benefit from
the use of such technology or information in the course of the provision of
Services.
D. Use of Supplier Name. Upon execution of Supplier's trademark license
agreement, Customer may refer to itself as an authorized user of Supplier's
network in promotional, advertising or other materials upon Customer's execution
of Supplier's trademark license agreement; and use Supplier's logos, trade
marks, and service marks, in its promotional, advertising or other materials.
Customer shall change or correct, at Customer's expense, any such material which
Supplier, in its sole judgment, determines to be inaccurate, misleading or
otherwise objectionable in relation to using Services. Customer is explicitly
authorized to use the following statements in its sales literature: (i)
"[Customer] utilizes the [Supplier]'s network"; (ii) "[Customer] utilizes
[Supplier]'s facilities"; (iii)
-11-
<PAGE> 12
"[Supplier] provides only the network facilities"; and (iv) "[Supplier] is
[Customer]'s network services provider".
E. Remedies. In the event of a breach or threatened breach of the foregoing
provisions, Supplier shall be entitled to an injunction or restraining order, in
addition to such other rights or remedies as may be available under this
Agreement, at law or in equity, including but not limited to money damages.
15. CUSTOMER DEFAULT. "CUSTOMER DEFAULT" means Customer: (i) breaches any
material provision of this Agreement, including, but not limited to, the
provisions regarding payment; or (ii) uses the Services for any unlawful purpose
or in any unlawful manner. In the event of a Customer Default, Supplier may,
upon notice to Customer (in addition to the other rights or remedies as Supplier
may have under this Agreement, at law or in equity): (i) suspend Services to
Customer until such time that such circumstance is corrected (provided Supplier
shall not be prohibited from terminating this Agreement after suspending
Services); (ii) declare all Usage Charges that have been billed to Customer by
Supplier to be immediately due and payable whereupon all such amounts shall
become immediately due and payable; and (iii) terminate this Agreement. If
Customer files or initiates proceedings or has proceedings filed or initiated
against it, relating to its liquidation, insolvency, reorganization or other
relief(such as the appointment of a trustee, receiver, liquidator, custodian or
other official) under any bankruptcy, insolvency or other similar law or makes
an assignment for the benefit of its creditors or enters into an agreement for
the composition, extension or readjustment of its obligation in connection with
the foregoing, the Services shall terminate automatically, without notice.
16. SYSTEM MAINTENANCE. Supplier may interrupt the Services for the
performance of routine system maintenance, in which case Supplier will use
reasonable efforts to notify Customer prior to the interruption and to conduct
such maintenance during non-peak hours.
17. CUSTOMER WARRANTS. Customer hereby represents and warrants that it is
certified to do business in all jurisdictions in which it conducts business and
is in good standing in all such jurisdictions. Customer further represents and
warrants that it is certified by the proper
-12-
<PAGE> 13
regulatory agencies to provide interstate, intrastate and international long
distance services to End Users in those jurisdictions where such services are to
be provided by Customer, and will furnish Supplier copies of such certificates
upon Supplier's request. This Agreement is subject to, and Customer agrees to
comply with, all applicable federal, state and local laws, and regulations,
rulings and orders of governmental agencies, including, but not limited to, the
Communications Act of 1934, as amended, the Rules and Regulations of the FCC and
state public utility or service commissions ("PSC"), tariffs and the obtaining
and continuance of any required certification, permit, license, approval or
authorization of the FCC and PSC or any governmental body, including, but not
limited to regulations applying to feature group termination and letters of
agency.
18. NO THIRD PARTY BENEFICIARIES. This Agreement is made exclusively for the
benefit of the parties and not any third party.
19. COUNTERPARTS. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and, when taken together, shall
constitute one document.
20. FORCE MAJEURE. Supplier shall not be liable for any failure of performance
hereunder due to causes beyond its reasonable control, including, but not
limited to: acts of God, fire, explosion, vandalism, cable cut, storm or other
similar catastrophes; any law, order, regulation, direction, action or request
of the United States government, or of any other government, including foreign,
state and local governments having jurisdiction over either of the parties or
the Services, or of any department, agency, commission, court, bureau,
corporation or other instrumentality of any one or more of said governments, or
of any civil or military authority; national emergencies; insurrections; riots;
wars; or strikes, lock outs, work stoppages or other labor difficulties.
21. SURVIVAL. The covenants and agreements of Customer contained in this
Agreement with respect to payment of amounts due and indemnification shall
survive any termination of this Agreement.
-13-
<PAGE> 14
22. NOTICES. All notices required under this Agreement shall be given in
writing and delivered by a nationally recognized overnight courier, postage
prepaid, or facsimile to the addresses set forth below:
If to Supplier: TeleHub Network Services Corporation
2033 North Main Street, Suite 340
Walnut Creek, CA 94596
Attention: G. Richard Cross,
Vice President Sales, Marketing
and Technology Integration
Fax:
If to Customer: ComTel International Corporation
8542 Del Webb Blvd.
Las Vegas, NV 89134
Attention: Rick G. Thompson
Fax: (702) 363-2337
A list of contacts for each party for the administration of this Agreement is
attached as Exhibit F.
23. HEADINGS. The paragraph headings used in this Agreement are for purposes of
convenience only and shall not be deemed a part of this Agreement for purposes
of construction or interpretation.
24. GENERAL TERMS. This Agreement shall be construed under the laws of the
state of California. The waiver of a breach hereof shall not be construed to be
a waiver of any subsequent breach. Any dispute relating hereto shall be resolved
by binding arbitration in the San Francisco Bay area of California under the
rules of the American Arbitration Association. If any term hereof is held to be
invalid or unenforceable, this Agreement shall be construed without such invalid
or unenforceable term. This Agreement is the entire agreement between the
parties pertaining to the Services. This Agreement may only be modified or
amended by an instrument in writing executed by each party. Customer may not
assign this Agreement without the prior written consent of Supplier. The rates
hereunder do not include any sales, use or utility taxes. Customer shall pay to
Supplier any such taxes that Supplier may be required to collect or pay.
-14-
<PAGE> 15
25. SPECIAL PROVISIONS. Additional special provisions are attached as
Exhibit G.
To confirm their agreement to be bound hereby, the parties hereto have
executed this Agreement below:
TELEHUB NETWORK SERVICES
CORPORATION
By: G.R. Cross By: Rick G. Thompson
-------------------------------------- -------------------------------
Name: G.R. Cross Name: Rick G. Thompson
-------------------------------------- -----------------------------
Title: Vice-President Sales/Marketing Title: President
-------------------------------------- ----------------------------
Date: 4/29/98 Date: 4-29-98
-------------------------------------- -----------------------------
-15-
<PAGE> 16
LIST OF EXHIBITS
Exhibit A - Services
Exhibit B - CDR Specifications
Exhibit C - Forecast Form
Exhibit D - Rates
Exhibit E - Tax Exemption Form
Exhibit F - Contacts
Exhibit G - Special Provisions
List of Exhibits - Page 1 of 1
<PAGE> 17
\
EXHIBIT A
SERVICES
Check appropriate service(s), subject to availability:
X Switched 1+ service
- -----
X Dedicated 1+ Service
- -----
X Switched Toll-free Service
- -----
X Dedicated Toll-free Service
- -----
X Calling Card
- -----
X Debit Card
- -----
Operator Services
- -----
Directory Assistance
- -----
X Internet Access
- -----
X International Termination
- -----
X International Call Back
- -----
X Voicemail
- -----
X 1Oxxx Dialing
- -----
X Private Line
- -----
X Provisioned Bandwith on Demand (usage sensitive,
- ----- distance sensitive billing)
Scheduled Availability will be provided upon request
Exhibit A - Page 1 of 1 Initials: R.T. GRC
------ -------
<PAGE> 18
EXHIBIT B
Billing Contact Information & Specifications
for Call Detail Records
1. CDR Media Type Set-Up:
In order to receive the appropriate call format and method of distribution
it is imperative that this CDR Provisioning Request Form is completed and
sent with the original Telecommunications Wholesale Service Agreement. The
CDR form requests vital information as described below:
1.1 SUBSCRIBER COMPANY INFORMATION
The name by which the Subscriber Customer is identified in the
TeleHub billing system.
Name:
Subscriber Contact Name: ComTel International Corporation
Contact Telephone #(702) 363-2337
Contact Fax #: (702) 363-3063
1.2 ACCOUNT NUMBERS:
Should be the some as provided by TeleHub Customer Services to the
Subscriber Customer:
---------------------------------------------
(Provided by TeleHub Accounting)
1.3 MEDIA FREQUENCY:
The interval in which your Subscriber wants to receive the call
records (Sub-Daily, Daily, Weekly, Monthly or some other
timeframe). If Sub-Daily, Daily or some other timeframe is
selected the TeleHub Customer Services must begin a process to
establish the dedicated link used for the transmission of
call records. The account will be initially set-up to receive
weekly tape or diskette media based on the volume, until the
alternative installation process has been completed:
Select Media Frequency:
Sub-Daily _ Daily_X _ Weekly _ Monthly
For calls processed by other carriers on behalf of Telehub,
frequency is subject to receipt of call records from the other
carrier.
Exhibit B - Page 1 of 3 Initials: RT GRC
------ --------
<PAGE> 19
EXHIBIT B (continued)
1.4 MEDIA TYPE:
The physical media selection is required (Tape, Cartridge,
Diskette, CD-ROM, or TeleHub Web Download). Please complete the
sub category information for the media type selected. (i.e. if
Tape is selected, specify: standard label or no label 1600 bpi or
6250 bpi, ASCII or EBCDIC). Monthly frequency only available
for CD-ROM (based on volume):
Tape _ Cartridge _ Diskette _ CD ROM _ WEB Download X
1.5 SHIP TO ADDRESS:
Specify the location that the physical media will be sent to,
whether it is your site or a third party billing vendor. Also
provide the following:
- Company name: ComTel International Corporation
- Recipient Name: Rick G. Thompson
- Street address: 8542 Del Webb Blvd.
- Suite #:
------------------------------------------------
- City: Las Vegas State:NV Zip Code 89134
- Contact Phone or Pager:
Area Code and # that is answered 7X24)(702) 363-2337
- Fax Phone: Area Code and #: (702) 363-3063
1.6 CONTRACT TYPE:
Specify whether the account is dedicated or switched access.
(In the future the travel card and other enhanced service features
will be included for media provided by TeleHub):
Switched Access Dedicated Both X
-------------- ------------------ ---
The dedicated CSA will contact the Subscriber Customer upon
receipt of credit approval for the account. The CSA will
initiate the process of establishing the dedicated link used
for transmission of the CDR's. This TeleHub contact will
instruct the Subscriber on how to access the TeleHub website,
provide information about the software and hardware
requirements. The set-up provisioning will take approximately
30-45 days to complete for dedicated access.
Exhibit B - Page 2 of 3 Initials: RT GRC
------- -------
<PAGE> 20
2. EDE Set-Up
New Subscriber Customers to TeleHub: EDE is the electronic data exchange
process to be used by TeleHub to provide current data on account activity.
An EDE reference handbook or guide prepared by the TeleHub Customer
Service Group will be made available on request by a Subscriber. The guide
will instruct the Subscriber on how to interface with TeleHub regarding
the following items:
- Assigning and canceling login ID's and Passwords
- File Creation and file layout parameters for 1+ANI, account code
- File Submittal and Retrieval
- Response Files
- Reject Codes
- TeleHub Software Programs
- TeleHub WEB page
- And many other topics related to electronic order entry
Dedicated circuits to the RAS server can be established and the Sales Agent
should discuss this with the Subscriber and make the necessary arrangements
for ordering the facilities. If training is necessary the TeleHub Customer
should call Cylinda Nelson(847-782-2136) to schedule either on-site or
Gurnee-Site Training. The TeleHub direct Customer Service Group can be
reached at (847-782-8090). To report outages or trouble tickets only
(888-383-2482)
Exhibit B - Page 3 of 3 Initials: RT GRC
-------- --------
<PAGE> 21
EXHIBIT C
PROJECTED NETWORK USAGE FORECAST
To allow TeleHub to provide unsurpassed service, please fill in the below
requested information. This information is used for planning purposes only and
is in no way to be construed as a commitment by either party, without an
approved Telecommunications Carrier Services Agreement.
---------------------------------------------------------
COMPANY NAME: COMTEL INTERNATIONAL
---------------------------------------------------------
DATE OF PROJECTED FORECAST: 4/23/98
---------------------------------------------------------
<TABLE>
<CAPTION>
SWITCHED SERVICES
- ---------------------------------------------------------------------------------------------------------------------
Total Domestic Minutes of Outbound Inbound International Terminating
Projections Year 1 Use(MOU) Projections Percentage Percentage Minutes of Use (MOU)
- ----------------------------------------------------------------------------------------------------------------------
Switched Dedicated
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Month 1 375,000 0
- ----------------------------------------------------------------------------------------------------------------------
Month 2 1,200,000 50,000
- ----------------------------------------------------------------------------------------------------------------------
Month 3 2,500,000 50,000
- ----------------------------------------------------------------------------------------------------------------------
Month 4 3,000,000 75,000
- ----------------------------------------------------------------------------------------------------------------------
Month 5 3,000,000 75,000
- ----------------------------------------------------------------------------------------------------------------------
Month 6 3,000,000 100,000
- ----------------------------------------------------------------------------------------------------------------------
Total 13,500,000 350,000
- ----------------------------------------------------------------------------------------------------------------------
Month 12 22,500,000 1,000,000
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Total Projections YR
2 37,500,000 2,000,000
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Area of Operations Please provide an indication of where your Sales Activity is
concentrated by city and state or regional area.
A brief description of your marketing method (i.e. independent sales agent,
in-house sales, telemarketing etc.). If available, attach an NPA/NXX list of
total minutes of use by Tandem or by Individual Serving Office
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SALES AREA Marketing # Business # Access Type Access Type Projected # of
By City/State Method Customers Residential % Switched % Dedicated T-1 Required
Customers
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
USA Agents 60%/9,000,000 40%/4,500,000 80% 8% 5
- ----------------------------------------------------------------------------------------------------------------------
USA Agents 60%/13,500,000 40%/9,000,000 80% 8% 12
- ----------------------------------------------------------------------------------------------------------------------
USA Agents 60%/22,500,000 40%/15,000,000 80% 8% 20
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C - Page 1 of 1
Initials: GRC Rick G. Thompson
---------- --------------------
<PAGE> 22
EXHIBIT D
1. DOMESTIC RATES INTERSTATE/INTRASTATE SWITCHED 1+
- ---------------------------------------------------
All rates per minute of usage. Billing increments for all domestic origination
will be in one second billing increments.
(a) INTERSTATE, ALL LATA GROUPS EXCEPT LATA 836, $0.075
Interstate Switched 1+ rate of $0.075 includes
Interstate usage originating from & terminating to all
exchanges for all time periods, for All LATA Groups
except those shown below in LATA Group 836. This rate is also
applicable to switched Toll-Free Origination.
Supplier will provide Customer with the following volume discounts on the
aggregated volume for interstate, intrastate and dedicated usage at the levels
shown assuming all invoices are current and paid within the previously agreed
timeframes. Discounts will only be calculated at each monthly revenue level
actually attained for that month. (For example should the first monthly usage
minutes total 2,000,000 minutes the invoice will be calculated at the $0.075
rate for the first 1,000,000 minutes of usage and the next 1,000,000 minutes of
usage would be calculated at the $0.0713 rate). Should minutes of use decrease
the applicable rate for the monthly revenue level will be used. Monthly revenue
levels do not aggregate. The calculation of the volume discount is calculated
at the rate shown for each tier of the monthly revenue level for each month.
The following discount table includes revenue for 1+ Termination Services and
800/888 Origination Services:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
MONTHLY REVENUE LEVEL VOLUME DISCOUNT RATE
-----------------------------------------------------------------------------------
<S> <C> <C>
$ 0 to $ 75,000 No additional discount $ 0.0750
-----------------------------------------------------------------------------------
$ 75,001 to $ 175,000 5% $ 0.0713
-----------------------------------------------------------------------------------
$ 175,001 to $ 400,000 9% $ 0.0683
-----------------------------------------------------------------------------------
$ 400,001 to $ 650,000 13% $ 0.0653
-----------------------------------------------------------------------------------
$ 650,001 to $ 950,000 17% $ 0.0623
-----------------------------------------------------------------------------------
$ 950,001 to $ 1,250,000 21% $ 0.0593
-----------------------------------------------------------------------------------
$1,250,001 and up 25% $ 0.0563
-----------------------------------------------------------------------------------
</TABLE>
Note: Add $0.02 to above rates per minute for terminations to non-RBOC
locations
(b) SEE ATTACHED 4/1/98 INTRASTATE RATES
EXCEPT LATA 836,
Intrastate Switched 1+ rate of $0.075 includes Intrastate usage originating from
& terminating to all exchanges for all time periods, for All LATA Groups except
those shown below in LATA Group 836. This rate is also applicable to switched
Toll-Free Origination.
Exhibit D - Page 1 of 9 Initials: RT GRC
------- -------
<PAGE> 23
(c) LATA GROUP 836 $0.136
(i) Wake and Midway Islands
(ii) Alaska, Hawaii, US Virgin Islands,
Puerto Rico 1+ Terminating $0.095
(iii) 800 Origination from Extended Non-Mainland Points to the Domestic
Mainland
Alaska $0.1244
Hawaii(1+800) $0.0750
Puerto Rico $0.0856
US Virgin Islands $0.1089
Canada $0.2055
(d) CALLING CARD (Supplier will provide PINs and provide 800 $ 0.14
access and transport; Customer must issue own cards)
Billing Increment 30/6 Domestic
2. DEDICATED ACCESS RATE PER MINUTE OF USAGE: $0.0499
3. INTERNATIONAL RATES SHOWN ON PAGES 3-9 (attached)
Rates may be changed upon notice to Customer.
Billing increments for international calls will be 30/6 except Mexico 60/60
SEE EXHIBIT G FOR ANY ADDITIONAL RATE CONSIDERATION
- ---------------------------------------------------
Exhibit D - Page 2 of 9 Initials: RT GRC
------- -------
<PAGE> 24
TeleHub Network Services Corporation
- ---------------------------
STATE 1+ INTRASTATE
- ---------------------------
SWITCHED
- ---------------------------
AL $0.0606
- ---------------------------
AZ $0.0516
- ---------------------------
AR $0.0557
- ---------------------------
CA $0.0514
- ---------------------------
CO $0.0515
- ---------------------------
CT $0.0624
- ---------------------------
DE $0.0499
- ---------------------------
DC $0.0337
- ---------------------------
FL $0.0423
- ---------------------------
GA $0.0607
- ---------------------------
ID $0.0510
- ---------------------------
IL $0.0420
- ---------------------------
IN $0.0589
- ---------------------------
IA $0.0565
- ---------------------------
KS $0.0532
- ---------------------------
KY $0.0617
- ---------------------------
LA $0.0606
- ---------------------------
ME $0.0786
- ---------------------------
MD $0.0500
- ---------------------------
MA $0.0744
- ---------------------------
MI $0.0571
- ---------------------------
MN $0.0511
- ---------------------------
MS $0.0612
- ---------------------------
MO $0.0535
- ---------------------------
MT $0.0517
- ---------------------------
NE $0.0605
- ---------------------------
NV $0.0636
- ---------------------------
NH $0.0454
- ---------------------------
NJ $0.0508
- ---------------------------
NM $0.0516
- ---------------------------
NY $0.0603
- ---------------------------
NC $0.0607
- ---------------------------
ND $0.0511
- ---------------------------
OH $0.0578
- ---------------------------
OK $0.0531
- ---------------------------
OR $0.0516
- ---------------------------
PA $0.0504
- ---------------------------
RI $0.0455
- ---------------------------
SC $0.0610
- ---------------------------
SD $0.0511
- ---------------------------
TN $0.0611
- ---------------------------
TX $0.0594
- ---------------------------
UT $0.0511
- ---------------------------
VT $0.0685
- ---------------------------
VA $0.0338
- ---------------------------
WA $0.0516
- ---------------------------
WV $0.0499
- ---------------------------
WI $0.0564
- ---------------------------
WY $0.0517
- ---------------------------
Effective As Of 4/1/98
Exhibit D Page 3 of 9
<PAGE> 25
TeleHub Network Services
- -------------------------------------------------------------------------
Country RATE*
DESTINATION Codes (subject to change)
- -------------------------------------------------------------------------
AFGHANISTAN 93 1.2222
- -------------------------------------------------------------------------
ALBANIA 355 0.3333
- -------------------------------------------------------------------------
ALGERIA 213 0.3556
- -------------------------------------------------------------------------
AMERICAN SAMOA 684 0.5056
- -------------------------------------------------------------------------
ANDORRA 376 0.3067
- -------------------------------------------------------------------------
ANGOLA 244 0.5000
- -------------------------------------------------------------------------
ANGUILLA 809/497 0.4667
- -------------------------------------------------------------------------
ANTARCTICA (SCOTT) 640 0.4556
- -------------------------------------------------------------------------
ANTIGUA/Barbuda 809/460 0.4889
- -------------------------------------------------------------------------
ARGENTINA 54 0.4944
- -------------------------------------------------------------------------
ARMENIA 374 0.7344
- -------------------------------------------------------------------------
ARUBA 297 0.3333
- -------------------------------------------------------------------------
ASCENSION ISLANDS 247 0.7111
- -------------------------------------------------------------------------
AUSTRALIA 61 0.1167
- -------------------------------------------------------------------------
AUSTRIA 43 0.1833
- -------------------------------------------------------------------------
AZERBAIJAN 994 0.5222
- -------------------------------------------------------------------------
BAHAMAS 809/321 0.2194
- -------------------------------------------------------------------------
BAHRAIN 973 0.6667
- -------------------------------------------------------------------------
BANGLADESH 880 0.9667
- -------------------------------------------------------------------------
BARBADOS 809/228 0.5000
- -------------------------------------------------------------------------
BELARUS 375 0.4300
- -------------------------------------------------------------------------
BELGIUM 32 0.1778
- -------------------------------------------------------------------------
BELIZE 501 0.7556
- -------------------------------------------------------------------------
BENIN 229 0.5889
- -------------------------------------------------------------------------
BERMUDA 809/231 0.2500
- -------------------------------------------------------------------------
BHUTAN 975 0.6889
- -------------------------------------------------------------------------
BOLIVIA 591 0.6244
- -------------------------------------------------------------------------
BOSNIA & HERZEGOVINA 387 0.4278
- -------------------------------------------------------------------------
BOTSWANA 267 0.4667
- -------------------------------------------------------------------------
BRAZIL 55 0.4444
- -------------------------------------------------------------------------
BRITISH VIRGIN ISLANDS 809/275 0.3444
- -------------------------------------------------------------------------
BRUNEI (Negara) 673 0.3278
- -------------------------------------------------------------------------
BULGARIA 359 0.2889
- -------------------------------------------------------------------------
BURKINA FASO 226 0.5889
- -------------------------------------------------------------------------
BURUNDI 257 0.5456
- -------------------------------------------------------------------------
CAMBODIA 855 0.9444
- -------------------------------------------------------------------------
CAMEROON 237 0.7389
- -------------------------------------------------------------------------
CAPE VERDE ISLAND 238 0.5222
- -------------------------------------------------------------------------
CAYMAN ISLANDS 809/945 0.3833
- -------------------------------------------------------------------------
Exhibit D Page 4 of 9
<PAGE> 26
TeleHub Network Services
- -------------------------------------------------------------------------
Country RATE*
DESTINATION Codes (subject to change)
- -------------------------------------------------------------------------
CENTRAL AFRICAN 236 0.8444
REP
- -------------------------------------------------------------------------
CHAD REPUBLIC 235 1.0233
- -------------------------------------------------------------------------
CHILE 56 0.2500
- -------------------------------------------------------------------------
CHINA 86 0.6833
- -------------------------------------------------------------------------
CHRISTMAS ISLAND 672 0.3222
- -------------------------------------------------------------------------
COCOS ISL 672 0.4684
- -------------------------------------------------------------------------
COLOMBIA 57 0.4189
- -------------------------------------------------------------------------
COMOROS 269 0.8111
- -------------------------------------------------------------------------
CONGO 242 0.7278
- -------------------------------------------------------------------------
COOK ISLANDS 682 0.9556
- -------------------------------------------------------------------------
COSTA RICA 506 0.4556
- -------------------------------------------------------------------------
CROATIA-REPUB OF 385 0.3889
- -------------------------------------------------------------------------
CUBA 53 0.6556
- -------------------------------------------------------------------------
CUBA (Guantanamo) 53 0.4667
- -------------------------------------------------------------------------
CYRUS 357 0.3589
- -------------------------------------------------------------------------
CZECH REPUBLIC 42 0.2667
- -------------------------------------------------------------------------
DENMARK 45 0.1333
- -------------------------------------------------------------------------
DIEGO GARCIA 246 0.6944
- -------------------------------------------------------------------------
DJIBOUTI 253 0.6833
- -------------------------------------------------------------------------
DOMINICA 596 0.5667
- -------------------------------------------------------------------------
DOMINICAN REPUBLIC 809/220 0.2722
- -------------------------------------------------------------------------
ECUADOR 593 0.5911
- -------------------------------------------------------------------------
EGYPT 20 0.6889
- -------------------------------------------------------------------------
EL SALVADOR 503 0.4433
- -------------------------------------------------------------------------
EQUATORIAL GUINEA 240 0.8936
- -------------------------------------------------------------------------
ERITREA 291 1.1278
- -------------------------------------------------------------------------
ESTONIA 372 0.3000
- -------------------------------------------------------------------------
ETHIOPIA 251 0.9222
- -------------------------------------------------------------------------
FAEROE ISLANDS 298 0.3167
- -------------------------------------------------------------------------
FALKLAND ISLANDS 500 0.7933
- -------------------------------------------------------------------------
FIJI ISLANDS 679 0.8144
- -------------------------------------------------------------------------
FINLAND 358 0.1667
- -------------------------------------------------------------------------
FRANCE 33 0.1722
- -------------------------------------------------------------------------
FRENCH ANTILLES 590 0.4400
- -------------------------------------------------------------------------
FRENCH GUIANA 594 0.4389
- -------------------------------------------------------------------------
FRENCH POLYNESIA 689 0.6444
- -------------------------------------------------------------------------
GABON 241 0.7333
- -------------------------------------------------------------------------
Country RATE*
DESTINATION Codes (subject to change)
- -------------------------------------------------------------------------
GAMBIA 220 0.5222
- -------------------------------------------------------------------------
GEORGIA 995 0.6667
- -------------------------------------------------------------------------
Exhibit D Page 5 of 9
<PAGE> 27
TeleHub Network Services
- -------------------------------------------------------------------------
GERMANY 49 0.1056
- -------------------------------------------------------------------------
GHANA 233 0.5111
- -------------------------------------------------------------------------
GIBRALTAR 350 0.3322
- -------------------------------------------------------------------------
GREECE 30 0.3556
- -------------------------------------------------------------------------
GREENLAND 299 0.5944
- -------------------------------------------------------------------------
GRENADA 809/440 0.5556
- -------------------------------------------------------------------------
GUADELOUPE 590 0.4333
- -------------------------------------------------------------------------
GUAM 671 0.1333
- -------------------------------------------------------------------------
GUANTANAMO BAY 5399 0.4667
- -------------------------------------------------------------------------
GUATEMALA 502 0.4367
- -------------------------------------------------------------------------
GUINEA 224 0.5111
- -------------------------------------------------------------------------
GUINEA-BISSAU 245 0.9556
- -------------------------------------------------------------------------
GUYANA 592 0.7222
- -------------------------------------------------------------------------
HAITI 509 0.5822
- -------------------------------------------------------------------------
HONDURAS 504 0.5222
- -------------------------------------------------------------------------
HONG KONG 852 0.1889
- -------------------------------------------------------------------------
HUNGARY 36 0.2356
- -------------------------------------------------------------------------
ICELAND 354 0.2778
- -------------------------------------------------------------------------
INDIA 91 0.7667
- -------------------------------------------------------------------------
INDONESIA 62 0.5778
- -------------------------------------------------------------------------
IRAN 98 0.7444
- -------------------------------------------------------------------------
IRAQ 964 0.9333
- -------------------------------------------------------------------------
IRELAND 353 0.1667
- -------------------------------------------------------------------------
ISRAEL 972 0.2750
- -------------------------------------------------------------------------
ITALY 39 0.1722
- -------------------------------------------------------------------------
IVORY COAST 225 0.9000
- -------------------------------------------------------------------------
JAMAICA 809/287 0.5900
- -------------------------------------------------------------------------
JAPAN 81 0.2500
- -------------------------------------------------------------------------
JORDAN 962 0.7333
- -------------------------------------------------------------------------
KAZAKHSTAN 7 0.8456
- -------------------------------------------------------------------------
KENYA 254 0.6656
- -------------------------------------------------------------------------
KIRIBATI 686 0.8667
- -------------------------------------------------------------------------
KOREA - North 850 0.8889
- -------------------------------------------------------------------------
KOREA - South 82 0.4111
- -------------------------------------------------------------------------
KUWAIT 965 0.8111
- -------------------------------------------------------------------------
KYRGYZSTAN 733 0.5778
- -------------------------------------------------------------------------
LAOS 856 0.7778
- -------------------------------------------------------------------------
Country RATE*
DESTINATION Codes (subject to change)
- -------------------------------------------------------------------------
LATVIA 371 0.3111
- -------------------------------------------------------------------------
LEBANON 961 0.7556
- -------------------------------------------------------------------------
LESOTHO 266 0.5000
- -------------------------------------------------------------------------
LIBERIA 231 0.5889
- -------------------------------------------------------------------------
LIBYA 218 0.3333
- -------------------------------------------------------------------------
LIECHTENSTEIN 41 0.2467
- -------------------------------------------------------------------------
Exhibit D page 6 of 9
<PAGE> 28
TeleHub Network Services
- --------------------------------------------------------------
LITHUANIA 370 0.4389
- --------------------------------------------------------------
LUXEMBOURG 352 0.1889
- --------------------------------------------------------------
MACAU 853 0.4556
- --------------------------------------------------------------
MACEDONIA 389 0.4444
- --------------------------------------------------------------
MADAGASCAR 261 0.7333
- --------------------------------------------------------------
MALAWI 265 0.4111
- --------------------------------------------------------------
MALAYSIA 60 0.2722
- --------------------------------------------------------------
MALDIVES 960 0.7000
- --------------------------------------------------------------
MALI REPUBLIC 223 0.8222
- --------------------------------------------------------------
MALTA 356 0.2811
- --------------------------------------------------------------
MARIANAS ISLAND 0 0.5000
- --------------------------------------------------------------
MARSHALL ISLANDS 692 0.4611
- --------------------------------------------------------------
MARTINIQUE 596 0.3556
- --------------------------------------------------------------
MAURITANIA 222 0.6111
- --------------------------------------------------------------
MAURITIUS 230 0.6222
- --------------------------------------------------------------
MAYOTTE ISLAND 269 0.5333
- --------------------------------------------------------------
MICRONESIA 691 0.7956
- --------------------------------------------------------------
MOLDOVA 373 0.5411
- --------------------------------------------------------------
MONACO 33 0.2111
- --------------------------------------------------------------
MONGOLIA 976 0.9067
- --------------------------------------------------------------
MONTSERRAT 664 0.5500
- --------------------------------------------------------------
MOROCCO 210/211/212 212 0.4367
- --------------------------------------------------------------
MOZAMBIQUE 258 0.6333
- --------------------------------------------------------------
MYANMAR-UNION OF (BURMA) 95 1.1033
- --------------------------------------------------------------
NAMIBIA 264 0.5000
- --------------------------------------------------------------
NAURU 674 0.8111
- --------------------------------------------------------------
NEPAL 977 0.8222
- --------------------------------------------------------------
NETHERLANDS 31 0.1361
- --------------------------------------------------------------
NETHERLANDS ANTILLES 599 0.2878
- --------------------------------------------------------------
NEW CALEDONIA 687 0.6433
- --------------------------------------------------------------
NEW ZEALAND 64 0.1528
- --------------------------------------------------------------
NICARAGUA 505 0.5267
- --------------------------------------------------------------
NIGER REPUBLIC 227 0.6333
- --------------------------------------------------------------
RATE*
DESTINATION Country Codes (subject to change)
- --------------------------------------------------------------
NIGERIA 234 0.7667
- --------------------------------------------------------------
NIUE 683 0.8833
- --------------------------------------------------------------
NORFOLK ISLAND 672 0.5778
- --------------------------------------------------------------
NORWAY 47 0.1433
- --------------------------------------------------------------
OMAN 968 0.9000
- --------------------------------------------------------------
PAKISTAN 92 0.9678
- --------------------------------------------------------------
PALAU REPUBLIC 680 0.7111
- --------------------------------------------------------------
PANAMA 507 0.6133
- --------------------------------------------------------------
PAPUA NEW GUINEA 675 0.4556
- --------------------------------------------------------------
PARAGUAY 595 0.6167
- --------------------------------------------------------------
Exhibit D Page 7 of 9
<PAGE> 29
TeleHub Network Services
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
PERU 51 0.6011
- --------------------------------------------------------------------------------
PHILIPPINES 63 0.4278
- --------------------------------------------------------------------------------
POLAND 48 0.3278
- --------------------------------------------------------------------------------
PORTUGAL 351 0.3389
- --------------------------------------------------------------------------------
PUERTO RICO 787 0.1211
- --------------------------------------------------------------------------------
QATAR 974 0.7722
- --------------------------------------------------------------------------------
REUNION ISLAND 262 0.5333
- --------------------------------------------------------------------------------
ROMANIA 40 0.4333
- --------------------------------------------------------------------------------
RUSSIA-FORMER REPUBLIC 7 0.4167
- --------------------------------------------------------------------------------
City Code: 750X, 751X
- --------------------------------------------------------------------------------
RUSSIA-MOSCOW & ST. Pete 7 0.4167
- --------------------------------------------------------------------------------
City Code: 7095, 7096, 7097
- --------------------------------------------------------------------------------
City Code: 7812, Band R16
- --------------------------------------------------------------------------------
RWANDA 250 0.9389
- --------------------------------------------------------------------------------
SAINT HELENA 290 0.7111
- --------------------------------------------------------------------------------
SAINT KITTS & NEVIS 590 0.4556
- --------------------------------------------------------------------------------
SAINT LUCIA 809/450 0.5444
- --------------------------------------------------------------------------------
SAINT PIERRE et Miguelon 508 0.2889
- --------------------------------------------------------------------------------
SAINT VINCENT 809/456 0.6444
- --------------------------------------------------------------------------------
SAIPAN - (ROTA) 670 0.3933
- --------------------------------------------------------------------------------
SAN MARINO 39 0.3800
- --------------------------------------------------------------------------------
SAO TOME 239 0.9056
- --------------------------------------------------------------------------------
SAUDI ARABIA 966 0.7344
- --------------------------------------------------------------------------------
SENEGAL 221 1.0289
- --------------------------------------------------------------------------------
SERBIA 381 0.4278
- --------------------------------------------------------------------------------
SEYCHELLES ISLAND 248 0.8444
- --------------------------------------------------------------------------------
SIERRA LEONE 232 0.7556
- --------------------------------------------------------------------------------
SINGAPORE 65 0.2889
- --------------------------------------------------------------------------------
SLOVAK REP 42 0.3556
- --------------------------------------------------------------------------------
Country RATE*
DESTINATION Codes (subject to change)
- --------------------------------------------------------------------------------
SLOVENIA 386 0.2222
- --------------------------------------------------------------------------------
SOLOMON ISLANDS 677 0.7556
- --------------------------------------------------------------------------------
SOMALIA 252 0.9133
- --------------------------------------------------------------------------------
SOUTH AFRICA 27 0.4389
- --------------------------------------------------------------------------------
SPAIN 34 0.2722
- --------------------------------------------------------------------------------
SRI LANKA 94 0.8556
- --------------------------------------------------------------------------------
SUDAN 249 0.4444
- --------------------------------------------------------------------------------
SURINAME 597 0.9222
- --------------------------------------------------------------------------------
SWAZILAND 268 0.2778
- --------------------------------------------------------------------------------
SWEDEN 46 0.1056
- --------------------------------------------------------------------------------
SWITZERLAND 41 0.1389
- --------------------------------------------------------------------------------
SYRIAN ARAB REPUBLIC 963 0.6000
- --------------------------------------------------------------------------------
TAIWAN 886 0.3722
- --------------------------------------------------------------------------------
TAJIKISTAN 7 0.6611
- --------------------------------------------------------------------------------
</TABLE>
Exhibit D Page 8 of 9
<PAGE> 30
TeleHub Network Services
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
TANZANIA 259/255 0.5111
- --------------------------------------------------------------------------------
THAILAND 66 0.5833
- --------------------------------------------------------------------------------
TOGO 228 0.8667
- --------------------------------------------------------------------------------
TONGA ISLANDS 676 0.8778
- --------------------------------------------------------------------------------
TRINIDAD & TOBAGO 809/622 0.5944
- --------------------------------------------------------------------------------
TUNISIA 216 0.3889
- --------------------------------------------------------------------------------
TURKEY 90 0.3967
- --------------------------------------------------------------------------------
TURKMENISTAN 7 0.7333
- --------------------------------------------------------------------------------
TURKS & CAICOS ISLAND 809 649/941 0.4667
- --------------------------------------------------------------------------------
TUVALU 688 0.7444
- --------------------------------------------------------------------------------
UGANDA 256 0.6111
- --------------------------------------------------------------------------------
UKRAINE 380 0.3889
- --------------------------------------------------------------------------------
UNITED ARAB EMIRATES 971 0.5456
- --------------------------------------------------------------------------------
UNITED KINGDOM 44 0.0444
- --------------------------------------------------------------------------------
URUGUAY 598 0.6556
- --------------------------------------------------------------------------------
UZBEKISTAN 7 0.5667
- --------------------------------------------------------------------------------
VANUATU 678 0.6844
- --------------------------------------------------------------------------------
VATICAN CITY 39 0.1722
- --------------------------------------------------------------------------------
VENEZUELA 58 0.3611
- --------------------------------------------------------------------------------
VIETNAM 84 0.9444
- --------------------------------------------------------------------------------
WALLIS & FUTUNA IS 681 0.4000
- --------------------------------------------------------------------------------
WESTERN SAMOA 685 0.6111
- --------------------------------------------------------------------------------
YEMEN ARAB REPUBLIC 967 0.7111
- --------------------------------------------------------------------------------
YUGOSLAV - FED REP 381 0.4556
- --------------------------------------------------------------------------------
ZAIRE 243 0.6222
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
County RATE*
DESTINATION Codes (subject to change)
- --------------------------------------------------------------------------------
ZAMBIA 260 0.6667
- --------------------------------------------------------------------------------
ZANZIBAR 259 0.8627
- --------------------------------------------------------------------------------
ZIMBABWE 263 0.4967
- --------------------------------------------------------------------------------
Mexico - 1 52 0.1888
- --------------------------------------------------------------------------------
Mexico - 2 52 0.2222
- --------------------------------------------------------------------------------
Mexico - 3 52 0.3320
- --------------------------------------------------------------------------------
Mexico - 4 52 0.3453
- --------------------------------------------------------------------------------
Mexico - 5 52 0.3987
- --------------------------------------------------------------------------------
Mexico - 6 52 0.4444
- --------------------------------------------------------------------------------
Mexico - 7 (52S) 52 0.4444
- --------------------------------------------------------------------------------
Mexico - 8 52 0.4444
- --------------------------------------------------------------------------------
Mexico City 0.3167
- --------------------------------------------------------------------------------
Canada (all NPA's) 0.1023
- --------------------------------------------------------------------------------
</TABLE>
Exhibit D Page 9 of 9
<PAGE> 31
EXHIBIT G
SPECIAL PROVISIONS
1. For the initial one hundred twenty (120) days of this Agreement
Customer shall be forward priced for InterState calls to $0.0653.
The 120 days will begin on May 1, 1998 through August 31, 1998.
2. After the initial one hundred twenty (120) days of this Agreement
Customer understands that the rate to be changed going forward
will be at the MONTHLY REVENUE LEVEL reflected in Exhibit D for
the balance of the term of this agreement.
3. It has been agreed that there will be an initial waiver of the
security deposit for a period of 45 days commencing on May 1,
1998. After the initial waiver period TeleHub reserves the right
to ask for a security deposit under their normal terms and
conditions. In addition, Comtel will execute an agreement to
pledge their end user customer base to guarantee payment to
TeleHub.
4. TeleHub IntraState rates published on April 1, 1998 will be
applied with the sole exception being California which has been
approved at a rate of .0484 cents per minute.
Initials: GRC Rick G. Thompson
-------- -------------------
<PAGE> 1
EXHIBIT 10.26
TELECOMMUNICATIONS SERVICE AGREEMENT
This agreement (the "AGREEMENT") is made this 13th day of April, 1998,
between TeleHub Network Services Corporation, an Illinois corporation with
offices at 2033 North Main Street, Suite 340, Walnut Creek, California 94596
("SUPPLIER"), and Global Telephone Corporation, a Massachusetts corporation
with its principal place of business at 8 Newbury St. 6th floor, Boston, MA
02116 ("CUSTOMER").
1. SCOPE.
A. Telecommunications Services. Supplier is authorized to use its best
efforts (considering the needs of its other customers) to start provisioning of
the telecommunications services described in Exhibit A attached hereto and
incorporated herein by reference, to the extent they are available ("SERVICES")
to Customer on or before April 18, 1998 (the "SERVICE COMMENCEMENT DATE"), so
that Customer may resell the Services to its customers ("END USERS").
B. Access Services. In conjunction with its provision of Services,
Supplier will obtain from incumbent local exchange carriers ("ILECs") and
competitive local exchange carriers ("CLECs") on Customer's behalf all
associated and necessary switched access services and special access services,
and may act on Customer's behalf to order other services, if requested.
Supplier shall pass through to Customer all associated ILEC and CLEC charges
for such services, and will be responsible for coordinating with said ILECs and
CLECs in connection with their provisioning and maintenance of switched and
special access services. Supplier shall promptly process requests to the
appropriate ILEC and CLEC to load Customer's carrier identification code
("CIC") at the central office level in all areas in which Carrier uses the
Services.
Initials: CSH GRC
------ ------
<PAGE> 2
C. Call Records. Supplier will calculate and send to Customer Call Detail
Records ("CDR's") for Customer to rebill End Users for calls placed through
Supplier's network, based upon the specifications defined Exhibit B.
2. CUSTOMER RESPONSIBILITIES.
A. General Duties. The Customer shall use its best efforts to solicit
customers and resell the Services to End Users. Customer shall at all time
conduct its efforts in a commercially reasonable and ethical manner. Customer
shall provide its own billing and customer service to the End Users. To the
extent Customer makes any statements or representations to third parties
(including End Users) with regard to Supplier, the Services, or the terms of
this Agreement, such statements or representations shall be true and not
misleading.
B. End User Notification. Customer shall obtain prior to connection to
Supplier's network, a letter of agency ("LOA") from each End-User for each
telephone line ("ANI") in compliance with applicable Federal Communications
Commission ("FCC") and state regulations. Customer shall be responsible for LEC
Primary Interexchange Carrier change charges ("PIC CHARGES") that may be imposed
on End Users as a result of End Users moving onto or off of the Supplier's
network. When applicable, Customer will be responsible for notifying each
End-User in writing (or by any other means approved by the FCC) that: (i) a
transfer charge will be reflected on such End-User's bill for effecting a change
in its primary interexchange carrier, (ii) the entity name under which such
End-User's interstate, intrastate and/or operator services will be billed (if
different from Customer), and (iii) the "primary" telephone number(s) to be used
for maintenance and questions concerning such End-User's long distance service
and/or billing. Customer agrees to send Supplier a copy of the documentation
Customer uses to satisfy the above requirements promptly upon request. Supplier
may change the foregoing requirements at any time in order to conform with
applicable FCC and state regulations. Notwithstanding the foregoing, however,
Customer shall be solely responsible for ensuring that the
-2-
Initials: CSH GRC
------ ------
<PAGE> 3
transfer of End Users to the Supplier's network conforms with applicable FCC
and state regulations, including, without limitation, the regulations
established by the FCC with respect to verification of orders for long distance
service generated by telemarketing.
C. Records. Customer will maintain documents and records ("RECORDS")
supporting Customer's re-sale of Service, including, but not limited to,
appropriate and valid LOAs from End Users, for a period of not less than twelve
(12) months or such other longer period as may be required by applicable law,
rule or regulation. Customer shall retain the signed LOA's and promptly make
originals available upon request of Supplier, any local exchange carrier ("LEC")
or any regulatory agency. In the event of a disputed transfer to the
Supplier's network, including, but not limited to those resulting from
Customer's inability or refusal to provide original End-User LOA's when
requested, Customer shall indemnify Supplier against any loss, damage or
liability arising from such disputed transfer, including, without limitation,
PIC Charges.
D. Volume Forecasts. Prior to the Service Commencement Date and by the end
of each calendar quarter thereafter, Customer shall provide Supplier with
forecasts covering a good faith estimate of the monthly traffic volume and
distribution for the ordered Services for the next three calendar months. The
forecasts are to be in the format attached hereto as Exhibit C.
3. EXCLUDED ANIs. Supplier has the right to reject any ANI supplied by Customer
for any of the following reasons: (i) Supplier is not authorized to provide or
does not provide long distance services in the particular jurisdiction in which
the ANI is located; (ii) a particular ANI submitted by Customer is not in
proper format; (iii) Customer is not certified to provide long distance
services in the jurisdiction in which the ANI is located; (iv) Customer is in
default of this Agreement; (v) Customer fails to cooperate with Supplier in
implementing reasonable verification processes determined by Supplier to be
necessary or appropriate in the conduct of business; or (vi)
-3-
Initials: CSH GRC
------ ------
<PAGE> 4
any other circumstances that Supplier reasonably determines could adversely
affect Supplier's performance under this Agreement or Supplier's general
ability to transfer its other customers or other End Users to the Supplier's
network. In the event Supplier rejects an ANI, Supplier will notify Customer
within forty-eight (48) hours of its decision specifically describing the
rejected ANI and the reason(s) for rejecting that ANI. Supplier is under no
obligation to accept ANIs within the three-month period preceding the scheduled
expiration of the term hereof.
4. CHARGES AND PAYMENT. Charges for Service ("USAGE CHARGES") shall be based
on: (i) the rates for Services set forth in Exhibit D, as applicable; and (ii)
actual usage of Supplier's network from establishment of a connection between
the calling device and the called telephone number for termination. Supplier
shall not unreasonably discriminate against Customer with respect to Usage
Charges vis-a-vis other similarly situated customers. All Usage Charges shall
be due and payable by Customer to Supplier within thirty (30) days of the date
of invoice, without demand or set off by Customer; provided, however, that to
the extent Customer disputes a portion of an invoice because it has received
what it considers in good faith to be materially incorrect CDR's, the due date
for such disputed portion shall be delayed for up to fifteen (15) days,
provided Customer cooperates in good faith to resolve such dispute. Usage
Charges are billed and payable following the period in which actual usage has
been incurred. If any invoice is not paid when due: (i) a late charge shall
accrue equal to 1 -1/2% (or the maximum legal rate, if less) of the unpaid
balance per month; (ii) Supplier may suspend or terminate the Service; and
(iii) Supplier may require additional security deposits.
5. PERCENT -INTERSTATE USAGE. In the event Supplier provides any Services under
this Agreement, the provision of which, or the rate chargeable for which, is
dependent on the percentage of traffic of Customer utilizing such service that
is intrastate or interstate, Supplier shall be entitled to determine the
percentage of interstate (including international) and intrastate minutes of
use relative to the
-4-
Initials: CSH GRC
------ ------
<PAGE> 5
minutes of traffic utilizing such service ("PIU") to the extent Supplier can
make such a determination from the call detail information. To the extent
Supplier cannot make such a determination, such as for Dedicated Service on
which Supplier does not know the call origination point, Customer shall
determine the PIU utilizing such service and shall provide Supplier with a
written certification ("PIU CERTIFICATION") of such percentage. PIU
Certifications may be modified from time to time by Customer, and are subject
to recertification upon the request of Supplier, which requests shall not be
made unilaterally by Supplier more than once each calendar quarter. Any such
modification(s) of PIU Certification(s) shall be effective as of the first day
of any calendar month following reasonable notice from Customer. Supplier will
provide Customer written notice of Customer's failure to provide requested PIU
Certification, after which Customer will have 30 days to provide said
certification to Supplier. In the event Customer fails to provide a requested
PIU Certification as to any Services, the rates chargeable for which are
dependent on the PIU, the relevant minutes of use will be deemed to be subject
to the higher of the interstate or intrastate rates for the Service. Supplier
is authorized to (i) rely on Customer's PIU Certification in its own PIU
filings and (ii) file Customer's PIU certification with any governmental
authority, any third party carrier it uses or any ILEC or CLEC. In the event
any governmental authority requires an audit of Supplier's PIU Certifications
or its interstate and 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
Supplier solely for purposes of verifying Customer's interstate and intrastate
minutes of use. Customer agrees to indemnify Supplier for any liability or
costs (including, without limitation, any back-billing or penalties and legal
fees and expenses) Supplier incurs in the event the percentages in any PIU
Certification provided by Customer are different than those determined by any
such audit.
6. SECURITY DEPOSITS.
-5-
Initials: CSH GRC
------ ------
<PAGE> 6
A. Amount. Subject to paragraph D of this Section 6, Customer shall furnish
Supplier simultaneously with the execution of this Agreement a security deposit
equal to the aggregate amount that Supplier estimates, in its sole discretion,
would be due hereunder for Services during one month (the "SECURITY DEPOSIT").
The Security Deposit shall be (i) cash in U.S. dollars in such amount to be held
by Supplier during the term of the Agreement, or (ii) an unconditional
irrevocable letter of credit for such amount, naming Supplier as the sole
beneficiary, issued in a form and by a bank reasonably acceptable to Supplier
and to remain outstanding at all times during the term of the Agreement, or
(iii) such other instrument or device as mutually agreed to by the parties.
Customer acknowledges and agrees that the Security Deposit is not a prepayment
to be applied against the future provision of Service and the entire Security
Deposit amount, subject to paragraphs B and D of this Section 6, is to remain
outstanding at all times during the term of this Agreement.
B. Adjustment. The adequacy of the Security Deposit will be reviewed by
Supplier on a quarterly basis and, in the event that Customer's actual
aggregate monthly charges for Service exceeds the amount of the Security
Deposit, as determined by Supplier in its sole discretion, Customer shall,
within five days of receiving written notice from Supplier, provide additional
cash or increase the stated amount of the letter of credit in an amount equal
to the difference between such charges and the then-existing Security Deposit.
C. Use and Replenishment. The Security Deposit shall not bear interest and
Customer shall bear all costs related to the issuance of the letter of credit
described above. Supplier shall have no obligation to return any portion of the
Security Deposit unless and until Customer has paid all amounts due to Supplier
hereunder or otherwise. Supplier shall have the right to apply all or part of
the Security Deposit to any amount that has become due hereunder and not
received by Supplier as set forth herein. Upon application of any part of the
Security Deposit, Customer shall, within five days of receiving written notice
from Supplier,
-6-
Initials: CSH GRC
------ ------
<PAGE> 7
replenish the part of the Security Deposit, so applied. Any application of all
or a part of the Security Deposit to any overdue amount does not constitute a
waiver of Supplier's right to terminate this Agreement under Section 15.
D. Waiver. Supplier, in its sole discretion, may waive its right to
require a Security Deposit as set forth in this Section 6 or may reduce the
required amount of the Security Deposit, subject to its right to later require
Customer to fully comply with the provisions of this Section 6, upon a review
of any financial statements of Customer that Supplier may request and upon its
determination, in the sole discretion of Supplier, that Customer's financial
circumstances do not require a Security Deposit. Customer represents that any
financial statements provided to Supplier shall be prepared in accordance with
generally accepted accounting principles and will be true and correct.
7. LOCKBOX AGREEMENT. Customer shall direct all of Customer's End-Users to
deposit any money owed by such End-User to Customer directly into a lockbox
account at the Bank of Oklahoma, N.A. (the "BANK") owned jointly by Customer
and the Supplier, and authorize the Supplier to make automatic clearinghouse
fund transfers from such lockbox accounts to the account of Supplier and
Customer according to the terms and conditions of a lockbox agreement in form
and substance reasonably satisfactory to Customer and Supplier. The Bank shall
provide both Customer and Supplier with all records and statements with respect
to the lockbox account each month. Supplier shall be entitled to receive from
the lockbox account 80% of the amount in the lockbox paid twice monthly (the
"SUPPLIER LOCKBOX PAYMENT") as payment for the Services and Customer shall be
entitled to receive from the lockbox account, 20% of the amount in the lockbox
(the "CUSTOMER LOCKBOX PAYMENT") subject to the terms and conditions herein.
Once a month (the "COMPARISON DATE"), Supplier shall compare the Supplier
Lockbox Payment with the amount then owed for the Services provided hereunder
and shall provide a copy of such comparison to Customer within seven (7) days
of the Comparison Date. In the event the Supplier Lockbox Payment satisfies
current invoices prior to the Comparison Date, the Customer Lockbox Payment
shall increase
-7-
Initials: CSH GRC
------ ------
<PAGE> 8
to one hundred percent (100%) until such time as the next invoice is rendered.
In the event that the Supplier Lockbox Payment exceeds the amount owed to
Supplier during any month for the Services provided hereunder, Supplier shall
pay Customer the excess within ten (10) days of the Comparison Date. In the
event that the Supplier lockbox Payment is insufficient to cover the amount
owed to Supplier during any month for the Services provided hereunder, (the
aggregate amount by which the payments have been insufficient is referred to as
the "SHORTFALL") the Supplier Lockbox Payment shall increase to one hundred
percent (100%) of the amount deposited in the lockbox and Customer shall pay
Supplier any additional amount needed to cover any Shortfall. When Supplier has
received sufficient funds from the lockbox account to reduce the Shortfall to
zero, the Supplier Lockbox and Customer Lockbox Payment shall revert to the
percentages applicable on the date the Shortfall first occurred. Supplier shall
have the right to audit Customer's books and records, including, without
limitation, Customer's invoicing records to assure Customer its compliance
hereunder. Customer shall be responsible for all fees and expenses associated
with said lockbox agreement. A lockbox agreement and fee schedule will be
attached hereto prior to execution of this agreement as a separate document.
8. EXOGENOUS CHARGES.
A. Telecommunications Charges. In addition to the rates and charges listed
in Exhibit D, Customer shall pay to Supplier, on a direct pass-through basis;
(i) primary interexchange carrier change charges; and (ii) the primary
interexchange carrier charge ("PICC"). Customer shall also reimburse (without
markup) Supplier for amounts paid to payphone service providers for toll-free
and access code calls originated by Customer's End Users from payphones and,
with respect to toll-free numbers assigned to Customer's End Users, amounts
paid to the National Administrative Services Center. Customer shall also pay,
without markup, amounts paid by Supplier toward the universal service programs
established or imposed by the FCC or any state that are incurred directly on
account of the Service provided by Supplier to Customer.
-8-
Initials: CSH GRC
------ ------
<PAGE> 9
B. Tax Exemption. Within ten (10) business days after the date hereof,
Customer shall furnish to Supplier, and keep current during the term of this
Agreement, valid and appropriate tax exemption certificates in the form
attached hereto as Exhibit E, for all applicable jurisdictions (federal, state
and local) in which it performs customer billing. Customer is responsible for
properly charging tax to its subscribers and for the proper and timely
reporting and payment of applicable taxes to the taxing authorities and shall
defend and indemnify Supplier from payment and reporting of all applicable
federal, state and local taxes, including, but not limited to, gross receipts
taxes, surcharges, franchise fees, occupational, excise and other taxes (and
penalties and interest thereon), relating to the Services. Such
indemnification, includes costs and expenses (including reasonable attorney's
fees) incurred by Supplier in settling, defending or appealing any claims or
actions brought against it relating to said taxes. If Customer fails to provide
and maintain the required certificates, Supplier may charge Customer and
Customer shall pay such applicable taxes.
9. FRAUDULENT CALLS. Supplier shall promptly notify Customer of any notice it
receives from its own fraud detection systems or otherwise of any actual or
potential fraudulent usage of the Services provided to Customer's End Users.
Customer hereby authorizes Supplier to take any and all actions as may be
reasonably necessary to prevent or minimize toll fraud, including, but not
limited to, disabling numbers or authorization codes, and agrees to indemnify
and hold harmless Supplier for any and all claims arising out of such actions.
Notwithstanding anything to the contrary, Customer shall not be responsible for
any charges incurred as a result of fraudulent usage of the Services of which
Supplier has or receives knowledge, but Customer will be responsible for all
other fraudulent calls.
10. TERM. This Agreement is effective as of the date hereof and shall remain in
force and effect for a period of one (1) year from the Service Commencement
Date, unless earlier terminated pursuant to its terms. This Agreement
-9-
Initials: CSH GRC
------ ------
<PAGE> 10
will continue from year to year after the end of the one year term until either
party terminates this Agreement by giving the other 30 days written notice of
termination.
11. PROVISION OF BALANCE SHEET. Prior to Service Commencement Date, and within
sixty (60) days after the end of each fiscal quarter, Customer shall provide
Supplier with a consolidated balance sheet of Customer as of the end of such
quarter and consolidated statements of income and retained earnings for such
quarter and the fiscal year to date through such quarter, all in reasonable
detail and certified by Customer's chief financial officer as having been
prepared in accordance with generally accepted accounting principles,
consistently applied. Supplier has the right to review Customer's credit at any
time during the Term of this Agreement, and to require a cash deposit or other
security satisfactory to Supplier.
12. FAILURE OF PERFORMANCE. Customer shall immediately notify Supplier of any
problems or End-User complaints associated with the Service, including, but not
limited to, excess noise, echo or loss of service. The liability of Supplier
for damages for mistakes, omissions, interruptions, delays, errors or defects
in transmission ("FAILURE OF PERFORMANCE") occurring in the furnishing of
Services is limited to not charging Customer for any Services that Supplier has
failed to provide. Interruption for system maintenance does not constitute a
Failure of Performance. In the event of a Failure of Performance, Supplier
shall use its reasonable efforts to correct such failure as soon as reasonably
practicable after Supplier is notified of such failure. In the event (i)
Supplier notifies Customer that Supplier cannot correct a Failure of
Performance; or (ii) Supplier fails to deliver Services meeting industry
standards of performance, which failure is not cured within five (5) days of
written notice thereof by Customer to Supplier, Supplier and Customer, each in
its sole discretion, shall have the right to cancel the affected service(s). In
the event all, or any portion of, the Services are terminated pursuant to this
paragraph, Customer shall remain liable for the Usage Charges for the affected
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<PAGE> 11
Services that were rendered prior to the effective date of termination.
13. LIMITATION OF LIABILITY. Supplier's liability arising out of delays in
restoration of the Services or out of mistakes, accidents, omissions,
interruptions, or errors or defects in transmission in the provision of
Services, shall be subject to the limitations in Section 12 above and in the
applicable Tariff. IN NO EVENT SHALL SUPPLIER BE LIABLE TO CUSTOMER OR ANY End
User OR ANY OTHER THIRD PARTY IN ANY RESPECT, INCLUDING, WITHOUT LIMITATION,
FOR ANY DAMAGES, EITHER DIRECT, INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL,
ACTUAL, PUNITIVE, OR ANY OTHER DAMAGES, OR FOR ANY LOST PROFITS OF ANY KIND OR
NATURE WHATSOEVER, ARISING OUT OF MISTAKES, ACCIDENTS, ERRORS, OMISSIONS,
INTERRUPTIONS, OR DEFECTS IN TRANSMISSION, OR DELAYS, INCLUDING THOSE WHICH MAY
BE CAUSED BY REGULATORY OR JUDICIAL AUTHORITIES, ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE OBLIGATIONS OF SUPPLIER PURSUANT TO THIS AGREEMENT.
SUPPLIER MAKES NO WARRANTY TO CUSTOMER OR ANY OTHER PERSON OR ENTITY, WHETHER
EXPRESS, IMPLIED, OR STATUTORY, AS TO THE DESCRIPTION, QUALITY,
MERCHANTABILITY, COMPLETENESS OR FITNESS FOR ANY PURPOSE OF ANY SERVICE
PROVIDED HEREUNDER OR DESCRIBED HEREIN, OR AS TO ANY OTHER MATTER, ALL OF WHICH
WARRANTIES BY SUPPLIER ARE HEREBY EXCLUDED AND DISCLAIMED. For purposes of this
Section, the term "Supplier" shall be deemed to include Supplier, its
shareholders, directors, officers and employees, and any person or entity
assisting Supplier in its performance pursuant to this Agreement.
14. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY.
A. Definition. "CONFIDENTIAL INFORMATION" means all information disclosed
orally or in writing by one party to the other party and which is clearly
identified by the disclosing party at the time of disclosure as confidential
information of the disclosing party. With respect to information orally
disclosed by one party to the other party, the disclosing party must provide
the recipient with a written summary of such information, designating such
information as confidential, within one week after the oral disclosure was made
in order for such information to be
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------ ------
<PAGE> 12
considered Confidential Information. All information concerning either
Supplier's or Customer's traffic volume/distribution and the identity of
Supplier's or Customer's customers given to either party under this Agreement
or learned in connection with this Agreement or any other transaction between
Supplier and Customer is hereby acknowledged by both Supplier and Customer to
be Confidential Information regardless of whether it is so identified by the
party supplying such information.
B. Obligation. Each party shall take reasonable steps to safeguard
Confidential Information of the other party utilizing at least the same degree
of care it utilizes in protecting its own confidential information. The
obligations of the recipient of Confidential Information set forth in this
Section do not apply to the extent that: (i) such Confidential Information
becomes generally available to the public other than as a result of
unauthorized disclosure by the recipient or persons to whom the recipient has
made the information available; (ii) a party received such Confidential
Information on a non-confidential basis, from a third party lawfully possessing
and lawfully entitled to disclose such information, prior to its receipt from
the disclosing party. Further, the recipient may disclose Confidential
Information pursuant to any judicial or governmental request, requirement or
order. The recipient, however, shall take reasonable steps to give the
disclosing party sufficient prior notice so he may contest such request,
requirement or order. Confidential Information shall remain the property of the
disclosing party and shall be returned to the disclosing party or destroyed
upon request of the disclosing party.
C. Intellectual Property. No patent, copyright, trademark or trade secret
protected right, or technology or other proprietary right is licensed, granted
or otherwise transferred by this Agreement, except for the right to benefit
from the use of such technology or information in the course of the provision
of Services.
D. Use of Supplier Name. Upon execution of Supplier's trademark license
agreement, Customer may refer to itself as
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------ ------
<PAGE> 13
an authorized user of Supplier's network in promotional, advertising or other
materials upon Customer's execution of Supplier's trademark license agreement;
and use Supplier's logos, trade marks, and service marks, in its promotional,
advertising or other materials. Customer shall change or correct, at Customer's
expense, any such material which Supplier, in its sole judgment, determines to
be inaccurate, misleading or otherwise objectionable in relation to using
Services. Customer is explicitly authorized to use the following statements in
its sales literature: (i) "[Customer] utilizes the [Supplier]'s network"; (ii)
"[Customer] utilizes [Supplier]'s facilities"; (iii) "[Supplier] provides only
the network facilities"; and (iv) "[Supplier] is [Customer]'s network services
provider".
E. Remedies. In the event of a breach or threatened breach of the
foregoing provisions, Supplier shall be entitled to an injunction or
restraining order, in addition to such other rights or remedies as may be
available under this Agreement, at law or in equity, including but not limited
to money damages.
15. CUSTOMER DEFAULT. "CUSTOMER DEFAULT" means Customer: (i) breaches any
material provision of this Agreement, including, but not limited to, the
provisions regarding payment; or (ii) uses the Services for any unlawful
purpose or in any unlawful manner. In the event of a Customer Default, Supplier
may, upon notice to Customer (in addition to the other rights or remedies as
Supplier may have under this Agreement, at law or in equity): (i) suspend
Services to Customer until such time that such circumstance is corrected
(provided Supplier shall not be prohibited from terminating this Agreement
after suspending Services); (ii) declare all Usage Charges that have been
billed to Customer by Supplier to be immediately due and payable whereupon all
such amounts shall become immediately due and payable; and (iii) terminate this
Agreement. If Customer files or initiates proceedings or has proceedings filed
or initiated against it, relating to its liquidation, insolvency,
reorganization or other relief (such as the appointment of a trustee, receiver,
liquidator, custodian or other official) under any bankruptcy, insolvency or
other similar law or
-13 -
Initials: CSH GRC
------ ------
<PAGE> 14
makes an assignment for the benefit of its creditors or enters into an
agreement for the composition, extension or readjustment of its obligation in
connection with the foregoing, the Services shall terminate automatically,
without notice.
16. SYSTEM MAINTENANCE. Supplier may interrupt the Services for the performance
of routine system maintenance, in which case Supplier will use reasonable
efforts to notify Customer prior to the interruption and to conduct such
maintenance during non-peak hours.
17. CUSTOMER WARRANTS. Customer hereby represents and warrants that it is
certified to do business in all jurisdictions in which it conducts business and
is in good standing in all such jurisdictions. Customer further represents and
warrants that it is certified by the proper regulatory agencies to provide
interstate, intrastate and international long distance services to End Users in
those jurisdictions where such services are to be provided by Customer, and
will furnish Supplier copies of such certificates upon Supplier's request. This
Agreement is subject to, and Customer agrees to comply with, all applicable
federal, state and local laws, and regulations, rulings and orders of
governmental agencies, including, but not limited to, the Communications Act of
1934, as amended, the Rules and Regulations of the FCC and state public utility
or service commissions ("PSC"), tariffs and the obtaining and continuance of
any required certification, permit, license, approval or authorization of the
FCC and PSC or any governmental body, including, but not limited to regulations
applying to feature group termination and letters of agency.
18. NO THIRD PARTY BENEFICIARIES. This Agreement is made exclusively for the
benefit of the parties and not any third party.
19. COUNTERPARTS. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and, when taken together, shall
constitute one document.
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Initials: CSH GRC
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<PAGE> 15
20. FORCE MAJEURE. Supplier shall not be liable for any failure of performance
hereunder due to causes beyond its reasonable control, including, but not
limited to: acts of God, fire, explosion, vandalism, cable cut, storm or other
similar catastrophes; any law, order, regulation, direction, action or request
of the United States government, or of any other government, including foreign,
state and local governments having jurisdiction over either of the parties or
the Services, or of any department, agency, commission, court, bureau,
corporation or other instrumentality of any one or more of said governments, or
of any civil or military authority; national emergencies; insurrections; riots;
wars; or strikes, lock outs, work stoppages or other labor difficulties.
21. SURVIVAL. The covenants and agreements of Customer contained in this
Agreement with respect to payment of amounts due and indemnification shall
survive any termination of this Agreement.
22. NOTICES. ALL notices required under this Agreement shall be given in
writing and delivered by a nationally recognized overnight courier, postage
prepaid, or facsimile to the addresses set forth below:
If to Supplier: TeleHub Network Services Corporation
2033 North Main Street, Suite 340
Walnut Creek, CA 94596
Attention: G. Richard Cross,
Vice President Sales, Marketing
and Technology Integration
Fax: (925) 295-1143
If to Customer: Global Telephone Corporation
8 Newbury Street
Boston, MA 02116
Attention: Craig S. Hill, President
Fax: (617) 267-5505
A list of contacts for each party for the administration of this Agreement is
attached as Exhibit F.
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Initials: CSH GRC
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<PAGE> 16
23. HEADINGS. The paragraph headings used in this Agreement are for purposes of
convenience only and shall not be deemed a part of this Agreement for purposes
of construction or interpretation.
24. GENERAL TERMS. This Agreement shall be construed under the laws of the
state of California. The waiver of a breach hereof shall not be construed to be
a waiver of any subsequent breach. Any dispute relating hereto shall be
resolved by binding arbitration in the San Francisco Bay area of California
under the rules of the American Arbitration Association. If any term hereof is
held to be invalid or unenforceable, this Agreement shall be construed without
such invalid or unenforceable term. This Agreement is the entire agreement
between the parties pertaining to the Services. This Agreement may only be
modified or amended by an instrument in writing executed by each party.
Customer may not assign this Agreement without the prior written consent of
Supplier. The rates hereunder do not include any sales, use or utility taxes.
Customer shall pay to Supplier any such taxes that Supplier may be required to
collect or pay.
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<PAGE> 17
25. SPECIAL PROVISIONS. Additional special provisions are attached as
Exhibit G.
To confirm their agreement to be bound hereby, the parties hereto have
executed this Agreement below:
TELEHUB NETWORK SERVICES CORPORATION GLOBAL TELEPHONE CORPORATION
By: /s/GEORGE R. CROSS By: /s/CRAIG S. HILL
------------------------------ -----------------------------
Name: George R. Cross Name: Craig S. Hill
---------------------------- ---------------------------
Title: VP, Sales & Marketing Title: President
--------------------------- --------------------------
Date: 4/13/98 Date: 8-APRIL-98
--------------------------- ---------------------------
3 YEAR AGREEMENT FORM.TEL
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<PAGE> 18
LIST OF EXHIBITS
Exhibit A - Services
Exhibit B - CDR Specifications
Exhibit C - Forecast Form
Exhibit D - Rates
Exhibit E - Tax Exemption Form
Exhibit F - Contacts
Exhibit G - Special Provisions
List of Exhibits - Page 1 of 1
Initials: CSH GRC
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<PAGE> 19
EXHIBIT A
SERVICES
Check appropriate service(s), subject to availability:
X Switched 1+ service
X Dedicated 1+ Service
X Switched Toll-free Service
X Dedicated Toll-free Service
X Calling Card
X Debit Card
X Operator Services
X Directory Assistance
X Internet Access
X International Termination
____ International Call Back
X Voicemail
X lOxxx Dialing
X Private Line
X Provisioned Bandwith on Demand (usage sensitive,
distance sensitive billing)
Scheduled Availability will be provided upon request
Exhibit A - Page 1 of 1
Initials: CSH GRC
------ ------
<PAGE> 20
EXHIBIT B
Billing Contact Information &
Specifications
for Call Detail Records
1. CDR Media Type Set-Up:
In order to receive the appropriate call format and method of distribution it
is imperative that this CDR Provisioning Request Form is completed and sent
with the original Telecommunications Wholesale Service Agreement. The CDR form
requests vital information as described below:
1.1 SUBSCRIBER COMPANY INFORMATION
The name by which the Subscriber Customer is identified in the TeleHub billing
system.
Name: Global Telephone Corporation
Subscriber Contact Name: Director of Operations, Stephen Nyberg
Contact Telephone #: (617) 425-5115
Contact Fax #: (617) 267-5505
1.2 ACCOUNT NUMBERS:
Should be the same as provided by TeleHub Customer Services to the
Subscriber Customer:
------------------------------------------------
(Provided by TeleHub Accounting)
1.3 MEDIA FREQUENCY:
The interval in which your Subscriber wants to receive the call records
(Sub-Daily, Daily, Weekly, Monthly or some other timeframe). If Sub-Daily,
Daily or some other timeframe is selected the TeleHub Customer Services must
begin a process to establish the dedicated link used for the transmission of
call records. The account will be initially set-up to receive weekly tape or
diskette media based on the volume, until the alternative installation process
has been completed:
Select Media Frequency:
Sub-Daily Daily X Weekly Monthly
--- --- --- ------
For calls processed by other carriers on behalf of Telehub, frequency is
subject to receipt of call records from the other carrier.
Exhibit B - Page 1 of 3
Initials: CSH GRC
------ ------
<PAGE> 21
EXHIBIT B (continued)
1.4 MEDIA TYPE:
The physical media selection is required (Tape, Cartridge, Diskette, CD-ROM,
or TeleHub Web Download). Please complete the sub category information for the
media type selected. (i.e. if Tape is selected, specify: standard label or no
label 1600 bpi or 6250 bpi, ASCII or EBCDIC). Monthly frequency only available
for CD-ROM (based on volume):
Tape Cartridge Diskette CD ROM _ WEB Download X
1.5 SHIP TO ADDRESS:
Specify the location that the physical media will be sent to, whether it is
your site or a third party billing vendor. Also provide the following:
* Company name: Global Telephone Corporation
* Recipient Name: Director of Operations
* Street address: 8 Newbury Street
* Suite #: 6th Floor
* City_Boston State_MA Zip Code 02116
* Contact Phone or Pager:
Area Code and # that is answered 7X24):888-200-5100
* Fax Phone: Area Code and #: (617) 267-5505
1.6 CONTRACT TYPE:
Specify whether the account is dedicated or switched access. (In the future
the travel card and other enhanced service features will be included for media
provided by TeleHub):
Switched Access Dedicated Both X
---------------------- ----------- ---
The dedicated CSA will contact the Subscriber Customer upon receipt of credit
approval for the account. The CSA will initiate the process of establishing
the dedicated link used for transmission of the CDR's. This TeleHub contact
will instruct the Subscriber on how to access the TeleHub website, provide
information about the software and hardware requirements. The set-up
provisioning will take approximately 30-45 days to complete for dedicated
access.
Exhibit B - Page 2 of 9
Initials: CSH GRC
------ ------
<PAGE> 22
2. EDE Set-Up
New Subscriber Customers to TeleHub: EDE is the electronic data exchange
process to be used by TeleHub to provide current data on account activity. An
EDE reference handbook or guide prepared by the TeleHub Customer Service Group
will be made available on request by a Subscriber. The guide will instruct the
Subscriber on how to interface with TeleHub regarding the following items:
* Assigning and canceling login ID's and Passwords
* File Creation and file layout parameters for 1+ANI, account code
* File Submittal and Retrieval
* Response Files
* Reject Codes
* TeleHub Software Programs
* TeleHub WEB page
* And many other topics related to electronic order entry
Dedicated circuits to the RAS server can be established and the Sales Agent
should discuss this with the Subscriber and make the necessary arrangements for
ordering the facilities. If training is necessary the TeleHub Customer should
call Cylinda Nelson(847-782-2136) to schedule either on-site or Gurnee-Site
Training. The TeleHub direct Customer Service Group can be reached at
(847-782-8090). To report outages or trouble tickets only (888-383-2482)
Exhibit B - Page 3 of 9
Initials: CSH GRC
------ ------
<PAGE> 23
EXHIBIT C
PROJECTED NETWORK USAGE FORECAST
To allow Telehub to provide unsurpassed service, please fill in the below
requested information. This information is used for planning purposes only and
is in no way to be construed as a commitment by either party, without an
approved Telecommunications Carrier Services Agreement.
------------------------------------------------------------------------
COMPANY NAME
------------------------------------------------------------------------
DATE OF PROJECTED FORECAST:
------------------------------------------------------------------------
<TABLE>
<CAPTION>
SWITCHED SERVICES
- -----------------------------------------------------------------------------------------------------------
TOTAL DOMESTIC MINUTES OF OUTBOUND INBOUND INTERNATIONAL TERMINATING
PROJECTIONS YEAR 1 USE(MOU) PROJECTIONS PERCENTAGE PERCENTAGE MINUTES OF USE(MOU)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SWITCHED DEDICATED
- -----------------------------------------------------------------------------------------------------------
MONTH 1
- -----------------------------------------------------------------------------------------------------------
MONTH 2
- -----------------------------------------------------------------------------------------------------------
MONTH 3
- -----------------------------------------------------------------------------------------------------------
MONTH 4
- -----------------------------------------------------------------------------------------------------------
MONTH 5
- -----------------------------------------------------------------------------------------------------------
MONTH 6
- -----------------------------------------------------------------------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------------------
MONTH 12
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
TOTAL
PROJECTIONS YR 2
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
AREA OF OPERATIONS
Please provide an indication of where your Sales Activity is concentrated by
city and state or regional area. A brief description of your marketing
method (i.e. independent sales agent, in-house sales, telemarketing etc.). If
available, attach an NPA/NXX list of total minutes of use by Tandem or by
Individual Serving Office
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SALES AREA MARKETING # BUSINESS # RESIDENTIAL ACCESS TYPE ACCESS TYPE PROJECTED # OF
BY CITY/STATE METHOD CUSTOMERS CUSTOMERS % SWITCHED % DEDICATED T-1'S REQUIRED
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT C - PAGE 1 OF 1
Initials: CSH GRC
------ -------
<PAGE> 24
EXHIBIT D
1. DOMESTIC RATES INTERSTATE/INTRASTATE SWITCHED 1+
All rates per minute of usage. Billing increments for all domestic origination
will be in one second billing increments.
(a) INTERSTATE, ALL LATA GROUPS except LATA 836, $0.075
SEE EXHIBIT G CSH
Interstate Switched 1+ rate of $0.075 includes
Interstate usage originating from & terminating to all
exchanges for all times periods, for All LATA Groups
except those shown below in LATA Group 836. This rate is also
applicable to switched Toll-Free Origination.
Supplier will provide Customer with the following volume discounts on the
aggregated volume for interstate, intrastate and dedicated usage at the levels
shown assuming all invoices are current and paid within the previously agreed
timeframes. Discounts will only be calculated at each monthly revenue level
attained for that month. (For example should the first monthly usage minutes
total 2,000,000 minutes the invoice will be calculated at the $0.075 rate for
the first 1,000,000 minutes of usage and the next 1,000,000 minutes of usage
would be calculated at the $0.0713 rate). Should minutes of use decrease the
applicable rate for the monthly revenue level will be used. Monthly revenue
levels do not aggregate. The calculation of the volume discount is calculated
at the rate shown for each tier of the monthly revenue level for each month.
The following discount table includes revenue for 1+ Termination Services and
800/888 Origination Services.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
MONTHLY REVENUE LEVEL VOLUME DISCOUNT RATE
- -------------------------------------------------------------------
<S> <C> <C>
$0 to $ 75,000 No additional discount $0.0750
- -------------------------------------------------------------------
$ 75,001 to $175,000 5% $0.0713
- -------------------------------------------------------------------
$175,001 to $400,000 9% $0.0683
- -------------------------------------------------------------------
$400,001 to $650,000 13% $0.0653
- -------------------------------------------------------------------
$650,001 to $950,000 17% $0.0623
- -------------------------------------------------------------------
$950,001 to $1,250,000 21% $0.0593
- -------------------------------------------------------------------
$1,250,001 and up 25 $0.0563
- -------------------------------------------------------------------
</TABLE>
NOTE: Add $0.02 to above rates per minute for terminations to non-RBOC or
locations.
(b) INTRASTATE, ALL LATA GROUPS $0.075
EXCEPT LATA 836, SEE EXHIBIT G CSH
Intrastate Switched 1+ rate of $0.075 includes intrastate usage originating
from & terminating to all exchanges for all time periods, for All LATA Groups
except those shown below in LATA Group 836. This rate is also applicable to
switched Toll-Free Origination.
Exhibit D - Page 1 of 9
Initials: CSH GRC
-------- -----------
<PAGE> 25
(c) LATA GROUP 836 $0.136
(i) Wake and Midway Islands
(ii) Alaska, Hawaii, US Virgin Islands, Puerto Rico $0.095
1+ Terminating
2
-
(iii) 800 Origination from Extended Non-Mainland Points
to the Domestic Mainland
Alaska $0.1244
Hawaii (1+800) $0.0725
Puerto Rico $0.0856
US Virgin Islands $0.1089
Canada $0.20552
(d) CALLING CARD (Supplier will provide PINs and provide $0.135
800 access and transport; Customer must issue own cards)
2. DEDICATED ACCESS RATE PER MINUTE OF USAGE TBD
DEDICATED PRICING IS "TO BE DETERMINED" WHEN TELEHUB IS PREPARED TO
PROVIDE THIS SERVICE. THE TARGET RATE OF $0.036 HAS BEEN REQUESTED.
3. INTERNATIONAL RATES SHOWN ON PAGES 3 - 9 (ATTACHED)
Rates may be changed upon notice to Customer.
Billing increments for international calls will be 30/6 except Mexico
60/60
SEE EXHIBIT G FOR ANY ADDITIONAL RATE CONSIDERATIONS
Exhibit B - Page 2 of 9 Initials: CSH GRC
-------- --------
<PAGE> 26
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
- ----------------------------------------------------------------------
<S> <C> <C>
AFGHANISTAN 93 1.7222
- ----------------------------------------------------------------------
ALBANIA 355 0.4278
- ----------------------------------------------------------------------
ALGERIA 213 0.4111
- ----------------------------------------------------------------------
AMERICAN SAMOA 684 0.5544
- ----------------------------------------------------------------------
ANDORRA 376 0.3889
- ----------------------------------------------------------------------
ANGOLA 244 0.6333
- ----------------------------------------------------------------------
ANGUILLA 809/497 0.5667
- ----------------------------------------------------------------------
ANTARCTICA (SCOTT) 640 0.4556
- ----------------------------------------------------------------------
ANTIGUA/Barbuda 809/460 0.5000
- ----------------------------------------------------------------------
ARGENTINA 54 0.5000
- ----------------------------------------------------------------------
ARMENIA 374 0.7222
- ----------------------------------------------------------------------
ARUBA 297 0.3533
- ----------------------------------------------------------------------
ASCENSION ISLANDS 247 0.7111
- ----------------------------------------------------------------------
AUSTRALIA 61 0.1278
- ----------------------------------------------------------------------
AUSTRIA 43 0.2000
- ----------------------------------------------------------------------
AZERBAIJAN 994 0.4667
- ----------------------------------------------------------------------
BAHAMAS 809/321 0.2222
- ----------------------------------------------------------------------
BAHRAIN 973 0.7889
- ----------------------------------------------------------------------
BANGLADESH 880 0.9667
- ----------------------------------------------------------------------
BARBADOS 809/228 0.5222
- ----------------------------------------------------------------------
BELARUS 375 0.4444
- ----------------------------------------------------------------------
BELGIUM 32 0.1889
- ----------------------------------------------------------------------
BELIZE 501 0.7556
- ----------------------------------------------------------------------
BENIN 229 0.6222
- ----------------------------------------------------------------------
BERMUDA 809/231 0.2556
- ----------------------------------------------------------------------
BHUTAN 975 0.7444
- ----------------------------------------------------------------------
BOLIVIA 591 0.6889
- ----------------------------------------------------------------------
BOSNIA & HERZEGOVINA 387 0.4556
- ----------------------------------------------------------------------
BOTSWANA 267 0.6333
- ----------------------------------------------------------------------
BRAZIL 55 0.5000
- ----------------------------------------------------------------------
BRITISH VIRGIN ISLANDS 809/275 0.3778
- ----------------------------------------------------------------------
BRUNEI (Negara) 673 0.4667
- ----------------------------------------------------------------------
BULGARIA 359 0.3558
- ----------------------------------------------------------------------
BURKINA FASO 226 0.6249
- ----------------------------------------------------------------------
BURUNDI 257 0.6778
- ----------------------------------------------------------------------
CAMBODIA 855 1.0444
- ----------------------------------------------------------------------
CAMEROON 237 0.7338
- ----------------------------------------------------------------------
CAPE VERDE ISLAND 238 0.5222
- ----------------------------------------------------------------------
CAYMAN ISLANDS 809/945 0.4000
- ----------------------------------------------------------------------
</TABLE>
Exhibit D - Page 3 of 9
Initials: CSH GRC
------- -------
* Rates as of March 1, 1998
<PAGE> 27
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
- -----------------------------------------------------------------------
<S> <C> <C>
CENTRAL AFRICAN 236 0.8123
REP
- -----------------------------------------------------------------------
CHAD REPUBLIC 235 1.1444
- -----------------------------------------------------------------------
CHILE 56 0.2833
- -----------------------------------------------------------------------
CHINA 86 0.8000
- -----------------------------------------------------------------------
CHRISTMAS ISLAND 672 0.4684
- -----------------------------------------------------------------------
COCOS ISL 672 0.4684
- -----------------------------------------------------------------------
COLOMBIA 57 0.4278
- -----------------------------------------------------------------------
COMOROS 269 0.7000
- -----------------------------------------------------------------------
CONGO 242 0.7667
- -----------------------------------------------------------------------
COOK ISLANDS 682 0.9556
- -----------------------------------------------------------------------
COSTA RICA 506 0.5573
- -----------------------------------------------------------------------
CROATIA- REPUB OF 385 0.4000
- -----------------------------------------------------------------------
CUBA 53 0.6333
- -----------------------------------------------------------------------
CUBA (Guantanamo) 53 0.4667
- -----------------------------------------------------------------------
CYPRUS 357 0.4556
- -----------------------------------------------------------------------
CZECH REPUBLIC 42 0.3000
- -----------------------------------------------------------------------
DENMARK 45 0.1944
- -----------------------------------------------------------------------
DIEGO GARCIA 246 0.6778
- -----------------------------------------------------------------------
DJIBOUTI 253 0.8000
- -----------------------------------------------------------------------
DOMINICA 596 0.6389
- -----------------------------------------------------------------------
DOMINICAN REPUBLIC 809/220 0.2778
- -----------------------------------------------------------------------
ECUADOR 593 0.4778
- -----------------------------------------------------------------------
EGYPT 20 0.7222
- -----------------------------------------------------------------------
EL SALVADOR 503 0.5222
- -----------------------------------------------------------------------
EQUATORIAL GUINEA 240 1.1333
- -----------------------------------------------------------------------
ERITREA 291 1.2222
- -----------------------------------------------------------------------
ESTONIA 372 0.3667
- -----------------------------------------------------------------------
ETHIOPIA 251 0.9333
- -----------------------------------------------------------------------
FAEROE ISLANDS 298 0.3028
- -----------------------------------------------------------------------
FALKLAND ISLANDS 500 0.8889
- -----------------------------------------------------------------------
FIJI ISLANDS 679 0.8444
- -----------------------------------------------------------------------
FINLAND 358 0.2333
- -----------------------------------------------------------------------
FRANCE 33 0.1889
- -----------------------------------------------------------------------
FRENCH ANTILLES 590 0.5167
- -----------------------------------------------------------------------
FRENCH GUIANA 594 0.4556
- -----------------------------------------------------------------------
FRENCH POLYNESIA 689 0.6556
- -----------------------------------------------------------------------
GABON 241 0.7444
- -----------------------------------------------------------------------
</TABLE>
Exhibit D - Page 4 of 9
Initials: CSH GRC
-------- --------
* Rates as of March 1, 1998
<PAGE> 28
<TABLE>
<S> <C> <C>
GAMBIA 220 0.5222
- -----------------------------------------------------------------------
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
- -----------------------------------------------------------------------
GEORGIA 995 0.7840
- -----------------------------------------------------------------------
GERMANY 49 0.1244
- -----------------------------------------------------------------------
GHANA 233 0.5389
- -----------------------------------------------------------------------
GIBRALTAR 350 0.4333
- -----------------------------------------------------------------------
GREECE 30 0.3667
- -----------------------------------------------------------------------
GREENLAND 299 0.6111
- -----------------------------------------------------------------------
GRENADA 809/440 0.5833
- -----------------------------------------------------------------------
GUADELOUPE 590 0.4900
- -----------------------------------------------------------------------
GUAM 671 0.2000
- -----------------------------------------------------------------------
GUANTANAMO BAY 5399 0.4667
- -----------------------------------------------------------------------
GUATEMALA 502 0.5222
- -----------------------------------------------------------------------
GUINEA 224 0.7000
- -----------------------------------------------------------------------
GUINEA-BISSAU 245 1.0556
- -----------------------------------------------------------------------
GUYANA 592 0.7222
- -----------------------------------------------------------------------
HAITI 509 0.5667
- -----------------------------------------------------------------------
HONDURAS 504 0.5444
- -----------------------------------------------------------------------
HONG KONG 852 0.2556
- -----------------------------------------------------------------------
HUNGARY 36 0.2556
- -----------------------------------------------------------------------
ICELAND 354 0.2778
- -----------------------------------------------------------------------
INDIA 91 0.7222
- -----------------------------------------------------------------------
INDONESIA 62 0.6667
- -----------------------------------------------------------------------
IRAN 98 0.9333
- -----------------------------------------------------------------------
IRAQ 964 0.9444
- -----------------------------------------------------------------------
IRELAND 353 0.2111
- -----------------------------------------------------------------------
ISRAEL 972 0.4056
- -----------------------------------------------------------------------
ITALY 39 0.2278
- -----------------------------------------------------------------------
IVORY COAST 225 0.9556
- -----------------------------------------------------------------------
JAMAICA 809/287 0.6111
- -----------------------------------------------------------------------
JAPAN 81 0.2056
- -----------------------------------------------------------------------
JORDAN 962 0.7222
- -----------------------------------------------------------------------
KAZAKHSTAN 7 0.5778
- -----------------------------------------------------------------------
KENYA 254 0.7444
- -----------------------------------------------------------------------
KIRIBATI 686 0.9111
- -----------------------------------------------------------------------
KOREA- North 850 0.7667
- -----------------------------------------------------------------------
KOREA - South 82 0.4278
- -----------------------------------------------------------------------
KUWAIT 965 0.7667
- -----------------------------------------------------------------------
KYRGYZSTAN 733 0.5778
- -----------------------------------------------------------------------
</TABLE>
Exhibit D - Page 5 of 9
Initials: CSH GRC
-------- --------
* Rates as of March 1, 1998
<PAGE> 29
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------
LAOS 856 0.8667
- -----------------------------------------------------------------------
LATVIA 371 0.3667
- -----------------------------------------------------------------------
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
- -----------------------------------------------------------------------
LEBANON 961 0.7889
- -----------------------------------------------------------------------
LESOTHO 266 0.6778
- -----------------------------------------------------------------------
LIBERIA 231 0.5778
- -----------------------------------------------------------------------
LIBYA 218 0.5747
- -----------------------------------------------------------------------
LIECHTENSTEIN 41 0.3004
- -----------------------------------------------------------------------
LITHUANIA 370 0.3778
- -----------------------------------------------------------------------
LUXEMBOURG 352 0.2667
- -----------------------------------------------------------------------
MACAO 853 0.4852
- -----------------------------------------------------------------------
MACEDONIA 389 0.4889
- -----------------------------------------------------------------------
MADAGASCAR 261 1.0556
- -----------------------------------------------------------------------
MALAWI 265 0.5000
- -----------------------------------------------------------------------
MALAYSIA 60 0.3500
- -----------------------------------------------------------------------
MALDIVES 960 0.6778
- -----------------------------------------------------------------------
MALI REPUBLIC 223 0.8000
- -----------------------------------------------------------------------
MALTA 356 0.3000
- -----------------------------------------------------------------------
MARIANAS ISLAND 0 0.5000
- -----------------------------------------------------------------------
MARSHALL ISLANDS 692 0.4667
- -----------------------------------------------------------------------
MARTINIQUE 596 0.3556
- -----------------------------------------------------------------------
MAURITANIA 222 0.7333
- -----------------------------------------------------------------------
MAURITIUS 230 0.6667
- -----------------------------------------------------------------------
MAYOTTE ISLAND 269 0.5333
- -----------------------------------------------------------------------
MICRONESIA 691 0.9556
- -----------------------------------------------------------------------
MOLDOVA 373 0.8333
- -----------------------------------------------------------------------
MONACO 33 0.2556
- -----------------------------------------------------------------------
MONGOLIA 976 0.8333
- -----------------------------------------------------------------------
MONTSERRAT 809/491 0.5500
- -----------------------------------------------------------------------
MOROCCO 212 0.5000
- -----------------------------------------------------------------------
MOZAMBIQUE 258 0.6333
- -----------------------------------------------------------------------
MYANMAR- UNION OF (BURMA) 95 0.9333
- -----------------------------------------------------------------------
NAMIBIA 264 0.6556
- -----------------------------------------------------------------------
NAURU 674 0.8000
- -----------------------------------------------------------------------
NEPAL 977 0.9000
- -----------------------------------------------------------------------
NETHERLANDS 31 0.1600
- -----------------------------------------------------------------------
NETHERLANDS ANTILLES 599 0.2178
- -----------------------------------------------------------------------
NEW CALEDONIA 687 0.7722
- -----------------------------------------------------------------------
NEW ZEALAND 64 0.2000
- -----------------------------------------------------------------------
</TABLE>
Exhibit D - Page 6 of 9
Initials: CSH GRC
-------- --------
* Rates as of March 1, 1998
<PAGE> 30
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
NICARAGUA 505 0.6556
- --------------------------------------------------------------------------------
NIGER REPUBLIC 227 0.7667
- --------------------------------------------------------------------------------
NIGERIA 234 0.6889
- --------------------------------------------------------------------------------
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
- --------------------------------------------------------------------------------
NIUE 683 0.9333
- --------------------------------------------------------------------------------
NORFOLK ISLAND 672 0.4000
- --------------------------------------------------------------------------------
NORWAY 47 0.2056
- --------------------------------------------------------------------------------
OMAN 968 0.8667
- --------------------------------------------------------------------------------
PAKISTAN 92 1.0000
- --------------------------------------------------------------------------------
PALAU REPUBLIC 680 0.7778
- --------------------------------------------------------------------------------
PANAMA 507 0.6222
- --------------------------------------------------------------------------------
PAPUA NEW GUINEA 675 0.5111
- --------------------------------------------------------------------------------
PARAGUAY 595 0.6778
- --------------------------------------------------------------------------------
PERU 51 0.6444
- --------------------------------------------------------------------------------
PHILIPPINES 63 0.4556
- --------------------------------------------------------------------------------
POLAND 48 0.3667
- --------------------------------------------------------------------------------
PORTUGAL 351 0.3667
- --------------------------------------------------------------------------------
PUERTO RICO 809 0.1000
- --------------------------------------------------------------------------------
QATAR 974 0.7556
- --------------------------------------------------------------------------------
REUNION ISLAND 262 0.7778
- --------------------------------------------------------------------------------
ROMANIA 40 0.4222
- --------------------------------------------------------------------------------
RUSSIA-FORMER REPUBLIC 7 0.4333
- --------------------------------------------------------------------------------
City Code: 750X, 751X
- --------------------------------------------------------------------------------
RUSSIA-MOSCOW & ST. Pete 7 0.3778
- --------------------------------------------------------------------------------
City Code: 7095, 7096, 7097
- --------------------------------------------------------------------------------
City Code: 7812 Band R16
- --------------------------------------------------------------------------------
RWANDA 250 0.9000
- --------------------------------------------------------------------------------
SAINT HELENA 290 0.7922
- --------------------------------------------------------------------------------
SAINT KITTS & NEVIS 590 0.5444
- --------------------------------------------------------------------------------
SAINT LUCIA 809/450 0.5111
- --------------------------------------------------------------------------------
SAINT PIERRE et Miguelon 508 0.2889
- --------------------------------------------------------------------------------
SAINT VINCENT 809/456 0.6667
- --------------------------------------------------------------------------------
SAIPAN - (ROTA) 670 0.9478
- --------------------------------------------------------------------------------
SAN MARINO 39 0.4222
- --------------------------------------------------------------------------------
SAO TOME 239 1.0667
- --------------------------------------------------------------------------------
SAUDI ARABIA 966 0.7833
- --------------------------------------------------------------------------------
SENEGAL 221 1.0111
- --------------------------------------------------------------------------------
SERBIA 381 0.4444
- --------------------------------------------------------------------------------
SEYCHELLES ISLAND 248 1.1333
- --------------------------------------------------------------------------------
</TABLE>
Exhibit D - Page 7 of 9
Initials: CSH GRC
-------- --------
* Rates as of March 1, 1998
<PAGE> 31
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------
SIERRA LEONE 232 0.8333
- -----------------------------------------------------------------------
SINGAPORE 65 0.2389
- -----------------------------------------------------------------------
SLOVAK REP 42 0.3889
- -----------------------------------------------------------------------
SLOVENIA 386 0.3889
- -----------------------------------------------------------------------
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
- -----------------------------------------------------------------------
SOLOMON ISLANDS 677 0.7778
- -----------------------------------------------------------------------
SOMALIA 252 1.1111
- -----------------------------------------------------------------------
SOUTH AFRICA 27 0.4444
- -----------------------------------------------------------------------
SPAIN 34 0.2667
- -----------------------------------------------------------------------
SRI LANKA 94 0.9111
- -----------------------------------------------------------------------
SUDAN 249 0.4444
- -----------------------------------------------------------------------
SURINAME 597 0.9222
- -----------------------------------------------------------------------
SWAZILAND 268 0.2778
- -----------------------------------------------------------------------
SWEDEN 46 0.1111
- -----------------------------------------------------------------------
SWITZERLAND 41 0.1556
- -----------------------------------------------------------------------
SYRIAN ARAB REPUBLIC 963 1.0222
- -----------------------------------------------------------------------
TAIWAN 886 0.3778
- -----------------------------------------------------------------------
TAJIKISTAN 7 0.4556
- -----------------------------------------------------------------------
TANZANIA 255 0.6111
- -----------------------------------------------------------------------
THAILAND 66 0.6444
- -----------------------------------------------------------------------
TOGO 228 0.7556
- -----------------------------------------------------------------------
TONGA ISLANDS 676 0.8778
- -----------------------------------------------------------------------
TRINIDAD & TOBAGO 809/622 0.5111
- -----------------------------------------------------------------------
TUNISIA 216 0.4833
- -----------------------------------------------------------------------
TURKEY 90 0.4393
- -----------------------------------------------------------------------
TURKMENISTAN 7 0.7333
- -----------------------------------------------------------------------
TURKS & CAICOS ISLAND 809/941 0.6000
- -----------------------------------------------------------------------
TUVALU 688 0.8167
- -----------------------------------------------------------------------
UGANDA 256 0.6889
- -----------------------------------------------------------------------
UKRAINE 380 0.4556
- -----------------------------------------------------------------------
UNITED ARAB EMIRATES 971 0.5333
- -----------------------------------------------------------------------
UNITED KINGDOM 44 0.0833
- -----------------------------------------------------------------------
URUGUAY 598 0.6000
- -----------------------------------------------------------------------
UZBEKISTAN 7 0.5667
- -----------------------------------------------------------------------
VANUATU 678 0.6889
- -----------------------------------------------------------------------
VATICAN CITY 39 0.2333
- -----------------------------------------------------------------------
VENEZUELA 58 0.3667
- -----------------------------------------------------------------------
VIETNAM 84 0.9889
- -----------------------------------------------------------------------
WALLIS & FUTUNA IS 681 0.3944
- -----------------------------------------------------------------------
</TABLE>
Exhibit D - Page 8 of 9
Initials: CSH GRC
-------- --------
* Rates as of March 1, 1998
<PAGE> 32
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------
WESTERN SAMOA 685 0.7778
- -----------------------------------------------------------------------
YEMEN ARAB REPUBLIC 967 0.9333
- -----------------------------------------------------------------------
YUGOSLAV- FED REP 381 0.4556
- -----------------------------------------------------------------------
ZAIRE 243 0.6222
- -----------------------------------------------------------------------
ZAMBIA 260 0.7222
- -----------------------------------------------------------------------
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
- -----------------------------------------------------------------------
ZANZIBAR 259 0.8627
- -----------------------------------------------------------------------
ZIMBABWE 263 0.5333
- -----------------------------------------------------------------------
Mexico -1 52 0.1987
- -----------------------------------------------------------------------
Mexico -2 52 0.2253
- -----------------------------------------------------------------------
Mexico -3 52 0.3320
- -----------------------------------------------------------------------
Mexico -4 52 0.3453
- -----------------------------------------------------------------------
Mexico -5 52 0.3987
- -----------------------------------------------------------------------
Mexico -6 52 0.4653
- -----------------------------------------------------------------------
Mexico-7 (52S) 52 0.5053
- -----------------------------------------------------------------------
Mexico -8 52 0.5320
- -----------------------------------------------------------------------
Mexico City 0.3889
- -----------------------------------------------------------------------
Canada (all NPA's) 0.1023
- -----------------------------------------------------------------------
</TABLE>
Exhibit D - Page 9 of 9
Initials: CSH GRC
-------- --------
* Rates as of March 1, 1998
<PAGE> 33
EXHIBIT E
TELEHUB NETWORK SERVICES CORPORATION
STATEMENT RELIEVING TELEHUB NETWORK SERVICES CORPORATION
OF RESPONSIBILITY FOR BILLING AND COLLECTING FEDERAL
EXCISE TAX ON SERVICES PROVIDED COMMON CARRIERS FOR 1998
The undersigned hereby certifies that the services furnished by Telehub Network
Services Corporation ("TeleHub") will be used exclusively in the rendering of a
communication service upon all or a portion of which federal excise tax is
imposed, so that the services furnished by Telehub are exempt from federal
excise tax by Section 4251 of the Internal Revenue Code.
It is understood that no federal tax will be billed and collected by Telehub on
charges for said services and that it be the responsibility of the undersigned
to bill and collect such tax as may be due from its customers. In the event the
undersigned omits to bill or collect such taxes, and in the further event
Telehub is assessed such taxes, the undersigned agrees to pay and/or reimburse
Telehub such taxes, including interest and penalties.
Billing Name: /s/ GLOBAL TELEPHONE CORP
-------------------------
Address: 8 Newbury Street
-------------------------
Boston MA 02116
-------------------------
Name: Craig S. Hill Title: President
---------------------- ------------
Signature: /s/ Craig S. Hill Date: 8-April-98
----------------- ------------
Initials: CSH GRC
------ ------
<PAGE> 34
EXHIBIT F
Customer Contact Sheet
----------------------
Please complete all sections:
<TABLE>
<S> <C>
1. Contract Contact-Contractual issues, rate revisions and notifications:
Name: Craig S. Hill, President
Telephone #: (617) 425-5101 Fax # (617) 267-5505
Mailing Address (not a P.O. Box FedEx will not accept)
Street_8 Newbury Street_City_Boston_State_MA_Zip_02116_
2. Billing Contact-Person receiving invoices and ensuring timely payment of
invoices:
Name: Andrea Buschini, Dir of Administration_Email [email protected]
Telephone #___(617) 425-5103 _____Fax # _(617) 267-5505____________
Mailing Address (not a P.O. Box FedEx will not accept)
Street_8 Newbury Street _________City ___Boston________
State_MA_Zip_02116_______
3. Technical Contact- Routing information, outage notifications, new
facilities ordering and any information required for any moves, adds, or
changes.
NAME____STEPHEN NYBERG, DIR OF OPERATIONS________________________________________
Telephone #___(617) 425-5101 ___Fax # __(617) 267-5505____ Email [email protected]_
Mailing Address (not a P.O. Box FedEx will not accept) Street __8 Newbury Street__________
City____ Boston____________ State_MA____________________ Zip_02116_______
4. Switch Tech Contact- Trouble ticket reporting
Name ___________________________ Pager #/Cell #_________________________________
Telephone # ______________________________Fax# _________________________________
5. Customer Service Contact- PIC Care, Possible Fraud Notifications, All
Subscriber day-to-day customer affecting issues:
Name/Title___Stephen Nyberg______ Pager/Cell #___ (same)________
Telephone # _______________ Fax # ______________ Email Address__________________________
Mailing Address (not a P.O. Box FedEx will not accept)
Street ______________________ City ______________________ State___ zip __________
</TABLE>
Exhibit F - Page 1 of 1
<PAGE> 35
EXHIBIT G
SPECIAL PROVISIONS
1. For the initial one hundred eighty (180) days of this Agreement Customer
shall be forward priced for InterState calls to $0.06
2. After the initial one hundred eighty (180) days of this Agreement
Customer understands that the rate to be charged going forward will be
at the MONTHLY REVENUE LEVEL reflected in Exhibit D for the balance of
the term of this agreement.
3. It is also understood by the parties that should TeleHub be unable to
provide services that Global Telephone is prepared to purchase from
TeleHub for any reasons. For example Dedicated and 800/888 Toll Free
that the ramp period will be extended for an additional ninety (90)
days. This additional ramp period would allow Global to meet its Volume
Discount levels which could provide a $0.0593 or $0.0563 rate.
4. It has also been agreed that should there be a material change in the
market place the parties agree to meet and discuss pricing based on any
access charge changes.
5. It is also understood between the parties that any pledge of the
Customer's end user customer base is only those customers using the
TeleHub network and that portion of the customer traffic which is on the
TeleHub network. Furthermore, such pledge is in lieu of the Security
Payment and Lockbox provisions in Paragraph's #6 and #7 of the
Agreement.
Exhibit G - Page 1 of 1
Initials: CSH GRC
--------- ---------
<PAGE> 36
TELEHUB NETWORK SERVICES CORPORATION
<TABLE>
<CAPTION>
---------------------------
STATE 1 + INTRASTATE
---------------------------
SWITCHED
---------------------------
<S> <C>
AL $0.0606
---------------------------
AZ $0.0516
---------------------------
AR $0.0557
---------------------------
CA $0.0514
---------------------------
CO $0.0515
---------------------------
CT $0.0624
---------------------------
DE $0.0499
---------------------------
DC $0.0337
---------------------------
FL $0.0423
---------------------------
GA $0.0607
---------------------------
ID $0.0510
---------------------------
IL $0.0420
---------------------------
IN $0.0589
---------------------------
IA $0.0565
---------------------------
KS $0.0532
---------------------------
KY $0.0617
---------------------------
LA $0.0606
---------------------------
ME $0.0786
---------------------------
MD $0.0500
---------------------------
MA $0.0744
---------------------------
MI $0.0571
---------------------------
MN $0.0511
---------------------------
MS $0.0612
---------------------------
MO $0.0535
---------------------------
MT $0.0517
---------------------------
NE $0.0605
---------------------------
NV $0.0636
---------------------------
NH $0.0454
---------------------------
NJ $0.0508
---------------------------
NM $0.0516
---------------------------
NY $0.0603
---------------------------
NC $0.0607
---------------------------
ND $0.0511
---------------------------
OH $0.0578
---------------------------
OK $0.0531
---------------------------
OR $0.0516
---------------------------
PA $0.0504
---------------------------
RI $0.0455
---------------------------
SC $0.0610
---------------------------
SD $0.0511
---------------------------
TN $0.0611
---------------------------
TX $0.0594
---------------------------
UT $0.0511
---------------------------
VT $0.0685
---------------------------
VA $0.0338
---------------------------
WA $0.0516
---------------------------
WV $0.0499
---------------------------
WI $0.0564
---------------------------
WY $0.0517
---------------------------
</TABLE>
Effective As Of 4/1/98
IntraLata Pricing Adendum for Global Telephone
Initials: CSH GRC
------- -------
<PAGE> 1
EXHIBIT - 10.27
TELECOMMUNICATIONS SERVICE AGREEMENT
TELEHUB NETWORK SERVICES CORP.
[LOGO TELEHUB]
This agreement (the "AGREEMENT") is made this 8th day of July, 1998,
between TELEHUB NETWORK SERVICES CORPORATION, an Illinois corporation with
offices at 2033 North Main Street, Suite 340, Walnut Creek, California 94596
("SUPPLIER"), and North American Telephone Network L.L.C. a Georgia corporation
with its principal place of business at 4151 Ashford-Dunwoody Road, Suite 550,
Atlanta, Georgia 30319. ("CUSTOMER").
1. SCOPE.
A. Telecommunications Services. Supplier is authorized to use its best
efforts (considering the needs of its other customers) to start provisioning of
the telecommunications services described in Exhibit A attached hereto and
incorporated herein by reference, to the extent they are available ("SERVICES")
to Customer on or before August 1, 1998 (the "SERVICE COMMENCEMENT DATE"), so
that Customer may resell the Services to its customers ("END USERS").
B. Access Services. In conjunction with its provision of Services,
Supplier will obtain from incumbent local exchange carriers ("ILECS") and
competitive local exchange carriers ("CLECS") on Customer's behalf all
associated and necessary switched access services and special access services,
and may act on Customer's behalf to order other services, if requested.
Supplier shall pass through to Customer all associated ILEC and CLEC charges
for such services, and will be responsible for coordinating with said ILECs and
CLECs in connection with their provisioning and maintenance of switched and
special access services. Supplier shall promptly process requests to the
appropriate ILEC and CLEC to load Customer's carrier identification code
("CIC") at the central office level in all areas in which Carrier uses the
Services.
C. Call Records. Supplier will calculate and send to Customer Call
Detail Records ("CDR'S") for Customer to rebill End Users for calls placed
through Supplier's network, based upon the specifications defined Exhibit B.
2. CUSTOMER RESPONSIBILITIES.
A. General Duties. The Customer shall use its best efforts to solicit
customers and resell the Services to End Users. Customer shall at all time
conduct its efforts in a commercially reasonable and ethical manner. Customer
shall provide its own billing and
Initials: HK GRC
----- -----
Page 2
<PAGE> 2
3. EXCLUDED ANIs. Supplier has the right to reject any ANI supplied by
Customer for any of the following reasons: (i) Supplier is not authorized to
provide or does not provide long distance services in the particular
jurisdiction in which the ANI is located; (ii) a particular ANI submitted by
Customer is not in proper format; (iii) Customer is not certified to provide
long distance services in the jurisdiction in which the ANI is located; (iv)
Customer is in default of this Agreement; (v) Customer fails to cooperate with
Supplier in implementing reasonable verification processes determined by
Supplier to be necessary or appropriate in the conduct of business; or (vi) any
other circumstances that Supplier reasonably determines could adversely affect
Supplier's performance under this Agreement or Supplier's general ability to
transfer its other customers or other End Users to the Supplier's network. In
the event Supplier rejects an ANI, Supplier will notify Customer within
forty-eight (48) hours of its decision specifically describing the rejected ANI
and the reason(s) for rejecting that ANI. Supplier is under no obligation to
accept ANIs within the three-month period preceding the scheduled expiration of
the term hereof.
4. CHARGES AND PAYMENT. Charges for Service ("USAGE CHARGES") shall be
based on: (i) the rates for Services set forth in Exhibit D, as applicable; and
(ii) actual usage of Supplier's network from establishment of a connection
between the calling device and the called telephone number for termination.
Supplier shall not unreasonably discriminate against Customer with respect to
Usage Charges vis-a-vis other similarly situated customers. All Usage Charges
shall be due and payable by Customer to Supplier within thirty (30) days of the
date of invoice, without demand or set off by Customer; provided, however, that
to the extent Customer disputes a portion of an invoice because it has received
what it considers in good faith to be materially incorrect CDR's, the due date
for such disputed portion shall be delayed for up to fifteen (15) days, provided
Customer cooperates in good faith to resolve such dispute. Usage Charges are
billed and payable following the period in which actual usage has been incurred.
If any invoice is not paid when due: (i) a late charge shall accrue equal to 1
- -1/2% (or the maximum legal rate, if less) of the unpaid balance per month; (ii)
Supplier may suspend or terminate the Service; and (iii) Supplier may require
additional security deposits.
5. SECURITY DEPOSITS.
A. Amount. Subject to paragraph D of this Section 6, Customer shall
furnish Supplier simultaneously with the execution of this Agreement a security
deposit equal to the aggregate amount that Supplier estimates, in its sole
discretion, would be due hereunder for Services during one month (the "SECURITY
DEPOSIT"). The Security Deposit shall be (i) cash in U.S. dollars in such amount
to be held by Supplier during the term of the Agreement, or (ii) an
unconditional irrevocable letter of credit for such amount, naming Supplier as
the sole beneficiary, issued in a form and by a bank reasonably acceptable to
Supplier and to remain outstanding at all times during the term of the
Agreement, or (iii) such other instrument or device as mutually agreed to by the
parties. Customer acknowledges and agrees that the Security Deposit is not a
prepayment to be applied against the future provision of Service and the entire
Security Deposit amount,
-3-
Initials: HK GRC
------ ------
<PAGE> 3
subject to paragraphs B and D of this Section 6, is to remain outstanding at all
times during the term of this Agreement.
B. Adjustment. The adequacy of the Security Deposit will be reviewed by
Supplier on a quarterly basis and, in the event that Customer's actual aggregate
monthly charges for Service exceeds the amount of the Security Deposit, as
determined by Supplier in its sole discretion, Customer shall, within five days
of receiving written notice from Supplier, provide additional cash or increase
the stated amount of the letter of credit in an amount equal to the difference
between such charges and the then-existing Security Deposit.
C. Use and Replenishment. The Security Deposit shall not bear interest
and Customer shall bear all costs related to the issuance of the letter of
credit described above. Supplier shall have no obligation to return any portion
of the Security Deposit unless and until Customer has paid all amounts due to
Supplier hereunder or otherwise. Supplier shall have the right to apply all or
part of the Security Deposit to any amount that has become due hereunder and not
received by Supplier as set forth herein. Upon application of any part of the
Security Deposit, Customer shall, within five days of receiving written notice
from Supplier, replenish the part of the Security Deposit, so applied. Any
application of all or a part of the Security Deposit to any overdue amount does
not constitute a waiver of Supplier's right to terminate this Agreement under
Section 15.
D. Waiver. Supplier, in its sole discretion, may waive its right to
require a Security Deposit as set forth in this Section 6 or may reduce the
required amount of the Security Deposit, subject to its right to later require
Customer to fully comply with the provisions of this Section 5, upon a review of
any financial statements of Customer that Supplier may request and upon its
determination, in the sole discretion of Supplier, that Customer's financial
circumstances do not require a Security Deposit. Customer represents that any
financial statements provided to Supplier shall be prepared in accordance with
generally accepted accounting principles and will be true and correct.
6. LOCKBOX AGREEMENT.
A. Deposits and Distributions. Customer shall direct all of customer's
end-users to deposit any money owed by such end-user to customer directly into a
lockbox account at the Bank of Oklahoma, N.A. (The "BANK") owned jointly by
customer and the supplier, and authorize the supplier to make automatic
clearinghouse fund transfers from such lockbox accounts to the account of
supplier and customer according to the terms and conditions of a lockbox
agreement in form and substance reasonably satisfactory to Customer and
Supplier. The bank shall provide both customer and supplier with all records and
statements with respect to the lockbox account each month. Supplier shall be
entitled to receive from the lockbox account 80% of the amount in the lockbox
paid twice monthly (the "SUPPLIER LOCKBOX PAYMENT") as payment for the services
and customer shall be entitled to receive from the lockbox account, 20% of the
amount in the lockbox (the "CUSTOMER LOCKBOX PAYMENT") subject to the terms and
conditions herein. At the
- 4 -
Initials: HK GRC
------ ------
<PAGE> 4
end of ninety (90) days following the Service Commencement Date and at the end
of each ninety (90) day period thereafter, the parties agree to negotiate in
good faith concerning the percentage of the lockbox account that is to be
distributed to each party.
B. Shortfalls. Once a month (the "COMPARISON DATE"), Supplier shall
compare the Supplier Lockbox Payment with the amount then owed for the Services
provided hereunder and shall provide a copy of such comparison to Customer
within seven (7) days of the Comparison Date. In the event the Supplier Lockbox
Payment satisfies current invoices prior to the Comparison Date, the Customer
Lockbox Payment shall increase to one hundred percent (100%) until such time as
the next invoice is rendered. In the event that the Supplier Lockbox Payment
exceeds the amount owed to Supplier during any month for the Services provided
hereunder, Supplier shall pay Customer the excess within ten (10) days of the
Comparison Date. In the event that the Supplier Lockbox Payment is insufficient
to cover the amount owed to Supplier during any month for the Services provided
hereunder, (the aggregate amount by which the payments have been insufficient is
referred to as the "SHORTFALL") the Supplier Lockbox Payment shall increase to
one hundred percent (100%) of the amount deposited in the lockbox and Customer
shall pay Supplier any additional amount needed to cover any Shortfall. When
Supplier has received sufficient funds from the lockbox account to reduce the
Shortfall to zero, the Supplier Lockbox and Customer Lockbox Payment shall
revert to the percentages applicable on the date the Shortfall first occurred.
C. Audit and Fees. Supplier shall have the right to audit Customer's
books and records, including, without limitation, Customer's invoicing records
to assure Customer its compliance hereunder. In the event Customer enters into
an agreement with a billing company to provide billing services for Customer or
changes its billing company, Customer shall notify Supplier and have its billing
company execute an agreement containing terms and conditions consistent with
Customer's obligations under this Agreement and the lockbox agreement. Customer
shall be responsible for all fees and expenses associated with said lockbox
agreement. A lockbox agreement and fee schedule will be attached hereto prior to
execution of this agreement as a separate document.
7. EXOGENOUS CHARGES.
A. Telecommunications Charges. In addition to the rates and charges
listed in Exhibit D, Customer shall pay to Supplier, on a direct pass-through
basis; (i) primary interexchange carrier change charges; and (ii) the primary
interexchange carrier charge ("PICC"). Customer shall also reimburse (without
markup) Supplier for amounts paid to payphone service providers for toll-free
and access code calls originated by Customer's End Users from payphones and,
with respect to toll-free numbers assigned to Customer's End Users, amounts paid
to the National Administrative Services Center. Customer shall also pay, without
markup, amounts paid by Supplier toward the universal service programs
established or imposed by the FCC or any state that are incurred directly on
account of the Service provided by Supplier to Customer.
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<PAGE> 5
B. Tax Exemption. Within ten (10) business days after the date hereof,
Customer shall furnish to Supplier, and keep current during the term of this
Agreement, valid and appropriate tax exemption certificates in the form attached
hereto as Exhibit E, and sales, use and excise tax exemption certificates for
all applicable state and local jurisdictions in which it bills customers.
Customer is responsible for properly charging tax to its subscribers and for the
proper and timely reporting and payment of applicable taxes to the taxing
authorities and shall defend and indemnify Supplier from payment and reporting
of all applicable federal, state and local taxes, including, but not limited to,
gross receipts taxes, surcharges, franchise fees, occupational, excise and other
taxes (and penalties and interest thereon), relating to the Services. Such
indemnification, includes costs and expenses (including reasonable attorney's
fees) incurred by Supplier in settling, defending or appealing any claims or
actions brought against it relating to said taxes. If Customer fails to provide
and maintain the required certificates, Supplier may charge Customer and
Customer shall pay such applicable taxes.
8. FRAUDULENT CALLS. Supplier shall promptly notify Customer of any notice
it receives from its own fraud detection systems or otherwise of any actual or
potential fraudulent usage of the Services provided to Customer's End Users.
Customer hereby authorizes Supplier to take any and all actions as may be
reasonably necessary to prevent or minimize toll fraud, including, but not
limited to, disabling numbers or authorization codes, and agrees to indemnify
and hold harmless Supplier for any and all claims arising out of such actions.
Notwithstanding anything to the contrary, Customer shall not be responsible for
any charges incurred as a result of fraudulent usage of the Services of which
Supplier has or receives knowledge, but Customer will be responsible for all
other fraudulent calls.
9. TERM. This Agreement is effective as of the date hereof and shall
remain in force and effect for a period of three years from the Service
Commencement Date, unless earlier terminated pursuant to its terms. This
Agreement will continue from year to year after the end of the three year term
until either party terminates this Agreement by giving the other 30 days written
notice of termination.
10. PROVISION OF BALANCE SHEET. In the event Supplier, for any reason,
feels insecure in Customer's ability to pay for Services, Customer shall provide
Supplier, upon its request, with a consolidated balance sheet of Customer as of
the end of the most recent fiscal quarter and consolidated statements of income
and retained earnings for such quarter and the fiscal year to date through such
quarter, all in reasonable detail and certified by Customer's chief financial
officer as having been prepared in accordance with generally accepted accounting
principles, consistently applied. Supplier has the right to review Customer's
credit at any time during the Term of this Agreement, and to require a cash
deposit or other security satisfactory to Supplier.
11. FAILURE OF PERFORMANCE. Customer shall immediately notify Supplier of
any problems or End-User complaints associated with the Service, including, but
not limited to, excess noise, echo or loss of service. The liability of Supplier
for damages for
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<PAGE> 6
mistakes, omissions, interruptions, delays, errors or defects in transmission
("FAILURE OF PERFORMANCE") occurring in the furnishing of Services is limited to
not charging Customer for any Services that Supplier has failed to provide.
Interruption for system maintenance does not constitute a Failure of
Performance. In the event of a Failure of Performance, Supplier shall use its
reasonable efforts to correct such failure as soon as reasonably practicable
after Supplier is notified of such failure. In the event (i) Supplier notifies
Customer that Supplier cannot correct a Failure of Performance; or (ii) Supplier
fails to deliver Services meeting industry standards of performance, which
failure is not cured within five (5) days of written notice thereof by Customer
to Supplier, Supplier and Customer, each in its sole discretion, shall have the
right to cancel the affected service(s). In the event all, or any portion of,
the Services are terminated pursuant to this paragraph, Customer shall remain
liable for the Usage Charges for the affected Services that were rendered prior
to the effective date of termination.
12. LIMITATION OF LIABILITY. Supplier's liability arising out of delays in
restoration of the Services or out of mistakes, accidents, omissions,
interruptions, or errors or defects in transmission in the provision of
Services, shall be subject to the limitations in Section 12 above and in the
applicable Tariff. IN NO EVENT SHALL SUPPLIER BE LIABLE TO CUSTOMER OR ANY End
User OR ANY OTHER THIRD PARTY IN ANY RESPECT, INCLUDING, WITHOUT LIMITATION, FOR
ANY DAMAGES, EITHER DIRECT, INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL,
ACTUAL, PUNITIVE, OR ANY OTHER DAMAGES, OR FOR ANY LOST PROFITS OF ANY KIND OR
NATURE WHATSOEVER, ARISING OUT OF MISTAKES, ACCIDENTS, ERRORS, OMISSIONS,
INTERRUPTIONS, OR DEFECTS IN TRANSMISSION, OR DELAYS, INCLUDING THOSE WHICH MAY
BE CAUSED BY REGULATORY OR JUDICIAL AUTHORITIES, ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE OBLIGATIONS OF SUPPLIER PURSUANT TO THIS AGREEMENT.
SUPPLIER MAKES NO WARRANTY TO CUSTOMER OR ANY OTHER PERSON OR ENTITY, WHETHER
EXPRESS, IMPLIED, OR STATUTORY, AS TO THE DESCRIPTION, QUALITY, MERCHANTABILITY,
COMPLETENESS OR FITNESS FOR ANY PURPOSE OF ANY SERVICE PROVIDED HEREUNDER OR
DESCRIBED HEREIN, OR AS TO ANY OTHER MATTER, ALL OF WHICH WARRANTIES BY SUPPLIER
ARE HEREBY EXCLUDED AND DISCLAIMED. For purposes of this Section, the term
"Supplier" shall be deemed to include Supplier, its shareholders, directors,
officers and employees, and any person or entity assisting Supplier in its
performance pursuant to this Agreement.
13. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY.
A. Definition. "CONFIDENTIAL INFORMATION" means all information
disclosed orally or in writing by one party to the other party and which is
clearly identified by the disclosing party at the time of disclosure as
confidential information of the disclosing party. With respect to information
orally disclosed by one party to the other party, the disclosing party must
provide the recipient with a written summary of such information, designating
such information as confidential, within one week after the oral disclosure
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<PAGE> 7
was made in order for such information to be considered Confidential
Information. All information concerning either Supplier's or Customer's traffic
volume/distribution and the identity of Supplier's or Customer's customers given
to either party under this Agreement or learned in connection with this
Agreement or any other transaction between Supplier and Customer is hereby
acknowledged by both Supplier and Customer to be Confidential Information
regardless of whether it is so identified by the party supplying such
information.
B. Obligation. Each party shall take reasonable steps to safeguard
Confidential Information of the other party utilizing at least the same degree
of care it utilizes in protecting its own confidential information. The
obligations of the recipient of Confidential Information set forth in this
Section do not apply to the extent that: (i) such Confidential Information
becomes generally available to the public other than as a result of unauthorized
disclosure by the recipient or persons to whom the recipient has made the
information available; (ii) a party received such Confidential Information on a
non-confidential basis, from a third party lawfully possessing and lawfully
entitled to disclose such information, prior to its receipt from the disclosing
party. Further, the recipient may disclose Confidential Information pursuant to
any judicial or governmental request, requirement or order. The recipient,
however, shall take reasonable steps to give the disclosing party sufficient
prior notice so he may contest such request, requirement or order. Confidential
Information shall remain the property of the disclosing party and shall be
returned to the disclosing party or destroyed upon request of the disclosing
party.
C. Intellectual Property. No patent, copyright, trademark or trade
secret protected right, or technology or other proprietary right is licensed,
granted or otherwise transferred by this Agreement, except for the right to
benefit from the use of such technology or information in the course of the
provision of Services.
D. Use of Supplier Name. Upon execution of Supplier's trademark license
agreement, Customer may refer to itself as an authorized user of Supplier's
network in promotional, advertising or other materials upon Customer's execution
of Supplier's trademark license agreement; and use Supplier's logos, trade
marks, and service marks, in its promotional, advertising or other materials.
Customer shall change or correct, at Customer's expense, any such material which
Supplier, in its sole judgment, determines to be inaccurate, misleading or
otherwise objectionable in relation to using Services. Customer is explicitly
authorized to use the following statements in its sales literature: (i)
"[Customer] utilizes the [Supplier]'s network"; (ii) "[Customer] utilizes
[Supplier]'s facilities"; (iii) "[Supplier] provides only the network
facilities"; and (iv) "[Supplier] is [Customer]'s network services provider".
E. Remedies. In the event of a breach or threatened breach of the
foregoing provisions, Supplier shall be entitled to an injunction or restraining
order, in addition to such other rights or remedies as may be available under
this Agreement, at law or in equity, including but not limited to money damages.
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<PAGE> 8
14. CUSTOMER DEFAULT. "CUSTOMER DEFAULT" means Customer: (i) breaches any
material provision of this Agreement, including, but not limited to, the
provisions regarding payment and does not cure such breach within fifteen (15)
days of receipt of written notice of the breach from Supplier; or (ii) uses the
Services for any unlawful purpose or in any unlawful manner and does not cease
such use within five (5) days of receipt of written notice of the use from
Supplier. In the event of a Customer Default, Supplier may, upon notice to
Customer (in addition to the other rights or remedies as Supplier may have under
this Agreement, at law or in equity): (i) suspend Services to Customer until
such time that such circumstance is corrected (provided Supplier shall not be
prohibited from terminating this Agreement after suspending Services); (ii)
declare all Usage Charges that have been billed to Customer by Supplier to be
immediately due and payable whereupon all such amounts shall become immediately
due and payable; and (iii) terminate this Agreement. If Customer files or
initiates proceedings or has proceedings filed or initiated against it, relating
to its liquidation, insolvency, reorganization or other relief (such as the
appointment of a trustee, receiver, liquidator, custodian or other official)
under any bankruptcy, insolvency or other similar law or makes an assignment for
the benefit of its creditors or enters into an agreement for the composition,
extension or readjustment of its obligation in connection with the foregoing,
the Services shall terminate upon 72 hours written notice.
15. SYSTEM MAINTENANCE. Supplier may interrupt the Services for the
performance of routine system maintenance, in which case Supplier will use
reasonable efforts to notify Customer prior to the interruption and to conduct
such maintenance during non-peak hours.
16. CUSTOMER WARRANTS. Customer hereby represents and warrants that it is
certified to do business in all jurisdictions in which it conducts business and
is in good standing in all such jurisdictions. Customer further represents and
warrants that it is certified by the proper regulatory agencies to provide
interstate, intrastate and international long distance services to End Users in
those jurisdictions where such services are to be provided by Customer, and will
furnish Supplier copies of such certificates upon Supplier's request. This
Agreement is subject to, and Customer agrees to comply with, all applicable
federal, state and local laws, and regulations, rulings and orders of
governmental agencies, including, but not limited to, the Communications Act of
1934, as amended, the Rules and Regulations of the FCC and state public utility
or service commissions ("PSC"), tariffs and the obtaining and continuance of any
required certification, permit, license, approval or authorization of the FCC
and PSC or any governmental body, including, but not limited to regulations
applying to feature group termination and letters of agency.
17. NO THIRD PARTY BENEFICIARIES. This Agreement is made exclusively for
the benefit of the parties and not any third party.
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and, when taken
together, shall constitute one document.
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Initials: HK GRC
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<PAGE> 9
19. FORCE MAJEURE. Supplier shall not be liable for any failure of
performance hereunder due to causes beyond its reasonable control, including,
but not limited to: acts of God, fire, explosion, vandalism, cable cut, storm or
other similar catastrophes; any law, order, regulation, direction, action or
request of the United States government, or of any other government, including
foreign, state and local governments having jurisdiction over either of the
parties or the Services, or of any department, agency, commission, court,
bureau, corporation or other instrumentality of any one or more of said
governments, or of any civil or military authority; national emergencies;
insurrections; riots; wars; or strikes, lock outs, work stoppages or other labor
difficulties.
20. SURVIVAL. The covenants and agreements of Customer contained in this
Agreement with respect to payment of amounts due and indemnification shall
survive any termination of this Agreement.
21. NOTICES. ALL notices required under this Agreement shall be given in
writing and delivered by a nationally recognized overnight courier, postage
prepaid, or facsimile to the addresses set forth below:
If to Supplier: TeleHub Network Services Corporation
2033 North Main Street, Suite 340
Walnut Creek, CA 94596
Attention: G. Richard Cross,
Vice President Sales, Marketing
and Technology Integration
Fax: (925) 295-1143
If to Customer: North American Telephone Network L.L.C.
4151 Ashford-Dunwoody Road, Suite 550
Atlanta, GA 30319
Attention: Hans Kasper, President
Fax: (888) 788-0008
A list of contacts for each party for the administration of this Agreement is
attached as Exhibit F.
22. HEADINGS. The paragraph headings used in this Agreement are for
purposes of convenience only and shall not be deemed a part of this Agreement
for purposes of construction or interpretation.
23. GENERAL TERMS. This Agreement shall be construed under the laws of the
state of California. The waiver of a breach hereof shall not be construed to be
a waiver of any subsequent breach. Any dispute relating hereto shall be resolved
by binding arbitration in the San Francisco Bay area of California under the
rules of the American Arbitration Association. If any term hereof is held to be
invalid or unenforceable, this
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<PAGE> 10
Agreement shall be construed without such invalid or unenforceable term. This
Agreement is the entire agreement between the parties pertaining to the
Services. This Agreement may only be modified or amended by an instrument in
writing executed by each party. Customer may not assign this Agreement without
the prior written consent of Supplier. The rates hereunder do not include any
sales, use or utility taxes. Customer shall pay to Supplier any such taxes that
Supplier may be required to collect or pay.
24. SPECIAL PROVISIONS. Additional special provisions are attached as
Exhibit G.
To confirm their agreement to be bound hereby, the parties hereto have
executed this Agreement below:
TELEHUB NETWORK SERVICES NORTH AMERICAN TELEPHONE
CORPORATION NETWORK L.L.C.
By: /s/ G. Richard Cross By: /s/ Hans Kasper
-------------------------- ----------------------------
Title: VP Sales/Marketing Title: President
------------------------ --------------------------
Date: 7/15/98 Date: 7/14/98
------------------------ --------------------------
SERVICE AGREEMENT FORM.TEL
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Initials: HK GRC
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<PAGE> 11
TELECOMMUNICATIONS SERVICE AGREEMENT
LIST OF EXHIBITS
Exhibit A - Services
Exhibit B - CDR Specifications
Exhibit C - Forecast Form
Exhibit D - Rates
Exhibit E - Tax Exemption Form
Exhibit F - Contacts
Exhibit G - Special Provisions
List of Exhibits - Page 1 of 1
Initials: HK GRC
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<PAGE> 12
TELECOMMUNICATIONS SERVICE AGREEMENT
EXHIBIT A
SERVICES
Check appropriate service(s), subject to availability:
_X_Switched 1+ service
_X_Dedicated 1+ Service
_X_Switched Toll-free Service
_X_Dedicated Toll-free Service
___Calling Card
___Debit Card
___Operator Services
___Directory Assistance
___Internet Access
_X_ International Termination
___Voicemail
___10xxx/10xxxxx Dialing
___Private Line
___Provisioned Bandwidth on Demand (usage sensitive, distance sensitive billing)
Scheduled Availability will be provided upon request
Exhibit A - Page 1 of 1
Initials: HK GRC
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<PAGE> 13
TELECOMMUNICATIONS SERVICE AGREEMENT
EXHIBIT B
BILLING CONTACT INFORMATION & SPECIFICATIONS
FOR CALL DETAIL RECORDS
1. CDR MEDIA TYPE SET-UP:
In order to receive the appropriate call format and method of distribution
it is imperative that this CDR Provisioning Request Form is completed and
sent with the original Telecommunications Service Agreement. The CDR form
requests vital information as described below:
1.1 SUBSCRIBER COMPANY INFORMATION
The name by which the Customer is identified in Supplier's billing
system.
Name: NORTH AMERICAN TELEPHONE NETWORK L.L.C. (NATN)
Subscriber Contact Name: HANS KASPER
Contact Telephone #: 404-255-9999
Contact Fax #: 888-788-0008
1.2 ACCOUNT NUMBERS:
Should be the same as provided by Supplier's Customer Service to the
Customer:
----------------------------------------------------
(Provided by Supplier's Finance / Credit)
1.3 MEDIA FREQUENCY:
The interval in which Customer wants to receive the call records
(Daily, Weekly, Monthly or some other timeframe). If Daily or some
other timeframe is selected Supplier's Customer Service must begin a
process to establish the dial-up or dedicated link used for the
transmission of call records. The account will be initially set-up
to receive daily dial-up data from the TeleHub RAS Server.:
Select Media Frequency:
Daily _X_ Weekly ___ Monthly _X___OTHER_________
For calls processed by other carriers on behalf of Supplier,
frequency is subject to receipt of call records from the other
carrier.
Exhibit B - Page 1 of 3
Initials: HK GRC
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<PAGE> 14
EXHIBIT B (continued)
1.4 MEDIA TYPE:
The physical media selection is required (Tape, Cartridge, Diskette,
CD-ROM, or TeleHub RAS Download). Please complete the sub category
information for the media type selected. (i.e. if Tape is selected.
specify: standard label or no label 1600 bpi or 6250 bpi, ASCII or EBCDIC).
Monthly frequency only available for CD-ROM (based on volume):
Tape Cartridge Diskette CD ROM X - Monthly RAS Download X - Daily
--- --- --- ----------- ---------
1.5 SHIP TO ADDRESS:
Specify the location to which the physical media will be sent, whether it
is Customer's site or a third party billing vendor. Also provide the
following:
* Company name: NORTH AMERICAN TELEPHONE NETWORK L.L.C.
* Recipient Name: Robert Udwin
* Street address: 4151 Ashford Dunwoody Road
* Suite #: 675
* City: Atlanta State: GA Zip Code: 30319
* Contact Phone or Pager:
Area Code and # that is answered 7X24): 404-255-9999
* Fax Phone: Area Code and #: 404-250-9277
1.6 CONTRACT TYPE:
Specify whether the account is dedicated or switched access or both. (In
the future the travel card and other enhanced service features will be
included for media provided by TeleHub):
Switched Access ______ Dedicated ___________ Both ____X____
The dedicated CSA will contact the Customer upon receipt of credit approval
for the account. The CSA will initiate the process of establishing the
dedicated link used for transmission of the CDR's. This contact will
instruct the Customer on how to access Supplier's RAS server, provide
information about the software and hardware requirements. The set-up
provisioning for dial-up access to the RAS server will take 24 hours.
Exhibit B - Page 2 of 3
Initials: HK GRC
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<PAGE> 15
2. EDE SET-UP
EDE is the electronic data exchange process to be used by Supplier to
provide current data on account activity. An EDE reference handbook or
guide prepared by the Supplier's Customer Service Group will be made
available on request by a Customer. The guide will instruct the Customer on
how to interface with Supplier regarding the following items:
* Assigning and canceling login ID's and Passwords
* File Creation and file layout parameters for 1+ANI, account code
* File Submittal and Retrieval
* Response Files
* Reject Codes
* Supplier Software Programs
* Supplier WEB page
* And many other topics related to electronic order entry
Dedicated circuits to the RAS server can be established and the Sales Agent
should discuss this with the Customer and make the necessary arrangements
for ordering the facilities. If training is necessary the Customer should
call Cylinda Nelson (847) 782-2136 to schedule either on-site or
Gurnee-Site Training. Supplier's Customer Service Group can be reached at
(888)-383-2482. To report outages or trouble tickets only, call
(888)383-2482.
Exhibit B - Page 3 of 3
Initials: HK GRC
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<PAGE> 16
TELECOMMUNICATION SERVICE AGREEMENT
EXHIBIT C
PROJECTED NETWORK USAGE FORECAST
To allow TeleHub to provide unsurpassed service, please fill in the below
requested information. This information is used for planning purposes only and
is in no way to be construed as a commitment by either party, without an
approved Telecommunications Carrier Services Agreement.
---------------------------------------------------------------
COMPANY NAME: North American Telephone Network
---------------------------------------------------------------
DATE OF PROJECTED FORECAST 7/6/98
---------------------------------------------------------------
SWITCHED SERVICES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Total Domestic Minutes of Outbound Inbound International Terminating
Projections Year 1 Use (MOU) Projections Percentage Percentage Minutes of Use (MOU)
- ------------------------------------------------------------------------------------------------------------------------------------
Switched Dedicated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Month 1 300,000 300,000 80 20
- ------------------------------------------------------------------------------------------------------------------------------------
Month 2 600,000 600,000 80 20
- ------------------------------------------------------------------------------------------------------------------------------------
Month 3 900,000 900,000 80 20
- ------------------------------------------------------------------------------------------------------------------------------------
Month 4 1,200,000 1,200,000 80 20
- ------------------------------------------------------------------------------------------------------------------------------------
Month 5 1,500,000 1,500,000 80 20
- ------------------------------------------------------------------------------------------------------------------------------------
Month 6 1,800,000 1,800,000 80 20
- ------------------------------------------------------------------------------------------------------------------------------------
Total 6,000,000 6,000,000 80 20
- ------------------------------------------------------------------------------------------------------------------------------------
Month 12 2,000,000 2,000,000 80 20
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Projections YR 2 30,000,000 30,000,000 80 20
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Area of Operations Please provide an indication of where your Sales Activity is
concentrated by city and state or regional area. A brief description of your
marketing method (i.e. independent sales agent, in-house sales, telemarketing
etc.). If available, attach an NPA/NXX list of total minutes of use by Tandem or
by Individual Serving Office
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
#
SALES AREA Marketing # Business Residential Access Type Access Type Projected # of
By City/State Method Customers Customers % Switched % Dedicated T-1's Required
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
National Direct Sales 50,000 200,000 70% 30% 100
Telemarket
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C - Page 1 of 1
Initials: HK GRC
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<PAGE> 17
EXHIBIT D
(SEE EXHIBIT G FOR ANY ADDITIONAL RATE CONSIDERATIONS OR CHANGES)
1. DOMESTIC RATES INTERSTATE/INTRASTATE SWITCHED 1+
All rates per minute of usage. Billing increments for all domestic origination
will be in one second billing increments.
(A) INTERSTATE, ALL LATA GROUPS except LATA 836, $0.0750
Interstate Switched 1+ rate of $0.0750 includes Interstate usage originating
from & terminating to all exchanges for all time periods, for All LATA Groups
except those shown below in LATA Group 836. This rate is also applicable to
switched Toll-Free origination.
Supplier will provide Customer with the following volume discounts on interstate
calls based on the aggregated volume for interstate, intrastate and dedicated
usage at the levels shown assuming all invoices are current and paid within the
previously agreed timeframes. Discounts will only be calculated at each monthly
revenue level actually attained for that month. (For example should the first
monthly usage minutes total 2,000,000 minutes the invoice will be calculated at
the $0.075 rate for the first 1,000,000 minutes of usage and the next 1,000,000
minutes of usage would be calculated at the $0.0713 rate). Should minutes of use
decrease the applicable rate for the monthly revenue level will be used. Monthly
revenue levels do not aggregate. The calculation of the volume discount is
calculated at the rate shown for each tier of the monthly revenue level for each
month. All dedicated usage will be calculated first as a total dollar amount and
will be applied to the Monthly Revenue Table prior to calculating the 1+
Interstate usage. (For example if dedicated usage totals $175,000 the Customer
will begin to receive the next tier rate of $0.0683 for all 1+ usage.
The following discount table includes revenue for 10xxx/10xxxxx Origination, 1+
Termination Services and 800/888/877 Origination Services: (SEE EXHIBIT G FOR
NATN DISCOUNT TABLE)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MONTHLY REVENUE LEVEL VOLUME DISCOUNT RATE
- --------------------------------------------------------------------------------
<S> <C> <C>
$0 to $75,000 No additional discount $0.0750
$75,001 to $175,000 5% $0.0713
$175,001 to $400,000 9% $0.0683
$400,001 to $650,000 13% $0.0653
$650,001 to $999,999 17% $0.0623
$1,000,000 and up 20% $0.0600
- --------------------------------------------------------------------------------
</TABLE>
Calls originating and/or terminating in non-RBOC locations will be charged an
additional .02 cents/minute for each. This is to compensate for the
significantly higher access charges that are levied in non-RBOC territory by
local jurisdictions. (RBOC's = Bell Atlantic/Nynex, Ameritech , Bell South, US
West, SBC/Pacific Telesis).
Exhibit D - Page 1 of 9
Initials: HK GRC
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<PAGE> 18
(B) INTRASTATE & INTRALATA (WHERE ALLOWED)
The following Intrastate Switched 1+ rates include usage originating from &
terminating to exchanges in the same state for all time periods. Calls
originating and/or terminating in non-RBOC locations will be charged an
additional .02 cents/minute for each. This is to compensate for the
significantly higher access charges that are levied in non-RBOC territory by
local jurisdictions. In addition, if more than 15% of total usage generated is
intrastate, TeleHub reserves the right to reevaluate the rates charged for
intrastate calls. The intent is to compensate TeleHub for the actual access
rates charged in many non-RBOC jurisdictions.
AL $0.0507 ME $0.2080 OH $0.0461
AZ $0.0896 MD $0.0480 OK $0.0955
AR $0.0638 MA $0.0632 OR $0.0776
CA $0.0511 MI $0.0587 PA $0.0725
CO $0.0990 MN $0.0925 RI $0.0245
CT $0.0622 MS $0.0675 SC $0.0925
DE $0.0502 MO $0.0485 SD $0.0943
FL $0.0707 MT $0.1005 TN $0.0977
GA $0.0554 NE $0.0970 TX $0.1110
ID $0.1005 NV $0.0552 UT $0.0825
IL $0.0380 NH $0.0848 VT $0.1135
IN $0.0552 NJ $0.0465 VA $0.0477
IA $0.0944 NM $0.1082 WA $0.0775
KS $0.1096 NY $0.0619 WV $0.0825
KY $0.0581 NC $0.0943 WI $0.0485
LA $0.0568 ND $0.0930 WY $0.1100
Effective As Of 4/1/98
(C) LATA GROUP 836 $ 0.136
(i) Wake and Midway Islands
(ii) Alaska, Hawaii, US Virgin Islands,
Puerto Rico 1+ Terminating $ 0.095
(iii) 800 Origination from Extended
Non-Mainland Points to
Domestic Mainland Alaska $0.1244
Hawaii (1+800) $0.0750
Puerto Rico $0.0856
US Virgin Islands $0.1089
Canada $0.2055
(D) CALLING CARD Domestic Rate - Billing
increments of 30/6 $0.1350
Country to country calling will be provided under separate cover as rates
become available. The following table are domestic rates only:
----------------------------------------------------------
MONTHLY MINUTES OF USAGE RATE
----------------------------------------------------------
0-330,000 $0.1350
----------------------------------------------------------
330,001 to 500,000 $0.1260
----------------------------------------------------------
500,001 to 1,000,000 $0.1181
----------------------------------------------------------
Exhibit D - Page 2 of 9
Initials: HK GRC
_______ _______
<PAGE> 19
------------------------------------------------------
1,000,001 and up $0.1112
------------------------------------------------------
The above table represents a tiered pricing arrangement similar to the
1+ interstate pricing. Billing increments for card services are 30/6 for
domestic and 60/30 for international country to country origination and
termination with the exception of 60/60 for Mexico.
CDR is provided weekly. The card has 17 digits (444-NPA-NXX-xxxx-plus 4
digit PIN) or the card can be randomly generated with 13 digits and a 4 digit
PIN. The 4 digit PIN can be changed by the end user on the first call attempt.
(Supplier will provide PINs, access, and transport; Customer must issue
own cards)
2. DEDICATED ACCESS RATE PER MINUTE OF USAGE: $.0425
---------------------------------------------------------------------------
MONTHLY REVENUE LEVEL Volume DISCOUNT RATE
---------------------------------------------------------------------------
$0 to $75,000 No additional discount $0.0425
---------------------------------------------------------------------------
$75,0001 to $175,000 5% $0.0404
---------------------------------------------------------------------------
$175,001 to $400,000 9% $0.0387
---------------------------------------------------------------------------
$400,001 to $650,000 13% $0.0370
---------------------------------------------------------------------------
$650,001 and up 17% $0.0353
---------------------------------------------------------------------------
Initial installation charges, minimum monthly usage, and monthly
recurring charges are provided on an individual case basis on term and volume
commitments. A separate order form and agreement must be executed for each
dedicated facility ordered.
3. INTERNATIONAL RATES SHOWN ON PAGES 3-9 (attached)
-------------------------------------------------
Rates may be changed upon notice to Customer.
Billing increments for international calls origination domestically will
be 30/6 except Mexico 60/60 ------------------------
Exhibit D - Page 2 of 9
Initials: HK GRC
___________ ___________
<PAGE> 20
TELECOMMUNICATIONS SERVICE AGREEMENT
<TABLE>
<CAPTION>
================================================================================
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
================================================================================
<S> <C> <C>
AFGHANISTAN 93 1.7222
- -----------------------------------------------------------------
ALBANIA 355 0.4278
- -----------------------------------------------------------------
ALGERIA 213 0.4111
- -----------------------------------------------------------------
AMERICAN SAMOA 684 0.5544
- -----------------------------------------------------------------
ANDORRA 376 0.3889
- -----------------------------------------------------------------
ANGOLA 244 0.6333
- -----------------------------------------------------------------
ANGUILLA 809/497 0.5667
- -----------------------------------------------------------------
ANTARCTICA (SCOTT) 640 0.4556
- -----------------------------------------------------------------
ANTIGUA/Barbuda 809/460 0.5000
- -----------------------------------------------------------------
ARGENTINA 54 0.5000
- -----------------------------------------------------------------
ARMENIA 374 0.7222
- -----------------------------------------------------------------
ARUBA 297 0.3533
- -----------------------------------------------------------------
ASCENSION ISLANDS 247 0.7111
- -----------------------------------------------------------------
AUSTRALIA 61 0.1278
- -----------------------------------------------------------------
AUSTRIA 43 0.2000
- -----------------------------------------------------------------
AZERBAIJAN 994 0.4667
- -----------------------------------------------------------------
BAHAMAS 809/321 0.2222
- -----------------------------------------------------------------
BAHRAIN 973 0.7889
- -----------------------------------------------------------------
BANGLADESH 880 0.9667
- -----------------------------------------------------------------
BARBADOS 809/228 0.5222
- -----------------------------------------------------------------
BELARUS 375 0.4444
- -----------------------------------------------------------------
BELGIUM 32 0.1889
- -----------------------------------------------------------------
BELIZE 501 0.7556
- -----------------------------------------------------------------
BENIN 229 0.6222
- -----------------------------------------------------------------
BERMUDA 809/231 0.2556
- -----------------------------------------------------------------
BHUTAN 975 0.7444
- -----------------------------------------------------------------
BOLIVIA 591 0.6889
- -----------------------------------------------------------------
BOSNIA & HERZEGOVI 387 0.4556
- -----------------------------------------------------------------
BOTSWANA 267 0.6333
- -----------------------------------------------------------------
BRAZIL 55 0.5000
- -----------------------------------------------------------------
BRITISH VIRGIN ISL 809/275 0.3778
- -----------------------------------------------------------------
BRUNEI (Negara) 673 0.4667
- -----------------------------------------------------------------
BULGARIA 359 0.3558
- -----------------------------------------------------------------
BURKINA FASO 226 0.6249
- -----------------------------------------------------------------
BURUNDI 257 0.6778
- -----------------------------------------------------------------
CAMBODIA 855 1.0444
- -----------------------------------------------------------------
CAMEROON 237 0.7338
- -----------------------------------------------------------------
CAPE VERDE ISLAND 238 0.5222
- -----------------------------------------------------------------
CAYMAN ISLANDS 809/945 0.4000
===========================================================================
</TABLE>
Exhibit D - Page 3 of 9
Initials: HR GRC
---- ----
* Rates as of March 1, 1998
<PAGE> 21
<TABLE>
<CAPTION>
================================================================================
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
================================================================================
<S> <C> <C>
CENTRAL AFRICAN REP 236 0.8123
- -----------------------------------------------------------------
CHAD REPUBLIC 235 1.1444
- -----------------------------------------------------------------
CHILE 56 0.2833
- -----------------------------------------------------------------
CHINA 86 0.8000
- -----------------------------------------------------------------
CHRISTMAS ISLAND 672 0.4684
- -----------------------------------------------------------------
COCOS ISL 672 0.4684
- ----------------------------------------------------------------
COLOMBIA 57 0.4278
- -----------------------------------------------------------------
COMOROS 269 0.7000
- -----------------------------------------------------------------
CONGO 242 0.7667
- -----------------------------------------------------------------
COOK ISLANDS 682 0.9556
- -----------------------------------------------------------------
COSTA RICA 506 0.5573
- -----------------------------------------------------------------
CROATIA- REPUB OF 385 0.4000
- -----------------------------------------------------------------
CUBA 53 0.6333
- -----------------------------------------------------------------
CUBA (Guantanamo) 53 0.4667
- -----------------------------------------------------------------
CYPRUS 357 0.4556
- -----------------------------------------------------------------
CZECH REPUBLIC 42 0.3000
- -----------------------------------------------------------------
DENMARK 45 0.1944
- -----------------------------------------------------------------
DIEGO GARCIA 246 0.6778
- -----------------------------------------------------------------
DJIBOUTI 253 0.8000
- -----------------------------------------------------------------
DOMINICA 596 0.6389
- -----------------------------------------------------------------
DOMINICAN REPUBLIC 809/220 0.2778
- -----------------------------------------------------------------
ECUADOR 593 0.4778
- -----------------------------------------------------------------
EGYPT 20 0.7222
- -----------------------------------------------------------------
EL SALVADOR 503 0.5222
- -----------------------------------------------------------------
EQUATORIAL GUINEA 240 1.1333
- -----------------------------------------------------------------
ERITREA 291 1.2222
- -----------------------------------------------------------------
ESTONIA 372 0.3667
- -----------------------------------------------------------------
ETHIOPIA 251 0.9333
- -----------------------------------------------------------------
FAEROE ISLANDS 298 0.3028
- -----------------------------------------------------------------
FALKLAND ISLANDS 500 0.8889
- -----------------------------------------------------------------
FIJI ISLANDS 679 0.8444
- -----------------------------------------------------------------
FINLAND 358 0.2333
- -----------------------------------------------------------------
FRANCE 33 0.1889
- -----------------------------------------------------------------
FRENCH ANTILLES 590 0.5167
- -----------------------------------------------------------------
FRENCH GUIANA 594 0.4556
- -----------------------------------------------------------------
FRENCH POLYNESIA 689 0.6556
- -----------------------------------------------------------------
GABON 241 0.7444
================================================================================
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
================================================================================
</TABLE>
EXHIBIT D - PAGE 4 OF 9
INITIALS: HK GRC
----- -----
* Rates as of March 1, 1998
<PAGE> 22
<TABLE>
<CAPTION>
================================================================================
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
================================================================================
<S> <C> <C>
GAMBIA 220 0.5222
- -----------------------------------------------------------------
GEORGIA 995 0.7840
- -----------------------------------------------------------------
GERMANY 49 0.1244
- -----------------------------------------------------------------
GHANA 233 0.5389
- -----------------------------------------------------------------
GIBRALTAR 350 0.4333
- -----------------------------------------------------------------
GREECE 30 0.3667
- -----------------------------------------------------------------
GREENLAND 299 0.6111
- -----------------------------------------------------------------
GRENADA 809/440 0.5833
- -----------------------------------------------------------------
GUADELOUPE 590 0.4900
- -----------------------------------------------------------------
GUAM 671 0.2000
- -----------------------------------------------------------------
GUANTANAMO BAY 5399 0.4667
- -----------------------------------------------------------------
GUATEMALA 502 0.5222
- -----------------------------------------------------------------
GUINEA 224 0.7000
- -----------------------------------------------------------------
GUINEA-BISSAU 245 1.0556
- -----------------------------------------------------------------
GUYANA 592 0.7222
- -----------------------------------------------------------------
HAITI 509 0.5667
- -----------------------------------------------------------------
HONDURAS 504 0.5444
- -----------------------------------------------------------------
HONG KONG 852 0.2556
- -----------------------------------------------------------------
HUNGARY 36 0.2556
- -----------------------------------------------------------------
ICELAND 354 0.2778
- -----------------------------------------------------------------
INDIA 91 0.7222
- -----------------------------------------------------------------
INDONESIA 62 0.6667
- -----------------------------------------------------------------
IRAN 98 0.9333
- -----------------------------------------------------------------
IRAQ 964 0.9444
- -----------------------------------------------------------------
IRELAND 353 0.2111
- -----------------------------------------------------------------
ISRAEL 972 0.4056
- -----------------------------------------------------------------
ITALY 39 0.2278
- -----------------------------------------------------------------
IVORY COAST 225 0.9556
- -----------------------------------------------------------------
JAMAICA 809/287 0.6111
- -----------------------------------------------------------------
JAPAN 81 0.2056
- -----------------------------------------------------------------
JORDAN 962 0.7222
- -----------------------------------------------------------------
KAZAKHSTAN 7 0.5778
- -----------------------------------------------------------------
KENYA 254 0.7444
- -----------------------------------------------------------------
KIRIBATI 686 0.9111
- -----------------------------------------------------------------
KOREA - North 850 0.7667
- -----------------------------------------------------------------
KOREA - South 82 0.4278
- -----------------------------------------------------------------
KUWAIT 965 0.7667
- -----------------------------------------------------------------
KYRGYZSTAN 733 0.5778
- -----------------------------------------------------------------
LAOS 856 0.8667
================================================================================
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
================================================================================
</TABLE>
Exhibit D - Page 5 of 9
INITIALS: HK GRC
----- -----
* Rates as of March 1, 1998
<PAGE> 23
<TABLE>
<CAPTION>
================================================================================
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
================================================================================
<S> <C> <C>
LATVIA 371 0.3667
- ----------------------------------------------------------------
LEBANON 961 0.7889
- ----------------------------------------------------------------
LESOTHO 266 0.6778
- ----------------------------------------------------------------
LIBERIA 231 0.5778
- ----------------------------------------------------------------
LIBYA 218 0.5747
- ----------------------------------------------------------------
LIECHTENSTEIN 41 0.3004
- ----------------------------------------------------------------
LITHUANIA 370 0.3778
- ----------------------------------------------------------------
LUXEMBOURG 352 0.2667
- ----------------------------------------------------------------
MACAO 853 0.4852
- ----------------------------------------------------------------
MACEDONIA 389 0.4889
- ----------------------------------------------------------------
MADAGASCAR 261 1.0556
- ----------------------------------------------------------------
MALAWI 265 0.5000
- ----------------------------------------------------------------
MALAYSIA 60 0.3500
- ----------------------------------------------------------------
MALDIVES 960 0.6778
- ----------------------------------------------------------------
MALI REPUBLIC 223 0.8000
- ----------------------------------------------------------------
MALTA 356 0.3000
- ----------------------------------------------------------------
MARIANAS ISLAND 0 0.5000
- ----------------------------------------------------------------
MARSHALL ISLANDS 692 0.4667
- ----------------------------------------------------------------
MARTINIQUE 596 0.3556
- ----------------------------------------------------------------
MAURITANIA 222 0.7333
- ----------------------------------------------------------------
MAURITIUS 230 0.6667
- ----------------------------------------------------------------
MAYOTTE ISLAND 269 0.5333
- ----------------------------------------------------------------
MICRONESIA 691 0.9556
- ----------------------------------------------------------------
MOLDOVA 373 0.8333
- ----------------------------------------------------------------
MONACO 33 0.2556
- ----------------------------------------------------------------
MONGOLIA 976 0.8333
- ----------------------------------------------------------------
MONTSERRAT 809/491 0.5500
- ----------------------------------------------------------------
MOROCCO 212 0.5000
- ----------------------------------------------------------------
MOZAMBIQUE 258 0.6333
- ----------------------------------------------------------------
MYANMAR- UNION OF (BURMA) 95 0.9333
- ----------------------------------------------------------------
NAMIBIA 264 0.6556
- ----------------------------------------------------------------
NAURU 674 0.8000
- ----------------------------------------------------------------
NEPAL 977 0.9000
- ----------------------------------------------------------------
NETHERLANDS 31 0.1600
- ----------------------------------------------------------------
NETHERLANDS ANTILLES 599 0.2178
- ----------------------------------------------------------------
NEW CALEDONIA 687 0.7722
- ----------------------------------------------------------------
NEW ZEALAND 64 0.2000
- ----------------------------------------------------------------
NICARAGUA 505 0.6556
- ----------------------------------------------------------------
NIGER REPUBLIC 227 0.7667
================================================================================
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
================================================================================
</TABLE>
Exhibit D - Page 6 of 9
INITIALS: HK GRC
----- -----
* Rates as of March 1, 1998
<PAGE> 24
<TABLE>
<CAPTION>
================================================================================
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
================================================================================
<S> <C> <C>
NIGERIA 234 0.6889
- -----------------------------------------------------------------
NIUE 683 0.9333
- -----------------------------------------------------------------
NORFOLK ISLAND 672 0.4000
- -----------------------------------------------------------------
NORWAY 47 0.2056
- -----------------------------------------------------------------
OMAN 968 0.8667
- -----------------------------------------------------------------
PAKISTAN 92 1.0000
- -----------------------------------------------------------------
PALAU REPUBLIC 680 0.7778
- -----------------------------------------------------------------
PANAMA 507 0.6222
- -----------------------------------------------------------------
PAPUA NEW GUINEA 675 0.5111
- -----------------------------------------------------------------
PARAGUAY 595 0.6778
- -----------------------------------------------------------------
PERU 51 0.6444
- -----------------------------------------------------------------
PHILIPPINES 63 0.4556
- -----------------------------------------------------------------
POLAND 48 0.3667
- -----------------------------------------------------------------
PORTUGAL 351 0.3667
- -----------------------------------------------------------------
PUERTO RICO 809 0.1000
- -----------------------------------------------------------------
QATAR 974 0.7556
- -----------------------------------------------------------------
REUNION ISLAND 262 0.7778
- -----------------------------------------------------------------
ROMANIA 40 0.4222
- -----------------------------------------------------------------
RUSSIA-FORMER REPUBLIC 7 0.4333
- -----------------------------------------------------------------
City Code: 750X, 751X
- -----------------------------------------------------------------
RUSSIA-MOSCOW & ST. Pete 7 0.3778
- -----------------------------------------------------------------
City Code: 7095, 7096, 7097
- -----------------------------------------------------------------
City Code: 7812 Band R16
- -----------------------------------------------------------------
RWANDA 250 0.9000
- -----------------------------------------------------------------
SAINT HELENA 290 0.7922
- -----------------------------------------------------------------
SAINT KITTS & NEVIS 590 0.5444
- -----------------------------------------------------------------
SAINT LUCIA 809/450 0.5111
- -----------------------------------------------------------------
SAINT PIERRE et Miguelon 508 0.2889
- -----------------------------------------------------------------
SAINT VINCENT 809/456 0.6667
- -----------------------------------------------------------------
SAIPAN - (ROTA) 670 0.9478
- -----------------------------------------------------------------
SAN MARINO 39 0.4222
- -----------------------------------------------------------------
SAO TOME 239 1.0667
- -----------------------------------------------------------------
SAUDI ARABIA 966 0.7833
- -----------------------------------------------------------------
SENEGAL 221 1.0111
- -----------------------------------------------------------------
SERBIA 381 0.4444
- -----------------------------------------------------------------
SEYCHELLES ISLAND 248 1.1333
- -----------------------------------------------------------------
SIERRA LEONE 232 0.8333
- -----------------------------------------------------------------
SINGAPORE 65 0.2389
- -----------------------------------------------------------------
SLOVAK REP 42 0.3889
================================================================================
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
================================================================================
</TABLE>
Exhibit D - Page 7 of 9
Initials: HK GRC
----- -----
* Rates as of March 1, 1998
<PAGE> 25
<TABLE>
<CAPTION>
================================================================================
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
================================================================================
<S> <C> <C>
SLOVENIA 386 0.3889
- -----------------------------------------------------------------
SOLOMON ISLANDS 677 0.7778
- -----------------------------------------------------------------
SOMALIA 252 1.1111
- -----------------------------------------------------------------
SOUTH AFRICA 27 0.4444
- -----------------------------------------------------------------
SPAIN 34 0.2667
- -----------------------------------------------------------------
SRI LANKA 94 0.9111
- -----------------------------------------------------------------
SUDAN 249 0.4444
- -----------------------------------------------------------------
SURINAME 597 0.9222
- -----------------------------------------------------------------
SWAZILAND 268 0.2778
- -----------------------------------------------------------------
SWEDEN 46 0.1111
- -----------------------------------------------------------------
SWITZERLAND 41 0.1556
- -----------------------------------------------------------------
SYRIAN ARAB REPUBLIC 963 1.0222
- -----------------------------------------------------------------
TAIWAN 886 0.3778
- -----------------------------------------------------------------
TAJIKISTAN 7 0.4556
- -----------------------------------------------------------------
TANZANIA 255 0.6111
- -----------------------------------------------------------------
THAILAND 66 0.6444
- -----------------------------------------------------------------
TOGO 228 0.7556
- -----------------------------------------------------------------
TONGA ISLANDS 676 0.8778
- -----------------------------------------------------------------
TRINIDAD & TOBAGO 809/622 0.5111
- -----------------------------------------------------------------
TUNISIA 216 0.4833
- -----------------------------------------------------------------
TURKEY 90 0.4393
- -----------------------------------------------------------------
TURKMENISTAN 7 0.7333
- -----------------------------------------------------------------
TURKS & CAICOS ISLAND 809/941 0.6000
- -----------------------------------------------------------------
TUVALU 688 0.8167
- -----------------------------------------------------------------
UGANDA 256 0.6889
- -----------------------------------------------------------------
UKRAINE 380 0.4556
- -----------------------------------------------------------------
UNITED ARAB EMIRATES 971 0.5333
- -----------------------------------------------------------------
UNITED KINGDOM 44 0.0833
- -----------------------------------------------------------------
URUGUAY 598 0.6000
- -----------------------------------------------------------------
UZBEKISTAN 7 0.5667
- -----------------------------------------------------------------
VANUATU 678 0.6889
- -----------------------------------------------------------------
VATICAN CITY 39 0.2333
- -----------------------------------------------------------------
VENEZUELA 58 0.3667
- -----------------------------------------------------------------
VIETNAM 84 0.9889
- -----------------------------------------------------------------
WALLIS & FUTUNA IS 681 0.3944
- -----------------------------------------------------------------
WESTERN SAMOA 685 0.7778
- -----------------------------------------------------------------
YEMEN ARAB REPUBLIC 967 0.9333
- -----------------------------------------------------------------
YUGOSLAV- FED REP 381 0.4556
- -----------------------------------------------------------------
ZAIRE 243 0.6222
================================================================================
</TABLE>
Exhibit D - Page 8 of 9
Initials: HK GRC
----- -----
* Rates as of March 1, 1998
<PAGE> 26
<TABLE>
<CAPTION>
================================================================================
COUNTRY RATE*
DESTINATION CODES (SUBJECT TO CHANGE)
================================================================================
<S> <C> <C>
ZAMBIA 260 0.7222
- -----------------------------------------------------------------
ZANZIBAR 259 0.8627
- -----------------------------------------------------------------
ZIMBABWE 263 0.5333
- -----------------------------------------------------------------
Mexico -1 52 0.1987
- -----------------------------------------------------------------
Mexico -2 52 0.2253
- -----------------------------------------------------------------
Mexico -3 52 0.3320
- -----------------------------------------------------------------
Mexico -4 52 0.3453
- -----------------------------------------------------------------
Mexico -5 52 0.3987
- -----------------------------------------------------------------
Mexico -6 52 0.4653
- -----------------------------------------------------------------
Mexico -7 (52S) 52 0.5053
- -----------------------------------------------------------------
Mexico -8 52 0.5320
- -----------------------------------------------------------------
Mexico City 0.3889
- -----------------------------------------------------------------
Canada (all NPA's) 0.1023
================================================================================
</TABLE>
Exhibit D - Page 9 of 9
Initials: HK GRC
----- -----
* Rates as of March 1, 1998
<PAGE> 27
TELECOMMUNICATIONS SERVICE AGREEMENT
EXHIBIT E
TELEHUB NETWORK SERVICES CORPORATION
STATEMENT RELIEVING TELEHUB NETWORK SERVICES CORPORATION
OF RESPONSIBILITY FOR BILLING AND COLLECTING FEDERAL
EXCISE TAX ON SERVICES PROVIDED COMMON CARRIERS FOR 1998
The undersigned hereby certifies that the services furnished by TeleHub Network
Services Corporation ("TeleHub") will be used exclusively in the rendering of a
communication service upon all or a portion of which federal excise tax is
imposed, so that the services furnished by TeleHub are exempt from federal
excise tax by Section 4251 of the Internal Revenue Code.
It is understood that no federal tax will be billed and collected by TeleHub on
charges for said services and that it be the responsibility of the undersigned
to bill and collect such tax as may be due from its customers. In the event the
undersigned omits to bill or collect such taxes, and in the further event
TeleHub is assessed such taxes, the undersigned agrees to pay and/or reimburse
TeleHub such taxes, including interest and penalties.
Billing Name: NORTH AMERICAN TELEPHONE NETWORK L.L.C.
Address: 4151 ASHFORD-DUNWOODY ROAD, SUITE 675
ATLANTA, GA 30319
Name: HANS KASPER Title: PRESIDENT
Signature: /s/ Hans Kasper Date: 7/14/98
----------------- ------------
Initials: HK GRC
----- -----
Exhibit E - Page 1 of 1
<PAGE> 28
TELEHUB NETWORK SERVICES CORPORATION
SUBSCRIBER DATA INFORMATION
[LOGO TELEHUB]
<TABLE>
<S> <C>
Agent Name __________________ Agent # ______________
- --------------------------------------------------------------------------------------------------------
SUBSCRIBER INFORMATION
- --------------------------------------------------------------------------------------------------------
Subscriber Name North American Telephone Network Account Number
------------------------------------ --------------------------------
Billing Contract Eric Nelson Address 4151 Ashford Dunwoody Road, Suite 675
----------------------------------- --------------------------------------
City Atlanta State GA Zip Code 30319
--------------------------------- ---------------------------- --------------------
Telephone # 404-255-9999 FAX # 404-250-9277 email [email protected]
--------------------------- ---------------------------- --------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Subscriber Service Contact Hans Kasper Address 4151 Ashford Dunwoody Road, Suite 675
----------------------------- --------------------------------------
City Atlanta State GA Zip Code 30319
--------------------------------- ---------------------------- --------------------
Telephone # 404-255-9999 FAX # 404-250-9277 email [email protected]
--------------------------- ---------------------------- --------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Sales Contact Don Herring Address 4151 Ashford Dunwoody Road, Suite 675
----------------------------------------- --------------------------------------
City Atlanta State GA Zip Code 30319
--------------------------------- ---------------------------- --------------------
Telephone # 404-255-9999 FAX # 404-250-9277 email [email protected]
--------------------------- ---------------------------- --------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
IS Contact Robert Udwin Address 4151 Ashford Dunwoody Road, Suite 675
-------------------------------------------- --------------------------------------
City Atlanta State GA Zip Code 30319
--------------------------------- ---------------------------- --------------------
Telephone # 404-255-9999 FAX # 404-250-9277 email [email protected]
--------------------------- ---------------------------- --------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Corporate Contact Kim Doolittle Address 4151 Ashford Dunwoody Road, Suite 675
------------------------------------- --------------------------------------
City Atlanta State GA Zip Code 30319
--------------------------------- ---------------------------- --------------------
Telephone # 404-255-9999 FAX # 404-250-9277 email [email protected]
--------------------------- ---------------------------- --------------------
CIC Code 5044 Default CIC Code N/A Rating
--------------------------- ----------------- -------------------
- --------------------------------------------------------------------------------------------------------
SERVICE INFORMATION
- --------------------------------------------------------------------------------------------------------
Location Name North American Telephone Network L.L.C.
---------------------------------------------------------------------------------------
Service Address 4151 Ashford-Dunwoody Road, Suite 675
---------------------------------------------------------------------------------------
City Atlanta State GA Zip Code 30319
--------------------------------- ---------------------------- --------------------
Service Type Switched, dedicated, 1+, toll free
------------------------------------------------------------------------------------------
Contract Effective Date End Date
---------------------------------------------- ---------------------------------
- --------------------------------------------------------------------------------------------------------
DIALING CAPABILITY
- --------------------------------------------------------------------------------------------------------
900 [ ] Blocked Yes [X] No [ ]
International [X] Blocked Yes [ ] No [X]
Operator Service Routing Provider
-----------------------------------------------------------------------
Authorization Code Y [ ] N [X] Length _______________________ Verified Y [ ] N [ ]
Account Code Y [ ] N [X] Length ________________________________________________
Recording TeltHub Standard [X] TeleHub Custom [ ]
LOA
</TABLE>
<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
CREDIT INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate Federal Tax ID# Type of Business [ ] Partnership [ ] Corporation [ ] Joint Venture
58-2212551 [ ] Subchapter/s [ ] Sole Proprietorship [X] Other
- ------------------------------------------------------------------------------------------------------------------------------------
Credit Rating _____________________________________________ Deposit _________________________________________________________
Monthly Commitment ____________________ Estimate Usage Minutes ___________________ Dollars ___________________________
Total Lines Including FAX and Terminal Credit Limit
Lines
-------------------------------- --------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
INTERFACE ORDER FORMAT
- ------------------------------------------------------------------------------------------------------------------------------------
EDE Standard Format [ ] EDE Custom Format [ ]
ANI Records to TeleHub PIC Status Records Unrated, Raw CDR Rated, Monthly CDR
Media
---------------------- ------------------ ---------------- -------------------
Encoding
---------------------- ------------------ ---------------- -------------------
Internal Labels
---------------------- ------------------ ---------------- -------------------
Telephone #
---------------------- ------------------ ---------------- -------------------
User ID
---------------------- ------------------ ---------------- -------------------
Password
---------------------- ------------------ ---------------- -------------------
Frequency
---------------------- ------------------ ---------------- -------------------
Naming Convention
---------------------- ------------------ ---------------- -------------------
Media Encoding Internal Labels
(C) 3480 Cart EBCDIC/ASCII Label/Non Labeled
(T) Magnetic Tape 1600/6250 EBCDIC/ASCII Label/Non Labeled
(D) Data Mover (Connect Direct) Telephone #, User ID, Password
(B) BBS Telephone #, User ID, Password
(F) FAX
Fredquency: (R) Real Time, (H) Hourly, (S) Shift, (D) Daily, (W) Weekly, (M) Monthly
--- --- --- --- --- ---
Naming Conventions: (S) Standard / (N) Non Standard
--- ---
STATES by Subscriber
[X] Alabama [ ] Alaska [X] Arizona [X] Arkansas
[X] California [X] Colorado [X] Connecticut [X] Delaware
[X] Florida [X] Georgia [ ] Hawaii [X] Idaho
[X] Illinois [X] Indiana [X] Iowa [X] Kansas
[X] Kentucky [X] Louisiana [X] Maine [X] Maryland
[X] Massachusetts [X] Michigan [ ] Minnesota [X] Mississippi
[X] Missouri [X] Montana [X] Nebraska [X] Nevada
[X] New Hampshire [X] New Jersey [X] New Mexico [X] New York
[X] North Carolina [X] North Dakota [X] Ohio [X] Oklahoma
[X] Oregon [X] Pennsylvania [X] Rhode Island [X] South Carolina
[X] South Dakota [X] Tennessee [X] Texas [X] Utah
[ ] Vermont [X] Virginia [X] Washington [X] West Virginia
[X] Wisconsin [X] Wyoming [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
SUBSCRIBER AUTHORIZATION
- ------------------------------------------------------------------------------------------------------------------------------------
Subscriber Address 4151 Ashford Dunwoody Road, Suite 675
---------------------------------------------------------------------------------------------------------------
City Atlanta State GA Zip Code 30319
-------------------------------------------------------- ---------------------- -----------------------------
Name Hans Kasper
-------------------------------------------------------------------------------------------------
Signature HANS KASPER Title President Data 7/14/98
---------------------------------------------- ---------------------------------- -----------------------------
</TABLE>
<PAGE> 30
TELECOMMUNICATIONS SERVICE AGREEMENT
EXHIBIT G
SPECIAL PROVISIONS AND
AMENDMENTS TO EXHIBIT G OF NATN SERVICE AGREEMENT
1. Interstate Usage Per Month
<TABLE>
<CAPTION>
--------------------------------------------------
MONTHLY REVENUE LEVEL RATE
--------------------------------------------------
<S> <C>
$1 to $50,000 $0.0700
--------------------------------------------------
$50,001 to $125,000 $0.0675
--------------------------------------------------
$125,001 to $200,000 $0.0650
--------------------------------------------------
$200,001 to $275,000 $0.0625
--------------------------------------------------
$275,001 and up $0.0600
--------------------------------------------------
</TABLE>
Calls originating and/or terminating in non-RBOC locations will be charged an
additional .02 cents/minute if customer traffic volume exceeds 20% non-RBOC
access and termination. This is to compensate for the significantly higher
access charges that are levied in non-RBOC territory by local jurisdictions.
(RBOC's = Bell Atlantic/Nynex, Ameritech, Bell South, US West, SBC/Pacific
Telesis)
2. The lockbox provision outlined in Paragraph #7 has been waived. However, if
customer fails to pay any invoice charges that are due and not in dispute
within 60 days of invoice date, the lockbox waiver will be revoked.
3. It has been agreed upon between the parties that in lieu of the Security
Deposit provision outlined in paragraph #6, the parties have entered into a
Corporate Guaranty payment from National Service Direct, Inc., the
provisions of which are outlined by the document titled "CORPORATE GUARANTY
(PRIVATE)" dated June 17, 1998. However, if customer fails to pay any
invoice charges that are due and not in dispute within 60 days of invoice
date, and National Service Direct, Inc. fails to honor the "CORPORATE
GUARANTY," the security deposit waiver will be revoked.
4. For the initial one hundred eighty (180) days of this Agreement Customer
shall be forward priced for InterState calls to $0.06.
5. After the initial one hundred eighty (180) days of this Agreement Customer
understands that the rate to be charged going forward will be at the
MONTHLY REVENUE LEVEL reflected in the Interstate Usage Chart in Exhibit G
above for the balance of the term of this agreement. However, your entire
usage will be priced at the level attained each month and will not include
the tiered pricing as shown above.
Exhibit G - Page 1 of 2
Initials: HK GRC
----- -----
<PAGE> 31
6. PICC CHARGE PASS-THROUGH
On February 1, 1998, the FCCs's access charge reform mandates went into
effect. The following new PICC per line fees, will appear on your invoice.
This charge is determined by the FCC, not to exceed the following prices caps
set by the FCC.
Residential
-----------
Primary $0.53
Non-Primary $1.50
Business
--------
Single Line $0.53
Multi-Line $2.75
Switched PRI Line $11.75
Although, the FCC gave interexchange carriers (IXCs) the option to add a fee on
top of the PICC, TeleHub will pass the actual LEC-determined charge through to
you with no mark-up or change. Should this regulation be changed to a different
fee schedule we will pass on with no mark-up any new charges as they become
effective.
Exhibit G - Page 2 of 2
<PAGE> 1
[WorldCom Logo]
AMENDMENT I TO THE
SERVICE AGREEMENT BETWEEN
WORLDCOM, INC. AND TELEHUB COMMUNICATIONS CORP.
(SERVICE AGREEMENT DATED MAY 01, 1997)
This Amendment I to the above-referenced Agreement is made and entered
into by and between WorldCom, Inc., ("WorldCom") and TELEHUB COMMUNICATIONS
CORP., ("CUSTOMER"). The Parties agree as follows:
EFFECTIVE DATE: For the purposes of this Amendment, the effective date (the
"EFFECTIVE DATE") of this Amendment will be the 1st day of the month following
the month that this Amendment has been fully executed by both parties and
Customer has received a satisfactory credit review and approval from WorldCom's
Credit Department, and all security documentation, if any, required by WorldCom
has been properly executed and delivered to WorldCom (collectively, the "CREDIT
REVIEW").
THE AFOREMENTIONED PARTIES HEREBY AGREE TO REPLACE SECTION 1 OF THE AGREEMENT
WITH THE FOLLOWING:
1. SERVICES: Interexchange telecommunications service (the "PRIVATE LINE
SERVICE") and FRAME RELAY SERVICE (the "FRAME RELAY SERVICE") and ATM Service
(the "WORLDCOM ATM SERVICE") shall be provided by WorldCom pursuant to the
applicable tariffs of WorldCom Network Services, Inc., a wholly owned subsidiary
of WorldCom, (the "TARIFFS"). The Tariffs provide terms and conditions of the
Service which include, but are not limited to, taxes, credit approval
procedures, Customer credits, termination liability, and limitations with
respect to the assignment of the Service. The Tariffs may be modified from time
to time by WorldCom in accordance with law and thereby affect the Service
furnished to Customer. For purposes of this Agreement, Private Line Service
Frame Relay Service and ATM Service shall be collectively referred to as the
"SERVICE".
The ATM Service may include the following (i) equipment necessary to support the
ATM Service including equipment located on Customer's premises and equipment
located on WorldCom's premises, (ii) local access facilities, (iii) a Network
Node (as described below) for each location requiring connectivity to the
WorldCom network, and (iv) maintenance of the equipment and services provided by
WorldCom. A "Network Node" includes a port connection, i.e., access to the
WorldCom network, and the permanent virtual circuits assigned to said port. ATM
Service configurations for each Network Node shall be described on WorldCom's
Service Orders in effect when the Service is ordered. Charges for ATM Service
shall be established by relevant Service Orders.
THE AFOREMENTIONED PARTIES HEREBY AGREE TO REPLACE SECTION 2 OF THE AGREEMENT
WITH THE FOLLOWING:
2. TERMS AND CONDITIONS: For the convenience of the parties, Private Line,
Frame Relay, and ATM Service will be provided by WorldCom subject to the rules
and regulations set forth in the WorldCom Network Services, Inc., a wholly
owned subsidiary of WorldCom, applicable tariffs (the "Tariffs"), in addition
to the terms and conditions set forth hereto. The rules and regulations of the
Tariffs provide terms and conditions which apply to Private Line, Frame Relay
and ATM Service, which include, but are not limited to,
Page 1 of 4
AMENDMENT
Terms and conditions contained herein hill be offered for fifteen (15) days from
September 8, 1997 Mail to: Sales Contract Admin., WorldCom, Inc., 515 East
Amite, Suite 400, Jackson, MS 39201
<PAGE> 2
termination liability, taxes, credit approval procedures, Customer credits, and
limitations with respect to the assignment of Private Line, Frame Relay and ATM
Service. For purposes of this Agreement, any references to Service in the
Tariffs shall be deemed to refer to Private Line, Frame Relay and ATM Service.
The Tariffs may be modified from time to time by WorldCom in accordance with law
and thereby affect the Private Line, Frame Relay and ATM Services furnished to
Customer except that the terms and conditions contained in this, Agreement
shall, supplement, or to the extent inconsistent, supersede the Tariffs rules
and regulations and shall remain in effect throughout the Service Term
Commitment selected by Customer.
The aforementioned parties hereby agree to add the following to Section 3 of the
Agreement:
3. REVENUE PLAN SERVICE TERM/COMMENCEMENT/COMMITMENT/MINIMUM MONTHLY COMMITMENT:
Commencing as of the Commitment Commencing Date set forth below and continuing
through the Commitment Ending Date below, Customer agrees to maintain each
month:
(i) the aggregate base rate charges for Domestic Private Line Service (before
the application of discounts) and/or
(ii) the aggregate base rate charges for Domestic Frame Relay Services (before
the application of discounts) and/or
(iii) the aggregate base rate charges for Domestic ATM Services (before the
application of discounts)
(COLLECTIVELY THE "AGGREGATE BASE RATE CHARGES").
The aforementioned parties hereby agree to add the following to Section 5 of the
Agreement:
B. WORLDCOM DOMESTIC PRIVATE LINE - DS-0 DISCOUNT SCHEDULE
(BASED ON [*] TOTAL MINIMUM MONTHLY COMMITMENT)
DS-0 DISCOUNT
[*]
Rates for domestic Private Line DS-0 Services shall be as described in the
applicable Tariffs. No further discounts. Local access is additional and
may not be discounted or waived.
C. WORLDCOM DOMESTIC PRIVATE LINE FT-1 DISCOUNT SCHEDULE
(BASED ON [*] TOTAL MINIMUM MONTHLY COMMITMENT)
FT-1 DISCOUNT
[*]
Rates for domestic Private Line FT-1 Services shall be as described in the
applicable Tariffs. No further discounts. Local access is additional and
may not be discounted or waived.
MULTI-CHANNEL DISCOUNTS
# CHANNELS DISCOUNTS
---------- ---------
[*] [*]
[*] [*]
[*] [*]
[*] [*]
Page 2 of 4
AMENDMENT
Terms and conditions contained herein will be offered for fifteen (15) days
from September 8, 1997 Mail to: Sales Contract Admin., WorldCom, Inc., 515
East Amite, Suite 400, Jackson, MS 39201
* Confidential material
<PAGE> 3
No further discounts. Local access is additional and may not be discounted or
waived.
D. WORLDCOM DOMESTIC PRIVATE LINE - FT-3 DISCOUNT SCHEDULE
(BASED ON [*] TOTAL MINIMUM MONTHLY COMMITMENT)
FT-3 DISCOUNT
[*]
Rates for domestic Private line FT - 3 Services shall be as described in
the applicable Tariffs.. No further discounts. Local access is additional
and may not be discounted or waived.
E. WORLDCOM DOMESTlC PRIVATE LINE - DS-1 RATE AND DISCOUNT SCHEDULE (based on
[*] Total Minimum Monthly Commitment)
V & H MILES DS-1 RATE (VGE)
----------- ---------------
[*] [*]
[*] [*]
[*] [*]
There is a minimum amount of [*] required per each DS-3
DS-1 DISCOUNT
-------------
[*]
No further discounts. Local access is additional and may not be discounted
or waived.
F. WORLDCOM DOMESTIC PRIVATE LINE - DS 3 RATE AND DISCOUNT SCHEDULE (based on
[*] Total Minimum Monthly Commitment)
V & H Miles DS-3 Rate (VGE)
---------- ---------------
[*] [*]
[*] [*]
[*] [*]
[*] [*]
There is a minimum amount of [*] required per each DS-3
DS-1 DISCOUNT
-------------
[*]
No further discounts. Local access is additional and may not be discounted
or waived.
G. WORLDCOM DOMESTIC FRAME RELAY - DISCOUNT SCHEDULE
(based on [*] Total Minimum Monthly Commitment)
FRAME RELAY DISCOUNT
--------------------
[*]
Page 3 of 4
AMENDMENT
Terms and conditions contained herein will be offered for fifteen (15) days
from September 8, 1997 Mail to: Sales Contract Admin., WorldCom, Inc., 515
East Amite, Suite 400, Jackson, MS 39201
* Confidential material
<PAGE> 4
Rates for domestic Frame Relay Services shall be as described in the
applicable Tariffs. No further discounts. Local access is additional and
may not be discounted or waived.
H. WORLDCOM DOMESTIC OC-3c CIRCUIT-RATE SCHEDULE
(based on [*] Total Minimum Monthly Commitment)
CITY PAIRS RATE*:
---------- ------
[*] [*]
[*] [*]
[*] [*]
*Rates above are available only for the first twelve months, beginning on
the effective date of this Agreement. At the end of the twelfth (12) month
of Service, WorldCom reserves the right to terminate pricing for OC-3c
circuits, as described above, to extend the above listed rates or to
provide Customer with new rates for OC-3c circuits. No further discounts
may be applied. Local access is additional and may not be discounted or
waived.
Those portions of the Agreement not modified or otherwise affected by this
Amendment are fully Incorporated herein by reference. No other portion of the
Agreement is, or is intended by the Parties to be, affected by this Amendment.
IN WITNESS WHEREOF, the Parties have signed this Amendment and the individuals
signing below represent that they have the authority to sign for and on behalf
of the respective parties.
ACCEPTED BY: ACCEPTED BY:
WORLDCOM, INC.
BY: /s/ Frank M. Grillo BY: /s/ Mike McLaughlin
----------------------- --------------------------
PRINT NAME: Frank M. Grillo NAME: Mike Mclaughlin
---------------- ------------------------
TITLE: V.P. MARKETING TITLE: Chief Operating Officer
-------------------- -----------------------
DATE: 10/8/97 DATE: 10-2-97
--------------------- -----------------------
Page 4 of 4
AMENDMENT
Terms and conditions contained herein will be offered for fifteen (15) days
from September 8, 1997 Mail to: Sales Contract Admin., WorldCom, Inc., 515
East Amite, Suite 400, Jackson, MS 39201
* Confidential material
<PAGE> 1
EXHIBIT - 10.29
TELECOMMUNICATIONS SERVICES AGREEMENT
-------------------------------------
This TELECOMMUNICATIONS SERVICES AGREEMENT (THE "AGREEMENT" OR THE "TSA")
is entered into as of the 14th day of July, 1997, by and between WORLDCOM
NETWORK SERVICES, INC. d/b/a WILTEL, a Delaware corporation, with its principal
office at One Williams Center, Tulsa, Oklahoma 74172 ("WILTEL") and TELEHUB
COMMUNICATIONS CORP. a Illinios corporation, with its principal office at 1375
Tri-State Pkwy, Gurnee, IL 60031 ("CUSTOMER").
WITNESSETH:
WilTel agrees to provide and Customer agrees to accept switched
telecommunications services and other associated services (COLLECTIVELY THE
"SERVICES"), (i) as described in the Service Schedules identified herewith, (ii)
subject to the terms and conditions contained in this Agreement, including
without limitation those terms and conditions contained in the Program
Enrollment Term ("PET") which are attached hereto and incorporated herein by
reference, and (iii) in conformity with each Service Request (described below)
which is accepted hereunder.
In the event of a conflict between the terms of this Agreement, the PET,
the Service Schedule and the Service Request(s), the following order of
precedence will prevail: (1) PET, (2) Service Schedule, (3) this Agreement, and
(4) Service Request(s).
NOW, THEREFORE, in consideration of the above premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Service Term.
------------
(A) Effective Date This Agreement shall commence as of the Effective Date
as described in the PET and shall continue for the period of time set forth
in the PET (THE "SERVICE TERM"). Upon the expiration of the Service Term,
the Service in question will continue to be provided subject to termination
by either party upon thirty (30) days prior written notice to the other
party. Customer shall be liable for all charges associated with actual
usage of the Services in question during the Service Term and any extension
thereof.
(D) PET The PET, as subscribed to by the parties, shall set forth the
Discount Schedule applicable to charges for Switched Services due under
this Agreement, Customer's minimum monthly commitment, if any, and other
information necessary to provide Services under this Agreement.
<PAGE> 2
(C) Start of Service WilTel's obligation to provide and Customer's
obligation to accept and pay for non-usage sensitive charges for Services
shall be binding to the extent provided for in this Agreement upon the
submission of an acceptable Service Request to WilTel by Customer.
Customer's obligation to pay for usage sensitive charges for Switched
Services shall commence with respect to any Service as of the earlier of
(i) the "Requested Service Dates" set forth in each Service Request, or
(ii) the date the Service in question is made available to Customer and
used ("START OF SERVICE"). Start of Service for particular Services shall
be further described in the Service Schedule relevant to the Switched
Services in question.
(D) Service Schedules Services to be provided under this Agreement shall
be described in the WilTel Service Schedule which is subscribed to by an
authorized representative of WilTel and Customer (the "SERVICE SCHEDULE").
The Service Schedule shall become a part of this Agreement to the extent
that it describes the particular Services therefor, specific terms and
other information necessary or appropriate for WilTel to provide such
Service to Customer.
(E) Service Requests Customer's requests to initiate or cancel Services
shall be described in an appropriate WilTel Service Request ("SERVICE
REQUEST"). Service Requests may consist of machine readable tapes,
facsimiles or other means approved by WilTel. Further, Service Requests
shall specify all reasonable information, as determined by WilTel,
necessary or appropriate for WilTel to provide the Service(s) in question,
which shall include without limitation, the type, quantity and end point(s)
(when necessary) of circuits comprising a Service Interconnection as
described in the applicable Service Schedules, or automatic number
identification ("ANI") information relevant to the Service(s), the
Requested Service Date, and charges, if any, relevant to the Services
described in the Service Request. After WilTel's receipt and verification
of a valid Service Request for SWITCHED Service (as defined in the Service
Schedule) requiring a change in the primary interexchange carrier ("PIC"),
WilTel agrees to (i) submit the ANI(s) relevant to such Service Requests
to the following local exchange carriers ("LECs") (with which WilTel
currently has electronic interface capabilities) within ten (10) days:
Ameritech, Bell Atlantic, BellSouth, Nynex, Pacific Bell, Southwestern
Bell, US West, GTE and United, and (ii) submit the ANI(s) relevant to such
Service Requests to those LECs with which WilTel does not have electronic
interface capabilities within a reasonable time.
2. CANCELLATION.
------------
<PAGE> 3
(A) Cancellation Charge At any time after the Effective Date, Customer
may cancel this Agreement if Customer provides written notification thereof
to WilTel not less than thirty (30) days prior to the effective date of
cancellation. In such case (or in the event WilTel terminates this
Agreement as provided in Section 8), Customer shall pay to WilTel all
charges for Services provided through the effective date of such
cancellation plus a cancellation charge (the "Cancellation Charge") equal
to one hundred percent (100%) of Customer's commitment(s), if any, (as
described in the PET) that would have become due for the unexpired portion
of the Service Term.
(B) Liquidated Damages It is agreed that WilTel's damages in the event
Customer cancels this Agreement shall be difficult or impossible to
ascertain. The provision for a cancellation charge in Subsection 2(A) above
is intended, therefore, to establish liquidated damages in the event of a
cancellation and is not intended as a penalty.
(C) Cancellation Without Charge Notwithstanding anything to the contrary
contained in Subsection 2(A) above, Customer may cancel this Agreement
without incurring any cancellation charge if (i) WilTel fails to provide a
network as warranted in Section 9 below; (ii) WilTel fails to deliver call
detail records promptly based on the frequency selected by Customer (i.e.,
monthly, weekly or daily); or (iii) WilTel fails to submit ANI(s) relevant
to such Service Requests to the LECs within the time period described in
Subsection 1(E) above. Provided, however, Customer must give WilTel written
notice of any such default and an opportunity to cure such default within
five (5) days of the notice. In the event WilTel fails to cure any such
default within the five-day period on more than three (3) occasions within
any six (6) month period, Customer may cancel this Agreement without
incurring any cancellation charge.
3. CUSTOMER'S END USERS.
--------------------
(A) End Users Customer will obtain and upon WilTel's request provide
WilTel (within two (2) business days of the date of the request) a written
Letter of Agency ("LOA") acceptable to WilTel (or with any other means
approved by the Federal Communications Commission ("FCC"), for each ANI
indicating the consent of the end users of Customer ("End Users") to be
served by Customer and transferred (by way of change of such End Users
designated PIC) to the WilTel network prior to order processing. Each LOA
will provide, among other things, that the End users have consented to the
transfer being performed by Customer or Customer's designee. When
applicable, customer will be responsible for notifying End
<PAGE> 4
Users, in writing (or by any other means approved by the FCC) that (i) a
transfer charge will be reflected on their LEC bill for effecting a change
in their primary interexchange carrier ("PIC"), (ii) the entity name under
which their interstate, intrastate and/or operator services will be billed
(if different from Customer), and (iii) the "primary" telephone number(s)
to be used for maintenance and questions concerning their long distance
service and/or billing. Customer agrees to send WilTel a copy of the
documentation Customer uses to satisfy the above requirements promptly upon
request of WilTel. WilTel may change the foregoing requirements for
Customer's confirming orders and/or for notifying End Users regarding the
transfer charge at any time in order to conform with applicable FCC and
state regulations. Provided, however, Customer will be solely responsible
for ensuring that the transfer of End Users to the WilTel network conforms
with applicable FCC and state regulations, including without limitation,
the regulations established by the FCC with respect to verification of
orders for long distance service generated by telemarketing as promulgated
in 47 C.F.R., Part 64, Subpart K, Section 64.1100 or any successor
regulation(s).
(B) Transfer Charges/Disputed Transfers Customer agrees that it is
responsible for (i) all charges incurred by WilTel to change the PIC of End
Users to the WilTel network, (ii) all charges incurred by WilTel to change
End Users back to their previous PIC arising from disputed transfers to the
WilTel network plus an administrative charge equal to twenty percent (20%)
of such charges, and (iii) any other damages suffered by or awards against
WilTel resulting from disputed transfers.
(C) Excluded ANIs WilTel has the right to reject any ANI supplied by
Customer for any of the following reasons: (i) WilTel is not authorized to
provide or does not provide long distance services in the particular
jurisdiction in which the ANI is located, (ii) a particular ANI submitted
by Customer is not in proper form, (iii) Customer is not certified to
provide long distance services in the jurisdiction in which the ANI is
located, (iv) customer is in default of this Agreement, (v) Customer fails
to cooperate with WilTel in implementing reasonable verification processes
determined by WilTel to be necessary or appropriate in the conduct of
business, or (vi) any other circumstance reasonably determined by WilTel
which could adversely affect WilTel's performance under this Agreement or
WilTel's general ability to transfer its other customers or other end users
to the WilTel network, including without limitation, WilTel's ability to
electronically effect PIC changes with the LECs. In the event WilTel
rejects an ANI, WilTel will notify Customer as soon as possible of its
decision specifically describing the rejected ANI and the reason(s) for
rejecting that
<PAGE> 5
ANI, and will not incur any further liability under this Agreement with
regard to that ANI. Further, any ANI requested by Customer for Switched
Services may be deactivated by WilTel if no Switched Services billings
relevant thereto are generated in any three (3) consecutive calendar
month/billing periods. WilTel will be under no obligation to accept ANIs
within the three (3) full calendar month period preceding the scheduled
expiration of the Service Term.
(D) Records Customer will maintain documents and records ("Records")
supporting Customer's re-sale of Switched Services, including, but not
limited to, appropriate and valid LOAs from End Users for a period of not
less than (twelve) 12 months or such other longer period as may be required
by applicable law, rule or regulation. Customer shall indemnify WilTel for
any costs, charges or expenses incurred by WilTel arising from disputed PIC
selections involving Switched Services to be provided to Customer for which
Customer cannot produce an appropriate LOA relevant to the ANI and PIC
charge in question, or when WilTel is not reasonably satisfied that the
validity of a disputed LOA has been resolved.
(E) Customer Service Customer will be solely responsible for billing the
End Users and providing the End Users with customer service. Customer
agrees to immediately notify WilTel in the event an End User notifies
Customer of problems associated with the Services, including without
limitation, excess noise, echo, or loss of Service.
4. CUSTOMER'S RESPONSIBILITIES.
---------------------------
(A) Expedite Charges In the event Customer requests expedited Services
and/or changes to Service Orders and WilTel agrees to such request, WilTel
will pass through the charges assessed by any supplying parties (e.g.,
local access providers) for such expedited charges and/or changes to
Service Orders involved at the same rate to Customer. WilTel may further
condition its performance of such request upon Customer's payment of such
additional charges to WilTel.
(B) Fraudulent Calls Customer shall indemnify and hold WilTel harmless
from all costs, expenses, claims or actions arising from fraudulent calls
of any nature which may comprise a portion of the Services to the extent
that the party claiming the call(s) in question to be fraudulent is (or had
been at the time of the call) an End User of the Services through Customer
or an End User of the Services through Customer's distribution channels.
Customer shall not be excused from paying WilTel for Services provided to
Customer or any portion thereof on the basis that
<PAGE> 6
fraudulent calls comprised a corresponding portion of the Services. In the
event WilTel discovers fraudulent calls being made (or reasonably believes
fraudulent calls are being made), nothing contained herein shall prohibit
WilTel from taking immediate action (without notice to Customer) that is
reasonably necessary to prevent such fraudulent calls from taking place,
including without limitation, denying Services to particular ANIs or
terminating Services to or from specific locations.
5. CHARGES AND PAYMENT TERMS.
-------------------------
(A) Payment WilTel billings for Services hereunder are made on a monthly
basis (or such other basis as may be mutually agreed to by the parties)
following Start of Service. Subject to Subsection 5(D) below, Services
shall be billed at the rates set forth in the PET and Service Requests, as
the case may be. Discounts, if any, applicable to the rates for certain
Services are set forth in the PET. Customer will pay all undisputed charges
relative to each WilTel invoice for Services within thirty (30) days of the
invoice date set forth on each WilTel invoice to Customer ("DUE DATE"). If
payment is not received by WilTel on or before the Due Date, Customer shall
also pay a late fee in the amount of the lesser of one and one-half percent
(1-1/2%) of the unpaid balance of the charges for Services rendered per
month or the maximum lawful rate under applicable state law.
(B) Definitions Time of day rate periods (including WilTel Recognized
National Holidays) will be as described in WilTel's F.C.C. Tariff No. 5.
(c) Taxes Customer acknowledges and understands that WilTel computes all
charges herein exclusive of any applicable federal, state or local use,
excise, gross receipts, sales and privilege taxes, duties, fees or similar
liabilities (other than general income or property taxes), whether charged
to or against WilTel or Customer because of the Services furnished to
Customer ("ADDITIONAL CHARGES"). Customer shall pay such Additional Charges
in addition to all other charges provided for herein.
(D) Modification of Charges WilTel reserves the right to eliminate Services
and/or modify charges for Services (which charge modifications shall not
exceed then-current generally available WilTel charges for comparable
services), upon not less than sixty (60) days prior notice to Customer,
which notice will state the effective date for the charge modification. In
the event WilTel notifies Customer of the elimination of a particular
Service and/or an increase in the charges, Customer may terminate this
Agreement, without incurring a cancellation charge only with respect to the
Services affected by the increase in charges. In
<PAGE> 7
order to cancel such Services, Customer must notify WilTel, in writing, at
least thirty (30) days prior to the effective date of the increase in
charges. Further, in the event Customer cancels its subscription to a
particular Service as described in this Subsection 5(D), WilTel and
Customer agree to negotiate in good faith concerning Customer's minimum
monthly commitment, if any, described in the PET.
(E) Billing Disputes Notwithstanding the foregoing, late fees shall apply
(but shall not be due and payable for a period of sixty (60) days following
the Due Date therefor) for amounts reasonably disputed by Customer,
provided Customer: (i) pays all undisputed charges on or before the Due
Date, (ii) presents a written statement of any billing discrepancies to
WilTel in reasonable detail on or before the Due Date of the invoice in
question, and (iii) negotiates in good faith with WilTel for the purpose of
resolving such dispute within said sixty (60) day period. In the event such
dispute is resolved in favor of WilTel, Customer agrees to pay WilTel the
disputed amounts together with any applicable late fees within ten (10)
days of the resolution. In the event such dispute is resolved in favor of
Customer, Customer will receive a credit for the disputed charges in
question and the applicable late fees. In the event the dispute can not be
resolved within such sixty (60) day period (unless WilTel has agreed in
writing to extend such period) all disputed amounts together with late fees
shall become due and payable, and this provision shall not be construed to
prevent Customer from pursuing any available legal remedies. WilTel shall
not be obligated to consider any Customer notice of billing discrepancies
which are received by WilTel more than sixty (60) days following the Due
Date of the invoice in question.
(F) Suspension of Service In the event all undisputed charges due pursuant
to WilTel's invoice are not paid in full by the Due Date or disputed
charges owed by Customer, if any, are not paid in full by the time
specified as described in Subsection 5(E) above, WilTel shall have the
right, after giving Customer ten (10) days prior notice and opportunity to
pay such charges, to suspend all or any portion of the Services to Customer
("SUSPENSION NOTICE") until such time (designated by WilTel in its
Suspension Notice) as Customer has paid in full all undisputed charges then
due to WilTel, including any late fees. Following such payment, WilTel
shall reinstitute Services to Customer only when Customer provides WilTel
with satisfactory assurance of Customer's ability to pay for Services
(i.e., a deposit, letter of credit or other means acceptable to WilTel) and
Customers advance payment of the cost of reinstituting Services. If
Customer fails to make the required payment by the date set forth in the
Suspension Notice, Customer will be deemed
<PAGE> 8
to have canceled the Services suspended effective as of the date of
suspension. Such cancellation shall not relieve Customer for payment of
applicable cancellation charges as described in Section 2.
6. CREDIT: Customer's execution of this Agreement signifies Customer's
acceptance of WilTel's initial and continuing credit approval procedures and
policies. WilTel reserves the right to withhold initiation or full
implementation of Services under this Agreement pending WilTel's initial
satisfactory credit review and approval thereof which may be conditioned upon
terms specified by WilTel, including, but not limited to, security for payments
due hereunder in the form of a cash deposit or other means. WilTel reserves the
right to modify its requirements, if any, with respect to any security or other
assurance provided by Customer for payments due hereunder in light of Customer's
actual usage when compared to projected usage levels upon which any security or
assurance requirement was based.
7. CREDITWORTHINESS: If at any time there is a material adverse change in
Customer's creditworthiness, then in addition to any other remedies available to
WilTel, WilTel may elect, in its sole discretion, to exercise one or more of the
following remedies: (i) cause Start of Service for Services described in a
previously executed Service Request to be withheld; (ii) cease providing
Services pursuant to a Suspension Notice in accordance with Section 5(F); (iii)
decline to accept a Service Request or other requests from Customer to provide
Services which WilTel may otherwise be obligated to accept and/or (iv) condition
its provision of Services or acceptance of a Service Request on Customer's
assurance of payment which shall be a deposit or such other means to establish
reasonable assurance of payment. An adverse material change in Customer's
creditworthiness shall include, but not be limited to: (i) Customer's default of
its obligations to WilTel under this or any other agreement with WilTel; (ii)
failure of Customer to make full payment of all undisputed charges due hereunder
on or before the Due Date on three (3) or more occasions during any period of
twelve (12) or fewer months or Customer's failure to make such payment on or
before the Due Date in any two (2) consecutive months; (iii) acquisition of
Customer (whether in whole or by majority or controlling interest) by an entity
which is insolvent, which is subject to bankruptcy or insolvency proceedings,
which owes past due amounts to WilTel or any entity, affiliated with WilTel or
which is a materially greater credit risk than Customer; or, (iv) Customer's
being subject to or having filed for bankruptcy or insolvency proceedings or the
legal insolvency of Customer.
8. REMEDIES FOR BREACH. In the event Customer is in material breach of this
Agreement, including without limitation, failure to pay all undisputed charges
due hereunder by the date stated in the suspension
<PAGE> 9
Notice described in Subsection 5(F), WilTel shall have the right, after giving
Customer five (5) days prior notice and opportunity to cure, and in addition to
foreclosing any security interest WilTel may have, to (i) terminate this
Agreement; (ii) withhold billing information from Customer; and/or (iii) contact
the End Users (for whom calls are originated and terminated solely over
facilities comprising the WilTel network) directly and bill such End Users
directly until such time as WilTel has been paid in full for the amount owed by
Customer. If Customer fails to make payment by the date stated in the Suspension
Notice and WilTel, after giving Customer five (5) days prior notice, terminates
this Agreement as provided in this Section 8, such termination shall not relieve
Customer for payment of applicable cancellation charges as described in Section
2 above.
9. WARRANTY. WilTel will use reasonable efforts under the circumstances to
maintain its overall network quality. The quality of Services provided hereunder
shall be consistent with telecommunications common carrier industry standards,
government regulations and sound business practices. WILTEL MAKES NO OTHER
WARRANTIES ABOUT THE SERVICES PROVIDED HEREUNDER, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE.
10. LIABILITY; GENERAL INDEMNITY; REIMBURSEMENT.
-------------------------------------------
(A) Limited Liability IN NO EVENT WILL EITHER PARTY HERETO BE LIABLE TO
THE OTHER PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
LOSSES OR DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF REVENUE, LOSS OF
CUSTOMERS OR CLIENTS, LOSS OF GOODWILL OR LOSS OF PROFITS ARISING IN ANY
MANNER FROM THIS AGREEMENT AND THE PERFORMANCE OR NONPERFORMANCE OF
OBLIGATIONS HEREUNDER.
(B) General Indemnity In the event parties other than Customer (e.g.,
Customer's End Users) shall have use of the Services through Customer, then
Customer agrees to forever indemnify and hold WilTel, its affiliated
companies and any third-party provider or operator of facilities employed
in provision of the Services harmless from and against any and all claims,
demands, suits, actions, losses, damages, assessments or payments which
those parties may assert arising out of or relating to any defect in the
Services.
(C) Reimbursement Customer agrees to reimburse WilTel for all reasonable
costs and expenses incurred by WilTel due to WilTel's direct participation
(either as a party or witness) in any administrative, regulatory or
criminal proceeding concerning Customer if WilTel's involvement in said
proceeding is based solely on WilTel's provision of Services to Customer.
<PAGE> 10
11. FORCE MAJEURE. If WilTel's performance of this Agreement or any obligation
hereunder is prevented, restricted or interfered with by causes beyond its
reasonable control including, but not limited to, acts of God, fire, explosion,
vandalism, cable cut, storm or other similar occurrence, any law, order,
regulation, direction, action or request of the United States government, or
state or local governments, or of any department, agency, commission, court,
bureau, corporation or other instrumentality of any one or more such
governments, or of any civil or military authority, or by national emergency,
insurrection, riot, war, strike, lockout or work stoppage or other labor
difficulties, or supplier failure, shortage, breach or delay, then WilTel shall
be excused from such performance on a day-to-day basis to the extent of such
restriction or interference. WilTel shall use reasonable efforts under the
circumstances to avoid or remove such causes or nonperformance and shall proceed
to perform with reasonable dispatch whenever such causes are removed or cease.
12. STATE CERTIFICATION. Customer warrants that in all jurisdictions in which it
provides long distance services that require certification, it has obtained the
necessary certification from the appropriate governmental authority. Further, if
required by WilTel, Customer agrees to provide proof of such certification
acceptable to WilTel. In the event Customer is prohibited, either on a temporary
or permanent basis, from continuing to conduct its telecommunications operations
in a given state, Customer shall (i) immediately notify WilTel by facsimile, and
(ii) send written notice to WilTel within twenty-four (24) hours of such
prohibition.
13. INTERSTATE/INTRASTATE SERVICE. Except with respect to Services specifically
designated as intrastate Services or international Services, the rates provided
to Customer in a Service Schedule are applicable only to Services if such
Services are used for carrying interstate telecommunications (i.e., Services
subject to FCC jurisdiction). WilTel shall not be obligated to provide Services
with end points within a single state or Services which originate/terminate at
points both of which are situated within a single state. In those states where
WilTel is authorized to provide intrastate service (i.e., telecommunications
transmission services subject to the jurisdiction of state regulatory
authorities), WilTel will, at its option, provide intrastate Services pursuant
to applicable state laws, regulations and applicable tariff, if any, filed by
WilTe1 with state regulatory authorities as required by applicable law.
14. AUTHORIZED USE OF WILTEL NAME. Without WilTel's prior written consent,
Customer shall not (i) refer to itself as an authorized representative of WilTel
whenever it refers to the Services in promotional, advertising or other
materials, or (ii) use WilTel's logos, trade marks, service marks, or any
variations thereof in any of
<PAGE> 11
its promotional, advertising or other materials. Additionally, Customer shall
provide to WilTel for its prior review and written approval, all promotions,
advertising or other materials or activity using or displaying WilTel's name or
the Services to be provided by WilTel. Customer agrees to change or correct, at
Customer's expense, any such material or activity which WilTel, in its sole
judgment, determines to be inaccurate, misleading or otherwise objectionable.
Customer is explicitly authorized to only use the following statements in its
sales literature or if in response to the inquiry by Customer's end users (i)
"Customer utilizes the WilTel network", (ii) "Customer utilizes WilTel's
facilities", (iii) "WilTel provides only the network facilities", and (iv)
"WilTel is our network services provider".
15. NOTICES. Notices under this Agreement shall be in writing and delivered to
the person identified below at the offices of the parties as they appear below
or as otherwise provided for by proper notice hereunder. Customer shall notify
WilTel in writing if Customer's billing address is different than the address
shown below. The effective date for any notice under this Agreement shall be the
date of actual receipt of such notice by the appropriate party, notwithstanding
the date of mailing or transmittal via hand delivery or facsimile.
IF TO WILTELS: WorldCom Network Services, Inc.
One Williams Center, 28th Floor
Tulsa, OK 74172
Attn: Carrier Sales Dept.
IF TO CUSTOMER: Telehub Communications, Corp.
1375 Tri-State Pkwy.
Gurnee, IL 60031
Attn: Dick Eckenberg
Telephone No. (847) 599-1000
Fax No.: (847) 623-1717
16. NO-WAIVER. No term or provision of this Agreement shall be deemed waived
and no breach or default shall be deemed excused unless such waiver or consent
shall be in writing and signed by the party claimed to have waived or consented.
A consent to waiver of or excuse for a breach or default by either party,
whether express or implied, shall not constitute a consent to, waiver of, or
excuse for any different or subsequent breach or default.
17. PARTIAL INVALIDITY; GOVERNMENT ACTION.
-------------------------------------
(A) Partial Invalidity If any part of any provision of this Agreement or
any other agreement, document or writing given pursuant to or in connection
with this Agreement shall be invalid or unenforceable under applicable law,
rule or regulation, that
<PAGE> 12
part shall be ineffective to the extent of such invalidity only, without in
any way affecting the remaining parts of that provision or the remaining
provisions of this Agreement. In such event, Customer and WilTel will
negotiate in good faith with respect to any such invalid or unenforceable
part to the extent necessary to render such part valid and enforceable.
(B) Government Action Upon thirty (30) days prior notice, either party
shall have the right, without liability to the other, to cancel an affected
portion of the Service if any material rate or term contained herein and
relevant to the affected Service is substantially changed (to the detriment
of the terminating party) or found to be unlawful or the relationship
between the parties hereunder is found to be unlawful by order of the
highest court of competent jurisdiction to which the matter is appealed,
the FCC, or other local, state or federal government authority of competent
jurisdiction.
18. EXCLUSIVE REMEDIES. Except as otherwise specifically provided for herein,
the remedies set forth in this Agreement comprise the exclusive remedies
available to either party at law or in equity.
19. Use of Service. Upon WilTel's acceptance of a Service Request hereunder,
WilTel will provide the Services specified therein to Customer upon condition
that the Services shall not be used for any unlawful purpose. The provision of
Services will not create a partnership or joint-venture between the parties or
result in a joint communications service offering to any third parties, and
WilTel and Customer agree that this Agreement, to the extent it is subject to
FCC regulation, is an inter-carrier agreement which is not subject to the filing
requirements of Section 211(a) of the Communications Act of 1934 (47 U.S.C.
Section 211(a)) as implemented in 47 C.F.R. Section 43.51.
20. CHOICE OF LAW; FORUM.
--------------------
(A) Law. This Agreement shall be construed under the laws of the State of
Oklahoma without regard to choice of law principles.
(B) Forum Any legal action or proceeding with respect to this Agreement may
be brought in the Courts of the State of Oklahoma in and for the County of
Tulsa or the United States of America for the Northern District of
Oklahoma. By execution of this Agreement, both Customer and WilTel hereby
submit to such jurisdiction, hereby expressly waiving whatever rights may
correspond to either of them by reason of their present or future domicile.
In furtherance of the foregoing, Customer and WilTel hereby agree to
service by U.S. Mail at the notice addressees referenced in Section 15.
Such service shall be deemed effective upon the earlier of actual receipt
or seven (7) days following
<PAGE> 13
the date of posting.
21. PROPRIETARY INFORMATION.
-----------------------
(A) Confidential Information The parties understand and agree that the
terms and conditions of this Agreement (but not the existence thereof), all
documents referenced herein (including invoices to Customer for Services
provided hereunder), communications between the parties regarding this
Agreement or the Services to be provided hereunder (including price quotes
to Customer for any Services proposed to be provided or actually provided
hereunder), as well as such information relevant to any other agreement
between the parties (COLLECTIVELY "CONFIDENTIAL INFORMATION"), are
confidential as between Customer and WilTel.
(B) Limited Disclosure A party shall not disclose Confidential Information
unless subject to discovery or disclosure pursuant to legal process, or to
any other party other than the directors, officers, and employees of a
party or a party's agents including their respective attorneys,
consultants, brokers, lenders, insurance carriers or bona fide prospective
purchasers who have specifically agreed in writing to nondisclosure of the
terms and conditions hereof. Any disclosure hereof required by legal
process shall only be made after providing the non-disclosing party with
notice thereof in order to permit the non-disclosing party to seek an
appropriate protective order or exemption. Violation by a party or its
agents of the foregoing provisions shall entitle the non-disclosing party,
at its option, to obtain injunctive relief without a showing of irreparable
harm or injury and without bond.
(C) Press Releases Except as provided in Section 14 below, the parties
further agree that any press release, advertisement or publication
generated by a party regarding this Agreement, the Services provided
hereunder or in which a party desires to mention the name of the other
party or the other party's parent or affiliated company(ies), will be
submitted to the non-publishing party for its written approval prior to
publication.
(D) Survival of Confidentiality The provisions of this Section 21 will be
effective as of the date of this Agreement and remain in full force and
effect for a period which will be the longer of (i) one (1) year following
the date of this Agreement, or (ii) one (l) year from the termination of
all Services hereunder.
22. SUCCESSORS AND ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors or assigns,
provided, however, that Customer shall not
<PAGE> 14
assign or transfer its rights or obligations under this Agreement without the
prior written consent of WilTel, which consent shall not be unreasonably
withheld or delayed, and further provided that any assignment or transfer
without such consent shall be void.
23. GENERAL.
-------
(A) Survival of Terms The terms and provisions contained in this
Agreement that by their sense and context are intended to survive the
performance thereof by the parties hereto shall so survive the completion
of performance and termination of this Agreement, including, without
limitation, provisions for indemnification and the making of any and all
payments due hereunder.
(B) Headings Descriptive headings in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
(C) Industry Terms Words having well-known technical or trade meanings
shall be so construed, and all listings of items shall not be taken to be
exclusive, but shall include other items, whether similar or dissimilar to
those listed, as the context reasonably requires.
(D) Rule of Construction No rule of construction requiring
interpretation against the drafting party hereof shall apply in the
interpretation of this Agreement.
24. ENTIRE AGREEMENT. This Agreement consists of (i) all the terms and
conditions contained herein, and, (ii) all documents incorporated herein
specifically by reference. This Agreement constitutes the complete and exclusive
statement of the understandings between the parties and supersedes all proposals
and prior agreements (oral or written) between the parties relating to Service
provided hereunder. No subsequent agreement between the parties concerning the
Services shall be effective or binding unless it is made in writing and
subscribed to by authorized representatives of Customer and WilTel.
IN WITNESS WHEREOF, the parties have executed this Telecommunications
Services Agreement on the date first written above.
WORLDCOM NETWORK SERVICES, INC. TELEHUB COMMUNICATIONS CORP.
D/B/A WILTEL
BY: BY: /s/ George R. Cross
--------------------------- ---------------------------
(SIGNATURE) (SIGNATURE)
<PAGE> 15
George R. Cross (Dick)
- --------------------------------------------------------------------------------
(PRINT NAME) (PRINT NAME)
V.P. Sales/Mkting
- --------------------------------------------------------------------------------
(TITLE) (TITLE)
<PAGE> 1
EXHIBIT - 10.30
TRANSCEND(TM)
PROGRAM ENROLLMENT TERMS
These Program Enrollment Terms ("PET") are made by and between WorldCom
Network Services, Inc. d/b/a WilTel ("WILTEL") and TeleHub Communications Corp.
("CUSTOMER") and are a part of their agreement for switched services, more
particularly identified as TSA# ______ - _____ (the "TSA"). In accordance with
the TSA, charges to Customer for Service obtained thereunder shall be subject to
the charges and discounts set forth below and the TSA shall be deemed to include
all of the terms and conditions set forth herein. The TSA, this PET and the
Service Schedule are collectively referred to as the "AGREEMENT".
1. SERVICE TERM:
[*]. For purposes of this Agreement, (i) if Customer has an existing switched
services agreement with a member of the WilTel Group (as defined in Section 5
below), the "EFFECTIVE DATE" will be the 1st day of the month following
twenty-one (21) days after this Agreement has been fully executed by both
parties and Customer has received a satisfactory credit review and approval
from WilTel's Credit Department pursuant to section 6 of the TSA, and all
security documentation, if any, required by WilTel has been properly executed
and delivered to WilTel (collectively the "CREDIT REVIEW"), and (ii) if
Customer does not have an existing switched services agreement with a member
of the WilTel Group, the "EFFECTIVE DATE" will be the date this Agreement has
been fully executed by both parties and the Credit Review has been completed.
WilTel will not be obligated to accept any Service Request under this
Agreement if Customer's initial Service Request is (i) not submitted by
Customer within thirty (30) days of the date of this PET, and (ii) not
subject to a Requested Service Date within ninety (90) days of the Effective
Date.
(B) Within the first ninety (90) days following the Effective Day of this
Agreement, Customer may, upon written notice to WilTel, elect to terminate
this Agreement without incurring any cancellation liability other than
payment for Services provided by WilTel. In such case, as of the first day of
the first full billing period following at least thirty (30) days after
WilTel receives such notice, Service provided by WilTel under this Agreement
will be provided by WilTel on a month to month basis (THE "MODIFIED SERVICE
TERM"). Customer's Commitment during the
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<PAGE> 2
Modified Services Term, will be $0; and Customer's Discount will be the
discount applicable to Customer's Monthly Revenue level for the Modified
Service Term.
2. RATES: Rates for Services hereunder will be generally comprised of the
following charges, if applicable: (i) local exchange company ("LEC") charges
(including without limitation, access charges, egress charges, SMS 800
queries, etc.), (ii) domestic transport charges (i.e., transport within the
continental United States), (iii) if applicable, Non-Mainland transport
charges or International transport charges, and (iv) applicable surcharges
(e.g., directory assistance).
(A) DOMESTIC TRANSPORT CHARGES.
(1) "DOMESTIC TRANSPORT CHARGES" are based on the location (i.e., Tier
A, Tier B or Tier C) of the originating and terminating local access
transport areas ("LATAs") (excluding TRAVEL CARD Service). A list of
the LATAs comprising Tier A, Tier B and Tier C LATAs is shown on
Schedule "1" attached hereto and incorporated herein by reference which
Schedule "1" may be amended from time to time by Wiltel. The Domestic
Transport Charge will be assessed on all completed or answered calls
and will be based upon the number or originating seconds. Transport
Charges will be billed in six-second increments and will be subject to
a six-second minimum charge. The Transport Charge for each Tier (the
"TIER CHARGE") relative to each Service is shown below:
(2) The Tier Charges for SWITCHED ACCESS Service and DEDICATED ACCESS
Service calls (regardless of jurisdiction or time of day) within the
continental United States are shown below. With respect to SWITCHED
ACCESS Service and DEDICATED ACCESS Service calls within the
continental United States, the Domestic Transport Charge will be
comprised of an originating Tier Charge and a Terminating Tier Charge.
Tier A [*]
Tier B [*]
Tier C [*]
Example: Assume a call originates in a Tier A LATA and terminates in a
Tier B LATA. The Transport Charge will be [*] comprised of the
originating Tier Charge [*] and the terminating Tier Charge [*].
With respect to calls from the continental United States to Alaska,
Hawaii, Puerto Rico, the United States Virgin
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<PAGE> 3
Islands and Canada ("NON-MAINLAND"), or to an International location,
the Domestic Transport Charge will be comprised of the applicable
originating Tier Charge and the terminating Tier Charge which will be
deemed to be Tier A. With respect to 800 calls (and 1+ calls from
Hawaii only) from a Non-Mainland location to the continental United
States, the Domestic Transport Charge will be comprised of the
originating Tier Charge which will be deemed to be Tier A and the
applicable terminating Tier Charge.
(3) The Tier Charges for Carrier TERMINATION Service calls (regardless
of jurisdiction or time of day) within the continental United States or
from the continental United States to an International location are
shown below. The Domestic Transport Charge will be comprised of the
applicable Tier Charge based on the Tier to which the call is
terminated.
Tier A [*]
Tier B [*]
Tier C [*]
(4) The Tier Charges for Carrier 800 ORIGINATION Service calls
(regardless of jurisdiction or time of day) within the continental
United States are shown below. The Domestic Transport Charge will be
comprised of the applicable Tier Charge based on the Tier from which
the call is originated.
Tier A [*]
Tier B [*]
Tier C [*]
(5) With respect to Directory Assistance calls within the continental
United States and to Canada, the Domestic Transport Charge will be
comprised of the applicable originating Tier Charge and the
terminating Tier Charge which will be deemed to be Tier A.
(B) NON-MAINLAND TRANSPORT CHARGES.
(l) With respect to calls originating in the continental United States
and terminating to a Non-Mainland location (including directory
assistance calls to Canada), the following "NON-MAINLAND TRANSPORT
CHARGES" will apply in addition to any applicable Domestic Transport
Charge as described in subsection 2(A) above:
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<PAGE> 4
Non-Mainland
Non-Mainland Location Transport Charge
--------------------- ----------------
Alaska [*]
Hawaii [*]
Puerto Rico [*]
US Virgin Islands [*]
Canada [*]
(2) With respect to 800 calls (and 1+ calls from Hawaii only)
originating from a Non-Mainland location and terminating to the
continental United States, the following Non-Mainland Transport Charges
will apply in addition to any applicable Domestic Transport Charge as
described in Subsection 2(A) above:
Non-Mainland
Non-Mainland Location Transport Charge
--------------------- ----------------
Alaska [*]
Hawaii [*]
Puerto Rico [*]
US Virgin Islands [*]
Canada [*]
(C) INTERNATIONAL TRANSPORT CHARGES.
(1) Commencing with the Effective Date described in Section 1 above,
with respect to calls originating in the continental United States and
terminating to an International location (i.e., other than a
non-Mainland location), subject to Subpart (2) below, the "INTERNATIONAL
TRANSPORT CHARGE" will be deemed to correspond with the [*] level of
applicable charges shown on Schedule "2" attached hereto and
incorporated herein by reference.
(2) Subject to modification as described in Subpart (3) below, Customer
may elect at any time during the Service Term to designate one of the
International Monthly Revenue Levels described on Schedule "2"
("CUSTOMER'S INTERNATIONAL SUB-COMMITMENT") which Customer agrees to
maintain on a take-or-pay basis for the remainder of the Service Term
("INTERNATIONAL COMMITMENT PERIOD"). For purposes of this Agreement, the
"INTERNATIONAL MONTHLY REVENUE LEVEL" will be comprised of Customer's
gross (i.e., prior to the application of discounts) (i) Transport
Charges (i.e., Domestic, Non-Mainland and International) associated with
a call to an International location (i.e., other than a Non-Mainland
location and specifically excluding Mexico and Canada), (ii) LEC
Charges, if any, associated with a call to an International location,
and (iii) TRAVEL CARD Service charges associated with a call to an
International location. In the event Customer selects an International
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<PAGE> 5
Sub-Commitment, Customer's International Transport Charge will
correspond with the applicable charges shown on Schedule "2" based on
Customer's International Sub-Commitment.
(3) At any time during the Service Term of this Agreement, Customer may
modify Customer's International Sub-Commitment ("CUSTOMER'S MODIFIED
INTERNATIONAL SUB-COMMITMENT") for the remainder of the International
Commitment Period by notifying WilTel in writing. Commencing with the
first day of the month following at least thirty (30) days after WilTel
receives the notice described herein, (i) Customer's Modified
International Sub-Commitment will be effective, and (ii) Customer's
International Transport Charge will correspond with the applicable
charges shown on Schedule "2" based on Customer's Modified International
Sub-Commitment.
(4) In the event Customer does not maintain Customer's International
Sub-Commitment (or Customer's Modified International Sub-Commitment, if
applicable) in any month during the International Commitment Period,
then for those month(s) only, Customer will pay WilTel the difference
between Customer's International Sub-Commitment (or Customer's Modified
International Sub-Commitment) and Customer's actual International
Monthly Revenue Level as defined above (the "INTERNATIONAL DEFICIENCY
CHARGE"). The International Deficiency Charge is in addition to the
Deficiency Charge described in Subsection 4(B) below, if any, and will
be due at the same time payment is due for Service provided to Customer,
or immediately in an amount equal to Customer's International
Sub-Commitment for the unexpired portion of the International Commitment
Period if WilTel terminates this Agreement based on Customer's default.
(D) LEC CHARGES.
(1) "LEC CHARGES" include Access Charges, Egress Charges and SMS 800
queries. "ACCESS CHARGES" and "EGRESS CHARGES" are per minute costs
determined by WilTel between the applicable WilTel point of presence and
the terminating or originating point, and rated at the applicable end
office (NPA-NXX) level using switched tandem access rates and charges
(excluding TRAVEL CARD Service). Directory Assistance calls will only be
assessed the applicable Access Charge. Customer will also pay WilTel a
[*] administrative charge which is assessed on the total of Customer's
monthly LEC Charges. The NPA-NXX is generally identified by the end
users automated number identification
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<PAGE> 6
("ANI"); provided, however, in the event there is not an identified
originating ANI, the NPA-NXX will be assigned based on WilTel's
originating trunk group. The terminating NPA-NXX will be identified by
the dialed number; provided, however, in the event there is not an
identified dialed number, the NPA-NXX will be assigned based on WilTel's
terminating trunk group.
(2) The per minute rates utilized by WilTel in determining the
applicable Access Charges and Egress Charges are described in the local
exchange carrier's ("LECs") applicable tariffs and are exclusive of any
discounts based on minute or term commitments. The Access Charges and
Egress Charges may include, without limitation, the components and
elements described below; provided, however, the terminology with
respect to these components and elements may vary among LECs. The Access
Charges and egress Charges will be calculated taking into effect whether
the call is interstate, intrastate or intraLATA, the direction of the
call (i.e., whether originating or terminating), whether the call is
premium or nonpremium (if applicable), the mileage, the meet point (if
applicable) and the call type (i.e., 1+ or 800). WilTel may also apply
any other rating elements which are assessed by the LECs or third
parties (e.g., regulatory fee assessments or non-standard LEC access
components) whether such charges are based per access line, per business
line, per market share, per call, etc. (e.g., the Arkansas Carrier
Common Line charge which is assessed by a regulatory body and allocated
to the LECs). With respect to those LECs utilizing a "time of day"
differential (i.e., Day/Nonday, Day/Evening/Night, etc.), Wiltel will
only use the "Day" rate provided by the LECs.
Component Elements
--------- --------
Carrier Common Line Originating
Terminating
End Office Local Switching
Equal Access Recovery
Information Surcharge
Local Transport Termination
Tandem Switching
Facility
Interconnection
Entrance Facility DS-3 (month-to-month
electrical)
<PAGE> 7
Multiplexer (3/1 month-to-month)
(3) The Access Charges and Egress Charges are generally applied on a per
minute basis except for (i) the Local Transport Facility charge which is
based on minutes and mileage, and (ii) the Entrance Facility rate and
Multiplexer rate which are flat monthly rates which are converted by
WilTel to a cost per minute basis by dividing the applicable DS-3 flat
rate or the multiplexer rate as found in the applicable LEC tariff by
[*]. WilTel reserves the right to convert any other flat rates assessed
by the LECs into per minute charges. Upon thirty (30) days' prior
written notice, WilTel may also charge Customer for other charges it is
assessed by any LEC or the SMS 800 database administrator for 800 number
service (e.g., National Exchange Carrier Association (NECA) charges,
etc.).
Example: Assume the applicable LEC tariffed rate (1) for entrance
facility charges is [*] per DS-3, and (ii) for muxing is [*] per 3/1
mux. The Entrance Facility rate will be [*] [*] and the Multiplexer rate
will be [*] [*].
(4) Access Charges will commence when the call is originated and will
end when the call is disconnected. Customer will be assessed Access
Charges even if a call is not completed. Egress Charges will commence
when the call is answered and will end when the call is disconnected.
Access Charges and Egress Charges will not apply with respect to
dedicated access originations or terminations, respectively.
(E) TRANSCENDS(TM) MANAGER.
WilTel agrees to provide Customer, at no cost to Customer, a
windows-based software program entitled "TRANSCEND(TM) MANAGER" which
will include, among other things, the "Transcend(TM) Database" (as
described herein) and various management reports. The "TRANSCEND(TM)
DATABASE" will contain the applicable Access Charges and Egress Charges
determined by WilTel at each LEC end office. The Database will be
updated periodically to take into account any tariff changes by the
various LECs ("TARIFF CHANGES"). Tariff Changes received by WilTel on or
before the fifteenth (15th) day of a month and effective as of the first
day of the following month or thereafter, will be incorporated into the
Transcends(TM) Database by the first day of the month following WilTel's
receipt thereof or the date such Tariff Changes are
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<PAGE> 8
effective, whichever is later.
(F) DIRECTORY ASSISTANCE SURCHARGE:
Directory assistance calls in the continental United States will be
assessed a surcharge of [*] in addition to any applicable Domestic
Transport Charge as described in Subsection 2(A) above. Directory
assistance calls to Canada will be assessed a surcharge of [*] in
addition to any applicable Domestic Transport Charge as described in
Subsection 2(A) above and the applicable Non-Mainland Transport Charge
as described in Subsection 2(B) above.
(G) TRAVEL CARD SERVICE RATES:
(1) Basic Interstate TRAVEL CARD Service Rates Per Minutes: [*] Day, [*]
Nonday.
(2) Basic Intrastate TRAVEL CARD Service Rates Per Minute [NOT SUBJECT
TO DISCOUNT]: SEE ATTACHED INTRASTATE SWITCHED ACCESS RATE SCHEDULE FOR
BASIC TRAVEL CARD SERVICE.
(3) International TRAVEL CARD Service Rates Per Minute [NOT SUBJECT TO
DISCOUNT]: SEE ATTACHED INTERNATIONAL SWITCHED ACCESS RATE SCHEDULE FOR
BASIC TRAVEL CARD SERVICE. International TRAVEL CARD Service calls from
the domestic United States to International locations (other than
Canada) are subject to a surcharge of [*] per call.
(4) TRAVEL CARD Service Rates Per Minute from the domestic United States
to Canada [NOT SUBJECT TO DISCOUNT]: [*] Day, [*] Nonday. TRAVEL CARD
Service calls from the domestic United States to Canada are subject to a
surcharge of [*] per call.
(5) TRAVEL CARD Service Rates Per Minute from Canada to the domestic
United States [NOT SUBJECT TO DISCOUNT]: [*] Day, [*] Nonday. TRAVEL
CARD Service calls from Canada to the domestic United States are subject
to a surcharge of [*] per call.
(6) Enhanced TRAVEL CARD Service Pricing [NOT SUBJECT TO DISCOUNT]:
Enhanced features to the TRAVEL CARD Service are available as described
in the attached schedule for Enhanced TRAVEL CARD Service Pricing.
(7) TRAVEL CARD Service Discount Schedule:
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<PAGE> 9
SERVICE TERM
Monthly Revenue Level(s) MTH 1-YR 2-YR 3-YR
------------------------ --- ---- ---- ----
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
(a) As defined in Subsection 3(A) above.
(8) If Customer's Commitment as described herein is at least [*], the
percentages shown in the TRAVEL CARD Service Discount Schedule above
will be increased by [*]; if Customer's Commitment as described herein
is at least [*], the percentages shown in the TRAVEL CARD Service
Discount Schedule above will be increased by [*]; if Customer's
Commitment as described herein is at least [*], the percentages shown in
the TRAVEL CARD Service Discount Schedule above will be increased by
[*]; if Customer's Commitment as described herein is at least [*], the
percentages shown in the TRAVEL CARD Service Discount Schedule above
will be increased by [*].
3. DISCOUNTS:
(A) For purposes of this Agreement, Customer "MONTHLY REVENUE LEVEL"
will be comprised of Customer's gross (i.e., prior to the application of
any discounts) (i) Transport Charges (i.e., Domestic, Non-Mainland and
International); (ii) LEC charges; (iii) Directory Assistance surcharges;
and, (iv) TRAVEL CARD Service charges. Customer's Monthly Revenue Level
will not include any pro rata charges, ancillary or special feature
charges, such as, Authorization codes or CDR Tapes, or any other charges
other than those identified by the relevant WilTel invoice as monthly
recurring 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 (the "COMMITMENT PERIOD"), Customer
* Confidential material
<PAGE> 10
will receive the applicable discount percentage (the "DISCOUNT") as
determined by the applicable Discount Schedules shown in Subsections (C)
and (D) below. The Discount will only be applied to Customer's Domestic
Transport Charges as described in Subsection 2(A) above and Customer's
Non-Mainland Transport Charges to Non-Mainland locations (excluding
Canada). The Discount will be determined by dividing the number of
months in the Service Term divided by twelve (12). If such number is
equal to or greater than one (1) but less than two (2), the One-Year
Discount percentages will apply; if such number is equal to or greater
than two (2) but less than three (3), the Two-Year Discount percentages
will apply; and, if such number is equal to or greater than three (3),
the Three-Year Discount percentages will apply. Customer will
automatically receive the next higher discount when Customer's eligible
Monthly Revenue Level reaches the next level.
(C) DISCOUNT SCHEDULE - TERMINATION Service, 800 ORIGINATION Service,
SWITCHED ACCESS Service and DEDICATED ACCESS Service to Non-Mainland
locations only (excluding Canada).
Monthly Revenue Level MTH l-Yr 2-Yr 3-Yr
--------------------- ---- ---- ---- ----
[*]* [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
*Requires at least one (1) DS-1 circuit comprising a Service
Interconnection as defined in the Service Schedule with respect to
TERMINATION Service and/or 800 ORIGINATION Service.
* Confidential material
<PAGE> 11
(D) DISCOUNT SCHEDULE - SWITCHED ACCESS Service and DEDICATED ACCESS Service
(1+ and 800) within the continental United States.
Monthly Revenue Level MTH 1-Yr 2-Yr 3-Yr
---------------------- ----- ----- ------ -----
[*]* [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
*Requires a minimum of one (1) DS-1 circuit comprising a Service
Interconnection as defined in the Service Schedule with respect to
TERMINATION Service and/or 800 ORIGINATION Service.
(E) If Customer's Minimum Commitment (as described in Section 4 below)
is at least the amount shown in the Schedule below, all of the
respective percentages in the applicable Discount Schedules (depending
on the Service Term selected by Customer) will be increased by the
respective amounts shown below. Customer will receive the percentage
shown in the Discount Schedule associated with Customer's Minimum
Commitment and Service Term commencing with the Effective Date
regardless of Customer's actual Monthly Revenue Level.
(1) DISCOUNT SCHEDULE - TERMINATION Service, 800 ORIGINATION
Service, SWITCHED ACCESS Service and DEDICATED ACCESS Service
to Non-Mainland locations only (excluding Canada).
Minimum Increase In
Commitment Discount
---------- -----------
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
(2) DISCOUNT SCHEDULE - SWITCHED ACCESS Service and DEDICATED
ACCESS Service (1+ and 800).
Minimum Increase In
Commitment Discount
---------- -----------
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
* Confidential material
<PAGE> 12
Example: Customer's Commitment as described in Section 4 below is [*]
for a 3-Yr Service Term. Customer's Discount percentage for the Services
described in Subsection (C) above will be [*] and Customer's Discount
percentage for the Services described in Subsection (D) above will be
[*]. If Customer's actual Monthly Revenue Level is [*], Customer's
Discount percentage for the Services described in Subsection (C) above
will be [*] [*] and Customer's Discount percentage for the Services
described in Subsection (D) above will be [*] [*].
(F) During the Service Term of the Agreement, accumulated credits
derived from the applicable Discounts 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 those charges as described in
Subsection 3(B) above 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.
(G) Each Discount will result in the application of a credit obtained
during the Discount Period to the WilTel invoice to Customer relevant to
the billed measured Switched Service for the 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 Agreement. Failure of Customer to comply with the
foregoing provision shall result in no credit for the Discount Period in
question.
4. CUSTOMER'S COMMITMENT/DEFICIENCY CHARGE:
(A) Commencing with the first day of the [*] month following the
Effective Date and continuing for a period of [*] months thereafter (the
"FIRST CHECKPOINT PERIOD"), Customer agrees to maintain Monthly Revenue
as defined in Subsection 3(A) above of at least [*] ("CUSTOMER'S FIRST
CHECKPOINT AMOUNT").
(B) Commencing with the first day of the [*] month following the
Effective Date and continuing for a period of [*] months thereafter (the
"SECOND CHECKPOINT PERIOD"), customer agrees to maintain Monthly Revenue
as defined in Subsection 3(A) above of at least [*] ("CUSTOMER'S
CHECKPOINT AMOUNT").
(C) Commencing with the first day of the [*] month following the
Effective Date and continuing for a period of [*] months thereafter (the
"THIRD CHECKPOINT PERIOD"), Customer
* Confidential material
<PAGE> 13
agrees to maintain Monthly Revenue as defined in Subsection 3(A) above
of at least [*] ("CUSTOMER'S THIRD CHECKPOINT AMOUNT").
(D) In the event Customer does not maintain Monthly Revenue of at least
the amounts shown in any month during the First Checkpoint Period, the
Second Checkpoint Period or the Third Checkpoint Period, (collectively
THE "CHECKPOINT PERIODS") as the case may be, for the remainder of the
Checkpoint Periods Customer will receive discounts applicable to
Customers actual Monthly Revenue for the month in question.
(E) Commencing as of the first day of the [*] month following the
Effective Date and continuing through the remainder of the Service Term
and any extension thereto, (the "COMMITMENT PERIOD"), Customer agrees to
maintain, on a take-or-pay basis, Monthly Revenue as defined in
Subsection 3(A) above of at least [*] ("CUSTOMER'S COMMITMENT").
(F) In the event Customer does not maintain Customers Commitment in any
month during the Commitment Period, then for those month(s) only,
Customer will pay WilTel the difference between Customer's applicable
Commitment and Customer's actual Monthly Revenue as described in Section
3 (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 Commitment for the
unexpired portion of the Service Term, if (i) Customer cancels all
circuits comprising all Service Interconnections as described in the
Service Schedules, or (ii) WilTel terminates this Agreement based on
Customer's default.
5. OTHER AGREEMENTS: In consideration of the rates and discounts offered
hereunder to Customer as well as the unique and special pricing
elements, Customer acknowledges and agrees that this Agreement and the
Services described herein may not be combined with any other products or
services offered by WilTel, WilTel's parent company or WilTel's
affiliates. Therefore, Customer acknowledges and agrees that:
(A) As of the Effective Date of this Agreement, (i) all switched
telecommunications services ("EXISTING SERVICES") offered by WilTel
(formerly WilTel, Inc.), WilTel's parent company, WorldCom, Inc.
(formerly LDDS Communications, Inc.) or any of WilTel's affiliates,
including without limitation, IDB Worldcom Services, Inc. (hereinafter
referred to as the "WilTel Group"), which are currently being provided
Customer (which for purposes of this Section 5 will include Customer's
parent company, Customer's subsidiaries and any other entities under
common
* Confidential material
<PAGE> 14
control with Customer; hereinafter referred to as the "CUSTOMER GROUP")
pursuant to existing service agreements ("EXISTING AGREEMENTS) will be
canceled and no longer in force or effect except for charges or credits
due for Existing Services rendered as of the Effective Date of this
Agreement and provisions intended to survive termination, such as
limitation of liability, indemnification and confidentiality, and (ii)
all Existing Services provided a member of the Customer Group by a
member of the WilTel Group will be provisioned under the terms and
conditions of this Agreement. Simultaneous with the execution of this
Agreement, if applicable, Customer shall cause all members of the
Customer Group to agree to the cancellation of such Existing Agreements
and the provision of Existing Services under the terms and conditions of
this Agreement and Customer agrees to provide WilTel with reasonable
documentation evidencing such agreement.
(B) If Customer acquires or merges or combines with a third party after
the Effective Date of this Agreement, and such third party has existing
agreements(s) with a member of the WilTel Group (collectively referred
to as the "THIRD PARTY AGREEMENTS") for the provision of switched
telecommunications services ("THIRD PARTY EXISTING SERVICES"), then
ninety (90) days following the date of such acquisition, merger or
combination (or such earlier date contained in a written notice from
Customer to WILTEL) (the "TRANSFER DATE"), (i) the Third Party
Agreements will be canceled and no longer in force or effect except for
commitments, if any, contained in such Third Party Agreements and
charges and credits due for Services rendered prior to the Transfer
Date, (ii) Third Party Existing Services will be provisioned under this
Agreement, and (iii) the aggregate commitment(s) (e.g., revenue, volume,
minute, etc.) remaining under such Third Party Agreements, if any,
shall be added on a pro rata basis to the commitment(s), if any,
existing under this Agreement. Simultaneous with the closing of such
acquisition, combination or merger, Customer will cause such third party
and all of its affiliates who are parties to such Third Party
Agreements, to agree to the cancellation of such Third Party Agreements
and the provision of Third Party Existing Services under the terms and
conditions of this Agreement and Customer agrees to provide WitTel with
reasonable documentation evidencing such agreement.
Example: Assume (1) Customer's Commitment as described in Subsection
4(A) above is [*], (ii) there are [*] months remaining in the Service
Term of this Agreement, and (iii) Customer acquires a third party who
has an existing switched telecommunications services agreement with a
member of the WilTel Group which contains a minimum monthly revenue
commitment of [*] and has [*] months remaining in the term of such
agreement. Customer's "new" Commitment as described
* Confidential material
<PAGE> 15
in Subsection 4(A) will be [*] for the remaining [*] months in the
Service Term determined as follows:
[*]
[*]
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THESE PROGRAM ENROLLMENT
TERMS ON THE DATE FIRST WRITTEN ABOVE.
WORLDCOM NETWORK SERVICES, INC. TELEHUB COMMUNICATIONS CORP.
d/b/a WilTel
BY: BY: /s/GEORGE R. CROSS (Dick)
---------------------------------- ------------------------------
(SIGNATURE) (SIGNATURE)
GEORGE R. CROSS (Dick)
---------------------------------- ------------------------------
(Print Name) (Print Name)
V.P. Sales/Mkting
---------------------------------- ------------------------------
(Title) (Title)
8/8/97
---------------------------------- ------------------------------
(Date) (Date)
* Confidential material
<PAGE> 1
EXHIBIT - 10.31
TRANSCEND(TM)
SERVICE SCHEDULE
This Service Schedule it made as of the 8th day of August, 1997, by and
between WorldCom Network Services, Inc. d/b/a WilTel ("WilTel") and Telehub
Communications Corp. ("CUSTOMER") and is a part of their agreement for switched
services, identified as TSA#__-_____ (THE "AGREEMENT"). Neither Customer nor
WilTel shall he obligated with respect to the Service described below, nor any
other condition of Service until Customer has submitted and WilTel has accepted
a Service Request with respect to the particular Services.
1. TRANSCEND(TM) SERVICES: During the Service Term of the Agreement, WilTel
will provide the following Services (all as more particularly described herein),
(i) to and from the locations below, (ii) for the charges and discount(s), if
any, set forth in the Program Enrollment Terms dated concurrently herewith.
(a) Transcend Termination Service ("TERMINATION SERVICE") which is
WilTel's termination of calls received from Customer's Service
Interconnection(s).
(b) Transcends (TM) 800 Origination Service ("800 ORIGINATION SERVICE")
which is the origination of calls by WilTel and the termination of such calls to
Customer's Service Interconnection(s).
(c) Transcend (TM) Switched Access Service ("SWITCHED ACCESS SERVICE")
which is the origination and termination of calls solely over facilities
comprising the WilTel network.
(d) Transcends (TM) Dedicated Access Service ("DEDICATED ACCESS SERVICE")
which is the origination and termination of calls solely over facilities
comprising the WilTel network.
(e) Transcends (TM) Travel Card Service ("TRAVEL CARD SERVICE") which is
the origination and termination of calls solely over facilities comprising the
WilTel network. Further, the inbound service portion of a TRAVEL CARD Service
call (i.e., the 800 Service) must be provided by WilTel.
2. START OF SERVICE:
(a) Start of Service for TERMINATION Service will occur concurrently with
the activation of each circuit comprising Service Interconnections relevant to
WilTel TERMINATION Service.
<PAGE> 2
(b) Start of Service for 800 ORIGINATION Service will occur concurrently
with the activation of each circuit comprising Service Interconnections relevant
to 800 ORIGINATION Service.
(c) Start of Service for SWITCHED ACCESS Service will occur on (i) an ANI
by ANI basis concurrently with the activation of each ANI to be served, and (ii)
an 800 Number by 800 Number basis concurrently with the activation of each 800
Number.
(d) Start of Service for DEDICATED ACCESS Service will occur concurrently
with the activation of each circuit comprising Service Interconnections relevant
to DEDICATED ACCESS Service.
(e) Start of Service for TRAVEL CARD Service will occur on a Authorization
Code by Authorization Code basis concurrently with the activation of each
Authorization Code.
3. SERVICE INTERCONNECTIONS - TERMINATION SERVICE AND 800 ORIGINATION SERVICE:
(a) In order to utilize TERMINATION service and 800 ORIGINATION Service,
one or more full time dedicated connections between Customer's network and the
WilTel network at one or more WilTel designated locations ("WILTEL POP") must be
established ("SERVICE INTERCONNECTION(S)"). Each Service Interconnection shall
be comprised of one or more DS-1 circuits.
(b) The circuit(s) comprising each Service Interconnection to a WilTel POP
shall be requested by Customer on the appropriate WilTel Service Request. Each
Service Request for TERMINATION Service or 800 Origination Service will describe
(among other things) the WilTel POP to which a Service Interconnection is to be
established, the Requested Service Date therefor, the type and quantity of
circuits comprising the Service Interconnection and any charges and other
information relevant thereto, such as, Customer's terminating or originating
switch location, as the case may be. Such additional information may be obtained
from Customer or gathered by WilTel and recorded in Technical Information Sheets
provided by WilTel.
(c) Once ordered, and unless otherwise provided for in this Agreement,
Service Interconnections or the circuits comprising each Service Interconnection
may only be canceled by Customer upon not less than thirty (30) days prior
written notice to WilTel.
(d) Absent the automatic number identification ("ANI") of the calling
party, Customer shall provide WilTel with a written certification (THE
"CERTIFICATION") of the percentage of interstate (including international) and
intrastate minutes of use relevant to the minutes of traffic to be terminated in
the same state in which the
<PAGE> 3
WilTel POP is located to which the Service Interconnection is made. This
Certification shall be provided by Customer prior to Start of Service for any
Service Interconnection and may be modified from time to time by Customer and
subject to recertification upon the request of WilTel which requests shall not
be made unilaterally by WilTel more than once each calendar quarter. Any such
modification(s) or Certification(s) shall be effective as of the first day of
any calendar month and following at least forty-five (45) days notice from
Customer. In the event Customer fails to make such Certification, the relevant
minutes of use will be deemed to be subject to the Intrastate Rates provided for
in the Pricing exhibit. In the event WilTel or any other third party requires an
audit of WilTel's interstate/intrastate minutes of traffic, Customer agrees to
cooperate in such audit at its expense and make its call detail records, billing
systems and other necessary information reasonably available to WilTel or any
third party solely for the purpose of verifying Customer's interstate/intrastate
minutes of traffic. Customer agrees to indemnify WilTel for any liability WilTel
incurs in the event Customer's Certification is different than that determined
by the Audit .
(e) Customer shall be solely responsible for establishing and maintaining
each Service Interconnection over facilities subject to WilTel's approval.
Service Interconnections shall only be comprised of DS-1 facilities unless
otherwise provided for in the Service Request and agreed to in writing by
WilTel. If a Service Interconnection is proposed to be made via a local exchange
carrier, WilTel will have the authority to direct Customer to utilize WilTel's
entrance facilities or local serving arrangement ("LSA") with the relevant local
telephone operating company, and Customer will be subject to a
non-discriminatory charge therefor from WilTel. The monthly recurring charge
relevant to Customer's use of LSA capacity shall be subject to upward adjustment
by WilTel from time to time. Such adjustment, if any, shall not exceed the rate
that otherwise would be charged for the equivalent switched access capacity
between the same points by the relevant local telephone operating company
pursuant to its published charges for the type of service in question.
(f) If other private line interexchange facilities are necessary to
establish a Service Interconnection, and such facilities are requested from
WilTel, such facilities will be provided on an individual case basis.
(g) Commencing with the first full calendar month FOLLOWING Start of
Service for each circuit comprising a Service Interconnection and thereafter,
Customer will maintain an average loading of traffic per DS-1 (or DS-1
equivalent circuit) of not less than [*] minutes of use per calendar
month/billing period ("MINIMUM MONTHLY USAGE"). In the event Customer fails to
obtain the required Minimum Monthly
* Confidential material
<PAGE> 4
Usage level for the circuits comprising each Service Interconnection, WilTel
will charge and Customer will pay [*] multiplied by the difference between the
Minimum Monthly Usage and the actual minutes of use for the circuit(s)
comprising the Service Interconnection in question ("MINIMUM USAGE CHARGE").
WilTel TERMINATION Service and 800 ORIGINATION Service minutes carried over the
same Service Interconnection, if any, shall be included in determining if
Customer has met the Minimum Monthly Usage requirement.
EXAMPLE: CUSTOMER'S ACTUAL MONTHLY USAGE FOR 2 DS-LS COMPRISING CUSTOMER'S
SERVICE INTERCONNECTION AT WILTEL POP A IS [*] MINUTES AND CUSTOMER'S
ACTUAL MONTHLY USAGE FOR 2 DS-LS COMPRISING CUSTOMER'S SERVICE
INTERCONNECTION AT WILTEL POP B IS [*] MINUTES. CUSTOMER WOULD BE
SUBJECT TO A MINIMUM USAGE CHARGE OF [*] SINCE CUSTOMER'S MINIMUM
MONTHLY USAGE AT WILTEL POP A WAS BELOW [*] AND NO MINIMUM MONTHLY
USAGE CHARGE FOR THE SERVICE INTERCONNECTION AT WILTEL POP B, BECAUSE
CUSTOMER EXCEEDED THE REQUIRED MINIMUM OF [*] IN ACTUAL MINUTES OF
USE FOR THE 2 DS-LS COMPRISING THE SERVICE INTERCONNECTION AT WILTEL
POP B.
(h) Customer may cancel circuits comprising the Service Interconnection(s)
at any time without liability to WilTel for cancellation charges. In the event
Customer does not have a Minimum Commitment and Customer cancels all circuits
comprising all Service Interconnections at any time during the Service Term, the
Cancellation Charge described in Subsection 2(A) of the Agreement shall not
apply. Provided, however, Customer shall nevertheless be liable to pay WilTel a
cancellation charge (regardless of the number of DS-1 or DS-1 equivalent
circuits comprising the Service Interconnection(s) in question) of [*]
multiplied by the number of months (or pro rata portion thereof) remaining in
the Service Term ("CARRIER SERVICE CANCELLATION CHARGE").
(i) Because the damages to WilTel from Customers cancellation or
termination of all circuits comprising all Service Interconnections prior to
completion of the Service-Term is difficult if not impossible to determine, the
Carrier Service Cancellation Charge due to WilTel in accordance with this
Subsection is intended by the parties to establish liquidated damages payable by
Customer to WilTel and not as a penalty of any kind.
4. SERVICE INTERCONNECTIONS - DEDICATED ACCESS:
(a) In order to utilize DEDICATED ACCESS Service, one or more full time
dedicated connections between an End User's private
* Confidential material
<PAGE> 5
branch exchange ("PBX") or other customer premise equipment and the WilTel
network at one or more WilTel designated locations ("WILTEL POP") must be
established ("DEDICATED SERVICE INTERCONNECTION(S)"). Each Dedicated Service
Interconnection shall be comprised of one or more DS-1 circuits or DS-3
circuits.
(b) The circuit(s) comprising each Dedicated Service Interconnection to a
WilTel POP shall be requested by Customer on the appropriate WilTel Service
Request. Each Service Request for DEDICATED ACCESS Service will describe (among
other things) the WilTel POP to which a Dedicated Service Interconnection is to
be established, the Requested Service Date therefor, the type and quantity of
circuits comprising the Dedicated Service Interconnection and any charges and
other information relevant thereto, such as, the location of the end user's
originating or terminating location, as the case may be. Such additional
information may be obtained from Customer or gathered by WilTel and recorded in
Technical Information Sheets provided by WilTel.
(c) Once ordered, and unless otherwise provided for in this Agreement,
Dedicated Service Interconnections or the circuits comprising each Dedicated
Service Interconnection may only be canceled by customer upon not less than
thirty (30) days prior written notice to WilTel.
(d) WilTel will provision and maintain local access facilities between the
End User Location and the WilTel POP, subject to any LEC charges plus other
applicable terms and charges set forth in WilTel's F.C.C. Tariff No. 5. If other
private line interexchange facilities are necessary to establish a Dedicated
Service Interconnection, such facilities will be provided on an individual case
basis.
(e) Customer may elect to be responsible for establishing each Dedicated
Service Interconnection over facilities subject to WilTel's approval. Dedicated
Service Interconnections shall only be comprised of DS-1 facilities unless
otherwise provided for in the Service Request. If a Dedicated Service
Interconnection is proposed to be made via a local exchange carrier, WilTel will
have the authority to direct Customer to utilize WilTel's entrance facilities or
local serving arrangement ("LNA") with the relevant local telephone operating
company, and Customer will be subject to a non-discriminatory charge therefor
from WilTel. The recurring charge relevant to Customer's use of LSA capacity
shall be stated in the corresponding Service Request subject, however, to upward
adjustment by WilTel. Such adjustment if any, shall not exceed the rate that
otherwise would be charged for the equivalent capacity between the same points
by the relevant local telephone operating company pursuant to its published
charges for the type of service in question.
<PAGE> 6
(f) DEDICATED ACCESS SERVICE MINUTES OF USE ARE NOT SUBJECT TO AGGREGATION
FOR THE PURPOSE OF DETERMINING IF CUSTOMER HAS MET ITS MINIMUM HOURLY USAGE FOR
TERMINATION SERVICE OR 800 ORIGINATION SERVICE.
5. BILLING INCREMENTS: U.S. Domestic (including Alaska, Hawaii, United States
Virgin Islands and Puerto Rico) Service calls will be billed in six (6) second
increments and subject to a six (6) second minimum charge (i) utilizing Hardware
Answer Supervision where available, and (ii) with respect to 800 Services,
commencing with Customer's switch wink or answer back. If Customer is found to
be non-compliant in passing back appropriate answer supervision, i.e., answer
back, WilTel reserves the right to suspend 800 Service or deny requests by
Customer for additional Service until appropriate compliance is established. All
international calls will be billed in six (6) second increments and subject to a
thirty (30) second minimum charge.
6. FORECASTS: Before Customer's initial order for Service, Customer shall
provide WilTel with a forecast regarding the number of minutes expected to be
terminated or originated in various LATAs and/or Tandems, so as to enable WilTel
to configure optimum network arrangements. IN THE EVENT CUSTOMER'S SERVICE
TRAFFIC VOLUMES RESULT IN A LOWER THAN INDUSTRY STANDARD COMPLETION RATE OR
OTHERWISE ADVERSELY AFFECT THE WILTEL NETWORK, WILTEL RESERVES THE RIGHT TO
BLOCK THE SOURCE OF SUCH ADVERSE TRAFFIC AT ANY TIME. Customer will provide
WilTel with additional forecasts from time to time upon WilTel's request which
shall not be more frequent than once every three (3) months.
<PAGE> 7
7. SERVICE INTERCONNECTION INSTALLATION:
(A) DS-1 circuits comprising all Service Interconnections (including
Dedicated Service Interconnections) will be subject to a nonrecurring [*] per
DS-1 switch port installation charge.
(b) DS-3 circuits comprising all Service Interconnections (including
Dedicated Service Interconnections) will be subject to a nonrecurring per DS-3
switch port installation charge as determined on an individual case basis.
8. CDR TAPES: WilTel will provide Call Detail Records for WilTel's Services in
machine readable form ("CDR TAPES") subject to the provisions set forth below:
(a) WilTel will provide Customer one (1) CDR Tape once each month in a
Fixed Rate Detail Record (FRDR) format which WilTel currently is then making
available to its Customers. Monthly CDR Tapes under this Subsection are provided
at no charge. Weekly CDR Tapes under this Subsection are subject to a recurring
monthly charge of [*].
(b) Customer may request and WilTel may provide Customer with daily Call
Detail Records electronically ("Daily CDR"). Daily CDR under this Subsection is
subject to a nonrecurring charge of [*]. All leased-line and equipment costs
necessary to implement Daily CDR will be determined on an individual case basis
depending on customer specific configuration.
9. 800 NUMBERS:
(a) 800 numbers will be issued to Customer (i.e., issuance equates to
activation or reservation, whichever occurs first) on a random basis. Customer
requests for specific numbers will be considered by WilTel, and if provided,
will be subject to additional charges as set forth below and WilTel's then
current reservation policy which shall also apply to any randomly selected and
reserved 800 number. At any time preceding three (3) months from the scheduled
expiration of the Service Term, Customer may only reserve 800 numbers in an
amount equal to the greater of (i) 50, or (ii) fifteen percent (15%) of the
total number of 800 numbers activated by WilTel for Customer (unless another
allocation method is required by the FCC or other regulatory authority).
Customer requests for 800 numbers inconsistent with the above stated conditions
may be considered by WilTel on an individual case basis. 800 numbers reserved
for Customer will be activated upon Customer's request, however, each 800 number
will be subject to reversion to WilTel without notice to Customer after sixty
(60) days from issuance to Customer in the event WilTel
* Confidential material
<PAGE> 8
records no level of measured charges associated with such number as of the
expiration or after said sixty (60) day period.
(B) CUSTOMER REQUEST FOR SPECIFIC NUMBERS - [*] PER INDIVIDUAL NUMBER.
(C) CUSTOMER SPECIFICALLY AGREES THAT REGARDLESS OF THE METHOD IN WHICH AN
800 NUMBER IS RESERVED FOR OR OTHERWISE ASSIGNED TO CUSTOMER, THAT CUSTOMER
WILL NOT SEEK ANY REMEDY FROM WILTEL UNDER A THEORY OF DETRIMENTAL RELIANCE OR
OTHERWISE THAT SUCH 800 NUMBER(S) ARE FOUND NOT TO BE AVAILABLE FOR CUSTOMER'S
USE UNTIL SUCH 800 NUMBER IS PUT IN SERVICE FOR THE BENEFIT OF CUSTOMER, AND
THAT SUCH 800 NUMBER(S) SHALL NOT BE SOLD, BARTERED, BROKERED OR OTHERWISE
RELEASED BY CUSTOMER FOR A FEE ("800 NUMBER TRAFFICKING"). ANY ATTEMPT BY
CUSTOMER TO ENGAGE IN 800 NUMBER TRAFFICKING SHALL BE GROUNDS FOR RECLAMATION
BY WILTEL FOR REASSIGNMENT OF THE 800 NUMBER(S) RESERVED FOR OR ASSIGNED TO
CUSTOMER.
10. ENHANCED 800 SERVICES: The following 800 identification services and
routing options (collectively, "ENHANCED 800 SERVICES") are available from
WilTel:
IDENTIFICATION SERVICES:
i. Dialed Number Identification Service - identification of specific 800
number dialed.
ii. Real-Time ANI - receipt of telephone number of calling party.
800 ROUTING OPTIONS:
i. Message Referral - recording (up to six (6) months) that informs
callers that the 800 number has been disconnected or refers callers
to new number.
ii. Call Area Selection - selection or blockage of locations where 800
numbers can be received from (i.e., State, NPA, LATA or NXX level).
iii. Call Distributor Routing - distribution of 800 traffic evenly over
dedicated access lines in a trunk group (e.g., ascending, descending,
most idle, least idle).
iv. Route Completion (Overflow) - overflow of 800 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).
* Confidential material
<PAGE> 9
v. Geographic Routing - termination of calls to a single 800 number from
two or more originating routing groups to different locations.
vi. Time-of-Day Routing - routing of calls to single 800 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 800 number based on
each day of the week.
viii. Day-of-Year Routing - routing of calls to single 800 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 800 Routing Options described above (in addition to
the "800 Routing Option Feature Charges" described below) will be the same rates
for SWITCHED ACCESS Service (800) and DEDICATED ACCESS Service (800), whichever
is applicable, as described in the PET excluding Route Completion (Overflow). If
Customer selects Route Completion (Overflow) and Customer's traffic overflows
from DEDICATED ACCESS Service (800) to SWITCHED ACCESS Service (800), Customer's
minute of use rate will be the rate associated with SWITCHED ACCESS Service
(800). The 800 ROUTING OPTION FEATURE CHARGES are as follows:
Installation Charge: [*] per feature; maximum of [*] per 800 number.
Change Order Charges: [*] per feature; maximum of [*] per 800
number.
Monthly Recurring Charge: [*] per feature; maximum of [*] per 800
number.
Expedite Charge: [*] (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.
* Confidential material
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11. RESPORG SERVICES: Responsible Organization Services (relevant to 800
Numbers) if provided by WilTel are provided pursuant to WilTel's F.C.C. Tariff
No. 5.
12. LIMITATION OF ORIGINATION OR TERMINATION LOCATIONS:
(a) TERMINATION Service: (i) origination is available from any WilTel POP;
and (ii) termination is to any direct dialable location worldwide.
(b) 800 ORIGINATION Services (i) origination is available from locations in
the 50 United States, the United States Virgin Islands, Puerto Rico and Canada;
and (ii) termination is to any Customer designated Service Interconnection.
(c) SWITCHED Service (1+): (i) origination is available from all equal
access exchanges in the 48 contiguous United States except in LATA 921 (Fishers
Island, NY) and Hawaii; and (ii) termination is to any direct dialable location
worldwide.
(d) SWITCHED Service (800): (i) origination is available from locations in
the 50 United States, the United States Virgin Islands, Puerto Rico and Canada;
and (ii) termination is available to locations in the 48 contiguous United
States.
(e) DEDICATED ACCESS Service (1+): (i) origination is available from
locations in the 48 contiguous United States; and (ii) termination is available
to any direct dialable location worldwide.
(f) DEDICATED ACCESS Service (800): origination is available from locations
in the 50 United States, the United States Virgin Islands, Puerto Rico and
Canada; and (ii) termination is available to any Customer designated Dedicated
Service Interconnection.
(g) TRAVEL CARD Services (i) origination is available from locations in the
50 United States, the United States Virgin Islands, Puerto Rico and Canada; (ii)
termination is available to locations in the 48 contiguous United States for
calls from locations in the 50 United States, the United States Virgin Islands,
Puerto Rico and Canada; (iii) termination is available to locations in the 50
United States, the United States Virgin Islands, Puerto Rico and Canada for
calls from locations in the 48 contiguous United States; and (iv) International
Origination is available from select locations for termination within the 48
contiguous states.
13. AUTHORIZATION CODES-TRAVEL CARD SERVICE: WilTel will supply Customer with
authorization codes ("Codes") containing nine (9) digits for use with a
corresponding 800 Service number for origination and
<PAGE> 11
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.
WilTel reserves the right to deny access to any Code at any time.
14. ACCOUNTING CODES: For every billed telephone number (BTN) requested by
Customer, whether verified or non-verified, Customer shall pay a monthly
recurring charge of [*].
IN WITNESS WHEREOF, the parties have executed this Service Schedule on the
date first written above.
WORLDCOM NETWORK SERVICES, INC. TELEHUB COMMUNICATIONS CORP.
d/b/a WilTel
By: By: /s/ George R. Cross
----------------------------- -------------------------------
(Signature) (Signature)
/s/ George R. Cross
- -------------------------------- -------------------------------
(Print Name) (Print Name)
V.P. Sales/Mkting
- -------------------------------- --------------------------------
(Title) (Title)
* Confidential material
<PAGE> 1
EXHIBIT - 10.32
AMENDMENT NO. 2
This Amendment No. 2 (the "AMENDMENT") is made as of the 1st day of April,
1998 (the EFFECTIVE DATE") by and between TeleHub Communications Corp.
("CUSTOMER") and WorldCom Network Services, Inc. d/b/a WilTel ("WILTEL"), to
those certain Program Enrollment Terms ("PET") to that certain TRANSCEND
Telecommunications Services Agreement (TSA#TCC-970714) made by and between
Customer and WilTel dated on or about August 22, 1997 (the "TSA"). The parties
acknowledge that they previously executed that certain Amendment No. 1 dated on
or about November 19, 1997. The parties further acknowledge that as of the
Effective Date Amendment No. 1 shall be deleted in its entirety. In the event of
any conflict between the terms of the TSA, the PET or the Service Schedule and
the terms of this Amendment No. 2, the terms of this Amendment No. 2 shall
control. The TSA (along with the PET and the Service Schedule) and this
Amendment No. 2 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. Commencing with the Effective Date of this Amendment, the
parties agree to delete Subsection 1(B) of the PET in its entirety.
B. SPECIAL TRANSPORT RATE. Commencing with the Effective Date, the parties
agree to substitute Subsection 2(A)(2) of the PET to read in its entirety as
follows:
(2) The Tier Charges for SWITCHED ACCESS Service and DEDICATED ACCESS
Service calls (regardless of jurisdiction or time of day) within the
continental United States are shown below. With respect to SWITCHED
ACCESS Service and DEDICATED ACCESS Service calls within the
continental United States, the Domestic Transport Charge will be
comprised of an originating Tier Charge and a terminating Tier Charge.
Tier A [*]
Tier B [*]
Tier C [*]
Example: Assume a call originates in a Tier A LATA terminates in a
Tier B LATA. The Transport Charge will be [*] comprised of the
originating Tier Charge [*] and the terminating Tier Charge [*].
C. DISCOUNTS. The parties agree to substitute Section 3 of the PET to read in
its entirety as follows:
(A) For purposes of this Agreement, Customer's "MONTHLY REVENUE" will be
comprised of Customer's gross (i.e., prior to the application of any
discounts) (i) Transport Charges (i.e., Domestic Non-Mainland and
International); (ii) LEC charges; (iii) Directory Assistance surcharges;
and (iv) TRAVEL CARD Service charges. Customer's Monthly Revenue Level will
not include any monthly recurring private line interexchange service
charges, pro rata charges, ancillary or special feature charges such as,
Authorization codes or CDR Tapes, or any other charges other than those
identified by the relevant WilTel invoice as switched service charges
specifically mentioned in this Subsection (A).
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(B) Commencing with the Effective Date and continuing through the end of
the Service Term (including any extensions thereto), subject to Subsection
4(A) of the PET [as set forth in Paragraph D of this Amendment], Customer
will receive the applicable discount percentage (the "Discount") shown in
Subsection's (C) and (D) below. The Discount will only be applied to
Customer's Domestic Transport Charges as described in Subsection 3(A) above
and Customer's Non-Mainland Transport Charges to Non-Mainland locations
(excluding Canada).
(C) DISCOUNT SCHEDULE - TERMINATION Service. 800 ORIGINATION Service.
SWITCHED ACCESS Service and DEDICATED ACCESS Service to Non-Mainland
locations only (excluding Canada): [*].
(D) DISCOUNT SCHEDULE - SWITCHED ACCESS Service and DEDICATED ACCESS
Service (1 + and 800) within the continental United States:
[*].
(E) During the Service Term of the Agreement, accumulated credits derived
from the applicable Discounts 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 those charges as described in Subsection 4(B)
above 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.
(F) Each Discount will result in the application of a credit obtained
during the Discount Period to the WilTel invoice to Customer relevant to
the billed measured Switched Service for the 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 Agreement. Failure of Customer to comply with the foregoing
provision shall result in no credit for the Discount Period in question.
D. CUSTOMER'S COMMITMENT. The parties agree to substitute Section 4 of the
PET to read in its entirety as follows:
4. CUSTOMER'S COMMITMENT/DEFICIENCY CHARGE:
(A) Commencing with the first day of the [*] month following the
Effective Date and continuing for a period of [*] months thereafter
(the "FIRST CHECKPOINT PERIOD"), Customer agrees, to maintain Monthly
Revenue as defined in Subsection 3(A) above of at least [*]
("CUSTOMER'S FIRST CHECKPOINT AMOUNT"). Commencing with the first day
of the [*] month following the Effective Date and continuing for a
period of [*] months thereafter (the "SECOND CHECKPOINT PERIOD"),
Customer agrees to maintain Monthly Revenue of at least [*]
("CUSTOMER'S SECOND CHECKPOINT AMOUNT"). Commencing with the first day
of the [*] month following the Effective Date and continuing for a
period of [*] months thereafter (the "THIRD CHECKPOINT PERIOD"),
Customer agrees to maintain Monthly Revenue of at least [*]
("CUSTOMER'S THIRD CHECKPOINT AMOUNT"). The First Checkpoint Period,
the Second Checkpoint Period and the Third Checkpoint Period are
collectively referred to as the "CHECKPOINT PERIODS". In the event
Customer does not maintain Customer's First Checkpoint Amount,
Customer's Second Checkpoint Amount or Customer's Third Checkpoint
Amount, whichever is applicable, in any month during the applicable
Checkpoint Period, then for the remainder of the months in the
Checkpoint
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Periods, Customer's Discount will be determined under the Discount
Schedules described below based on Customer's actual Monthly Revenue Level
for such month(s) which Discount will only be applied to Customer's
Domestic Transport Charges as described in Subsection 3(A) above and
Customer's Non-Mainland Transport Charges to Non-Mainland locations
(excluding Canada).
(i) DISCOUNT SCHEDULE - TERMINATION Service, 800 ORIGINATION
Service, SWITCHED ACCESS Service and DEDICATED ACCESS Service to
Non-Mainland locations only (excluding Canada):
<TABLE>
<CAPTION>
Monthly Revenue Level Discount
--------------------- --------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
(ii) DISCOUNT SCHEDULE - SWITCHED ACCESS Service and DEDICATED ACCESS
Service (1+ and 800) within the continental United States:
<TABLE>
<CAPTION>
Monthly Revenue Level Discount
--------------------- --------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
(B) Commencing with the first day of the [*] month following the Effective
Date and continuing through the end of the Service Term (including any
extensions thereto) (the "COMMITMENT PERIOD"), subject to Subsection (C)
below, Customer agrees to maintain, on a take-or-pay basis, Monthly Revenue
of at least [*] ("CUSTOMER'S COMMITMENT"). In the event Customer does not
maintain Customer's Commitment in any month during the Commitment Period,
then for those month(s) only, Customer will pay WilTel the difference
between Customer's Commitment and Customer's actual Monthly Revenue for
such month(s) (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 Commitment for the unexpired
portion of the Service Term, if (i) Customer cancels all circuits
comprising all Service Interconnections as described in the Service
Schedule, or (ii) WilTel terminates this Agreement based on Customer's
default.
(C) Provided Customer's cumulative Monthly Revenue from WilTel under this
Agreement commencing with the Effective Date is at least [*] (i.e., in the
aggregate), Customer may elect to terminate Customer's Commitment described
in Subsection 4(B) above by providing WilTel written notice ("CUSTOMER
NOTICE"). In such
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event, commencing with the first day of the first full month following at
least thirty (30) days after WilTel receives the Customer Notice (the
"COMMITMENT TERMINATION DATE"), (i) Customer's Commitment shall terminate
and will no longer be in force or effect, and (ii) for the remainder of the
Service Term Customer's Discount will determined under the Discount
Schedules described below:
(i) DISCOUNT SCHEDULE - TERMINATION Service, 800 ORIGINATION
Service, SWITCHED ACCESS Service and DEDICATED ACCESS Service to
Non-Mainland locations only (excluding Canada):
<TABLE>
<CAPTION>
Monthly Revenue Level Discount
--------------------- --------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
(ii) DISCOUNT SCHEDULE - SWITCHED ACCESS Service and DEDICATED
ACCESS Service (1+ and 800) within the continental United States:
<TABLE>
<CAPTION>
Monthly Revenue Level Discount
--------------------- --------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
(D) Notwithstanding anything to the contrary contained in Subsection (B)
above, in the event (Customer notifies WilTel in writing that it is unable
to satisfy Customer's Commitment solely due to the transfer of a portion of
its switched traffic to its owned network, the parties agree to reduce
Customer's Commitment to [*] for the remainder of the Service Term.
Provided, however, in such event, Customer agrees to purchase at least [*]
of its off-net switched traffic (i.e., switched traffic that is not carried
over Customer's owned network) from WilTel which traffic will be
provisioned and maintained by WilTel under the terms of this Agreement.
Upon request, Customer agrees to provide reasonable documentation
substantiating Customer's inability to satisfy Customer's Commitment as
described herein.
E. SERVICE INTERCONNECTIONS. The parties agree to substitute Subsection 3(g)
of the Service Schedule to read in its entirety as follows:
(g) Commencing with the fourth full calendar month following Start of
Service for each circuit comprising a Service Interconnection and
thereafter, Customer will maintain an average loading of traffic per DS-1
(or DS-1 equivalent circuit) of not less than [*] per calendar
month/billing period ("MINIMUM MONTHLY USAGE"). In the event Customer's
actual average
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loading of traffic per DS-1 is less than Customer's Minimum Monthly Usage,
WilTel will charge and Customer will pay the difference between Customer's
Minimum Monthly Usage and Customer's actual average loading of traffic per
DS-1 ("MINIMUM USAGE CHARGE"). The charges for WilTel TERMINATION Service
and 800 ORIGINATION Service carried over the same Service Interconnection,
if any, shall be included in determining if Customer has met the Minimum
Monthly Usage requirement.
F. ACCOUNTING CODES. WilTel agrees to waive the monthly recurring charge of
[*] for every billed telephone number (BTN) requested by Customer, whether
verified or non-verified, as described in Section 14 of the Service Schedule.
G. INACTIVE ANIS. The parties agree to substitute the next to last sentence of
the TSA to read in its entire as follows:
Further, any ANI requested by Customer for Switched Service may be
deactivated by WilTel if no Switched Service billings relevant thereto are
generated in any six (6) consecutive calendar month/billing periods.
H. OTHER PROVISIONS. Except as specifically amended or modified herein, the
terms and conditions of the Agreement, including without limitation, Customer's
Commitment, if any, 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. 2 on
the date first written above.
WORLDCOM NETWORK SERVICES INC. TELEHUB COMMUNICATIONS CORP.
d/b/a WilTel
By: By:
---------------------------- --------------------------------
Print Name: Print Name:
-------------------- ------------------------
Title: Title:
------------------------- ------------------------------
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EXHIBIT 10.33
Collocate Contract No. _________________________
Collocate Schedule No. _________________________
Amendment No. _________________________
CRF No. _________________________
Credit Approval No. _________________________
COLLOCATE AGREEMENT
WorldCom Network Services, Inc.(R)
THIS AGREEMENT is entered into this ______________ day of ___________, 199_,
between WORLDCOM NETWORK SERVICES, INC.(R) ("WORLDCOM"), and TELEHUB NETWORK
SERVICES CORPORATION, an Illinois corporation, with its principal office at:
1375 Tri-State Pkwy #250, Gurnee, IL 60031
RECITALS
A. WORLDCOM owns or leases certain facilities locations (the "PREMISES")
described in the WORLDCOM Collocate Schedule(s) (the "COLLOCATE SCHEDULES") and
amendments thereto, if any, identified herewith and made a part hereof, at which
PREMISES certain services shall be provided in conformity with the applicable
specifications set forth in Exhibits to this Agreement and each relevant
WORLDCOM Collocate Schedule. Each WORLDCOM Collocate Schedule concerning the
above named parties shall be effective upon its being dated and properly
subscribed by the parties and, together with the terms hereof, shall constitute
the exclusive agreement between the parties with respect to allocated and
designated spaces (the "SPACE") at the PREMISES (all such documents being
collectively designated as the "AGREEMENT").
B. Customer desires access to the Premises and to locate therein certain
telecommunications equipment and cabling (hereinafter the "EQUIPMENT") for the
purpose of interconnecting the Equipment with WORLDCOM'S telecommunications
network (the "WORLDCOM Network").
C. WORLDCOM and one or more of its Affiliates is willing to grant Customer
a nonexclusive limited license to occupy a portion of the Premises upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
WORLDCOM and Customer hereby agree as follows:
1. LIMITED LICENSE TO OCCUPY, INTERCONNECTION RESTRICTIONS AND RELOCATION
PROVISIONS. WORLDCOM hereby grants to Customer a nonexclusive limited license
to occupy the portion of the Premises depicted in each attached WORLDCOM
Collocate Schedule (the "SPACE"). Upon completion of the Buildout Services and
Improvements Relevant to Space, (shown in Exhibit I to each Collocate Schedule)
and the acceptance of such Improvements by Customer after their inspection, the
Space shall be deemed by the parties as then accepted "AS-IS" by Customer.
Customer may use the Space only for the purposes of installing, maintaining and
operating the Equipment to interconnect with: (i) digital telecommunications
services provided to Customer or Customer's customer(s) by WORLDCOM and (ii)
local serving arrangements as set forth below. Each Collocation Schedule, and
any amendments thereto, when dated and subscribed by Customer and WORLDCOM,
shall incorporate the terms and conditions of this Agreement. References in this
Agreement to rights or obligations of WORLDCOM shall refer to the rights and
obligations of WORLDCOM and its authorized affiliate as may be named in the
appropriate Collocation Schedule for the Space and Premises to which it
pertains. In the event of any conflict or inconsistency between this Agreement
and the terms set forth in a Collocation Schedule, terms of the Collocation
Schedule shall in all cases prevail, but only for the Space identified in the
conflicting or inconsistent Collocation Schedule.
Customer may interconnect the Equipment with telecommunications services
provided by third parties only with the prior written consent of WORLDCOM except
in those cases where such interconnection: (i) will provide Customer with
interexchange service or switched service which cannot be provided by WorldCom
with reasonably acceptable quality or diversity to a location which is served by
such third party, and such third party is located in the same building in which
the applicable Premises are located, (ii) is with an alternate access facility
(i.e. Customers or a third party's located in the same building in which the
applicable Premises are located, or (iii) is with Customer's other equipment
within the same building in which the applicable Premises are located (i.e.,
Customer's "close located" equipment). WORLDCOM is granted a right of first
refusal in providing all interconnect telecommunications services to Customer.
Said right of first refusal shall be exercised by Customers providing WORLDCOM
with its requirements for such interconnection and WORLDCOM shall have the right
to bid on the provision of such service. If WORLDCOM'S bid is lower than any
bona fide competing bid or quote received by Customer and fully disclosed to
WORLDCOM, and the terms, conditions, quality and reliability of WORLDCOM
services are equal to or better than such competing bid or quote in Customer's
reasonable judgment, then, Customer shall enter into an appropriate safe
agreement with WorldCom for such services. If Customer is in breach of this
provision, WorldCom may pursue any LOYAL OR equitable remedy, including without
limitation, immediate termination of this limited license pursuant to Paragraph
11 of this Agreement.
CONFIDENTIAL MATERIALS
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<PAGE> 2
Collocate Contract No. _______________________
Collocate Schedule No. _______________________
Amendment No. _______________________
CRF No. _______________________
Credit Approval No. _______________________
In all cases, Customer shall always first request DS-1, DS-3 or greater
service level capacities exclusively from WORLDCOM. WORLDCOM shall cooperate
with Customer to either permit or provide Customer with necessary entrance
facility transmission capacity at voice grade or through DS-1 level service, of
up to one 25 pair copper cable, only, as the case may require, over facilities
obtained or to be obtained by WORLDCOM for special or switched access to local
access transport areas over WORLDCOM's local serving arrangements (the "LSAs")
with local exchange carriers, i.e., local exchange telephone service companies
(the "LECs"); provided, however, capacity over WORLDCOM's LSA is not otherwise
available and already committed. If Customer utilizes third party services
through the DS-1 level and WORLDCOM has such capacity available and uncommitted,
WORLDCOM is permitted to charge Customer (i) with respect to DS-1 level and
lesser capacity a monthly amount equal to WORLDCOM's then current charge for the
LSA capacity in question as is generally available to WORLDCOM customers, and
(ii) with respect to DS-3 and greater capacity levels an amount reasonably
determined by WORLDCOM on an individual case basis (the "MONTHLY RECURRING LSA
ANCILLARY SERVICE CHARGE"). The Monthly Recurring LSA Ancillary Service Charge,
once established, shall be fixed for the period during which the interexchange
service or switched service initially associated therewith is contracted for and
provided to Customer subject, however, to adjustment not to exceed the rate that
otherwise would be charged Customer for the equivalent capacity between the same
points by the relevant LEC. In the event Customer requests DS-1 capacity over
such LSAs for the purpose of obtaining switched access service into the LEC's
central office or serving wire center and WORLDCOM agrees, Customer shall not be
subject to a Monthly Recurring LSA Ancillary Service Charge, if, and to the
extent, only, WORLDCOM receives a charge reduction to such LSA from the LEC
providing the LSA, and, provided, further, Customer shall be directly liable to
the LEC for all charges associated with any such switched access service.
If WORLDCOM is unable or unwilling to provide capacity over WORLDCOM's LSA,
Customer may obtain its own entrance facility transmission capacity from the
relevant LEC with no additional charge to Customer from WORLDCOM accruing. In
such case, however, Customer shall direct the LEC to conform its installation of
such facilities to the directives of WORLDCOM. Notwithstanding any provisions of
this Agreement to the contrary, Customer may interconnect its transmission
capacity with other providers of telecommunications services at the relevant
LEC's central office or serving wire center at which entrance facility
transmission capacity is terminated.
All cross connections relevant to interconnecting the Equipment with
WORLDCOM or Customer controlled entrance facility transmission capacity or third
party services or equipment shall be established through WORLDCOM'S common
cross-connect panel in each of the Premises. A "cross connect" is an electrical
connection made between two DS-1 circuits on a DSX-1 cross-connect panel or two
DS-3 circuits on a DSX-3 cross-connect panel, and similarly otherwise, which
then interconnects the Equipment with other telecommunications services.
WORLDCOM may exclusively provide appropriate cable facilities (i.e., patch cords
and cables required to connect DSX-N jacks) between the Equipment and WORLDCOM's
common cross-connect panel located at the Premises. A cross-connect may be
permitted to attach a telecommunications path between the Equipment and any
other third party, provided WORLDCOM, in its reasonable judgment, grants advance
written consent to Customer's cross-connect request. Customer agrees to pay for
the cross-connect services either at rates and terms in accordance with
Customer's digital service agreement with WORLDCOM, or, if such rates are not
provided by WORLDCOM or Customer has no transmission service agreement with
WORLDCOM, then, in accordance with WORLDCOM's then current published recurring
and non-recurring charges for cross-connects and/or applicable ancillary
services. Cross-connect charges payable to WORLDCOM are to be determined by
WORLDCOM according to the level and type of facilities to be connected. Any
cross-connect provided shall not be provided for any period beyond the
expiration of the Term of the license relevant to the Space in which the
Equipment is located. Customer may not provide, or make available to any third
party, space within the Collocation Space without WORLDCOM's prior written
consent. If Customer should provide, or make available to any third party, space
within the Collocation Space without obtaining the written consent of WORLDCOM,
Customer shall be in breach of this Agreement and WORLDCOM may pursue any legal
or equitable remedy, including but not limited to the immediate termination of
the pertinent license.
WORLDCOM shall not arbitrarily require Customer to relocate the Equipment;
however, upon one hundred twenty (120) days' prior written notice or, in the
event of an emergency, such lesser time as may be reasonable or necessary,
WORLDCOM may require Customer for a good and substantial reason and not solely
to accommodate another collocate customer to relocate the Equipment to a site
which shall afford acceptable environmental conditions for the Equipment and
comparable accessibility to the Equipment. All costs of relocating the Equipment
shall be borne by Customer, provided, however Customer shall not be required to
pay for the cost of improving the replacement WORLDCOM Space to which the
Equipment may be relocated. Unless otherwise provided in the written Collocation
Schedule, each visit by Customer or its designee to the Space for security
purposes may require advance permission or escort services to be furnished by
WORLDCOM from the time Customer's Employee or representative sign(s) in upon
arriving at and entering the Premises to the time such personnel signs out upon
leaving. WORLDCOM will specify in writing to Customer those locations that
require escort. Charges for escort services may be charged as a dispatch labor
charge in an amount that is not more than WORLDCOM customarily charges its best
customers for similar services under like circumstances and calculated so as to
provide WORLDCOM with reimbursement for its actual costs.
2. SERVICE; STANDARD SPECIFICATIONS; SPECIAL TERMS. WORLDCOM shall provide
Customer with access and the services (collectively called the "Services")
described in Exhibits attached to each WORLDCOM Collocate Schedule. The Services
shall be performed at the Space during the Term (as hereinafter defined) of the
relevant limited license to the Space and any month-to-month extensions thereof.
WORLDCOM shall use reasonable efforts to provide Services without interruption;
however, WORLDCOM does not warrant that the Services shall be free from
interruptions and WORLDCOM shall not be liable for any failure to provide the
Services. However, a prolonged and continued failure by WORLDCOM to provide the
Services or the environment required to adequately operate or maintain the
Equipment, (and assuming no force majeur event is the cause of such failure),
after allowing WORLDCOM adequate time to correct its failure, and after written
notice from Customer, and such failure condition persists, Customer may
terminate this Agreement as to the particular Space affected by such failure.
Upon any such termination, neither party shall have any further or other
liability to the other, for damages or otherwise, except for obligations under
the Agreement which survive such termination, such as, but not necessarily
limited to, the removal of the Equipment and restoration of the Space by
Customer.
CONFIDENTIAL MATERIALS
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<PAGE> 3
Collocate Contract No. __________________________
Collocate Schedule No. __________________________
Amendment No. __________________________
CRF No. __________________________
Credit Approval No. __________________________
If, at any time during the term of this Agreement, WORLDCOM receives a good
faith offer in writing from another potential collocate customer concerning any
rack, cabinet or Space that does not then have active WORLDCOM interexchange or
switched services installed and being then utilized by Customer; and, if such
offer is substantially similar to the terms and conditions of this Agreement,
("Competitive Offer") and such Competitive Offer would result in an overall net
revenue advantage to WORLDCOM in the aggregate of least ten percent (10%),
WORLDCOM agrees to negotiate in good faith with Customer to revise the rates and
charges set forth above to be competitive with those set forth in the
Competitive Offer. The parties agree that such negotiation will commence within
thirty (30) days of WORLDCOM'S written notice to Customer of receipt of such
Competitive Offer. Customer shall have a right of first refusal to match such
Competitive Offer within sixty (60) days of the notice. WORLDCOM may, if the
offer is not matched by Customer, thereupon reassign the Space, rack or cabinet
concerned and realize the increased revenue opportunity with no further
liability accruing between the parties to this Agreement regarding the
individual Space, rack or cabinet concerned. Such right of first refusal as
described immediately above, however, shall only apply to racks or cabinet Space
not then providing direct interexchange or switched services minimum revenue
comparable to that of the Competitive Offer. Notwithstanding anything in this
paragraph to the contrary, however, Customer will be permitted to keep in
reserve up to 25% of Customers contracted for Space in the WORLDCOM collocation
facility concerned for Customer's future telecommunications equipment needs
hereunder such as, but not necessarily limited to, space for operating ancillary
approved equipment normally required for the proper use of Customer's collocated
Equipment.
Customer shall abide by the standard specifications as set forth in
Exhibits incoporated in each WORLDCOM Collocate Schedule. Customer agrees to
properly maintain all of its Equipment placed in the Space at Customer's sole
expense. Customer acknowledges that it has been granted only a license to occupy
the Space and that it has not been granted any real property interests in the
Space.
Special additional terms and conditions, if any, relevant to a particular
Space may be negotiated between the parties but, to be binding on WORLDCOM, must
be set forth in the appropriate WORLDCOM Collocate Schedule(s). Such special
terms and conditions shall be, constitute and are hereby considered as
"superseding provisions" which provisions shall control in the event of a
conflict between such provisions and the terms stated in this Agreement.
3. TERM OPTIONS TO RENEW AND POSSESSION. Customer's limited license to
occupy each separate Space shall begin as of the Requested Service Date set
forth in the site specific WORLDCOM Collocate Schedule or the date WORLDCOM
completes the build-out of each individual Space, or the date the relevant
Collocate Schedule is accepted and approved by WORLDCOM, whichever is set forth
in the site specific Schedule as the "Billing Commencement Date". The term of
Customer's license to occupy the Space shall be the period set forth as to each
location as specified in the relevant WORLDCOM Collocate Schedule (the "Initial
Terms"). Initial Terms available are month to month, or for a one, two, or three
year duration. Initial Terms shall be specified for each location in the
relevant Collocate Schedule. Any right granted to Customer to renew its license
to occupy the Space shall be contingent upon the election of WORLDCOM to
continue to own or lease the Premises in which the Space is located for the
duration of the Term and any Renewal Period(s).
The Initial Term and any Renewal Periods are collectively referred to as
the "Term". Customer's opportunity to renew this limited license to occupy the
Space shall be contingent upon WORLDCOM electing, in its sole discretion, to
continue to own or lease the Premises in which the Space is located for the
duration of the Renewal Period(s)
Following the expiration of the Initial Term or Renewal Period, if any,
stated in the relevant WORLDCOM Collocate Schedule(s) or failure of either of
the parties to enter into any formal Renewal Periods, Customer's license shall
continue in effect on a month-to-month basis upon the same terms and conditions
specified herein and in the pertinent Collocate Schedule adjusted only as to
then current pricing unless and until terminated by Customer or WORLDCOM upon
thirty (30) days' prior written notification by Customer or WORLDCOM of
non-renewal or termination shall be by certified mail or overnight message
delivery, return receipt requested and such notification shall not be effective
until actually received by WORLDCOM or Customer at its designated "Business
Address". Delivery to Customer shall be presumed effective five days after
mailing or placing with an overnight delivery carrier if undeliverable, refused
or unclaimed by Customer.
If WORLDCOM fails to tender possession of the Space to Customer on or
before the approved Requested Service Date (as specified in the relevant
WORLDCOM Collocate Schedule) this Agreement shall not be void or voidable of
WORLDCOM tenders possession of the Space to Customer within a ninety (90) day
period after such Requested Service Date and such tender is not late due to an
impeding act or omission of Customer. Customer shall be liable for expense or
losses to WORLDCOM caused by any impedance or improper act or omission of
Customer. Customer may, upon written notice to WORLDCOM after failure by
WORLDCOM to tender possession of the Space for causes other than the impeding
acts or omissions of Customer, declare any relevant to the individual Premises
concerned WORLDCOM Collocate Schedule
CONFIDENTIAL MATERIAL
- -------------------------------------------------------------------------------
<PAGE> 4
Collocate Contract No. ___________________________
Collocate Schedule No. ___________________________
Amendment No. ___________________________
CRF No. ___________________________
Credit Approval No. ___________________________
to be null and void with no further obligation by Customer for the terminated
Collocate Schedule; provided, however, other obligations of the parties
regarding other collocation sites and Schedules will continue unabated and
without offset.
In the event WORLDCOM is delayed in tendering possession of the Space to
Customer for any reason other than the impeding acts or omissions of Customer,
Customer shall not be obligated to pay occupancy fees or other monthly service
fees (as hereinafter defined) hereunder until such time as WORLDCOM does tender
possession of the Space to Customer. WORLDCOM shall not be liable to Customer
nor to any third party for any consequential or other damages resulting from any
such delay or failure to tender possession.
4. FEES AND TAXES. Customer shall pay WORLDCOM a basic monthly occupancy fee set
forth in each WORLDCOM Collocate Schedule (the "Basic Fee" or "Monthly Recurring
Fee") for this limited license to locate its Equipment in the Space described
therein.
The Basic Fee shall be due and payable, in advance, without notice or
demand; and without abatement, deduction, counterclaim or setoff commencing on
the first day of the Term relevant to the license for the use of each Space and
on the first day of each calendar month thereafter during the Term and any
succeeding term, if applicable, (charges for partial months shall be prorated).
The Basic Fee shall be increased on a pro rata basis by any increases in the
rental incurred by WORLDCOM required under any pertinent lease relevant to the
Premises in which the Space is located (the "LEASE"). Customer shall be liable
to pay any increased occupancy Fee as of the date when WORLDCOM becomes liable
for such payments. WORLDCOM shall notify Customer of such increase as soon as
practicable. Neither Customer's abandonment nor vacating of the Space in
violation of this Agreement shall relieve or reduce Customer's liability to
WORLDCOM for fees and charges.
Customer acknowledges that charges set forth in the WORLDCOM Collocate
Schedules to this Agreement do not include taxes and certain space related
expenses which may fluctuate due to third party landlord, regulatory agency or
taxing authority actions. Customer agrees to reimburse WORLDCOM for any such
applicable taxes, assessments, regulatory fees, expenses, utility increases or
similar charges as prorated and based on Customer's use of the Space (exclusive
of WORLDCOM'S income taxes); such taxes, fees and charges being generally
included in the Basic Fee. Customer further agrees to reimburse WORLDCOM for all
reasonable repair or restoration costs associated with damage or destruction
caused by Customer's personnel, suppliers/contractors or visitors during the
Term; or as a consequence of Customer's unauthorized activities or improper
removal of Equipment or property from the Space. Customer agrees to indemnify,
defend and hold WORLDCOM harmless from any liabilities, costs, expenses
(including without limitation, reasonable expenses of investigation and
attorney's fees and court costs), assessments, settlements or judgments arising
out of or incidental to the imposition, assessment or assertion by any
governmental authority of any tax or increase in tax liability which is or is
claimed to be an obligation of Customer.
5. SERVICE FEE AND BUILD-OUT FEE. Customer shall pay to WORLDCOM for the
Services rendered pursuant to this Agreement the service fee set forth in each
applicable WORLDCOM Collocate Schedule (the "Service Fee"). The Service Fee
shall be payable in advance commencing on the first day of the Term relevant to
the license for the use of the Space and on the first day of each calendar month
thereafter during the Term, and any succeeding renewal period as may be
applicable. If Customer requests WORLDCOM provide services not delineated herein
or in the relevant Collocate Schedule at any time during the Term, Customer
agrees to pay WORLDCOM'S then current time and materials price for such services
or items delivered as are then in effect. The Service Fee shall be paid without
abatement, deduction, counterclaim or setoff immediately upon receipt of
WORLDCOM invoice.
Customer shall also pay to WORLDCOM the amount set forth in each WORLDCOM
Collocate Schedule as Customer's share of the cost of the improvements to the
Space required to be made by WORLDCOM in order to permit WORLDCOM to provide the
Customer Services (the "BUILD-OUT FEE"). The Build-out Fee shall be payable to
WORLDCOM as compensation for such costs upon Customer's execution of the
WORLDCOM Collocate Schedule relevant to the Space concerned. Should this
Agreement or any individual WORLDCOM Collocate Schedule terminate or be
suspended by WORLDCOM due to Customer default prior to Customer paying the
balance of any Build-out Fee, then, and in that event, WORLDCOM shall be
entitled to accelerate and immediately collect the balance of any such Build-out
Fee from Customer. Failure to fully pay the Build-out Fee as agreed or upon any
acceleration, will be deemed a material default hereunder.
6. LANDLORD SERVICES. It is understood and agreed that WORLDCOM shall not
directly render any of the services provided by the landlord of non-owned
WORLDCOM facilities (the "Landlord") in Premises in which the Space may be
located to Customer under an appertaining Lease, but, rather, all services
provided by the Landlord to WORLDCOM in such facilities shall be made available
on a limited license basis to Customer the same as are made available to
WORLDCOM.
WORLDCOM shall use reasonable efforts to keep the Space free from
interruption of service; however, WORLDCOM does not guarantee that the use of
the Space shall be free from interruption for any reason. WORLDCOM warrants
only that the Space shall conform to the standard specifications set forth in an
Exhibit to the WORLDCOM Collocate Schedule(s). Notwithstanding the foregoing nor
anything contained in this Agreement to the contrary, WORLDCOM shall not be
liable for any failure of the Space to be fit for the purpose to which Customer
intends to put the Space after buildout and Customer acceptance of the Space;
which acceptance shall be evidenced by Customer occupancy. Occupancy shall be
considered proof of full, complete and proper performance by WORLDCOM concerning
the Space.
<PAGE> 5
Collocate No. ___________________________
Collocate Schedule No. ___________________________
Amendment No. ___________________________
CRF No. ___________________________
Credit Approval No. ___________________________
7. INSURANCE. Customer shall obtain, pay for and unceasingly maintain insurance
coverages and in amounts of coverage not less than those set forth below and
shall provide WORLDCOM timely certificates as issued by insurance companies
satisfactory to WORLDCOM to evidence such existing coverages. Such certificates
shall provide that there shall be no termination, non-renewal, or modification
of such coverage without thirty (30) days' prior written notice to WORLDCOM. In
the event of any failure by Customer to comply with the provisions of this
paragraph, WORLDCOM may, at its option, on notice to Customer, suspend this
Agreement until Customer is in full compliance with this Paragraph 7, or
terminate this Agreement. The following types and minimum coverages shall apply:
a. Worker's Compensation insurance complying with the law of the state or
states of Customer's operation, whether or not such coverage is required by law,
and Employer's Liability insurance with limits of $500,000 per each employee and
$500,000 disease policy limit. If work is to be performed in Nevada, North
Dakota, Ohio, Washington, Wyoming or West Virginia, Customer shall purchase
Workers' Compensation in the State Fund established in these respective states.
Stop Gap coverage, and, if available, Employers Overhead coverage, shall also be
purchased.
b. Commercial General Liability insurance with a combined single limit for
bodily injury and property damage of $1,000,000 per each occurrence and General
and Products Liability aggregates of not less than $2,000,000 covering all
obligations or operations of Customer is required. The policy shall include no
modifications that reduce the standard coverages provided under a Commercial
General Liability Insurance policy form.
c. Business Automobile Liability insurance with a combined single limit for
bodily injury and property damage of $1,000,000 per each occurrence, with such
insurance to include coverage for all owned, non-owned and hired vehicles.
d. Excess or Umbrella Liability coverage with a combined single limit for
bodily injury and property damage of not less than $1,000,000 per each
occurrence shall be in force with an annual aggregate of $1,000,000 to apply in
excess of all other insurance coverages required above.
In the event coverage is denied or reimbursement of a properly presented
claim is disputed by the carrier for insurance provided in (a) through (d)
above, Customer shall, upon written request, provide WORLDCOM with a certified
copy of the involved insurance policy or policies within ten (10) business days
of receipt of such request.
Customer waives its right and underwriter's right of subrogation against
WORLDCOM, and WORLDCOM's officers, directors, agents, employees, and
shareholders, provided that such waiver prior to loss does not void or alter
coverage.
Neither the insurance required herein nor the amount and type of insurance
maintained by Customer, shall limit or affect the extent of Customer's liability
to indemnify WORLDCOM hereunder for injury, death, loss or damage.
WORLDCOM, and its affiliates, shall not insure or be responsible for any
loss or damage to property of any kind owned, licensed or leased by Customer or
its employees, servants and agents. Any policy of insurance covering the
property owned, licensed or leased by Customer against loss by physical damage
or otherwise shall provide that the underwriters have given their permission to
waive their rights of subrogation against WORLDCOM, its affiliates and their
directors, officers, employees, subsidiaries, including the directors, officers
and employees thereof.
The named insured certificate holder
must be shown as: WORLDCOM NETWORK SERVICES, INC. (R)
Attn: Contract Administration
6929 N. Lakewood Ave., M.D.1.1-205A
Tulsa,OK 74117-1808
If Customer utilizes contractors(s) per this Agreement, then Customer shall
require all such contractors(s) to comply with these insurance requirements and
to supply to WORLDCOM certificates of insurance before any work by such
contractor or any of its subcontractors commences.
If additional insurance coverages are required by the Landlord pursuant to
the Lease relevant to the Space in question, Customer hereby agrees to comply
with the Landlord's requirements under the Lease, including as the Lease may be
modified from time to time provided, however, Customer will be notified in
writing at least 60 days in advance of such modifications.
8. IMPROVEMENTS TO SPACE AND PREMISES; QUIET ENJOYMENT. In the event
Customer desires to make improvements to the Space and such Improvements are
deemed to be material and substantial as determined by WORLDCOM ("Material
Improvements"), Customer shall submit all plans and specifications for such
work to be performed in the Space to WORLDCOM for WORLDCOM's prior written
approval, which approval shall not be unreasonably withheld or delayed.
WORLDCOM shall exclusively submit all such plans and specifications for
Material Improvements to the Landlord if applicable for the Landlord's prior
written approval where appropriate. No construction for Material Improvements
may commence until both of the foregoing written consents are obtained.
Customer covenants and agrees that its use of the Space shall not interfere
with WORLDCOM's use of its Premises or any other tenants' use of their premises
in the building in which the Premises are located. WORLDCOM covenants and
agrees with Customer that WORLDCOM's use of the Premises and/or the use of the
Premises by WORLDCOM's other customers shall not unreasonably interfere with
Customer's use of the Space.
Customer shall not employ any contractor to perform Material Improvements
unless previously approved in writing by WORLDCOM (which approval shall not be
unreasonably withheld), and, further, where appropriate, unless approved in
writing by the Landlord. Customer and each contractor and subcontractor
participating in performing Material Improvements shall warrant that such work
shall be kept free from all mechanic's and/or materialman's liens and free from
any and all defects in workmanship and materials for the period of time which
customarily applies in good contracting practice, but in no event for less than
one (1) year after the acceptance of the work by Customer and WORLDCOM. The
aforesaid warranties of each such contractor and subcontractor and Customer
shall include the obligation to repair or replace in a thoroughly first-class
and workmanlike manner all defects in workmanship and materials without
additional charge. All the Material Improvements shall be covered in the
contracts and subcontracts for performance of Customer's work and shall be
written so that they shall inure to the benefit of WORLDCOM and
<PAGE> 6
Collocate Contract No. __________________________
Collocate Schedule No. __________________________
Amendment No. __________________________
CRF No. __________________________
Credit Approval No. __________________________
Customer as their respective interests may appear. Such warranties shall be so
written that they can be directly enforced by either Customer or WORLDCOM, and
Customer shall give to WORLDCOM any assignment, permission or other assurance
requested to effectuate the same.
It shall be Customer's responsibility to cause each of Customer's
contractors and subcontractors to maintain continuous protection of the premises
adjacent to the Space in such manner as to prevent any damage to adjacent
property by reason of the performance of such work.
All work to be performed under this Paragraph 8 shall be coordinated with
all work being performed by WORLDCOM and other tenants of the building in which
the Premises are located. The contractor or subcontractor shall comply with all
procedures and regulations prescribed by WORLDCOM and the Landlord of the
Premises for integration of Customer's work with the work to be performed in
connection with the construction of the building, and all construction within
the building which comprises or contains the Premises.
All fixtures, alterations, additions, repairs, improvements and/or
appurtenances attached to or built into, on or about the Space prior to or
during the Term of the limited license relevant thereto, whether by WORLDCOM at
its expense or at the expense of Customer, or by Customer at its expense or by
previous occupants of the Space, shall be and remain part of the Space and shall
not be removed by Customer at the end of the Term of the limited license
relevant to the Space. Upon the termination or expiration of the Term relevant
to the Space, WORLDCOM may allow Customer thirty (30) days after the date of
such termination or expiration, at Customer's sole cost and expense, to remove
Customer's trade fixtures (including, but not limited to, rectifiers/chargers,
batteries, AC power conditioning equipment, telecommunication switching
equipment, channel banks, etc.) installed by Customer provided that the Space is
restored by Customer to its original condition before the installation of such
items, reasonable wear and tear excepted, and that all such work (including
restoration) is performed in accordance with the other provisions of this
Agreement. If Customer shall fail to complete such removal and restoration where
permitted by WORLDCOM within the aforesaid thirty (30) day time period, all such
trade fixtures remaining within the Space or at the Premises may, at WORLDCOM'S
option, without notice, be deemed abandoned whereupon such items and equipment
will become the sole property of WORLDCOM, and WORLDCOM may dispose of such
items, equipment and trade fixtures as it deems appropriate without liability to
Customer at any other firm, person or entity. Customer shall continue to pay the
Basic Fee and other Fee(s) specified in the relevant WORLDCOM Collocate Schedule
until the earlier of: (i) Customer's removal of such trade fixtures and
completion of such restoration or (ii) WORLDCOM'S taking possession of such
trade fixtures as set forth above; but, in any event, not later than forty (40)
days after the termination date. All work affecting the Space shall be in
compliance with all laws, ordinances, rules, regulations, orders and directives
of governmental and quasi-governmental bodies and authorities having
jurisdiction over the Premises and the Space and Customer shall obtain and keep
in continuous effect all licenses, permits and other authorizations required
with respect to the business conducted by Customer or Customer's contractors
within the Space.
9. EMERGENCY PHONE NUMBERS. Customer shall provide WORLDCOM with means of access
to the Space and except in the case of an emergency, upon not less than
twenty-four (24) hours' notice, WORLDCOM shall have the unrestricted right to
enter the Space for the purpose of inspecting the same. Customer shall, upon
execution of this Agreement, provide WORLDCOM with a twenty-four (24) hour
maintenance telephone number for trouble notification and resolution by
inserting said telephone number(s) in the WORLDCOM Collocate Schedule(s). In
addition, Customer shall place such number at a visible location outside but
near the Space.
10. SOLE USE OF SPACE BY CUSTOMER. Customer acknowledges that it has been
granted only a limited license to occupy the Space; that it has not been granted
any real property interest in the Space; that neither this Agreement nor any
interest created herein shall be assigned, mortgaged, subleased, encumbered or
otherwise transferred by Customer and that neither the Space nor any part
thereof shall be encumbered in any manner by reason of any act or omission on
the part of Customer, or used or occupied, or permitted to be used or occupied,
by anyone other than Customer in conformity with this Agreement. Any attempt to
allow the use or occupancy of the Space by anyone other than Customer or to
assign, mortgage, sublease or encumber any rights under this Agreement, unless
otherwise previously agreed to in writing by WORLDCOM, shall be void; and in
such event, WORLDCOM shall have the immediate right to terminate this
Agreement as to the affected relevant Space.
11. DEFAULT. If (i) any payment due pursuant to this Agreement shall remain
unpaid for a period of ten (10) days after the same shall become due and
payable, or (ii) Customer fail to perform or fulfill any other covenant or
provision of this Agreement and such failure is not remedied within thirty (30)
days after the receipt of written notice thereof from WORLDCOM; or (iii)
Customer should interconnect with any other party in contravention of this
Agreement, then, and in that event, Customer shall be in default under this
Agreement and any license granted hereunder shall thereupon, at WORLDCOM'S sole
discretion and election and by virtue of this express stipulation, expire and
terminate and be of no further force or effect as to the affected relevant
Space. In the event of default by Customer, Customer agrees to pay any and all
reasonable costs incurred by WORLDCOM in the enforcement of this Agreement,
including reasonable attorney's fees. Any extension of time granted to Customer
by WORLDCOM to cure a default shall be effective only if made in writing.
WORLDCOM'S granting of an extension, failing to act with respect to any
default, or waiving any default shall not constitute a permanent waiver by
WORLDCOM of its rights hereunder with respect to any future act or default by
Customer, or any failure to cure such default within any extension period
granted by WORLDCOM.
Customer may be deemed to be in default of this Agreement if Customer has
failed to pay any sums due WORLDCOM under any collocate schedule, under the
following conditions, only: i) the failure to pay any proper fee or charge
hereunder by Customer where such failure continues for forty-five (45) days
after receipt of notice by Customer that WORLDCOM intends to exercise its rights
hereunder to terminate; or ii) the failure to reasonably commence the cure of a
nonmonetary default hereunder which failure continues for a period of forty-five
(45) days after receipt of notice by Customer to the same effect as i), above;
or iii) the failure to complete the cure of a nonmonetary default hereunder
which failure continues for a period of forty-five (45) days after such cure
could reasonably have been completed, and notice to that effect has been
received by Customer wherein WORLDCOM has expressly advised customer in such
notice that WORLDCOM intends to take the action described in i), just above
- ------------------------------------------------------------------------------
CONFIDENTIAL MATERIALS
<PAGE> 7
Collocate Contract No. ____________________________
Collocate Schedule No. ____________________________
Amendment No. ____________________________
CRF No. ____________________________
Credit Approval No. ____________________________
12. NOTICES. All notices, consents, and other communications required or
permitted hereunder shall be in writing and shall be mailed or delivered as set
forth in this Paragraph 12 (or to such additional or other persons, at such
other address or addresses as any be designated by notice of the appropriate
party.) Mailed communications shall be sent by United States certified or
registered mail, postage prepaid or by a generally recognized overnight delivery
system such as Federal Express. Such communications shall be deemed effective
upon delivery to WORLDCOM or Customer, as the case may be, at their respective
business addresses shown at the end of this agreement.
13. LIMITATION OF LIABILITY AND INDEMNIFICATION.
(a) WORLDCOM shall take reasonable precautions to avoid actual damage to
the Space and/or the Equipment; however, except for actual damage to the Space
and/or the Equipment caused by the gross negligence or willful misconduct of
WORLDCOM, its agents, employees or affiliated companies, WORLDCOM'S liability
for damages incurred by Customer for any other cause whatsoever shall be limited
to the charges due WORLDCOM under this Agreement. As used in this Subparagraph
13(a) the term "actual damages" shall mean no more than the cost to restore the
Space to a state substantially similar to that which existed as of the Billing
Commencement Date and the cost to repair the Equipment to a state of working
order or the replacement value of the Equipment if such damage renders said
Equipment beyond a reasonable state of repair.
(b) WORLDCOM shall not be liable to Customer nor any other person, firm or
entity for any incidental, indirect, special, consequential, punitive or
reliance damages of any nature whatsoever regardless of the foreseeability
thereof (including, but not limited to, any claim from any client, customer,
third party or patron for loss of services, lost profits or lost revenues)
arising under or in connection with this Agreement, or the performance
hereunder, arising from any breach, or partial breach, or potential breach of
the provisions of this Agreement, or arising out of any act or omission by
either WORLDCOM or Customer, their respective employees, servants or agents
whether based on breach of contract, breach of warranty, negligence or any other
theory of liability.
(c) Customer shall indemnify, defend and hold harmless WORLDCOM and its
agents, servants, employees and affiliates from any claims, demands, actions,
damages, charges, expenses, fees, liability, judgments, and costs (including
attorney's fees) arising from: (i) Customer's use or enjoyment of the Space or
Services, or the use by any third party permitted by Customer to visit or
utilize the Space, Services or Premises, unless caused by WORLDCOM'S gross
negligence or willful misconduct; (ii) breach or nonperformance of any covenant
or obligation of Customer contained herein, or (iii) arising out of the
violation of any law or regulation by Customer. Customer's obligation to assume,
protect, defend, indemnify and save WORLDCOM harmless shall extend to protect
WORLDCOM'S officers, directors, agents, employees and any corporate shareholder
of WORLDCOM or its affiliates, and Customer shall continue to indemnify, defend
and hold harmless WORLDCOM for so long as any of the named indemnitees may be
subjected to claims or suits calling for such obligations; provided, however,
Customer shall not be obligated to indemnify, end or hold harmless WORLDCOM and
the named indemnitees from claims, demands, actions, damages, liability,
judgments, expenses and costs arising from or asserted by third parties against
WORLDCOM on account of physical property damage to such third party's property
located upon the Premises (exclusive of the Space) or personal injury to such
third party to the extent such damage is caused by any gross negligence or
willful misconduct of WORLDCOM or its agents or employees.
(d) Customer shall be responsible to pay or repay WORLDCOM for any expense,
fee, or loss suffered or paid by WORLDCOM due to fire, casualty, injury or other
charge made against WORLDCOM as a result of Customer's use, occupancy of or
conduct within the Space. WORLDCOM shall have no liability of any kind
whatsoever to Customer or any person, firm or entity for any act or omission of
WORLDCOM, its agents or employees excepting only as follows: WORLDCOM, at its
own expense shall indemnify Customer and hold Customer harmless with respect to
any and all loss, damage, liability or expense asserted against Customer by a
third party on account of any physical property damage to such third party's
property located upon the Premises (exclusive of the Space) or personal injury
to such third party caused solely by the gross negligence or willful misconduct
of WORLDCOM or its agents or employees arising out of WORLDCOM'S performance of
this Agreement. WORLDCOM'S obligation to indemnify and hold Customer harmless
shall extend to Customer's officers, directors, employees, agents, and any
corporate shareholder of Customer, and shall continue only for so long as any of
the named indemnitees may be subject to claims or suits calling for such
obligations.
14. USE. With respect to each WORLDCOM Collocate Schedule executed by Customer
(whether simultaneously with or after the date of this Agreement), Customer
shall continually maintain per Space not less than (i) $7,000.00 in monthly
recurring interexchange service charges from WORLDCOM, and/or (ii) $21,000.00 in
monthly measured and per call switched service charges from WORLDCOM (the
"Monthly Minimum"), at least a portion of which interexchange service and/or
switched service must originate/terminate in the Space in question. If Customer
requests more than four (4) racks or cabinets with respect to any individual
Space, the Monthly Minimum with respect to the relevant Space will be subject to
adjustment as determined in WORLDCOM'S reasonable judgment, which modified
amount will be set forth in the applicable WOLRDCOM Collocate Schedule(s). If
Customer fails to maintain the Monthly Minimum and relevant increase or
decrease, if any, with respect to any Space. WORLDCOM may, in its reasonable
judgment and upon ninety (90) days' notice to Customer, terminate this Agreement
with respect to the affected relevant Space.
15. EMINENT DOMAIN. In the event of a taking by eminent domain (or a conveyance
by any Landlord of all or any portion of the Premises to an entity having the
power of eminent domain after receipt of actual notice of the threat of such
taking) of all or any portion of the Premises so as to prevent, in WORLDCOM'S
sole determination, the utilization by Customer of the Space in the Premises,
this Agreement shall terminate as of the date of such taking or conveyance with
respect to the Space which is affected by such taking or conveyance and the
Basic Fee and other relevant fee(s) paid or to be paid by Customer shall be
proportionately reduced at WORLDCOM'S discretion. Except as set forth below,
Customer shall have no claim against WORLDCOM for the value of the unexpired
Term of the license affected thereby (or any portion thereof) or any claim or
right to any portion of the amount that might be awarded to the Landlord of the
Premises or to WORLDCOM as a result of any payment for condemnation or
CONFIDENTIAL MATERIALS
- -------------------------------------------------------------------------------
<PAGE> 8
Collocate Contract No. ________________________
Collocate Schedule No. ________________________
Amendment No. ________________________
CRF No. ________________________
Credit Approval No. ________________________
damages. Nothing contained in this Agreement shall prohibit Customer from
seeking any relief or remedy against the condemning authority in the event of an
eminent domain proceeding or condemnation which affects the Space
16. DAMAGE TO PREMISES. If the building in which the Premises are located is
damaged by fire or other casualty, WORLDCOM shall give immediate notice to
Customer of such damage. If such damage is the result of Customer's negligence
or use of the Space or Services, Customer shall reimburse WORLDCOM for all cost,
expense, loss or damage resulting from such negligence or use of the Space or
Services. If a Landlord or WOLRDCOM exercises an option to terminate a
particular Lease due to damage or destruction of the Premises, or if WORLDCOM
decides not to rebuild such building or portion thereof in which the Space is
located, this Agreement shall terminate as of the date of such damage or
decision as to the affected Space and the Basic Fee and other relevant Fee(s)
paid by Customer shall be proportionately reduced. If neither the Landlord of
the affected Premises nor WORLDCOM exercises the right to terminate, WORLDCOM
shall repair the particular Space to substantially the same condition it was
prior to the damage. In the event WORLDCOM shall fail to complete the repairs
within a time period considered reasonable under telecommunications industry
standards, Customer shall thereupon have the option to terminate this Agreement
with respect to the affected Space, which option shall be the sole remedy
available to Customer against WORLDCOM under this Agreement relating to such
failure. If the Space or any portion thereof shall be rendered untenantable by
reason of such damage, the Basic Fee and other Fee(s) for such Space shall
proportionately abate, based on the amount of square footage which is rendered
untenantable, for the period from the date of such damage to the date when such
damage shall have been repaired for the portion of the Space rendered
untenantable.
17. FORCE MAJEURE. Notwithstanding any other provision of the Agreement, neither
party shall be deemed in default of this Agreement for delay, failure in
performance, loss or damage due to any of the following force majeure
conditions: fire, stake, explosion, power blackout, earthquake, flood, war,
water, the elements, labor disputes, civil disturbance, government requirement,
civil or military authority, acts of God, inability to secure transportation
facilities, acts or omissions of transportation carriers, or other causes beyond
their reasonable control, whether or not similar to the foregoing. Any party
failing timely to perform its obligation under this Agreement must take all
reasonable steps to remedy its nonperformance or delay in performance with the
least possible delay in order to mitigate the adverse effect of its
nonperformance upon the other party to this Agreement.
18. LIEN ON EQUIPMENT. WORLDCOM shall have no rights to or interest in the
Equipment other than statutory rights, if any, granted a landlord with respect
to the property of a tenant (commercial or residential) other than those set
forth in this Agreement. Except as provided herein, the Equipment shall remain
the sole property of Customer. However, in the event Customer fails to pay
WORLDCOM for amounts due hereunder and is in default of this Agreement, WORLDCOM
shall have a lien upon the Equipment and all other personal property of Customer
which may be located in or upon the Premises. Customer hereby specifically
waives any and all exemption allowed by law with respect to such lien. Such
lien, (subject to the rights of third parties, if any, with security interests
in the Equipment, including, but not necessarily limited to, third party
commercial lenders, equipment lessors and factors, whether or not such security
interests have been perfected), may be enforced by WORLDCOM for Customer's
failure to pay amounts due hereunder by the taking and selling of such Equipment
and/or property, (said sale to be made in a commercially reasonable manner upon
thirty (30) days' written notice to Customer), or such lien may be enforced in
any other lawful manner available at the sole option of WORLDCOM. The lien
provided for herein shall not, before default by Customer, be recordable as a
security interest in the Equipment and shall only arise in the event Customer
fails to pay such charges.
19. CONDUCT IN SPACE AND PREMISES. Customer shall abide by WORLDCOM'S and any
applicable Landlord's rules with regard to Customer's conduct in the Premises.
Such rules include, but are not limited to, a prohibition against smoking in the
Space or the Premises by Customer's employees, agents, representatives,
contractors, subcontractors, invitees or licensees. Further, Customer shall
maintain the Space in a clean and safe condition, including but not limited to
the preclusion of storing hazardous or combustible materials in the Space
20. ASSIGNMENT - CHANGE IN CONTROL. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors or
assigns. Except as security for financing or in connection with the enforcement
of any security interests so granted. Customer shall not assign or transfer this
Agreement to any third party which is not an existing affiliate or subsidiary of
Customer as of the date of this Agreement without the prior written consent of
WORLDCOM, which consent shall not be unreasonably withheld or delayed. If
Customer makes such an assignment or transfer without the written consent of
WORLDCOM, WORLDCOM may immediately cancel this Agreement. In the event Customer
sells or transfers substantially all of as assets to another party and WORLDCOM
agrees in writing to assign or transfer this Agreement to such party, Customer
shall require the purchaser, as a condition of such sale, to agree that the
purchaser shall fully assume this Agreement and continue to perform all of the
obligations of Customer under this Agreement.
CONFIDENTIAL MATERIALS
------------------------------------------------------------------------------
<PAGE> 9
Collocate Contract No. ___________________________
Collocate Schedule No. ___________________________
Amendment No. ___________________________
CRF No. ___________________________
Credit Approval No. ___________________________
21. ENTIRE AGREEMENT AND FUTURE MODIFICATION OF AGREEMENTS. This Agreement,
attached Exhibits and the WORLDCOM Collocate Schedule(s) identified herewith and
made a part hereof along with two certain Letters of Intent between the parties,
all of which together contain the entire agreement of the parties with respect
to the Space delineated in each WORLDCOM Collocate Schedule to the date hereof.
No other prior agreements or understanding pertaining to such Collocate Space
shall be legally effective. This Agreement may only be modified in a writing
duly and validly signed by both parties in interest at the time of modification.
Customer specifically acknowledges that neither WORLDCOM nor any agent or
employee of WORLDCOM has made any representations, warranties or promises except
as expressly set forth in this Agreement and in the WORLDCOM Collocate
Schedule(s) identified herewith.
22. NO WAIVERS. A waiver by either party of any of the covenants or agreements
hereof to be performed by the other party shall not be construed to be a waiver
of any succeeding breaches thereof or of any other covenants or agreements
herein contained to be performed by the other party.
23. SEVERABILITY; LEGAL COMPLIANCE. It is the intention of the parties to comply
with all applicable federal, state and local statutes, orders, regulations and
case law in the performance of this Agreement. To the extent that any provision
fails to comply with any such requirements or is otherwise held to be invalid,
illegal or unenforceable, such provision shall be considered null and void but
the remaining provisions of this Agreement shall be unimpaired, and the invalid,
illegal or unenforceable provision shall be replaced by provisions that are
acceptable to both parties, are valid, legal and enforceable, and come as close
as possible to reflect accurately the intentions of the parties underlying the
invalid, illegal or unenforceable provision or provisions, so long as such
replacement provisions do not have the effect of frustrating the basic business
purposes and expectations of both parties. In such latter event, either party
shall have the right to terminate this Agreement upon written notice to the
other.
24. NATURE OF RELATIONSHIP OF PARTIES. Nothing contained herein shall be deemed
to create a relationship between Customer and WORLDCOM of employer and employee,
master and servant, principal and agent, contractor and subcontractor,
co-venturers, partners or any similar relationship within the meaning of any law
or otherwise. This Agreement shall not constitute either party as the agent for
or principal of the other for any purpose.
25. REPRESENTATIONS AND WARRANTIES. Each party represents and warrants that it
has taken all requisite corporate or partnership action to approve execution,
delivery and performance of this Agreement and that this Agreement constitutes a
legal, valid and binding obligation enforceable against it in accordance with
its terms. Customer further warrants that it is a legally existing, properly
licensed and valid business entity in good standing with all governmental
entities having authority or jurisdiction over Customer or Customer's business.
Customer acknowledges that it has not been induced to enter into this Agreement
by any representation or promise not specifically expressed in this Agreement.
Any modification made hereto shall not be valid and binding unless in writing
and signed by both Parties.
26. GENERAL PROVISIONS.
(a) The Space provided for hereunder is subject to the condition that it
shall not be used for any unlawful purpose.
(b) This Agreement shall be construed under the laws of the State of
California without regard to choice of law principles.
(c) The terms and provisions contained in this Agreement that by their
sense and context are intended to survive the performance thereof by the
parties hereto shall survive the completion of performance and termination
of this Agreement, including, without limitation, the making of any and all
payments due hereunder.
(d) Descriptive headings in this Agreement are for convenience only and
shall not affect the construction of this Agreement.
(e) Words having well known technical or trade meanings shall be so
construed, and all listings of items shall not be taken to be exclusive,
but shall include other items whether similar or dissimilar to those
listed, as the context reasonably requires.
(f) No rule of construction requiring interpretation against the draftsman
hereof shall apply in the interpretation of this Agreement.
(9) Signature below acknowledges Customer's agreement to and acceptance of
the "Standards for Customer Responsibility" set forth in the Collocate
Schedule(s) Exhibit 11.
27. CONFIDENTIALITY.
From time to time during the Term, the parties may deem it necessary to provide
each other with confidential information ("Confidential Information")
Confidential Information is defined as information marked appropriately and
transferred pursuant to this Agreement and shall include, without limitation,
formulas, processes, designs, photographs, plans, samples, equipment, equipment
performance reports, subscriber lists, pricing information, studies, findings,
inventions, ideas, drawings, schematics, sketches, specifications, parts lists,
technical data, databases, software in any form, flowcharts, algorithms and
other business and technical information. Excluded from Confidential Information
is that information for which the recipient can demonstrate: (a) that the
recipient had the information in its possession without confidential limitation
prior to disclosure, or (b) that the recipient independently developed the
information, or (c) that the information is known or becomes known to the
general public without breach of this Agreement, or (d) that the recipient
received the information from a third party rightfully and without confidential
limitation.
CONFIDENTIAL MATERIAL
- --------------------------------------------------------------------------------
<PAGE> 10
Collocate Contract No. ___________________________
Collocate Schedule No. ___________________________
Amendment No. ___________________________
CRF No. ___________________________
Credit Approval No. ___________________________
The parties agree that the receiving party of Confidential Information shall:
(i) Maintain the confidentiality of such Confidential Information and
not disclose it to any third party, except as authorized by the
original disclosing party. Such Confidential Information includes
both oral and visual Confidential Information;
(ii) Restrict disclosure of Confidential Information to employees who
have a "need to know" such information in connection with their
employment. Such Confidential Information shall be handled with
the same degree of care which the receding party applies to its
own Confidential Information;
(iii) Take precautions necessary and appropriate to guard the
confidentiality of Confidential Information, including informing
as employees who handle such confidential Information that it is
confidential and not to be disclosed to others, but in no event,
less than reasonable care;
(iv) Use such Confidential Information only as required in performance
of this Agreement;
(v) Acknowledge that the Confidential Information is and shall at all
times remain the property of the disclosing party.
No use of any Confidential Information is permitted except as otherwise provided
herein or as required by law, and no grant under any proprietary rights is
hereby given or intended, including any license, implied or otherwise.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the day and year first above written.
WORLDCOM NETWORK SERVICES, INC.(R) CUSTOMER: TELEHUB NETWORK SERVICES
CORPORATION
BY: /s/ Richard J. Knapp /s/ Herbert H. Swinburne
---------------------- ---------------------------
(Signature) (Signature)
RICHARD J. KNAPP HERBERT H. SWINBURNE
- -------------------------- ---------------------------
(Print Name) (Print Name)
Director, Custom Managed Solutions Group President
- ---------------------------------------- ---------------------------
(Title) (Title)
4-3
- ----------------------- , 1998 -------------------- , 199_
(Date Approved) (Date Signed)
Business Address: Customer Business Address:
WORLDCOM NETWORK SERVICES, INC.(R) TeleHub Network Services Corporation
Mail Drop 1.1-205A --------------------------------------
6929 N. Lakewood Ave. 1375 Tri-State Pkwy., #250
Tulsa, Oklahoma 74117-1808 --------------------------------------
Attn: Collocate Analyst Gurnee, IL 60031
Email: [email protected] --------------------------------------
TEL: (918) 590-3004 Attn: Vice President, Network Services
--------------------------------------
TEL: 847-782-2000
--------------------------------------
------------------------------------------------------------------------------
CONFIDENTIAL MATERIALS
<PAGE> 1
EXHIBIT 10.34
LICENSE AGREEMENT
-----------------
THIS AGREEMENT is made and entered into on December 24, 1997, by and between
TeleHub Communications Corporation, a Nevada corporation located at 2033 North
Main Street, Suite 340, Walnut Creek, California 94596 USA, together with its
subsidiaries (collectively "Company") and Newbridge Networks Corporation, a
Canadian corporation located at 600 March Road, P.O.Box 13600, Kanata, Ontario
K2K 2E6, together with its subsidiaries (collectively "Newbridge").
BACKGROUND
----------
A. Company is the developer and owner of the computer software products
described on Exhibit A, as amended from time to time (the "Licensed Software"),
as well as the associated written documentation, manuals and other related
materials provided by Company (the "Documentation").
B. Newbridge desires to obtain a license to copy, install, and use the
Licensed Software and Documentation at its Kanata premises, and to demonstrate
the Licensed Software to potential customers.
NOW THEREFORE, the parties hereby agree as follows:
1. GRANT OF RIGHTS.
---------------
(a) LICENSE TO USE AND COPY SOFTWARE. Company grants Newbridge a
non-exclusive, non-transferable (except as permitted herein), fully paid,
perpetual (unless terminated under Section 8 below) license to install and use
and copy the Licensed Software and Documentation for demonstrations to
potential customers as well as for Newbridge's own internal use at Newbridge's
Kanata premises; provided Newbridge may make no more than five (5) copies of
the Licensed Software. Customer demonstrations may be made outside of
Newbridge's premises, provided that the Licensed Software remains under
Newbridge's control, and no copies of the Licensed Software are made by or on
behalf of any such customer, or left at such customer's premises.
(b) LICENSE RESTRICTIONS. Newbridge may not:
(i) sell, transfer (except as permitted herein), sublicense, or otherwise
distribute the Licensed Software or any portion thereof to any person or
entity, whether as a standalone or bundled product;
(ii) make any representations or warranties to third parties concerning the
Licensed Software, including as to the performance of the Licensed
Software, inconsistent with those made by Company;
<PAGE> 2
Page 2
(iii) publicly assess the Licensed Software or its performance, without
Company's prior written approval (which shall not be unreasonably withheld
or delayed);
(iv) use the Licensed Software for any other purpose except as set forth
in Section 1(a); or
(v) the Licensed Software is intended for standard commercial uses.
Without the appropriate network design engineering, it must not be sold,
licensed or otherwise distributed for use in any hazardous environments
requiring fail safe performance, such as in the operation of nuclear facilities,
aircraft navigation or communication systems, air traffic control, direct life
support machines, or weapons systems, in which the failure of products could
lead directly to death, personal injury, or severe physical or environmental
damage. Newbridge hereby agrees that the use, sale, licence or other
distribution of the Licensed Software for any such application without the prior
written consent of the Company, shall be at Newbridge's sole risk. Newbridge
also agrees to defend and hold Company harmless from any claims for loss, cost,
damage, expense or liability that may arise out of or in connection with the
use, sale, licence or other distribution of the Licensed Software in such
applications.
(c) OWNERSHIP. This Agreement does not and shall not be construed as
transferring ownership rights of any description in the Licensed Software,
Documentation, corrections, upgrades or enhancements thereto or thereof, or any
related materials to Newbridge or any third party. Company owns and shall
retain all right, title and interest in such materials except as specifically
granted herein. Newbridge shall retain all copyright and trademark notices on
the Licensed Software and Documentation to protect Company's intellectual
property rights.
(d) SOFTWARE MAINTENANCE. Company shall provide to Newbridge at no cost all
defect correction code (fixes, patches, and software problem workarounds) which
Company may develop for the Licensed Software and all associated Documentation
and technical information.
(e) ARCHIVAL & BACKUP COPIES. Newbridge may make one additional copy of the
Licensed Software for backup or archival purposes:
2. DELIVERY OF MASTER COPY.
-----------------------
(a) DELIVERY. Upon execution of this Agreement, Company shall promptly
deliver to Newbridge one (1) master copy of the Licensed Software, in object
code format only, and Documentation, in form suitable for duplication by
Newbridge.
(b) INSTALLATION. Upon request, Company will provide all reasonable help,
training and materials reasonably necessary to enable Newbridge to properly
install, test and use one copy of the Licensed Software at its premises in
Kanata.
<PAGE> 3
Page 3
3. LICENSE FEE AND TAXES.
---------------------
(a) LICENSE FEES. Newbridge shall pay Company, via wire transfer concurrently
with Company's execution hereof, a one-time license fee for rights granted
herein to the Licensed Software of two million US dollars (USA $2,000,000)(the
"License Fee").
(b) TAXES. In addition to the License Fees, Newbridge shall pay any sales
and/or use taxes imposed upon this Agreement, excluding however all corporate
franchise taxes, and taxes based on or measured by Company's income. Newbridge
may deduct from payments to Company (if a non-resident of Canada) any taxes
required to be withheld by Canadian Law.
4. REPRESENTATIONS & WARRANTIES.
----------------------------
Company represents and warrants to Newbridge that:
(i) it has the right to enter into this Agreement, and grant Newbridge the
rights herein;
(ii) the Licensed Software, as installed by Company pursuant to Section
2(b) above, will operate as described in its Documentation. If that copy
of the Licensed Software fails to so operate, Company will, at no charge,
promptly use all commercially reasonable efforts to correct any such
failures. If Company is unable to correct a material failure within sixty
(60) days it shall, at Newbridge's option, accept return of the Licensed
Software and promptly refund the License Fee to Newbridge.
(iii)the media containing the Licensed Software delivered to Newbridge is
free from defects in materials and workmanship for a period of thirty (30)
days from the date of original delivery to the Newbridge. If a defect in
such media appears during this period, the defective media may be returned
to Company, and Company will replace it without charge to Newbridge.
(iv) the Licensed Software, as installed by Company pursuant to Section
2(b) above, will not contain "product keys", "expiry codes" or other codes
or devices that may prevent Newbridge from using the Licensed Software at
any time. The Licensed Software, as installed by Company pursuant to
Section 2(b) above, and the media on which the Licensed Software is
delivered, will not contain any "computer viruses" or any other programs
that may affect the normal use of the Licensed Software or any other
software or data;
(v) Company assigns to Newbridge any rights needed by Newbridge to enforce
any third party warranty (express or implied) on the Licensed Software.
Company will upon notice from Newbridge use reasonable efforts to enforce
the warranty on behalf of Newbridge;
(vi) the Licensed Software, as installed by Company pursuant to
Section 2(b) above.
<PAGE> 4
Page 4
and Documentation, or their use or copying as permitted under this
Agreement, will not infringe any copyright, patent, trade secret, or other
contractual or proprietary right or obligation; and
(vii) the Licensed Software, as installed by Company pursuant to Section
2(b) above, is designed to be used prior to, during, and after the calendar
year 2000 A.D., and will operate without any error relating to or arising
from date data which represents or references: a leap year, different
centuries, more than one century, or dates from January 12, 2000 onwards.
5. DISCLAIMER OF OTHER WARRANTIES.
------------------------------
EXCEPT FOR THE WARRANTIES CONTAINED IN THIS AGREEMENT, COMPANY DISCLAIMS ALL
OTHER WARRANTIES ON THE LICENSED SOFTWARE, EXPRESS OR IMPLIED, INCLUDING THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6. LIMITATION OF LIABILITY.
-----------------------
(a) GENERAL LIMITATION. EXCEPT FOR SECTION 7 BELOW, IN NO EVENT SHALL THE
TOTAL CUMULATIVE LIABILITY OF NEWBRIDGE OR COMPANY (INCLUDING THEIR EMPLOYEES,
DIRECTORS, OFFICERS OR AGENTS), FOR ALL CLAIMS ARISING OUT OF OR RELATING TO
THIS AGREEMENT, EXCEED ACTUAL DIRECT, PROVABLE DAMAGES, NOT TO EXCEED THE TOTAL
AMOUNT OF THE LICENSE FEES PAID BY NEWBRIDGE. THE FOREGOING PROVISION LIMITING
THE LIABILITY OF NEWBRIDGE AND COMPANY (INCLUDING THEIR EMPLOYEES, DIRECTORS,
OFFICERS OR AGENTS) SHALL APPLY REGARDLESS OF THE FORM OR CAUSE OF ACTION,
WHETHER IN CONTRACT OR TORT, OR A BREACH OF A FUNDAMENTAL TERM OR CONDITION.
(b) ECONOMIC LOSSES. EXCEPT FOR SECTION 7 BELOW, NEITHER NEWBRIDGE OR COMPANY
(INCLUDING THEIR EMPLOYEES, AGENTS, OFFICERS OR DIRECTORS) SHALL BE LIABLE IN
ANY WAY WHATSOEVER FOR ANY INDIRECT, PUNITIVE, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO, LOSS OF REVENUE OR PROFIT,
OR OTHER COMMERCIAL OR ECONOMIC LOSS OF ANY KIND WHATSOEVER. THIS LIMITATION
SHALL APPLY WHETHER OR NOT SUCH DAMAGES ARE FORESEEABLE, OR NEWBRIDGE OR COMPANY
(OR THEIR EMPLOYEES, AGENTS, OFFICERS OR DIRECTORS)HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
(c) TRUST. The foregoing provisions limiting the liability of Newbridge's and
Company's employees, agents, officers and directors shall be deemed to be trust
provisions for the benefit of such employees, officers, directors and agents and
shall be enforceable by such as trust beneficiaries.
<PAGE> 5
Page 5
7. INDEMNIFICATION.
(a) INDEMNITY. Company will defend Newbridge against any claim, legal
proceeding or demand alleging that the Licensed Software or Documentation, or
their use or copying as permitted under this Agreement, infringes any United
States or Canadian copyright, patent, trade secret, or other contractual or
proprietary right (a "Claim"); provided Company is notified of the Claim, is
given authority to defend it and Newbridge provides reasonable assistance to
Company, at Company's expense. Company will indemnify Newbridge against all
costs, expenses, reasonable legal fees, damages and other liabilities arising in
respect of a Claim.
(b) INJUNCTIONS. In the event Newbridge is enjoined from its use of any of
the Licensed Software for any reason, Company will, at no cost to Newbridge,
promptly either:
(i) procure for Newbridge the right to continue using the Licensed
Software;
(ii) render the Licensed Software non-infringing without materially
diminishing the Licensed Software's performance, functionality or features;
(iii) replace the Licensed Software with equivalent non-infringing
goods; or
(iv) if the provisions of Sections 7(b)(i) through 7(b)(iii) are not
reasonably possible, Company will remove the Licensed Software and refund
Newbridge all amounts paid in respect thereof;
(c) RESTRICTIONS. Company shall have no obligation hereunder for or with
respect to any Claim which arises by reason of.
(i) use of the Licensed Software in combination with any items not
supplied by Company, provided the use of such items or combinations are not
contemplated by the parties, referred to in the Documentation or otherwise
by Company in writing; or
(ii) the unauthorized modification of the Licensed Software or
Documentation by Newbridge.
(d) LIMITATION NOT APPLICABLE. Section 6 ("Limitation of Liability") shall
not apply in any respect to this Section 7.
(e) NEWBRIDGE INDEMNITY. Newbridge will defend Company against any claim,
legal proceeding or demand brought against Company based on representations or
warranties made by Newbridge relating to the Licensed Software, which exceed
those made by Company (a "Company Claim"); provided Newbridge is notified of
the Company Claim, is given authority to defend it and Company provides
reasonable assistance to Newbridge, at Newbridge's expense. Newbridge will
indemnify Company against all costs, expenses, reasonable legal fees, damages
and other liabilities arising in respect of a Company Claim.
<PAGE> 6
Page 6
8. TERM AND TERMINATION.
The licenses granted under this Agreement shall continue until terminated in
accordance with this Agreement. Either party may terminate the Agreement if the
other breaches any material term and does not remedy the breach within 30 days
after receiving notice of the breach. Newbridge may terminate this Agreement at
any time upon notice to Company, provided Newbridge promptly returns or
destroys all copies of the Licensed Software.
9. GENERAL PROVISIONS.
(a) GOVERNING LAW. This Agreement shall be governed by the laws in force in the
Province of Ontario, Canada (except for its conflict of laws provisions). The
parties expressly exclude from this Agreement all the provisions of the Vienna
Convention, 1980 (The United Nations Convention on Contracts for the
International Sale of Goods).
(b) TRANSFER. Upon Company's prior, written approval, Newbridge may transfer
the Licensed Software on a permanent basis to another person or entity,
provided that Newbridge retains no copies of the Licensed Software and the
transferee agrees to the terms of this Agreement.
(c) SEVERABILITY. The provisions of this Agreement shall be deemed severable.
If any provision of this Agreement shall be held unenforceable by any court of
competent jurisdiction, it shall be servered from this Agreement and the
remaining provisions shall remain in full force and effect.
(d) AMENDMENTS. This Agreement shall not be amended or modified except in
writing signed by the parties hereto. No course of dealing or usage of trade by
or between the parties shall be deemed to effect any such amendment or
modification.
(e) HEADINGS. All headings and captions contained herein are for convenience
and ease of reference only and are not to be considered in the construction or
interpretation of any provision of this Agreement.
(f) FORCE MAJEURE. Neither party shall be deemed to be in default of any
provision of this Agreement for any failure in performance resulting from acts
or events beyond its reasonable control. Each party will use its best efforts
to anticipate such failures and to devise means to eliminate or minimize them.
(g) NOTICES. All notices hereunder must be in writing and served by personal
service or by mail at the address of the receiving party set forth in this
Agreement (or at such different address as may be designated by such party by
written notice to the other party). All notices by mail shall be by certified
or registered mail, return receipt requested, or by nationally-recognized
express courier, and shall be deemed complete upon receipt.
<PAGE> 7
Page 7
(h) INDEPENDENT CONTRACTORS. The parties will remain at all times independent
contractors. In no event will either party's staff or contractors be considered
agents or employees of the other party.
(i) WAIVERS. Any consent by any party to, or waiver of, a breach by the other,
whether express of implied, shall not constitute a consent to, or a waiver of
any other, different or subsequent breach.
(j) SURVIVAL OF CERTAIN PROVISIONS. Sections 4, 5, 6, 7 and 9 will remain in
effect even if the Agreement is terminated or transferred or any reason, and
will continue to bind the parties and their legal representatives, successors
and assigns.
(k) EXPERT. Company shall be responsible for export compliance relating to the
delivery of the Licensed Software to Newbridge's facilities in Kanata. Should
Newbridge desire to export the Licensed Software outside of the United States
or Canada, Newbridge shall be responsible for export compliance, provided that
Company shall assist Newbridge in complying with any applicable export
requirements.
(l) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties hereto solely with respect to the license by Newbridge of the
Licensed Software, and cancels and supersedes any prior understanding and
agreements between the parties relating specifically thereto. However, all other
agreements and understandings between the parties relating to other matters
remain in full force and effect, including but not limited to the Sales
Agreement and End User License Agreement dated October 31, 1997, and all
portions relating to other matters of that certain Memorandum of Understanding
dated October 24, 1997. This Agreement also cancels and precedes any license or
other agreement which may accompany, or be incorporated into the Licensed
Software, including without limitation and "shrink-wrap" license agreements.
There are no representations, warranties, terms, conditions, understandings ????
implied, statutory or otherwise between the ???? matter hereof, except as
expressly set forth in this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
TELEHUB COMMUNICATIONS CORPORATION NEWBRIDGE NETWORKS CORPORATION
By: /s/ D. H. Sledge By: /s/ D. McCarthy
-------------------------------- --------------------------------
Name: D. H. Sledge Name: D. McCarthy
------------------------------- -------------------------------
Title: CEO Title: V.P. Finance and Treasurer
----------------------------- -----------------------------
<PAGE> 8
Page 8
EXHIBIT A
---------
LICENSED SOFTWARE:
The following software, as may be corrected from time to time:
Virtual Access Services Platform, pre-release version, in object code format.
<PAGE> 9
ADDENDUM NO. 1 TO LICENSE AGREEMENT
This Addendum (this "Addendum") made as of the 20th day of March, 1998
supplements and amends the terms and conditions of the License Agreement (the
"Agreement"), dated December 24, 1997, between TeleHub Communications
Corporation ("Company") and Newbridge Networks Corporation ("Newbridge"). All
capitalised terms used herein, but not defined, shall have the respective
meanings assigned to such terms in the Agreement, as amended.
In consideration of the payment by Newbridge of a one-time license fee of three
million U.S. Dollars (USD$3,000,000), the receipt of which Company hereby
acknowledges, Company and Newbridge agree as follows:
I. AMENDMENT.
1. Exhibit A of the Agreement, Licensed Software, is hereby amended and
restated to read in its entirety as follows:
"The following software, as may be corrected from time to time:
- Virtual Access Services Platform, pre-release version, in object code
format; and
- Virtual Access Services Platform, in object code format."
II. EFFECT OF AMENDMENT.
In the event of any conflict or inconsistency between the terms of this
Addendum and the Agreement, the terms of this Addendum shall prevail. Except
as specifically and to the extent modified by this Addendum, all of the terms
and provisions of the Agreement shall continue to remain unchanged and in full
force and effect.
IN WITNESS WHEREOF the parties have duly executed this Addendum.
TELEHUB COMMUNICATIONS NEWBRIDGE NETWORKS
CORPORATION CORPORATION
By: By: /s/
------------------- ----------------
Name: Name: /s/
----------------- --------------
Title: Title:
---------------- -------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report, which includes an explanatory paragraph that discusses substantial doubt
about the Company's ability to continue as a going concern, dated January 16,
1998 on our audits of the financial statements of Telehub Communications
Corporation. We also consent to the reference to our firm under the caption
"Experts".
PricewaterhouseCoopers LLP
San Francisco, California
October 12, 1998
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
The Registrant and each person whose signature to this Registration
Statement on Form S-4 appears below hereby authorizes Richard M. Harmon, with
full power of substitution, to file one or more amendments, which amendments
may make such changes he deems appropriate, and the Registrant and each such
person hereby appoints Richard M. Harmon as attorney-in-fact with full power to
act alone, to execute, in the name and on behalf of the Registrant and each
such person, individually and in such capacity stated below, and any such
amendments.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William W. Becker
- ------------------------- Chairman of the Board of Directors of October 7, 1998
William W. Becker TeleHub Communications Corporation,
Director of TeleHub Network Services Corporation,
& Director of TeleHub Technologies Corporation
/s/ Donald H. Sledge
- ------------------------- Chief Executive Officer of each Registrant, October 7, 1998
Donald H. Sledge Director of TeleHub Communications Corporation,
Director of TeleHub Network Services Corporation,
Director of TeleHub Technologies Corporation
& sole director of TeleHub Leasing Corporation
/s/ Richard M. Harmon
- ------------------------- Chief Financial Officer & Secretary of each Registrant, October 7, 1998
Richard M. Harmon Director of TeleHub Communications Corporation
/s/ John Lawson
- ------------------------- Principal Accounting Officer of each Registrant October 7, 1998
John Lawson
/s/ Michael G. McLaughlin
- ------------------------- Director of TeleHub Communications Corporation, October 7, 1998
Michael G. McLaughlin Director of TeleHub Network Services Corporation
& Director of TeleHub Technologies Corporation
/s/ Barry C. Lescher
- ------------------------- Director of TeleHub Communications Corporation October 7, 1998
Barry C. Lescher & Director of TeleHub Network Services Corporation
/s/ John F. Slevin
- ------------------------- Director of TeleHub Communications Corporation October 7, 1998
John F. Slevin Director of TeleHub Network Services Corporation
& Director of TeleHub Technologies Corporation
</TABLE>
<PAGE> 1
EXHIBIT 25.1
(SECURITIES ACT REGISTRATION FILE NO. 333-61441)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
<TABLE>
<S> <C> <C>
TELEHUB NETWORK SERVICES CORPORATION TELEHUB TECHNOLOGIES CORPORATION TELEHUB LEASING CORPORATION
</TABLE>
TELEHUB COMMUNICATIONS CORPORATION
(Exact name of obligor as specified in its charter)
NEVADA (36-4136730)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1375 TRI-STATE PARKWAY, SUITE 250
GURNEE, ILLINOIS, 60031
(Address of principal executive offices) (Zip Code)
13 7/8% SENIOR DISCOUNT NOTES
GUARANTEES OF TELEHUB NETWORK SERVICES CORPORATION
GUARANTEES OF TELEHUB TECHNOLOGIES CORPORATION
GUARANTEES OF TELEHUB LEASING CORPORATION
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(A) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(B) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIaTION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 7th day of October, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ruth Smith
--------------------------------
NAME RUTH SMITH
TITLE VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by Telehub
Communications Corporation of its 13 7/8% SENIOR DISCOUNT NOTES, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ruth Smith
---------------------------------
NAME RUTH SMITH
TITLE VICE PRESIDENT
DATED: OCTOBER 7, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business June 30, 1998, published
in accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act and in accordance with a
call made by the Commissioner of Banks under General Laws, Chapter 172, Section
22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
-------------
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin...................... 1,553,703
Interest-bearing balances............................................... 12,440,716
Securities....................................................................... 9,436,138
Federal funds sold and securities purchased under agreements to resell
in domestic offices of the bank and its Edge subsidiary ................ 8,785,353
Loans and lease financing receivables:
Loans and leases, net of unearned income ............................... 6,633,608
Allowance for loan and lease losses..................................... 92,999
Allocated transfer risk reserve......................................... 0
Loans and leases, net of unearned income and allowances................. 6,540,609
Assets held in trading accounts.................................................. 1, 267,679
Premises and fixed assets........................................................ 491,928
Other real estate owned.......................................................... 100
Investments in unconsolidated subsidiaries....................................... 1,278
Customers' liability to this bank on acceptances outstanding..................... 68,312
Intangible assets................................................................ 231,294
Other assets..................................................................... 1,667,282
---------
Total assets............................................................ 42,484,392
==========
LIABILITIES
Deposits:
In domestic offices..................................................... 12,553,371
Noninterest-bearing .................................................... 10,204,405
Interest-bearing ....................................................... 2,348,966
In foreign offices and Edge subsidiary ................................. 16,961,571
Noninterest-bearing .................................................... 154,792
Interest-bearing ....................................................... 16,806,779
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of
the bank and of its Edge subsidiary..................................... 8,182,794
Demand notes issued to the U.S. Treasury and Trading Liabilities................. 0
Trading liabilities.............................................................. 883,096
Other borrowed money............................................................. 361,141
Subordinated notes and debentures................................................ 0
Bank's liability on acceptances executed and outstanding......................... 68,289
Other liabilities................................................................ 1,017,284
Total liabilities................................................................ 40,027,546
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus.................................... 0
Common stock..................................................................... 29,931
Surplus ........................................................................ 455,288
Undivided profits and capital reserves/Net unrealized holding gains (losses)..... 1,964,924
Net unrealized holding gains (losses) on available-for-sale securities........... 15,557
Cumulative foreign currency translation adjustments.............................. (8,854)
Total equity capital............................................................. 2,456,846
----------
Total liabilities and equity capital.................................... 42,484,392
----------
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0001035418
<NAME> TELEHUB COMMUNICATIONS CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,629,010
<SECURITIES> 0
<RECEIVABLES> 140,308
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,602,487
<PP&E> 21,908,406
<DEPRECIATION> 2,800,129
<TOTAL-ASSETS> 27,571,452
<CURRENT-LIABILITIES> 20,026,524
<BONDS> 0
0
3,500
<COMMON> 12,634
<OTHER-SE> (2,711,749)
<TOTAL-LIABILITY-AND-EQUITY> 27,571,452
<SALES> 0
<TOTAL-REVENUES> 3,159,265
<CGS> 0
<TOTAL-COSTS> 24,488,961
<OTHER-EXPENSES> 2,072,897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,270,761
<INCOME-PRETAX> (23,402,620)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,402,620)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,402,620)
<EPS-PRIMARY> (1.85)
<EPS-DILUTED> (1.85)
</TABLE>
<PAGE> 1
LETTER OF TRANSMITTAL
TELEHUB COMMUNICATIONS CORPORATION
Offer to Exchange
Series B 13.875% Senior Discount Notes due 2005 ("New Notes")
which have been registered under the Securities Act of 1933
for any and all outstanding
Series A 13.875% Senior Discount Notes Due 2005 ("Old Notes")
pursuant to Prospectus dated , 1998.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR
OLD NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
DELIVER TO:
STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<S> <C>
By Registered or Certified Mail By Overnight Mail or Courier:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Jim Schultz Jim Schultz
By Hand in New York to 5:00 p.m.: By Hand in Boston until 5:00 p.m.
(as drop agent) Two International Place
61 Broadway, 15th Floor Fourth Floor
Corporate Trust Window Corporate Trust Department
New York, New York 10006 Boston, Massachusetts 02110
</TABLE>
For information call:
(617) 665-5587
Delivery of this instrument to an address other than as set forth above will not
be a valid delivery.
DO NOT SEND THIS LETTER OF TRANSMITTAL OR ANY OLD NOTES TO THE COMPANY.
[ ] Check here if tendered Old Notes are being delivered by The Depositary Trust
Company ("DTC") to the Exchange Agent's account at DTC.
[ ] Check here if tendered Old Notes are being delivered pursuant to a Notice of
Guaranteed Delivery previously delivered to the Exchange Agent.
[ ] Check here if you are a broker-dealer who holds old notes acquired for your
own account as a result of market-making or other trading activities and
wish to receive copies of the Prospectus (with any Amendments or
Supplements) for use in connection with resales of New Notes received for
your own account in exchange for such Old Notes.
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED ("EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON , 1998.
<PAGE> 2
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
AND FOLLOW THE INSTRUCTIONS THAT BEGIN ON PAGE 6.
All capitalized terms used but not defined herein shall have the respective
meanings defined in the Prospectus.
1. The undersigned ("Holder") hereby agrees to exchange the aggregate
principal amount of privately placed 13.875% Senior Discount Notes due 2005,
Series A (the "Old Notes") for a like principal amount of 13.875% Senior Notes
due 2005, Series B (the "Notes") of the Company, upon the terms and subject to
the conditions contained in the Registration Statement on Form S-4 filed by
TeleHub Communications Corporation, a Nevada corporation, together with its
subsidiaries (collectively, "Issuers"), with the Securities and Exchange
Commission (the "Registration Statement") and the accompanying Prospectus dated
, 1998 included therein (the "Prospectus"), receipt of which is
hereby acknowledged.
2. If Holder is tendering Old Notes, the undersigned hereby acknowledges
and agrees that the Notes will bear interest from and including July 31, 1998.
Accordingly, Holder will forego accrued but unpaid interest on Holder's Old
Notes that are exchanged for Notes from and including July 31, 1998 but will
receive such interest under the Notes.
3. Holder hereby represents and warrants that Holder has full authority to
tender the Old Notes described above. Upon request, Holder will execute and
deliver any additional documents deemed by the Company to be necessary or
desirable to complete the exchange of Old Notes.
4. Holder understands that the tender of the Old Notes pursuant to all of
the procedures set forth in the Prospectus will constitute an agreement between
Holder and the Company as to the terms and conditions set forth in the
Prospectus.
5. Holder hereby represents and warrants that Holder is acquiring the Notes
in the ordinary course of the business of Holder and that Holder is not engaged
in, and does not intend to engage in, a distribution of the Notes.
6. If Holder is a broker-dealer, (i) it hereby represents and warrants that
it acquired the Old Notes, for its own account as a result of market-making
activities or other trading activities and (ii) it hereby acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act of
1933, as amended (the "Securities Act"), in connection with any resale of the
Notes received hereby. This acknowledgment does not admit that Holder is an
"underwriter" within the meaning of the Securities Act.
7. Any obligation of Holder hereunder shall bind Holder's successors,
assigns, executors, administrators, trustees in bankruptcy and legal and
personal representatives.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES TENDERED
- -------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF REGISTERED HOLDER AS IT APPEARS ON THE CERTIFICATE NUMBER OF PRINCIPAL AMOUNT OF
13.875% SENIOR DISCOUNT NOTE DUE 2005, SERIES A ("OLD NOTE") OLD NOTE TRANSMITTED OLD NOTE TRANSMITTED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
BY COMPLETING THE PRECEDING TABLE ENTITLED "DESCRIPTION OF SECURITIES TENDERED"
ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED
THE OLD NOTES LISTED IN THE PRECEDING TABLE.
Holder's Name:
------------------------------------------------------------------
Authorized Signature:
-----------------------------------------------------------
Date: , 1998
- ------------------------------------------------------
(Must be signed by registered holder exactly as name appears on Old Notes. If
signature is by trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, please set forth full title. See Instruction 4)
Signatory's Name:
---------------------------------------------------------------
Signatory's Title:
--------------------------------------------------------------
Holder's Address:
---------------------------------------------------------------
City:
---------------------------------------------------------------------------
Country:
------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
SSN/Taxpayer ID
-----------------------------------------------------------------
State:
--------------------------------------------------------------------------
Zip:
----------------------------------------------------------------------------
Fax:
----------------------------------------------------------------------------
Is Holder a broker-dealer? [ ] Yes [ ] No
SIGNATURE GUARANTEE
(SEE INSTRUCTION 1)
Signature Guaranteed by (Name of Institution):
----------------------------------
Authorized Signature:
-----------------------------------------------------------
Date: , 1998
--------------------------------------------------------------------
Name:
---------------------------------------------------------------------------
Signatory's Title:
--------------------------------------------------------------
Address:
------------------------------------------------------------------------
City:
---------------------------------------------------------------------------
Country:
------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
State:
--------------------------------------------------------------------------
Zip:
----------------------------------------------------------------------------
Fax:
----------------------------------------------------------------------------
PLEASE READ THE INSTRUCTIONS BELOW, WHICH FORM A
PART OF THIS LETTER OF TRANSMITTAL
3
<PAGE> 4
SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
(See Instruction 1)
Complete this page ONLY IF the Notes are to be issued in the name of
someone other than the Holder or are to be sent to someone other than the Holder
or to the Holder at an address other than that provided on the preceding page
(Please print or type all responses).
ISSUE NOTE TO:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
Fax:
---------------------------------------------------------------------------
MAIL NOTE TO:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
Fax:
---------------------------------------------------------------------------
Authorized Signature:
-----------------------------------------------------------
Date:
---------------------------------------------------------------------------
, 1998
- ----------------
4
<PAGE> 5
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: STATE STREET BANK & TRUST COMPANY
- -----------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1: FOR HOLDERS WHO HAVE A TAXPAYER IDENTIFICATION NUMBER
IRS FORMW-9 Individuals (Social Security Number): --------------------------------------------------
Companies (Employer Identification Number):------------------------------------------
Under penalty of perjury, I certify that the number shown above is Holder's correct
taxpayer identification number.
Signature: _____________________________________ Date: ________________, 1998
------------------------------------------------------------------------------------------
PART 2: FOR HOLDERS WHO DO NOT HAVE A TAXPAYER IDENTIFICATION NUMBER
Certificate of Awaiting Taxpayer Identification Number
Under penalties of perjury, I certify that a taxpayer identification number has not been
issued to Holder, and either:
(1) Holder has mailed or delivered an application to receive a taxpayer
identification number to the appropriate Internal Revenue Service Center or Social
Security Administration Officer; or
(2) Holder intends to mail or deliver such an application in the near future.
Holder understands that if it does not provide a taxpayer identification number within
sixty days, 31% of all reportable payments made to Holder thereafter will be withheld
until Holder provides a taxpayer identification number.
Signature: _____________________________________ Date: ________________, 1998
------------------------------------------------------------------------------------------
PART 3: FOR HOLDERS WHO ARE NO SUBJECT TO BACKUP WITHHOLDING (First complete Part 1 or
Part 2, as applicable)
Is Holder a non-resident alien or foreign entity? [ ] Yes [ ] No
(If yes, then provide Payer with a completed IRS Form W-8 Certificate of Foreign
Status)
Under penalties of perjury, I certify that Holder is not subject to backup withholding
because:
(a) Holder is exempt from backup withholding;
(b) Holder has not been notified by the IRS that Holder is currently subject to
backup withholding as a result of a failure to report all interest and dividends;
(c) The IRS has informed Holder that Holder is no longer subject to backup
withholding.
----------------------------------------------------------------------------------------
Signature _____________________________________ Date: ________________, 1998
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO HOLDER PURSUANT TO THE EXCHANGE OFFER.
PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE W-9" FOR ADDITIONAL DETAILS.
5
<PAGE> 6
INSTRUCTIONS FOR LETTER OF TRANSMITTAL
1. Guarantee of Signatures. Signatures on this Letter of Transmittal must
be guaranteed by a firm that is a member of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or by
a commercial bank or trust company having an office in the United States which
is a member of a recognized Medallion Signature Program approved by the
Securities Transfer Association, Inc. (an "Eligible Institution") unless (i) the
"Special Issuance and Delivery Instructions" above have not been completed or
(ii) the Old Notes described above are tendered for the account of an Eligible
Institution.
2. Delivery of Letter of Transmittal and Old Notes. The Old Notes, together
with a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof), should be mailed or delivered to the Exchange Agent at the
address set forth above. The method of delivery of Old Notes and other documents
is at the election and risk of the respective holder. If delivery is by mail,
registered mail (with return receipt), properly insured, is suggested.
3. Guaranteed Delivery Procedures. Registered holders who wish to tender
their Old Notes and (i) whose Old Notes are not immediately available or (ii)
who cannot deliver such Old Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent prior to the Expiration Date, may
effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the registered holder of the Old
Notes, the certificate number or numbers of such Old Notes and the
principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock Exchange
trading days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing such Old
Notes and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within three
New York Stock Exchange trading days after the Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be sent
to registered holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
4. Signatures on Letter of Transmittal, Bond Powers and Endorsements. If
this Letter of Transmittal is signed by a person other than a registered holder
of any Old Notes, such Old Notes must be endorsed or accompanied by appropriate
bond powers, in either case signed exactly as the name or names of the
registered holder or holders appear on such Old Notes.
If this Letter of Transmittal or any Old Notes or bond power is signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
5. Exchange of Old Notes Only. Only the above-described Old Notes may be
exchanged for New Notes pursuant to the Exchange Offer.
6. Miscellaneous. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old Notes
will be resolved by the Company, whose determination will be final and binding.
The Company reserves the absolute right to reject any or all tenders that are
not in proper form or the acceptance of which would, in the opinion of counsel
for the Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in this Letter of
6
<PAGE> 7
Transmittal) will be final and binding. Unless waived, any irregularities in
connection with tenders or consents must be cured within such time as the
Company shall determine. Neither the Company nor the Exchange Agent shall be
under any duty to give notification of defects in such tenders or shall incur
liabilities for failure to give such notification. Tenders of Old Notes will not
be deemed to have been made until such irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the irregularities have not been cured or waived will be returned by
the Exchange Agent to the tendering holder thereof.
7. Important Tax Information. Under current Federal income tax law, an Old
Noteholder whose tendered Old Notes are accepted for payment generally must
provide the Exchange Agent (as agent for the payer) with the Old Noteholder's
correct taxpayer identification number ("TIN") on Substitute Form W-9 above. If
such Old Noteholder is an individual, the TIN is his or her social security
number. If the Exchange Agent is not provided with the correct TIN, the Old
Noteholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such Old Noteholders with
respect to Notes exchanged pursuant to the Exchange Offer may be subject to
backup withholding.
Certain Old Noteholders (including, among others, all corporations and
certain foreign individuals) may not be subject to these backup withholding and
reporting requirements. Exempt Old Noteholders should indicate their exempt
status on Substitute Form W-9. In order for a foreign individual to qualify as
an exempt recipient, that Old Noteholder must submit a properly completed
Internal Revenue Service Form W-8, signed under penalties of perjury, attesting
to Noteholder's exempt status. Such statements can be obtained from the Exchange
Agent. See the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any such payments made to the Old Noteholder. Backup withholding is not
an additional tax. Rather, the federal income tax liability of persons subject
to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained.
7
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
Offer for Series B 13.875% Senior Discount Notes due 2005
which have been registered under the Securities Act of 1933
in exchange for outstanding Series A 13.875% Senior Discount Notes
Due 2005 issued by
TELEHUB COMMUNICATIONS CORPORATION
Registered holders of privately placed 13.875% Senior Discount Notes due
2005, Series A (the "Old Notes") who wish to tender their Old Notes in exchange
for a like principal amount of 13.875% Senior Discount Notes due 2005, Series B
(the "Notes") of TeleHub Communications Corporation ("Company") whose Old Notes
are not immediately available or who cannot deliver their Old Notes and Letter
of Transmittal or any other documents required by the Letter of Transmittal to
State Street Bank and Trust Company (the "Exchange Agent") prior to the
Expiration Date, must use this Notice of Guaranteed Delivery or one
substantially equivalent hereto. This Notice of Guaranteed Delivery may be
delivered by hand or sent by facsimile transmission or mail to the Exchange
Agent. See "The Exchange Offer -- Procedures for Tendering Old Notes" in the
Prospectus.
The Exchange Agent for the Exchange Offer is:
STATE STREET BANK AND TRUST COMPANY
By Registered or Certified Mail By Overnight Mail or Courier:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Jim Schultz Jim Schultz
By Hand in New York to 5:00 p.m.: By Hand in Boston until 5:00 p.m.
(as drop agent) Two International Place
61 Broadway, 15th Floor Fourth Floor
Corporate Trust Window Corporate Trust Department
New York, New York 10006 Boston, Massachusetts 02110
For information call:
(617) 665-5587
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO
A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY.
DO NOT USE THIS NOTICE OF GUARANTEED DELIVERY TO GUARANTEE SIGNATURES. IF A
SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE
INSTITUTION UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR
IN THE APPLICABLE SPACE PROVIDED ON THE LETTER OF TRANSMITTAL FOR GUARANTEE OF
SIGNATURES.
Ladies and Gentlemen:
The undersigned ("Holder") hereby tenders the principal amount of Old Notes
indicated below, upon the terms and subject to the conditions contained in the
Registration Statement on Form S-4 ("Registration Statement") filed by TeleHub
Communications Corporation, a Nevada corporation, and its subsidiaries
(collectively, "Issuer") with the U.S. Securities and Exchange Commission and
the accompanying Prospectus dated , 1998 included therein (the
"Prospectus"), receipt of which is hereby acknowledged.
<PAGE> 2
<TABLE>
<CAPTION>
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NAME AND ADDRESS OF REGISTERED HOLDER AS IT APPEARS ON
THE 13.875% SENIOR DISCOUNT NOTE DUE 2005, SERIES A ("OLD CERTIFICATE NUMBER OF PRINCIPAL AMOUNT OF
NOTE") OLD NOTE TRANSMITTED OLD NOTE TRANSMITTED
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
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- -------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
THE FOLLOWING GUARANTEE MUST BE COMPLETED
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, which is a member of a
recognized Medallion Signature Program approved by the Securities Transfer
Association, Inc., hereby guarantees to deliver to the Exchange Agent at one
of its addresses set forth above, the Old Notes, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees, and any other documents required by the
Letter of Transmittal within three New York Stock Exchange, Inc. trading days
after the date of execution of this Notice of Guaranteed Delivery.
Name of Firm:__________________________________________________________________
Authorized Signature:_______________________________ Date: ____________, 1998
Signatory's Name:_____________________ Signatory's Title:____________________
Address:_______________________________________________________________________
City:________________________________ State:_________________________________
Country:_____________________________ Zip: __________________________________
Telephone:___________________________ Fax:___________________________________
- --------------------------------------------------------------------------------
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD NOTES
SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
2
<PAGE> 3
INSTRUCTIONS
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Notes referred
to herein, the signature must correspond with the name(s) written on the face of
the Notes without alteration, enlargement, or any change whatsoever. If this
Notice of Guaranteed Delivery is signed by a participant of the Book-Entry
Transfer Facility whose name appears on a security position listing as the owner
of the Notes, the signature must correspond with the name shown on the security
position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the Notes or signed as the name of the participant shown on the Book-Entry
Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
3
<PAGE> 1
EXCHANGE AGENT AGREEMENT
TeleHub Communications Corporation (the "Company") proposes to offer to
exchange (the "Exchange Offer") its outstanding 13.375% Senior Discount Notes
due 2005, Series A (the "Old Notes") for a similar principal amount of its
13.375% Senior Discount Notes due 2005, Series B (the "New Notes"). The terms
and conditions of the Exchange Offer as currently contemplated are set forth in
a prospectus, dated , 1998 (the "Prospectus"), to be
distributed to all record holders of the Old Notes. The Old Notes and the New
Notes are, collectively, the "Notes". The Company's subsidiaries, TeleHub
Technologies Corporation, TeleHub Leasing Corporation and TeleHub Network
Services Corporation (collectively, "Subsidiaries") will guarantee the Notes.
The Company hereby appoints State Street Bank and Trust Company to act as
exchange agent (the "Exchange Agent") in connection with the Exchange Offer.
References hereinafter to "you" shall refer to State Street Bank and Trust
Company.
The Company expects to commence the Exchange Offer around .
Holders of the Old Notes will use the Letter of Transmittal accompanying the
Prospectus to accept the Exchange Offer. The Letter of Transmittal contains
instructions for delivery of certificates for Old Notes tendered.
The Exchange Offer shall expire at 5:00 p.m., New York City time, on
, or on such later date or time to which the Company may extend
the Exchange Offer (the "Expiration Date"). As described in the Prospectus, the
Company expressly reserves the right to extend the Exchange Offer from time to
time and may extend the Exchange Offer. The Company will inform holders about
extension of the Expiration Date by oral notice (confirmed in writing) or
written notice issued by means of a press release or other public announcement
no later than 9 a.m., New York City time, on the business day following the
previously designated Expiration Date.
When carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform the duties and only such duties specifically set forth
in the Prospectus section captioned "The Exchange Offer" or specifically set
forth herein. However, this section does not, in any way, discharge your general
duty to act in good faith.
2. Within two business days after the Prospectus date, you will establish
an account for the Old Notes at The Depository Trust Company (the "Book-Entry
Transfer Facility") for purposes of the Exchange Offer. Any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of the Old Notes by causing the Book-Entry Transfer
Facility to transfer such Old Notes into your account in accordance with the
Book-Entry Transfer Facility's transfer procedures. During the Exchange Offer,
you will maintain an address in the Borough of Manhattan, the City of New York,
at which tenders of Old Notes may be made.
3. You will examine each Letter of Transmittal and Old Note certificate (or
confirmation of book-entry transfer into your account at the Book-Entry Transfer
Facility) and any other documents delivered or mailed to you by or for holders
of the Old Notes to ascertain whether:
3.1. the Letters of Transmittal and such other documents are duly
executed and properly completed in accordance with instructions set forth
therein; and
3.2. the Old Notes have otherwise been properly tendered as set forth
in Section 5.
If you ascertain that a Letter of Transmittal or any other document has been
improperly completed or executed, that any Old Note certificate is not in proper
form for transfer or that some other irregularity in connection with any tender
of Old Notes pursuant to the Exchange Offer exists, then you will inform the
presenters of the need to fulfill all requirements and to take any other action
as may be necessary or advisable to cause such irregularity to be corrected.
<PAGE> 2
4. With approval from the Company's Chief Financial Officer or any other
person he designates in writing (collectively, "Company Agent"), you are
authorized to waive any irregularities in connection with any tender of Old
Notes pursuant to the Exchange Offer.
5. Holders must tenders Old Notes only as set forth in the Letter of
Transmittal and in the Prospectus section captioned "The Exchange Offer --
Procedures for Tendering Old Notes". Old Notes shall be considered properly
tendered to you only when tendered in accordance with the procedures set forth
therein. Notwithstanding the provisions of this Section and Section 7 below, if
the Company Agent approves any Old Notes as having been properly tendered, then
you shall accept such Old Notes as properly tendered.
6. You shall advise the Company with respect to any Old Notes received
subsequent to the Expiration Date and accept its instructions with respect to
disposition of such Old Notes.
7. You will accept tenders:
7.1. in cases where the Old Notes are registered in two or more names
only if signed by all named holders;
7.2. in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only
when proper evidence of his or her authority so to act is submitted; and
7.3. from persons other than the registered holder of Old Notes
provided that customary transfer requirements, including any applicable
transfer taxes, are fulfilled.
You shall accept partial tenders of Old Notes where so indicated and as
permitted in the Letter of Transmittal and deliver certificates for Old Notes to
the transfer agent for split-up and return any untendered Old Notes to the
holder (or such other person as may be designated in the Letter of Transmittal)
as promptly as practicable after expiration or termination of the Exchange
Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify you promptly after the Expiration Date, of its
acceptance of all properly tendered Old Notes. On behalf of the Company, you
will then exchange such properly tendered Old Notes for New Notes and cause such
exchanged Old Notes to be cancelled. You will deliver New Notes at the rate of
$1,000 principal amount of New Notes for each $1,000 principal amount of
properly tendered Old Notes, with delivery to occur promptly after Company's
notice that it accepted such Old Notes; provided, however, that in all cases,
Old Notes tendered pursuant to the Exchange Offer will be exchanged only after
timely receipt by you of certificates for such Old Notes (or confirmation of
book-entry transfer into your account at the Book-Entry Transfer Facility), a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees and any other documents required
by the Letter of Transmittal or the Prospectus. You shall issue New Notes only
in denominations of $1,000 or integral multiples thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and the
Letter of Transmittal, Old Notes tendered under the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
10. The Company shall not be required to exchange any tendered Old Notes if
any condition set forth in the Exchange Offer is not satisfied. The Company will
notify you of any decision not to exchange any tendered Old Notes.
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Notes tendered because of an invalid tender, the
occurrence of certain other events set forth in the Prospectus section captioned
"The Exchange Offer -- Certain Conditions of the Exchange Offer" or otherwise,
then as soon as practicable after the expiration or termination of the Exchange
Offer, you shall return the those certificates for unaccepted Old Notes (or
effect appropriate book-entry transfer), together with any related required
documents and the Letters of Transmittal relating thereto that are in your
possession, to the persons who deposited them.
2
<PAGE> 3
12. All certificates for reissued Old Notes, unaccepted Old Notes or for
New Notes shall be forwarded by (a) first-class certified mail, return receipt
requested under a blanket surety bond protecting you and the Company from loss
or liability arising out of the non-receipt or non-delivery of such certificates
of (b) by registered mail insured separately for the replacement value of each
of such certificates.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
14.1. shall have no duties or obligations other than those
specifically set forth herein or as may be subsequently agreed to in
writing by you and the Company;
14.2. will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of
any of the certificates or the Old Notes represented thereby deposited with
you pursuant to the Exchange Offer, and will not be required to and will
make no representation as to the validity, value or genuineness of the
Exchange Offer; provided, however, that in no way will your general duty to
act in good faith be discharged by the foregoing;
14.3. shall not be obligated to take any legal action hereunder which
might in your reasonable judgment involve any expense or liability, unless
you shall have been furnished with indemnity reasonably satisfactory to
you;
14.4. may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter,
telegram or other document or security delivered to you and reasonably
believed by you to be genuine and to have been signed by the proper party
or parties;
14.5. may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution
and validity and effectiveness of its provisions, but also as to the truth
and accuracy of any information contained therein, which you shall in good
faith believe to be genuine or to have been signed or represented by a
proper person or persons;
14.6. may rely on and shall be protected in acting upon written or
oral instructions from any officer of the Company;
14.7. may consult with your counsel with respect to any questions
relating to your duties and responsibilities and the written opinion of
such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted to be taken by you
hereunder in good faith and in accordance with the written opinion of such
counsel; and
14.8. shall not advise any person tendering Old Notes pursuant to the
Exchange Offer as to the wisdom of making such tender or as to the market
value or decline or appreciation in market value of any Old Notes.
15. As the Company or its legal counsel may request, you will take such
action as you may reasonably deem appropriate to furnish copies of the
Prospectus, Letter of Transmittal and the Notice of Guaranteed Delivery or such
other forms approved by the Company, to all persons requesting such documents
and to accept and comply with telephone requests for information relating to the
Exchange Offer, provided that such information shall relate only to the
procedures for accepting (or withdrawing from) the Exchange Offer. The Company
will furnish you with copies of such documents at your request.
16. You shall advise by cable, telex, facsimile transmission or telephone,
and promptly thereafter confirm in writing to the Company and such other person
or persons as it may request, daily (and more frequently during the week
immediately preceding the Expiration Date and if otherwise requested) up to and
including the Expiration Date, as to the number of Old Notes which have been
tendered pursuant to the Exchange Offer and the items received by you pursuant
to this Agreement, separately reporting and giving cumulative totals as to items
properly received and items improperly received. In addition, you will also
inform, and cooperate in making available to, the Company or any such other
person or persons upon oral request made from time to time prior to the
Expiration Date of such other information as it or he reasonably requests. Such
cooperation
3
<PAGE> 4
shall include, without limitation, the granting by you to the Company and such
person as the Company may request of access to those persons on your staff who
are responsible for receiving tenders, in order to ensure that immediately prior
to the Expiration Date the Company shall have received information in sufficient
detail to enable it to decide whether to extend the Exchange Offer. You shall
prepare a final list of all persons whose tenders were accepted, the aggregate
principal amount of Old Notes tendered, the aggregate principal amount of Old
Notes accepted and deliver that list to the Company.
17. You shall stamp Letters of Transmittal and Notices of Guaranteed
Delivery with the date and the time of receipt thereof and shall preserve such
documents for a period of time at least equal to the period of time you preserve
other records pertaining to the transfer of securities. You shall dispose of
unused Letters of Transmittal and other surplus materials by returning them to
the Company.
18. You hereby expressly waive any lien, encumbrance or right of set-off
whatsoever that you may have with respect to funds deposited with you for the
payment of transfer taxes by reasons of amounts, if any, borrowed by the
Company, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on attached Schedule I.
20. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent
which shall be controlled by this Agreement.
21. The Company covenants and agrees to indemnify and hold you harmless in
your capacity as Exchange Agent hereunder against any loss, liability, cost or
expense, including reasonable attorneys' fees arising out of or in connection
with any act, omission, delay or refusal made by you in reasonable reliance upon
any signature, endorsement, assignment, certificate, order, request, notice,
instruction or other instrument or document you reasonably believed to be valid,
genuine and sufficient and in accepting any tender or effecting any transfer of
Old Notes you reasonably believed in good faith to be authorized, and in
delaying or refusing in good faith to accept any tenders or effect any transfer
of Old Notes; provided, however, that the Company shall not be liable for
indemnification or otherwise for any loss, liability, cost or expense to the
extent arising out of your negligence, willful misconduct or bad faith. In no
case shall the Company be liable under this indemnity with respect to any claim
against you unless and until you notify the Company, by letter or cable or by
telex confirmed by letter, of the written assertion of a claim against you or of
any other action commenced against you, promptly after you receive any such
written assertion or commencement of action. The Company shall be entitled to
participate at its own expense in the defense of any such claim or other action,
and, if the Company so elects, the Company shall assume the defense of any suit
brought to enforce any such claim. In the event that the Company shall assume
the defense of any such suit, the Company shall not be liable for the fees and
expenses of any additional counsel you thereafter retain unless you reasonably
determine that your interests are adverse to the interests of the Company, in
which case you shall be entitled to retain counsel and the Company shall be
liable for the fees and expenses of such counsel.
22. You shall arrange to comply with all requirements under the tax laws of
the United States which apply to you in performing your duties hereunder,
including those relating to missing Tax Identification Numbers, and shall file
any appropriate reports with the Internal Revenue Service. The Company
understands that you are required to deduct 31% on payments to holders who have
not supplied their correct Taxpayer Identification Number or required
certification. Such funds will be turned over to the Internal Revenue Service in
accordance with applicable regulations.
23. At the direction of the Company, you shall deliver or cause to be
delivered, in a timely manner to each governmental authority to which any
transfer taxes are payable in respect of the exchange of Old Notes, your check
in the amount of all transfer taxes so payable, and the Company shall reimburse
you for the amount of any and all transfer taxes payable in respect of the
exchange of Old Notes; provided, however, that
4
<PAGE> 5
you shall reimburse the Company for amounts refunded to you in respect of your
payment of any such transfer taxes, at such time as such refund is received by
you.
24. This Agreement and your appointment as Exchange Agent hereunder shall
be construed and enforced in accordance with the laws of the State of Illinois
without regard to the principles of the conflicts of laws thereof, and shall
inure to the benefit of, and the obligations created hereby shall be binding
upon, the successors and assigns of each of the parties hereto. This Agreement
may not be modified orally.
25. This Agreement may be executed in two or more counterparts, which may
be evidenced by facsimile signature, each of which shall be deemed to be an
original and all of which taken together shall constitute a single agreement.
26. If any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party to be
charged.
28. All notices, approvals, authorizations and instructions from the
Company given orally must be confirmed in writing.
29. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
<TABLE>
<S> <C>
To the Company and Subsidiaries: with a copy to:
Richard M. Harmon, Chief Financial
Officer Michael L. Glaser, Esq.
TeleHub Communications Corporation Haligman Lottner Rubin & Fishman, P.C.
1375 Tri-State Parkway, Suite 250 633 17th Street, Suite 2700
Gurnee, Illinois 60031 Denver, Colorado 80202
(800) TELEHUB; (847) 623-1616 (303) 292-1200; (303) 292-1300 (Fax)
</TABLE>
<TABLE>
<S> <C>
To Exchange Agent: with a copy to:
Mr. Jim Schultz, Assistant Secretary Ripley Hastings, Esq.
State Street Bank & Trust Company Peabody & Arnold LLP
Two International Place -- 4th Floor 50 Rowes Wharf
Boston, Massachusetts 02110 Boston, Massachusetts
(617) 664-5587; (617) 664-5371 (Fax) (617) 951-2100; (617) 951-2125 (Fax)
</TABLE>
30. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the foregoing,
Paragraph 21 shall survive the termination of this Agreement. Upon any
termination of this Agreement, you shall promptly deliver to the Company any
certificates for Notes, funds or property then held by you as Exchange Agent
under this Agreement.
5
<PAGE> 6
31. This Agreement shall be binding and effective on the date set forth
besides your signature.
Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
TELEHUB COMMUNICATIONS CORPORATION,
a Nevada corporation
By:
-------------------------------------------
Richard M. Harmon, Chief Financial Officer
TELEHUB TECHNOLOGIES CORPORATION,
a Nevada corporation
By:
-------------------------------------------
Richard M. Harmon, Chief Financial Officer
TELEHUB LEASING CORPORATION,
a Nevada corporation
By:
-------------------------------------------
Richard M. Harmon, Chief Financial Officer
TELEHUB NETWORK SERVICES CORPORATION,
an Illinois corporation
By:
-------------------------------------------
Richard M. Harmon, Chief Financial Officer
STATE STREET BANK AND TRUST COMPANY
By:
- --------------------------------------------------- Date: ____________ , 1998
Name:
Title:
6
