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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB-A2
Second Amended Registration Statement on Form 10-SB-A2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
CYBERTEL, COMMUNICATIONS CORP.
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(Name of Small Business Issuer as specified in its charter)
NEVADA 86-0862532
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(State or other jurisdiction of (I.R.S. incorporation or
organization) Employer I.D. No.)
4275 Executive Square, Suite 510
La Jolla, California 92037
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(Address of Principal Executive Office)
Issuer's Telephone Number, including Area Code: (858) 646-7410
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
$0.001 Par Value Common Voting Stock
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Title of Class
DOCUMENTS INCORPORATED BY REFERENCE: None.
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Item 1. Description of Business.
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Business Development.
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Organization, Charter Amendments and General History
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Organization
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Cybertel, Communications Corp., a Nevada corporation (the
"Company"), was organized on June 13, 1996, for the purpose of engaging in any
lawful activity.
At inception, the Company was authorized to issue 20,000,000 shares
of non-assessable common voting stock, par value one mill ($0.001) per share.
In addition, the Company is authorized to issue 5,000,000 shares of preferred
stock having a par value of one mill ($0.001) per share, with such rights and
preferences as the Board of Directors shall determine. As of the date of this
Registration Statement, the Board of Directors has not designated the rights
and preferences of the preferred stock and no shares of preferred stock have
been issued. Copies of the Company's Articles of Incorporation and Bylaws are
attached hereto and incorporated herein by this reference. See Item 15.
Charter Amendments
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The Company has never amended its Articles of Incorporation.
General History
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Until approximately May, 1999, the Company was a development stage
company. Its business plan is to provide long distance voice and data
telecommunications services using the networks and network switching
facilities of Tier I long distance carriers (i.e., providers of communications
transmission services by fiber or wire, with at least $100 million of volume
per year) such as MCI/Worldcomm and Level 3 Communications, as well as its own
IP switching facilities, to provide a broad array of integrated long distance
telecommunications services. The Company plans to use Internet Protocol
("IP") Telephony technology to offer a range of services including basic "1
plus" (i.e., dial "1" then the area code and telephone number of the person
being called) and "800" long distance, frame relay data transmission and
wireless communications services as well as enhanced telecommunications
services such as international callback, prepaid calling cards and Internet
access. Frame relay data transmission refers to the digitization of
information as electronic packets. Wireless communications services include,
for example, satellite and cellular communications.
The Company is a facilities-based provider (i.e., a provider that
owns or leases the property and equipment necessary to provide its services)
of a broad range of integrated communications services. It is building a
regional IP network in the western United States that will interconnect with a
national network, allowing the Company to transport telecommunications
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nationally. Using IP technology, the Company's goal is to enable its customers
to place long distance calls over the Internet through their existing
telephone equipment.
This Registration Statement is being filed on a voluntary basis to
maintain the Company's quotations on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. (the "NASD"). See the heading
"Effects of Existing or Probable Governmental Regulations," Item I.
NASD OTC Bulletin Board Quotations
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The Company's common stock is quoted on the OTC Bulletin Board of
the National Association of Securities Dealers, Inc. (the "NASD") under the
symbol "CYTP." For information concerning these stock quotations during the
past two years, see the caption "Market Price of and Dividends on the
Company's Common Equity and Other Stockholder Matters," Item 9. The quotations
presented do not represent actual transactions or broker/dealer markups,
markdowns or commissions.
Effective January 4, 1999, the NASD adopted rules and
regulations requiring that prior to any issuer having its securities quoted on
the OTC Bulletin Board of the NASD that such issuer must be a "reporting
issuer" which is required to file reports under Section 13 or 15(d) of the
Securities and Exchange Act of the 1934, as amended (the "1934 Act"). The
Company is not currently a "reporting issuer," and this Registration Statement
will bring the Company into compliance with these listing provision of the OTC
Bulletin Board and should prevent the NASD from "delisting" quotations of the
Company's common stock. Under the "phase-in" schedule of the NASD, the
Company has until November, 1999, within which to become a "reporting issuer"
and to satisfy all comments of the Securities and Exchange Commission with
respect to this Registration Statement.
Changes of Control During the Past Three Years
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There have been no changes in control of the Company since its
inception in June, 1996.
Sales of "Unregistered" and "Restricted" Securities Over the Past Three
Years
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For information concerning sales of "unregistered" and "restricted"
securities during the past three years, see the caption " Recent Sales of
Unregistered Securities," Item 10.
Business.
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The Company provides long distance voice and data telecommunications
services. It utilizes the network switching and transport facilities of Tier I
long distance carriers, such as TeleHub Network Services Corporation; Level 3
Communications; and Bell Atlantic Network Services, Inc., to provide a broad
array of integrated long distance telecommunications services such as long
distance, calling cards, paging and wireless communications on a seamless and
highly reliable basis. A non-facilities based carrier provides long distance
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services without the use of its own preferred interexchange carrier code
(i.e., a code that allows a customer to dial "1" to access its Primary
Interexchange Carrier, or "PIC"). A "reseller" places its customers' calls
through a facilities based carrier and that carrier bills and collects from
the end-user customers. Facilities-based carriers have the advantage of lower
long-term costs because they do not lease their networks from another carrier
and are not subject to pricing policies of other carriers; the disadvantage is
that initial capital investments are higher.
The Company's service offerings include basic "1 plus" and "800"
long distance, frame relay data transmission, Internet telephony and wireless
communications services, as well as enhanced telecommunications services such
as prepaid calling cards and Internet access.
In addition, the Company is developing a regional internet protocol
network in the western United States that will connect with a national
network, allowing the Company to transport telecommunications nationally. To
reach this goal, management plans to purchase equipment and lease facilities
and other assets. The Company is arranging financing for this purpose. See
the caption "Management's Discussion and Analysis or Plan of Operation" of
this Registration Statement.
Risk Factors
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Limited Operating History. The Company was incorporated in June,
1996 for the purpose of engaging in any lawful activity. The Company's plan
of operations calls for it to create an international, facilities-based
communications network. However, the Company is still in a formative stage.
Potential investors should be aware of the difficulties normally encountered
by a new enterprise in a highly competitive industry. There is limited
evidence at this time upon which to base an assumption that the Company's
business plans will prove successful or that its products and services will be
successfully marketed. As a consequence, there is no assurance that the
Company will be able to operate profitably in the future.
Operating Results of the Company. The Company is still a
development stage company and has not yet earned an annual profit. The gross
revenues and net losses of the Company for the three calendar years ended
December 31, 1998, are shown below:
Year ended Gross Net
December 31, Revenues Loss
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1996 -0- $ 33,300
1997 $25,962 $ 72,405
1998 $16,004 $730,241
The Company's accumulated deficit as of June 30, 1999, was
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($1,952,611). No assurance can be given that the Company will not continue to
report losses on an annual basis or that the Company's business operations
will ultimately prove to be profitable.
Any substantial downturn in economic conditions or any significant
price decreases related to the telecommunications industry could have a
material adverse effect on the Company's business. Economic conditions such
as inflation may also affect the future availability of attractive financing
rates for the Company or its customers and may materially adversely affect the
Company's business. Deflation may also affect the Company's income derived
from telecommunications to the extent that the Company's costs of providing
services increase from the time that the services are sold until the time that
they provided and the Company must adjust its rates.
Dependence Upon Additional Financing. The Company's proposed
business operations will depend upon its ability to raise substantial
additional financing. It has negotiated equity lines of credit totaling $30
million with three entities (Swartz Private Equity, LLC; Oxford International;
and Capital Growth Planning), and loans with Braveheart, Inc. and Capital
Growth Planning, but has not finalized any of these lines of credit. Failure
to achieve sufficient financing will significantly delay or destroy the
Company's ability to build its IP network and commence direct marketing
operations. The lines of credit provide for the Company to issue shares of
"unregistered" and "restricted" stock at 91% of the market price for such
stock. The issuance of such shares may have a dilutive effect on the holdings
of existing stockholders.
Highly Competitive Industry. The Company will be operating in a
highly competitive industry; most of its competitors have significantly
greater experience in the industry and substantially more assets and customers
than the Company. There can be no assurance that the Company will be able to
compete successfully in the telecommunications industry. See the caption
"Competitive Business Conditions" of this Registration Statement.
Reliance on Existing Management. The Company's operations are
primarily dependent upon the experience and expertise of Richard Mangiarelli
(Chief Executive Officer, President and director) and Paul Mills (Chairman of
the Board and Secretary). The loss of either Mr. Mangiarelli or Mr. Mills may
have a material adverse effect on the Company's business. As of the date of
this Registration Statement, neither Mr. Mangiarelli nor Mr. Mills has entered
into any covenant not to compete with the Company.
The Company's success is also dependent on its ability to attract
and retain qualified management, administrative and sales personnel to support
its anticipated future growth, of which there can be no assurance. The
Company does not carry key man insurance upon the lives of any of its
officers. It has entered into employment contracts with Mr. Mangiarelli and
with James D. Boring, its Senior Vice President of Operations.
As disclosed under the caption "Changes in Control" of this
Registration Statement, Mr. Mangiarelli's shares of the Company's common stock
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are subject to an Order requiring their delivery to the Marshal of the County
of San Diego for potential satisfaction of a judgment in favor of a creditor.
Mr. Mangiarelli intends to vigorously contest this matter. However, the
transfer of title to the shares of Company stock beneficially owned by Mr.
Mangiarelli could effect a change in control of the Company. If such were the
case, Mr. Mangiarelli would continue in his current capacities as a director
and executive officer of the Company. See the caption "Changes in Control" of
this Registration Statement.
Rapid Technological Change. The telecommunications industry is
characterized by rapidly evolving technology. The Company believes that its
success will increasingly depend on its ability to offer, on a timely basis,
new services based on evolving technologies and industry standards. The
Company intends to develop new services; however, there can be no assurance
that the Company will have the ability or resources to develop such new
services, that new technologies required for such services will be available
to the Company on favorable terms or that such services and technologies will
enjoy market acceptance. Further, there can be no assurance that the Company's
competitors will not develop products or services that are technologically
superior to those expected to be used by the Company or that achieve greater
market acceptance. The development of any such superior technology by the
Company's competitors or the inability of the Company to successfully respond
to such a development, could render the Company's existing products or
services obsolete and could have a material adverse effect on the Company's
business, financial condition and results of operations. The lack of capital
resources could materially affect the Company's ability to respond to
technological changes.
Lack of Dividends. The Company has never paid, and does not plan to
pay in the foreseeable future, any cash dividends with respect to its common
stock.
Shares Eligible for Future Sales. Of the 3,408,909 currently
issued and outstanding shares of the Company's common stock, 1,131,209 are
freely tradeable, and 2,277,700 are unregistered securities and therefore
restricted from resale other than by way of a transaction complying with the
provisions of Rule 144, adopted under the Securities Act of 1933, as amended,
or some other exemption from registration. Of the 2,277,700 "unregistered"
and "restricted" securities, 1,889,200 have been held for over one year and
are eligible for resale upon compliance with the provisions of Rule 144.
Rule 144 provides, among other things, that if certain information
concerning the operating and financial affairs of the Company is publicly
available, persons who have held restricted securities for a period of one
year thereafter may sell in each subsequent three month period up to that
number of such shares equal to the greater of 1% of the Company's outstanding
common stock or the average weekly reported volume of common stock trading
during the four calendar weeks preceding the filing of a notice of proposed
sale. Pursuant to Rule 144(k), unlimited sales of such restricted stock by
non-affiliates may be effected following a two year holding period, without
regard to the other Rule 144 requirements. Approximately 83% of the Company's
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"restricted" shares are currently eligible for resale upon compliance with the
requirements of Rule 144. Future sales of this large number of shares under
Rule 144 could depress the current market price of the common stock and any
market which may develop in the near future. For a discussion of the
Company's securities that have been issued without registration, see the
caption "Recent Sales of Unregistered Securities" of this Registration
Statement.
Conflicts of Interest. Although they have no present plans to do
so, the Company's directors and officers may become officer, directors,
controlling shareholders and/or partners of other entities engaged in a
variety of businesses. Thus, there exist potential conflicts of interest
including, among other things, time, effort and corporate opportunity,
involved in participation with such other business entities.
No Assurance of Continued Public Market for the Company's
Securities. There is currently a public market for the Company's common
stock; however, there can be no assurance such a market will continue. This is
because in January, 1999, the NASD promulgated a requirement that all issuers
whose securities are quoted on the OTC Bulletin Board must have such
securities registered under Section 12 of the 1934 Act and that the
registration statement providing such registration must not be subject to
Securities and Exchange Commission comment by a "phase-in" date based on the
issuer's trading symbol on the OTC Bulletin Board. Under this provision, this
Registration Statement must have reached the "no comment" stage of Securities
and Exchange Commission review before November 3, 1999. The Company can make
no assurance that it will be able to meet this deadline. Purchasers of the
Company's securities may, therefore, have difficulty in selling such
securities should they desire to do so.
Market Value of Common Stock. There is no correlation between the
market price of the Company's common stock and its book value. As of December
31, 1998, the net book value of a share of the Company's common stock was
$0.03, whereas the average closing bid price of a share of common stock during
the quarterly period ended on such date was $1.50 per share, and does not
necessarily bear any relationship to the Company's asset value, net worth or
other established criteria of value and should not be considered indicative of
the actual value of the Company or the market price of the common stock.
Based on this "book value" determination of the value of the Company's common
stock, it is highly overvalued and there can be no assurance that present or
future stockholders will be able to resell their shares at a profit.
Risks of "Penny Stock." The Company's common stock may be deemed to
be "penny stock" as that term is defined in Reg. Section 240.3a51-1 of the
Securities and Exchange Commission. Penny stocks are stocks (i) with a price
of less than five dollars per share; (ii) that are not traded on a
"recognized" national exchange; (iii) whose prices are not quoted on the
NASDAQ automated quotation system (NASDAQ-listed stocks must still meet
requirement (i) above); or (iv) in issuers with net tangible assets less than
$2,000,000 (if the issuer has been in continuous operation for at least three
years) or $5,000,000 (if in continuous operation for less than three years),
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or with average revenues of less than $6,000,000 for the last three years.
Subject to compliance with applicable listing standards, the Company
plans to attempt to qualify for listing on NASDAQ. However, its common stock
is currently traded on the OTC Bulletin Board of the NASD.
Section 15(g) of the 1934 Act, as amended, and Reg. Section
240.15g-2 of the Securities and Exchange Commission require broker-dealers
dealing in penny stocks to provide potential investors with a document
disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any transaction in
a penny stock for the investor's account. Potential investors in the
Company's common stock are urged to obtain and read such disclosure carefully
before purchasing any shares that are deemed to be "penny stock."
Moreover, Reg. Section 240.15g-9 of the Securities and Exchange
Commission requires broker-dealers in penny stocks to approve the account of
any investor for transactions in such stocks before selling any penny stock to
that investor. This procedure requires the broker-dealer to (i) obtain from
the investor information concerning his or her financial situation, investment
experience and investment objectives; (ii) reasonably determine, based on that
information, that transactions in penny stocks are suitable for the investor
and that the investor has sufficient knowledge and experience as to be
reasonably capable of evaluating the risks of penny stock transactions; (iii)
provide the investor with a written statement setting forth the basis on which
the broker-dealer made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it
more difficult for investors in the Company's common stock to resell their
shares to third parties or to otherwise dispose of them.
Risks Associated with Execution of Growth Strategy. A principal
component of the Company's growth strategy is to build a regional
telecommunications network in the western United States. The Company's
ability to execute its growth strategy depends on a number of factors
including (i) the availability of attractive opportunities; (ii) the Company's
ability to acquire service relating to such opportunities on economically
feasible terms; (iii) the Company's ability to obtain the capital necessary to
finance the acquisition of facilities, as well as to cover any necessary
sales, marketing and operation expenditures; (iv) the Company's ability to
market and sell services; and (v) the Company's ability to manage rapidly
growing operations effectively and in a manner which results in significant
customer satisfaction. There can be no assurance that the Company will be
successful with respect to any or all of these factors.
Principal Products and Services
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Long Distance Service
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The Company intends to offer basic "1 plus" and "800" long distance
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services. Management believes it will be successful as a provider of these
basic services because of the volume discounts it has been able to negotiate
with underlying carriers and its ability to direct customer call traffic over
the transmission networks of more than one carrier. The Company has negotiated
pricing ranging from $0.049 to $0.056 per minute for switchless services, and
ranging from $0.041 to $0.044 with guarantees to the carriers of certain
minimum monthly volume. If these minimum volumes are not met, the Company
will still be responsible for paying for them. As the Company expands its
network of switching facilities, it will increasingly have the ability to
choose among the transmission networks of different carriers to take advantage
of the most favorable rates to different destinations at different times of
the day.
The per minute cost to the Company from underlying carriers is a
function of negotiating the best rates with the carriers. Volume and "ramp up"
periods affect cost. If the Company is able to project substantial volumes at
some point in the mid-term future, underlying carriers are willing to
negotiate a better rate. The Company has no way to gauge what underlying
carriers charge to others, as that is not public information. However
management knows that the Company's charges to its customers are very
competitive in comparison to other carriers. As an example, a customer using
200 minutes per month and subscribing to AT&T's 7 cent per minute anytime plan
would pay $19.95 when AT&T's $5.95 monthly recurring charge is added. A
Company customer using the same 200 minutes would pay $19.80 at the Company's
9.9 cent per minute rate.
Initially, the Company will charge its customers on the basis of
minutes or partial minutes of usage at rates which may vary with the distance,
duration, time of day of the call and the type of call. Rates charged for a
call are not affected by the particular transmission facilities selected for
call transmission but are affected by the type of call a user may select.
The Company has contracted with Tritel Communications, LLC, of Irving, Texas,
for the performance of billing services. The agreement is for a term of three
years and provides for Tritel to process the Company's calling records on a
weekly basis. The agreement also provides for a one-time setup cost of
$3,000, with a monthly processing charge of $675 plus $0.005 per calling
record processed and payment of a monthly telecommunications excise tax of
$825. Tritel will also print and mail invoices for the Company at a rate of
$1.00 per invoice per month. The minimum monthly payment for Tritel's
services will be $1,500. Any custom programming that the Company requires
will be billed at $100 per hour.
On August 4, 1999, the Company entered into a letter of intent with
Telenomics, Inc., a California corporation, and the holders of all of
Telenomics' outstanding common stock, by which the Company agreed to acquire
all of such shares in exchange for a number of shares to be determined by
dividing $3,000,000 by the closing "asked" price for the Company's shares on
the date of closing of the acquisition. At closing, the Company is to provide
Telenomics with a loan of $250,000, to be repaid within 12 months. Telenomics
is a provider of telephone accounting and management software. If the
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acquisition closes, the Company will use Telenomics to develop its own billing
system. However, the parties have not entered into any definitive, binding
acquisition agreement and there can be no assurance that any such agreement
will be reached or that any completed acquisition will be successful.
In the near future, the Company hopes to provide its customers a
flat rate long distance calling service throughout the United States. Billing
will occur in six-second increments.
Debit and Prepaid Calling Cards
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The Company offers travel and debit cards with low long distance
rates through either per unit fees or through monthly billing of the end user
subscriber. These cards are utilized in the exact same manner as other
calling cards and there are no "ease of use" disadvantages versus traditional
calling cards. Besides relatively large savings for out of country and
foreign travelers, larger corporations, whose executives and sales personnel
routinely use calling cards, are now pricing these cards at attractively low
prices. The absences of transaction fees per call as well as lower per minute
charges make these cards extremely attractive to both large and smaller users.
Prepaid calling cards offer an additional advantage to the subscriber in that
they limit the liability for lost, stolen or employee abused cards, since the
minutes are preset and added to each card in limited quantities at the
direction of the subscriber. The Company began receiving revenues from these
cards in August, 1999.
Internet Access
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This product is the newest and fastest growing to telecommunications
providers in general. The Company packages a service which includes domain
registration and services (e.g. design, placement, advertising), Web sites,
monthly access to the Internet for dial-up and dedicated (i.e.,
telecommunications lines reserved for use by particular customers) usage, and
a discounted 800 service to respond and/or reply to the customers' eventual
order flow. It is expected that this package will include E-mail, Web
browser, Internet dialer, and search engines, all priced substantially below
representative major carrier providers for software and initial access. The
Company's pricing for these services will be $16.50 per month as compared to
monthly rates for America Online and other internet service providers ranging
from $19.95 to $21.95 per month. The bundling of these services will provide
a "one-stop" arrangement for the small and middle size business subscriber.
Since many small businesses do not employ computer/software specialists to
serve their systems needs, and are owned or managed by individuals who are
themselves "Internet-deficient", a one-stop approach provides the Company with
easy access to a steadily expanding demand in the marketplace. Management
expects to begin receiving revenues from this service in the fourth quarter of
the 1999 fiscal year.
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Recent Public Announcements
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On July 7, 1999, the Company publicly announced that it has signed a
contract with Bell Atlantic Corporation giving the Company the right to
terminate IP long distance and data traffic on Bell Atlantic's network. This
strategic alliance will allow the Company to deliver IP telephony calls
originating outside of Bell Atlantic's region through the Public Service
Telephone Network ("PSTN") 24 hours per day, seven days per week, on Bell
Atlantic's Termination Gateways. The agreement also allows the Company to
sell wholesale termination on Bell Atlantic's lines to third parties and will
make it possible for the Company's calls from anywhere in the world to be
delivered to the Northeast Corridor of the United States via Bell Atlantic's
IP telephony network.
The Company's agreement with Bell Atlantic provides for the Company
to pay Bell Atlantic a rate based on the number of minutes that Bell
Atlantic's Termination Gateways are being used, with a minimum monthly payment
of $4,800. The term of the agreement is one year, with automatic yearly
renewals until either party gives the other notice of non-renewal at least 90
days before the expiration of the current term. See the Exhibit Index, Item
15 of this Registration Statement.
Distribution Methods of the Products or Services
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Affinity Groups
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The Company is expanding the reseller concept (i.e., transporting
data through a facilities based carrier that bills and collects from the
end-user customers) by targeting its products to specific niche markets. This
entails marketing to large associations whose members form a loyal base and
have an inherent allegiance to their organization and wish to support it
financially. The Company offers these associations discounted long distance
services at wholesale prices, 20-60% below AT&T, MCI/WorldCom and Sprint, and
a portion of the long distance charges will go to the subscribers'
organization (professional associations, alumni associations, etc.) when they
pay their monthly bill. The long distance services are solicited by and
through the subscriber's organization and packaged by Cybertel.
The above strategy should allow the Company to introduce and sell
its services to many more users than it could contact directly, or obtain
through advertising. The sponsoring group has a vested interest in obtaining
all telecommunications business from its affiliated members as it stands to
gain substantial commission dollars, once volume levels are realized. This
strategy also applies to fund raisers and promotional events. The
personalized prepaid calling card also functions as an excellent perceived
benefit or promotion for the sponsoring entity.
Management hopes to increase market share in each market segment of
the Company's business through a combination of direct sales efforts targeted
to corporate and individual clients and through acquisition of strategic
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competitive firms providing value-added services to the core businesses of the
Company. Marketing public relations tactics will be employed not only to
conserve resources, but to increase credibility and visibility in the targeted
marketplace. Tactics to be used include editorial coverage in industry
specific media along with general interest publications.
Other marketing opportunities include: industry trade shows,
membership in professional and business organizations, cross promotional
events, direct mail/lead generated, promotional literature, direct sales and
in-house telemarketing. The Company intends to retain and hire sales and
marketing staff who demonstrably posses the ability to achieve sales levels
that the Company has established. This staff will predominantly include those
who have specific industry experience and maintain existing customer bases
from which to generate above average sales levels. Each market will
be driven by a strong direct response campaign using value-based pricing
(i.e., quality service at a low price) and superior customer service as the
cornerstone in establishing and maintaining customer loyalty. The Company's
customer service representatives are trained to be courteous and helpful and
to realize that customers who call are usually having a problem and are
frustrated. The Company's customer service representatives are able to access
a customer's account instantaneously and bring up the type of information that
will allow them to solve the customer's problem.
To date, the Company has marketed its products primarily through
Affinity Groups. The Company intends to finance its marketing activities in
the short term through equity financing that it is currently pursuing and in
the long term through cash flow and profits.
Internet Protocol Network
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The Company is building a regional telecommunications network in the
western United States. The Company plans to build local networks in cities in
11 western states that will interconnect with a national long distance
network. The Company will focus primarily on the residential market in order
to compliment its Affinity Group Marketing Programs. The Internet Protocol
("IP") based network will provide a full range of communications services
including long distance and data transmission as well as other enhanced
services to the domestic and international markets. Additionally, the Company
will offer a range of Internet access services at varying capacity levels
(e.g., 56 or 395 kilobits per second), and as technology development allows,
at specified levels of quality of service and security to meet the needs of
its residential and business customers. The Company established its first IP
Gateway, which digitizes a communications signal and transports it over the
internet, in San Diego, California, in June, 1999.
The Company has shaped its strategy to build an IP-based network
because of a fundamental shift that is occurring in the communications
industry. Management believes that this shift is as important as that from
the telegraph to the telephone or from mainframe to personal computers. It is
a shift that the Company believes will change the way people communicate.
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The change is a move from the traditional "circuit switched"
networks that were designed primarily for voice communications, and which have
existed form almost a century, to newer "packet switched" networks using IP.
The new technology makes it possible to move information at a much lower cost,
because packet switching technology makes more efficient use of the network
capacity.
The internet is a worldwide communications network of interconnected
computers that share information, generally over high-bandwidth fiber optic
cables. Information that moves over the internet is broken down into pieces
known as "packets." Each packet is coded with address information for
delivery to the proper destination, sent through the internet and reassembled
into its original form so the recipient can use the information upon delivery.
This process is made possible using two important internet communications
protocols: Transmission Control Protocol ("TCP"); and Internet Protocol
("IP"). TCP divides and reassembles the packets. IP ensures that the packets
reach the correct destination.
By contrast, the basic design of the telephone network has not
changed for more than 100 years. The telephone system is a circuit-switched
network. This technology dedicates a fixed amount of capacity (i.e., a
circuit) for the entire duration of the transmission. As a result, a
telephone line ties up an entire circuit for the duration of a call.
In an IP network there is no single, unbroken connection between
sender and receiver. When information is sent, it is broken into small
packets that share lines with other transmissions, over many different routes
at the same time, which are then reassembled at the receiving end. The result
is that the internet is much more efficient than the present circuit-switched
network. By way of analogy, a call on a circuit-switched network is like a
single car taking up an entire stretch of freeway by itself, while an IP
network can fill all lanes of the freeway with hundreds of vehicles, all
destined for different exits.
Major communications carriers would like to add IP-based switching
technology to portions of their networks, but because of the immense
investment that these companies have already made in their existing networks,
they continue to retain extensive networks based on the older and less
efficient circuit switching technology. The Company believes it is well
positioned for the fundamental shift to the new technology because the company
has no investment in, or commitment to, the older technology. Equally
important, the Company plans to design the network to be upgradeable, so that
it can evolve as the technology evolves.
In March, 1999, the Company signed a service agreement with General
Telecom, Inc., a Massachusetts corporation, which allows the Company to use
General Telecom's telecommunications equipment for a one-year term, which is
renewable for five additional one-year periods. The Company's fees will be
based on usage volume and line types, with a minimum monthly payment of $6,500
per month.
The Company executed an agreement with Level 3 Communications on
13
<PAGE>
March 12, 1999. Under the agreement, Level 3 agreed to allow the Company to
"co-locate" its internet access equipment and switches in Level 3's switching
centers in all 50 states and use Level 3's state of the art fiber optic
network. This allows the Company to place its telecommunications equipment in
Level 3's co-location cabinets and send voice and data traffic over the
Internet without having to build a fiber optic network of its own. This will
result in substantial cost savings to the Company. The agreement with Level 3
is for a term of three years; payment terms vary by location. See the Exhibit
Index, Item 15 of this Registration Statement.
On June 28, 1999, the Company and TeleHub Network Services
Corporation, an Illinois corporation ("TeleHub"), entered into a
Telecommunications Service Agreement and a Supplemental Service Agreement
under which TeleHub agreed to provide certain telecommunications services for
the Company to resell. These services include switched domestic and
international outbound long distance telephone service; switched toll-free
service; calling cards; and dedicated outbound and toll-free service. The
per-minute rates for these services vary by geographic area and are set forth
in an attachment to the Supplemental Service Agreement. See the Exhibit
Index, Item 15 of this Registration Statement.
The Company has also entered into a contract with Bell Atlantic
Corporation giving the Company the right to terminate IP long distance and
data traffic on Bell Atlantic's network. This strategic alliance will allow
the Company to deliver IP telephony calls originating outside of Bell
Atlantic's region through the Public Service Telephone Network ("PSTN") 24
hours per day, seven days per week, on Bell Atlantic's Termination Gateways.
The agreement also allows the Company to sell wholesale termination on Bell
Atlantic's lines to third parties and will make it possible for the Company's
calls from anywhere in the world to be delivered to the Northeast Corridor of
the United States via Bell Atlantic's IP telephony network. See the Exhibit
Index, Item 15 of this Registration Statement.
Acquisition Strategy
- --------------------
One of the Company's primary goals is to become a one-stop service
provider for a variety of services. Management believes this can be
established through an acquisition strategy which is intended to (i) enhance
Company's sales force capability, (ii) broaden its service offerings, and
(iii) increase its customer base and revenue.
As discussed in more detail under the heading "Long Distance
Service," the Company has executed a letter of intent with Telenomics, Inc.,
and the holders of all of Telenomics' outstanding shares, whereby the Company
agreed to acquire all of such shares in exchange for shares of the Company's
common stock. However, there can be no assurance that any definitive
acquisition agreement will be reached or that the Company will be able to
identify any other attractive acquisition candidates in the future, that
acquisitions pursued by the Company will be completed, or that, if completed,
such acquisitions will be beneficial to the Company.
14
<PAGE>
Competitive Business Conditions
-------------------------------
The communications and information services industry is highly
competitive. Many of the Company's existing and potential competitors have
financial, personnel, marketing and other resources significantly greater than
those of the Company, as well as other competitive advantages including
customer bases.
The Company is subject to significant competition from other
entities engaged in the telecommunications industry. The Company's principal
competitors include Level 3, IDT, Delta 3 and USA Talks, of which the first
three are national and the last is regional. All of these entities possess
significantly greater financial, sales and marketing, personnel and other
resources than those of the Company and may be able to grow at a more rapid
rate or more profitably as a result. Management of the Company believes that
industry competition will be increased by recent and possibly future
consolidation in the telecommunications industry.
The long distance telecommunications industry is significantly
influenced by the marketing and pricing activities of the major industry
participants, including AT&T, MCI/WorldCom, and Sprint. While the Company
believes that AT&T, MCI/WorldCom and Sprint historically have chosen not to
concentrate their direct sales efforts on small to medium sized businesses,
these carriers control approximately 85% of that market. Moreover, AT&T,
MCI/WorldCom and Sprint have recently introduced new service and pricing
options that are attractive to smaller commercial users, and there can be no
assurance that they will not market to these customers more aggressively in
the future. AT&T and, as an interim measure, the structurally separate
interexchange affiliates of the seven regional Bell operating companies
("RBOCs") have recently been reclassified as non dominant carriers and,
accordingly, have the same flexibility as the Company in meeting competition
by modifying rates and service offerings without pricing constraints or
extended waiting periods. These reclassifications may make it more difficult
for the Company to compete for long distance customers. In addition, a
significant number of large regional long distance carriers and new entrants
in the industry compete directly with the Company by concentrating their
marketing and direct sales efforts on small to medium
sized commercial users. Activities by competitors include, among other
things, national advertising campaigns, telemarketing programs and the use of
cash to contribute to significant customer attrition in the long distance
industry.
The Company will contract for call transmission over networks
operated by suppliers who may also be the Company's competitors. Both the
interexchange carriers ("IXCs", i.e., telecommunications companies that
provide telecommunications services between local exchanges on an interstate
or intrastate basis) and local exchange carriers ("LECs", i.e.,
telecommunications companies that provide telecommunications services in a
geographic area in which calls generally are transmitted without toll charges)
that will be providing transmission services for the Company have access to
15
<PAGE>
information concerning the Company's customers for which they provide the
actual call transmission. Because these IXCs and LECs are potential
competitors of the Company, they could use information about the Company's
customers, such as their calling volume and patterns of use, to their
advantage in attempts to gain such customers' business. The
Telecommunications Act, which became law in 1996, has strengthened the rules
which govern the privacy of customer proprietary information by expressly
prohibiting telecommunications carriers which receive proprietary information
from resale carriers for purposes of providing telecommunications services to
those resale carriers from using such information for their own marketing
purposes. In addition, the Company's future success will depend, in part, on
its ability to continue to buy transmission services and access from these
carriers at a significant discount below the rates these carriers otherwise
make available to the Company's targeted customers.
Regulatory trends have had, and may have in the future, a
significant impact on competition in the telecommunications industry. As a
result of the recently enacted Telecommunications Act, the RBOCs are now
permitted to provide, and are providing or have announced their intention to
provide, long distance service originating (or in the case of "800" service,
terminating) outside their local service areas or offered in conjunction with
other ancillary services, including wireless services. Following application
to and upon a finding by the Federal Communications Commission (the "FCC")
that an RBOC faces facilities based competition and has satisfied a
congressionally mandated "competitive checklist" of interconnection and access
obligations, an RBOC can provide long distance service within its local
service area. The entry of these well-capitalized and well known entities
into the long distance service market could significantly alter the
competitive environment in which the Company operates.
The Telecommunications Act also removes all legal barriers to
competitive entry into the local telecommunications market and directs
incumbent local exchange carriers ("ILECs", i.e., companies historically
providing local telephone service) to allow competing telecommunications
service providers (of which the Company will be one) to interconnect their
facilities with the local exchange network, to acquire network components on
an unbundled basis and to resell local telecommunications services. Moreover,
the Telecommunications Act seeks to facilitate the development of local
telecommunications competition by requiring ILECs, among other things, to
allow end users to retain their telephone numbers when changing service
providers and to place short haul toll calls without dialing lengthy access
codes. In response to these regulatory changes, MCI/WorldCom and AT&T have
each announced their intention to enter the local telecommunication market,
including MCI/WorldCom's announcement that it will invest more than $2.0
billion in fiber optic rings and local switching equipment in major
metropolitan markets throughout the United States, and AT&T's announcement
that it filed applications in all 50 states to provide local
telecommunications services.
While the Telecommunications Act opens new markets to the Company,
the nature and value of the resultant business opportunities will be dependent
16
<PAGE>
in large part upon subsequent regulatory interpretation of the statute's
requirements. The FCC has recently promulgated rules implementing the local
competition provisions of the Telecommunications Act; each state must now
individually adopt regulations applying the new national guidelines. The
Company anticipates that ILECs will actively resist competitive entry into the
local telecommunications market and will seek to undermine the operations and
the service offerings of competitive providers, leaving carriers such as the
Company which are dependent on ILECs for network services vulnerable to anti
competitive abuses. No assurance can be given that the local competition
provisions of the Telecommunications Act will be implemented and enforced by
federal and state regulators in a manner which will permit the Company to
successfully compete in the local telecommunications market or that subsequent
legislative and/or judicial actions will not adversely impact the Company's
ability to do so. Moreover, federal and state regulators are likely to
provide ILECs with increased pricing flexibility for their services as
competition in the local market increases. If ILECs are allowed by regulators
to lower their rates substantially, engage in excessive volume and term
discount pricing practices for their customers, charge excessive fees for
network interconnection or access to unbundled network elements, or decline to
make services available for resale at wholesale rates, the ability of the
Company to compete in the provision of local service could be materially and
adversely affected.
Telecommunications Act
- ----------------------
On February 8, 1996, Congress enacted the Telecommunications Act,
which effected a sweeping overhaul of the Communications Act of 1934 (the
"Communications Act"). In particular, the Telecommunications Act
substantially governs telecommunications common carriers. The
Telecommunications Act was intended by Congress to open telephone exchange
service markets to full competition, to promote competitive development of new
service offerings, to expand public availability of telecommunications
services and to streamline regulation of the industry. The Telecommunications
Act makes all state and local barriers to competition unlawful, prohibits
state and local governments from enforcing any law, rule or legal requirement
that prohibits or has the effect of prohibiting any person from providing
interstate or intrastate telecommunications services and directs the FCC to
conduct rulemaking proceedings on local competition and other related matters.
Implementation of the provisions of the Telecommunications Act will
be the task of the FCC, the state public utility commissions and a joint
federal/state board. Much of the implementation of the Telecommunications Act
must be completed in numerous rulemaking proceedings with short statutory
deadlines. These proceedings are expected to address issues and proposals
already before the FCC in pending rulemaking proceedings affecting the long
distance industry as well as additional areas of telecommunications regulation
not previously addressed by the FCC and the states. States retain
jurisdiction under the Telecommunications Act to adopt laws necessary to
preserve universal service, protect public safety and welfare, ensure the
continued quality of telecommunications services and safeguard the rights of
17
<PAGE>
consumers.
Some specific provisions of the Telecommunications Act which are
expected to affect long distance service providers are summarized below:
Expanded Interconnection Obligations. The Telecommunications Act
establishes a general duty of all telecommunications carriers to interconnect
with other carriers, directly or indirectly. The Telecommunications Act also
contains a detailed list of requirements with respect to interconnection
obligations, including resale, number portability, dialing parity, access to
rights of way and reciprocal compensation.
ILECs have additional obligations including: to negotiate in good
faith; to provide for network interconnection at any technically feasible
point on terms that are reasonable and non discriminatory; to provide non
discriminatory access to facilities, equipment, features, functions and
capabilities on an unbundled basis; to offer for resale at wholesale rates any
service that ILECs provide on a retail basis; and to provide actual
collocation of equipment necessary for interconnection or access. Collocation
refers to the physical location of a telecommunication carrier's equipment in
a local exchange carrier's premises to facilitate the interconnection of their
switching routing equipment.
The Telecommunications Act establishes a framework for state
commissions to mediate and arbitrate negotiations between ILECs and carriers
requesting interconnection services or network elements. The
Telecommunications Act establishes deadlines, policy guidelines for state
commission decision making and federal preemption in the event a state
commission fails to act. While the FCC has recently promulgated rules
implementing these provisions of the Telecommunications Act, the impact of
these rules on the Company cannot be determined at this time.
Provision of Interexchange Services.The Telecommunications Act
eliminates the previous prohibition on RBOC provision of interexchange
services originating (or in the case of "800" service, terminating) outside
their local service areas and all interexchange services associated with the
provision of most commercial mobile wireless services, including services
originating within their local service areas.
In addition, the Telecommunications Act allows RBOCs to provide
landline interexchange services in the states in which they provide landline
local exchange service; provided, however, that before engaging in landline
long distance services in a state in which it provides landline local exchange
service, an RBOC must (i) provide access and interconnection to one or more
unaffiliated competing facilities based providers of telephone exchange
service, unless after 10 months after enactment of the Telecommunications Act
no such competing provider has requested such access and interconnection more
than three months before the RBOC has applied for authority and (ii)
demonstrate to the FCC its satisfaction of the Telecommunications Act's
"competitive checklist."
18
<PAGE>
The specific interconnection requirements contained in the
"competitive checklist" include network interconnection and unbundled access
to network elements, including local loops, switching and transport; access to
poles, ducts, conduits and rights of way owned or controlled by them; access
to emergency 911, directory assistance, operator call completion and white
pages; access to telephone numbers, databases and signaling for call routing
and completion; availability of number portability; local dialing parity;
reciprocal compensation arrangements; and resale opportunities.
Review of Universal Service Requirements. The Telecommunications
Act contemplates that interstate telecommunications providers will "make an
equitable and non-discriminatory contribution" to support the cost of
providing universal service, although the FCC can grant exemptions in certain
circumstances. The FCC has promulgated rules to implement these provisions of
the Telecommunications Act, and the outcome of such proceedings and its effect
on the Company cannot be determined.
Limitation on Joint Marketing of Local and Long Distance Services.
Long distance providers that serve greater than five percent of pre-subscribed
access lines in the United States (which includes the nation's three largest
long distance providers) are precluded from jointly marketing local and long
distance service until the RBOCs are permitted to enter the long distance
market, or three years from the date of enactment of the Telecommunications
Act, whichever is sooner. Management is informed and believes that this
prohibition has been extended and is currently attempting to determine when it
will expire.
Deregulation. The FCC is authorized to forebear from applying any
statutory or regulatory provision that is not necessary to keep
telecommunications rates and terms reasonable or to protect consumers. A state
may not apply a statutory or regulatory provision that the FCC decides to
forbear from applying. In addition, the FCC must review its telecommunications
regulations every two years and change any that are no longer necessary.
The ability of the Company to compete effectively in this market
will depend upon its ability to maintain high quality services at prices equal
to or below those charged by its competitors.
The communications and information services industry is subject to
rapid and significant changes in technology. For instance, recent
technological advances permit substantial increases in transmission capacity
of both new and existing fiber, and the introduction of new products or
emergence of new technologies may reduce the cost or increase the supply of
certain services similar to those which the Company plans on providing.
Accordingly, in the future the Company's most significant competitors may be
new entrants to the communications and information services industry, which
are not burdened by an installed base of outmoded equipment.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Payments
or Labor Contracts
------------------
19
<PAGE>
The Company has trademarked its logo. The Company has no patents,
licenses, franchises, concessions, royalty agreements or labor contracts.
Need for Government Approval of Principal Products or Services
--------------------------------------------------------------
The Company's communications service business will be subject to
varying degrees of federal, state, local and international regulation.
Effect of Existing or Probable Governmental Regulations on Business
-------------------------------------------------------------------
Regulatory Background
- ---------------------
The existing domestic long distance telecommunications industry was
principally shaped by a 1984 court decree (the "Decree") that required the
divestiture by AT&T of its 22 Bell operating companies ("BOCs"), organized the
BOCs under seven regional Bell operating companies ("RBOCs") and divided the
country into some 200 Local Access Transport Areas or "LATAs." The incumbent
local exchange carriers ("ILECs"), which include the seven RBOCs as well as
independent local exchange carriers, were given the right to provide local
telephone service, local access service to long distance carriers and intra
LATA long distance service (long distance service within LATAs), but the RBOCs
were prohibited from providing inter LATA service (service between LATAs).
The right to provide inter LATA service was given to AT&T and the other
interexchange carriers ("IXC"). Conversely, IXCs were prohibited from
providing local telephone service.
A typical inter LATA long distance telephone call begins with the
local exchange carrier ("LEC") transmitting the call by means of its local
network to a point of connection with an IXC. The IXC, through its switching
and transmission network, transmits the call to the LEC serving the area where
the recipient of the call is located, and the receiving LEC then completes the
call over its local facilities. For each long distance call, the originating
LEC charges an access fee. The IXC also charges a fee for its transmission of
the call, a portion of which consists of a terminating fee which is passed on
to the LEC which delivers the call. To encourage the development of
competition in the long distance market, the Decree required LECs to provide
all IXCs with access to local exchange services "equal in type, quality and
price" to that provided to AT&T. These so called "equal access" and related
provisions were intended to prevent preferential treatment of AT&T. As a
result of the Decree, customers of all long distance companies were eventually
allowed to initiate their calls by utilizing simple "1 plus" dialing, rather
than having to dial longer access or identification numbers and codes.
The Telecommunications Act is expected to significantly alter the
telecommunications industry. The Decree has been lifted and all restrictions
and obligations associated with the Decree have been eliminated by the new
legislation. The seven RBOCs are now permitted to provide long distance
service originating (or in the case of "800" service, terminating) outside
their local service areas or offered in conjunction with other ancillary
services, including wireless services. Following application to the FCC, and
upon a finding by the FCC that an RBOC faces facilities based competition and
20
<PAGE>
has satisfied a congressionally mandated "competitive checklist" of
interconnection and access obligations, an RBOC will be permitted to provide
long distance service within its local service area, although in so doing, it
will be subject to a variety of structural and nonstructural safeguards
intended to minimize abuse of its market power in these local service areas.
Having opened the interexchange market to RBOC entry, the Telecommunications
Act also removes all legal barriers to competitive entry by interexchange and
other carriers into the local telecommunications market and directs RBOCs to
allow competing telecommunications service providers such as the Company to
interconnect their facilities with the local exchange network, to acquire
network components on an unbundled basis and to resell local
telecommunications services. Moreover, the Telecommunications Act prevents
IXCs that serve greater than five percent of pre-subscribed access lines in
the U.S. (which includes the nation's three largest long distance providers)
from jointly marketing their local and long distance services until the RBOCs
have been permitted to enter the long distance market or for three years,
whichever is sooner. This gives all other long distance providers (which the
Company intends to be) a competitive advantage over the larger long distance
providers in the newly opened local telecommunications market. As a result of
the Telecommunications Act, long distance carriers will face significant new
competition in the long distance telecommunications market, but will also be
afforded significant new business opportunities in the local
telecommunications market.
Legislative, judicial and technological factors have helped to
create the foundation for smaller long distance providers to emerge as
legitimate alternatives to AT&T, MCI/MCIWorldCom and Sprint for long distance
telecommunication services. The FCC has required that all IXCs allow the
resale of their services, and the Decree substantially eliminated different
access arrangements as distinguishing features among long distance carriers.
In recent years, national and regional network providers have substantially
upgraded the quality and capacity of their domestic long distance networks,
resulting in significant excess transmission capacity for voice and data
communications. The Company believes that, as a result of digital fiber optic
technology, excess capacity has been, and will continue to be, an important
factor in long distance telecommunications. As a consequence, not only have
smaller long distance service providers received legal protection to compete
with the network based carriers, they also represent a source of traffic to
carriers with excess capacity. Thus, resellers have become an integral part
of the long distance telecommunications industry.
Federal
- -------
The Company is classified by the FCC as a non-dominant carrier and
therefore is subject to relaxed regulation. Historically, the FCC has
generally either excused or presumed compliance by non dominant carriers with
many of the statutory requirements and regulations to which dominant carriers
are subject, including most reporting, accounting and record keeping
obligations. However, a number of these requirements are imposed, at least in
part, on non-dominant carriers whose annual operating revenues exceed $100
21
<PAGE>
million. The FCC retains the jurisdiction to impose fines or other penalties
on, or to act upon complaints against, any common carrier, including non-
dominant carriers, for failure to comply with its statutory or regulatory
obligations. The FCC also has the authority to impose more stringent
regulatory requirements on the Company and change its regulatory
classification. In the current regulatory atmosphere, however, the Company
believes that the FCC is unlikely to do so. Non dominant carriers are also
subject to a variety of miscellaneous regulations that, for instance, dictate
the materials required to document and the procedures necessary to verify a
consumer's election to change its preferred long distance telephone provider,
mandate disclosure of rate and other data associated with the provision of
operator services and require contribution to a variety of FCC mandated funds
and payment of various regulatory and other fees. There has generally been
increased enforcement activity by the FCC and the states with respect to such
regulations, particularly with respect to those regulations governing the
verification of consumer elections to change long distance service providers.
Among domestic carriers, only the ILECs are classified as dominant
carriers, although ILECs currently would only be classified as dominant in
their provision of long distance telecommunications services if they were to
provide such services other than through structurally separate affiliates. As
a consequence, the FCC regulates many of their rates, charges and services to
a greater degree than the Company's, although the FCC is currently evaluating
proposals to streamline and otherwise relax its regulation, the structurally
separate inter-exchange affiliates of the RBOCs have recently been
reclassified as non dominant carriers and, accordingly, have the same
flexibility as the Company in meeting competition by modifying rates and
service offerings without pricing constraints or extended waiting periods.
The impact on the Company of the reclassification of AT&T and the RBOC
interchange affiliates as non dominant carriers cannot be determined at this
time, but it could make it more difficult for the Company to compete for long
distance customers.
With the passage of the Telecommunications Act, the RBOCs are now
free to offer local service outside their respective local telephone service
areas as well as local service bundled with wireless, enhanced and other
ancillary services. Following application to and upon a finding by the FCC
that an RBOC faces facilities-based competition and has satisfied a
congressionally mandated "competitive checklist" of interconnection and access
obligations, the RBOC will be permitted to provide long distance service
within its local service area, although in so doing, it will be subject to a
variety of structural and nonstructural safeguards intended to minimize abuse
of its market power in these local service areas. As a result of the removal
of the legal barriers to competitive entry into the local market, long
distance carriers like the Company will be allowed to compete with the RBOCs
in the provision of local service. It is impossible to predict the impact of
RBOC entry into the long distance telecommunications market on the Company's
business and prospects, but it could make it more difficult for the Company to
compete for long distance customers.
The Company has all necessary authority to provide domestic
22
<PAGE>
interstate telecommunications services under current laws and regulations.
The Company has been granted authority by the FCC to provide international
telecommunications services through the resale of switched services of U.S.
facilities based carriers. The FCC reserves the right to condition, modify or
revoke such international authority for violations of federal law or rules, as
well as to approve assignments and transfers of control of such international
authority. Both domestic and international non-dominant carriers must maintain
tariffs on file with the FCC. Although the tariffs of non-dominant carriers,
and the rates and charges they specify, are subject to FCC review, they are
presumed to be lawful and are seldom contested. As a domestic non-dominant
carrier, the Company is permitted to make tariff filings on a single day's
notice and without cost support to justify specific rates. As an
international non dominant carrier, the Company has always been required to
include, and has included, detailed rate schedules in its international
tariffs, but, as a result of recent FCC action, is now permitted to make
tariff filings on a single day's notice. Prior to a 1995 court decision,
Southwestern Bell v. FCC, 43 F.3rd 1515 (D.C.Cir. 1995), domestic non dominant
carriers were permitted by the FCC to charge a "reasonable range of rates"
instead of the detailed schedules of individual charges required of dominant
carriers. In reliance on the FCC's past practice of allowing relaxed tariff
filing requirements for non dominant domestic carriers, the Company and most
of its competitors did not maintain detailed rate schedules for domestic
offerings in their tariffs. Until the two year statute of limitation expires,
the Company could be held liable for damages for its failure to do so,
although it believes that such an outcome is highly unlikely and would not
have a material adverse effect on the Company's operations.
To date, the FCC has exercised its regulatory authority to set rates
only with respect to the rates of dominant carriers, and it has increasingly
relaxed its control in this area. Thus, the FCC does not regulate the rates
of the Company or any other long distance telecommunications provider,
including AT&T, although it would regulate the rates charged by any ILEC that
elected to provide interexchange services other than through a structurally
separate affiliate. While the FCC continues to cap the prices that determine
interstate calls, it has afforded the ILECs a modicum of geographically
restricted pricing flexibility when they face competition in a given market.
The FCC has indicated that it will initiate in the near future a comprehensive
review of its access charge structure, evaluating embedded costs and subsidies
that produce current access charge levels. The FCC is currently conducting a
rulemaking procedure to implement the universal service provisions of the
Telecommunications Act and will be determining in that proceeding the
contributions that telecommunications companies such as the Company will be
required to make to support universal service. The FCC also has recently
completed a rulemaking proceeding to implement the local competition
provisions of the Telecommunications Act. In that proceeding, the FCC has set
forth comprehensive national rules and guidelines for states and local
competitors to follow that, among other things, govern the interconnection
obligations among telecommunications carriers, including interconnection with
the local exchange network, and access to a minimum set of unbundled network
elements, as required by the Act. The FCC also has set forth pricing
methodologies for both the FCC and the states to follow in implementing the
23
<PAGE>
Telecommunications Act's requirement that interconnection and access to
unbundled network elements be made available by ILECs at cost-based rates with
a reasonable profit.
The FCC-styled "trilogy" of access charge reform, universal service
and local competition proceedings comprise the FCC's effort to respond to the
Telecommunications Act's goal of transitioning telecommunications markets to
full competition. The FCC does not expect this framework to be complete until
state public service commissions complete their own efforts to implement and
supplement the Telecommunications Act's provisions. Until the FCC's "trilogy"
of proceedings is completed, and until such state actions are taken, the
impact of the FCC's arrangements or access charge obligations, or more
broadly, on the Company's operations in general, cannot be determined at this
time.
The Telecommunications Act grants the FCC authority to forbear from
applying any statutory requirement or regulation to classes of carriers or
services upon a determination that such application is unnecessary and no
longer in the public interest. Utilizing this newly granted authority, the FCC
has already reduced, and has proposed further reductions in, its regulation of
non dominant IXCs such as the Company. Among other things, the FCC has
proposed "mandatory de-tariffing" for the domestic offerings of non-dominant
IXCs. This proposed rule, if adopted, would not only relieve the Company of
its obligation to file tariffs applicable to its domestic interexchange
offerings, but would prohibit all non dominant IXCs, including AT&T, Sprint
and MCI/WorldComm, from filing such tariffs. The magnitude of the impact on
the Company of mandatory de-tariffing of its principal suppliers and
competitors cannot be determined at this time, although such an action would,
if adopted, render enforcement of the FCC's resale and nondiscrimination
requirements more difficult.
State
- -----
The Company's intrastate long distance telecommunications operations
are also subject to various state laws and regulations, including initial
certification, registration and/or notification, as well as various tariffing
and reporting requirements. The Company is certified in 23 states and is
going through the certification process in the remaining 27 states. The
Company intends to continuously monitor regulatory developments in all 50
states and intends to obtain licenses wherever feasible. Once it becomes
certified, the Company will have to file an annual statement with each state's
Public Utilities Commission.
Research and Development
------------------------
Other than developing and expanding its telecommunications network,
the Company does not intend to undertake any activities that may be
characterized as research and development. The Company has not incurred any
research and development expenses since its inception.
24
<PAGE>
Number of Employees
-------------------
The Company presently employs seven full-time employees and no part-
time employees. During the next 12 months, management intends to hire up to
33 additional employees, subject to receipt of sufficient revenues to pay
them.
Item 2. Management's Discussion and Analysis or Plan of Operation.
- -------------------------------------------------------------------
Plan of Operations.
- -------------------
The Company began actively marketing in April, 1999. It is
anticipated that it will produce approximately $4,390,000 in revenue in the
1999 fiscal year and approximately $12,762,000 in fiscal 2000. Gross profit
would be approximately $175,394, and $3,185,280, respectively. In
the next 12 months, the Company intends to employ 10 IP Gateways throughout
the western United States in order to transport long-haul Voice Over the
Internet traffic ("VOIP," i.e., long distance voice traffic transported as
digital electronic data packets over the internet), both domestically and
internationally. The Company's financing requirements in this regard are
discussed under the heading "Liquidity," below.
As discussed under the heading "Internet Protocol Network," the
Company's Strategic Partnership Agreements with Bell Atlantic and Level 3
Communications allow it to collocate its Gateway equipment and terminate
traffic in areas that the Company has not or does not intend to locate
Gateways. The Company has very actively begun to employ its Affinity Group
Marketing strategy and has contracted with three of its seven targeted groups;
it is negotiating with the remaining four. The total membership population of
the Company's seven targeted groups is over 40 million. Management expects
that its marketing efforts will be financed through its proposed fundraising,
as discussed under the heading "Liquidity," below.
The three groups with which the Company has contracted are: the
Tailhook Association; Miles Ahead Ministries; and the Marine Corps Reserve
Officers Association. Each agreement requires each group to forward a
marketing piece to its members; the marketing pieces will recommend a
telecommunications plan to the members, which will include long distance, toll
free service, paging, cellular service, internet access, pre-paid and regular
calling cards and other telecommunications services. The Company will provide
each group with a billing summary of all participants' accounts each month and
pay each group a percentage of each participant's net telephone bill. The
contracts will be in place for periods of time ranging from 12 months to 36
months, with each group having an option to renew for an additional term.
The Company also intends to build a captive agent network for direct
marketing purposes to supplement its Affinity Group Marketing programs. The
Company is currently negotiating with an experienced group of direct marketers
25
<PAGE>
and management expects that direct marketing operations will commence in
approximately September, 1999.
Management is also seeking viable acquisition candidates. Several
synergistic targets have been identified and initial contacts are being made.
The Company intends to make acquisitions that will allow it to offer value-
added services and products to its customer base. There can be no assurance
that the Company will be successful in locating and completing the acquisition
of any suitable candidate. Even if the Company is successful in this regard,
it can provide no assurance that any acquisition will be profitable.
The Company's projections are based on the following assumptions and
limitations:
The Company's business plan details a stair step process whereby it
will lease telecommunications services that can be marketed directly to its
primary affinity groups. The Company currently has contracts with three of
the seven affinity organizations originally targeted. The combined membership
of the three contracted affinity groups is 25,000 members. The Company has
just begun contacting affinity group members and is realizing a 38% acceptance
rate. This acceptance rate substantially exceeds the 12.5% rate detailed in
the business plan. The Company is currently in contract discussions with
three more affinity groups. It is anticipated that all seven groups will be
contracted by year end, although the Company can make no assurances in this
regard. The total membership of the seven affinity groups is 40,000,000
members. The Company believes this population and its current acceptance rate
should provide the revenues detailed in the projections. Additionally, the
affinity group marketing plan is only one of several currently being test
marketed.
The second revenue source detailed is the wholesaling of
telecommunications services. The Company is buying international
telecommunication services from Flat Rate Communications and selling these
services to LD Exchange.Com, Inc. The Company is currently pursuing other
wholesale agreements as well. The profit margin is 3% to 4% on the
wholesaling of telecommunications services.
Management projects that 1999 revenues from its affinity group
program will total $90,000, with revenues from its wholesaling operations
totaling $4,300,000. For the 2000 fiscal year, management projects these
revenues to be $6,762,000 and $6,000,000, respectively.
In arriving at its revenue projections for its affinity groups
program, the Company assumes that on average each residential customer will
use approximately 200 minutes per month at a cost to the customer of
approximately $0.10 per minute, and that the number of residential customers
will increase from approximately 600 in September, 1999, to approximately
60,300 in December, 2000.
The cost of goods sold currently reflects the cost of a leased
network whereby the Company can transmit customer calls. The cost of goods
26
<PAGE>
reflects the use of the telephone lines, billing and collections and customer
service. The rate used in the projections to reflect these costs is $0.07.
To control cost, the Company has entered into subcontract arrangements to
facilitate billing and collections and customer service. These costs are a
calculation of the services provided. As such they are a true marginal cost.
The Company's projections for its wholesaling operations assume
volume of 2,000,000 monthly minutes through December 2000, at an average rate
of $0.25 per minute. Projected cost of goods sold will be $0.25 per minute
through December 2000.
The Company has commenced the development of its own Internet
Protocol Network. It is anticipated that the planned network will be
operational by early 2000. With this network in place, the Company will have
control of its pricing for the transmission of telecommunications services.
The projection reflects a modest decrease in the cost of goods sold when the
network is operational. The Company believes the reduction of cost will be
more substantial but is reflecting a modest reduction to be conservative.
The Company's selling, general and administrative costs will be
reduced by management's intentions to subcontract significant services such as
billing and collections and customer service. The fundamental costs will be
1)the maintenance of the Company's own Internet Protocol Network and 2)the
marketing to and maintenance of affinity group relationships. The projections
reflect a management group that is primarily marketing driven and that will
target and service National Affinity Groups. The remainder of management will
monitor the subcontractor relationships to maintain the quality of service the
Company intends to provide.
The telecommunication industry holds a certain amount of risk due to
the highly competitive nature of the industry and capital required. The
reason the Company is building its own IP Network is to be in control of its
destiny with regard to price competition. To build this network the Company
has sought out the technology that is compatible with internet requirements.
The Company currently has agreements to provide sufficient funding in the
short term. The company is currently negotiating with Schwartz Institutional
Finance, National Capital and Capital Growth Planning to provide the long term
resources necessary to complete the Internet Protocol Network and the
infrastructure required to support the Company's planned customer base.
The foregoing contains "forward-looking" statements and information,
all of which is modified by reference to the caption "Risk Factors," Item 1.
Actual results may differ materially from those projected in such forward-
looking statements and there is no assurance that the projected results will
be obtained.
Results of Operations.
- ---------------------
The Company has undergone significant changes since its
incorporation on June 13,1996. The fiscal year ended December 31, 1996
27
<PAGE>
represented a period of time where the Company was first founded and the basic
business plan was being developed.
The fiscal year ended December 31, 1997 brought about the first
revenues the Company. These revenues were commissions earned as a result of
the company entering the telecommunications marketplace as an agent for other
communications companies. The two principal communications companies the
company served as an agent were Eagle InterCommunications, Inc. and TTI. The
Company began pursuing this revenue stream initially as it allowed the Company
to earn some revenue while it began to implement its business plan. The
business plan calls for a stair step approach to build the Company into a
telecommunications company with its own Internet Protocol Network. The fiscal
year ended December 31, 1998 resulted in the same type of agent commission
income.
Commission income decreased from $25,962 in fiscal 1997 to $16,004
in fiscal 1998. The reason this commission revenue decreased was that
management was focusing on implementing the next steps in the business plan.
The next steps in the business plan include becoming a wholesaler of
telecommunications services, direct selling of telecommunication services to
be transmitted over a leased network, and ultimately the selling of
communications services transmitted over its own Internet Protocol Network.
The commission income was pursued only as a revenue source during this
beginning period. Management did not see this revenue source as a key
component of the future revenues of the Company.
Beginning in March of 1999, the Company began wholesaling, which was
the next step in building its revenue stream. The Profit and Loss statement
for the six month period ended June 30, 1999 shows revenues from wholesaling
of $1,300,927 and cost of goods sold from wholesaling of $1,269,143. The
company is buying international telecommunication services from Flat Rate
Communications and selling these services to LD Exchange.Com, Inc. The
Company is currently pursing other wholesale agreements.
The financial statements for Fiscal 1996 reflect the initial
capitalization of the company along with minimal expenses for start up costs,
office rent and utilities. During fiscal 1997 and 1998 the operating expenses
of the company reflect the implementation of the business plan by management.
One charge to earnings that is substantial is the issuance of stock for
services totaling $512,718 during fiscal 1998. The charge related to the
issuance of stock for services during fiscal 1997 was $10,000. The other
operating expenses relate to rent, travel, insurance, legal, general office
expenses and utilities. The selling costs during the periods discussed relate
principally to commissions that are paid to the Company's agents for the
acquisition of the commission income.
The Company's fiscal 1999 financial statements reflect the same
basic categories of expenses as in prior periods. As of the six-month period
ended June 30, 1999 the company has a charge to earnings of $1,121,500 for
stock issued for services. During 1999, the Company began paying salaries to
management. Additionally the Company has begun to increase personnel. Other
28
<PAGE>
significant cost categories are travel, legal, and marketing. These costs
have been incurred to progress the items in the following paragraph.
The future financial condition of the Company is grounded in the
progress it has made to date with its business plan. The wholesaling business
has begun and will be a continuing source of revenue for the Company into the
future. The completion of agreements with companies such as Level 3 and Bell
Atlantic allows the Company to currently market telecommunications services to
its three existing affinity marketing groups as well as the general public.
During this time period, the Company has entered into an agreement with
Capital Growth Resources to raise $5,000,000 in a private placement of
restricted securities to complete its Internet Protocol Network and provide
additional working capital.
The Company has designed its business plan to outsource a
significant portion of the services required to service future customers. As
such, the Company will be able to show substantial control over its overhead
costs. The key services that are currently outsourced are billing of
residential customers and customer service.
Liquidity.
- ----------
The Company's current cash reserves are not sufficient to complete
its business plan. The Company does have sufficient resources in the short
term. On a long term basis, the Company is negotiating agreements with Swartz
Private Equity, LLC; Oxford International and Capital Growth Planning to
provide at least $5,000,000 in a private placement of restricted securities to
complete its Internet Protocol Network and provide additional working capital.
Although the Company is forecasting net earnings after taxes of $348,030 for
fiscal 1999 this will also be insufficient to allow the Company to complete
its network.
The Company's cash reserves and accounts receivable net of accounts
payable as of June 30, 1999 was $591,708. Accordingly, the Company does have
sufficient resources in the short term to maintain its operations.
As stated above, the Company is currently negotiating additional
funding of at least $5,000,000 to be used for capital equipment and working
capital.
The capital equipment is comprised of IP Gateways, which will be
purchased during November 1999. This equipment purchase will allow the
Company to complete its Internet Protocol Network. Each gateway is
anticipated to cost $250,000. Upon completion, the gateways will have to be
certified by regulatory authorities. This certification process will cost the
Company approximately $200,000. The personnel required to maintain the
network will cost the company $500,000 annually.
The Company will use the balance ($2,300,000) of the funds currently
being negotiated as working capital and for strategic acquisitions yet to be
29
<PAGE>
identified.
Net revenues from inception have been a relatively small component
of the Company's liquidity.
Fiscal 1996 $0
Fiscal 1997 25,962
Fiscal 1998 16,004
Six months ended
June 30, 1999 45,797
During fiscal 1997, the capital requirements of the Company were not
significant. The funds required were for office expenses, travel and legal
fees. At this time the company was negotiating agreements with affinity
marketing groups and arranging a leased network that would transmit
telecommunications services.
In order to implement its business plan, the Company required
additional capital resources. Accordingly, the Company commenced an offering
of securities pursuant to Rule 504 of Regulation D of the Securities and
Exchange Commission in late 1997. This offering consisted of 125,000 units,
with each unit including one share of common stock and three warrants to
purchase a total of three additional shares of common stock at $2.00 each. In
1998, the Company raised $250,000 from this offering. Additionally the
company raised $16,492 in a transaction believed to be exempt from
registration under Section 4(2) of the Securities Act. This capital, along
with a loan of $12,700 from the President of the Company provided the working
capital required.
During fiscal 1998, the capital requirements of the Company began to
increase as the company progressed with its business plan. The capital to
meet these commitments was provided principally by the offering under Rule 504
of the Securities and Exchange Commission, as discussed above. A second
offering under Rule 504, consisting of 350,000 shares of common stock at a
purchase price of $0.13 per share was made available in March, 1998. All
350,000 shares were sold under this offering, for gross proceeds of $45,500.
These funds provided the company the resources necessary during fiscal 1998.
Stock issued for services such as consulting and business development, less
the amount charged to equity because the charges related to fundraising,
totaled $542,718.
As of June 30, 1999 each of the offerings under Rule 504 were fully
subscribed and warrants issued under the Company's first offering were
exercised in exchange for $737,100. Additional "unregistered" and
"restricted" shares were sold to qualified investors. The total raised during
this period was $907,400. Stock was also issued for services during this
period. The stock issued for services was compensation for consulting and
business development services. The equipment purchased of $33,979 is required
for the Company to build its Internet Protocol Network. The substantial
increase in both accounts receivable and accounts payable is directly
attributable to the implementation of the wholesaling business.
30
<PAGE>
Revenues during the calendar year ended December 31, 1998, totaled
$16,004, as compared to $25,962 in the calendar year ended December 31, 1997.
Net loss for these periods were $730,241 and $72,405, respectively. The
increased loss in the 1998 calendar year was due principally to increased
general and administrative expenses of $716,479.
The ability to complete the IP Gateway construction and employ
marketing executives to service the Affinity Groups depends on the Company's
success in obtaining adequate financing. The Company has signed a letter of
intent for a $20 million equity line with Swartz Institutional Finance.
The Swartz letter of intent provides for Swartz to purchase $20
million of the Company's common stock at 91% of the market price, and to sell
the shares by prospectus under applicable provisions of Regulation D of the
Securities and Exchange Commission. The parties may agree to increase the
amount purchased to $40 million.
Subject to an effective registration statement, for the first 36
months after Swartz' execution of a subscription agreement for the shares, the
Company shall have the right to put to Swartz up to $3 million of its common
stock. For each put, Swartz will receive an option to purchase 7% of the
number of shares purchased under the put at 115% of the market price for the
Company's common stock. As consideration for its commitment, subject to
execution of a definitive agreement, Swartz is to receive a warrant to
purchase 220,000 shares of the Company's common stock at the lesser of the
market price on the date of the execution of the letter of intent (July 8,
1999) or the market price on the day that the parties sign the closing
documents relating to the equity line transaction. Swartz has agreed not to
exercise the warrant for a period of six months from July 8, 1999, unless the
Company is purchased during that period. On each anniversary of the equity
line term, the Company is to issue additional warrants to Swartz such that the
total number of warrants issued to Swartz will equal 4.3% of the fully diluted
shares of the Company on such date.
Upon execution of an investment agreement and associated closing
documents, Swartz is to receive $25,000 to cover its legal and due diligence
expenses associated with the transaction. If the Company does not put to
Swartz $1 million during each six month period of the equity line term, it is
to pay Swartz a "non-usage fee" of $100,000 minus 10% of the dollar amount put
to Swartz during that six month period. All warrants issued to Swartz are to
have piggyback registration rights, reset provisions, will be non-dilutive due
to reverse stock splits and are to have a five-year term. There can be no
assurance that the Company will enter into any definitive agreement with
Swartz. A copy of the letter of intent with Swartz is attached hereto and
incorporated herein by reference.
The Company is in negotiations with Oxford International for a $5
million equity financing under which Oxford would use its best efforts to
raise such funding under Regulation A of the Securities and Exchange
Commission. The Company would be required to pay (i) an engagement fee of
$25,000; (ii) a consulting fee of 4% of the gross proceeds of any financing
31
<PAGE>
and 1% of the stock of the offering; and (iii) a sales commission equal to 5%
of the gross proceeds of the offering. The parties have not entered into any
letter of intent or binding agreement with respect to this fundraising. There
can be no assurance that any such agreement will be reached or that, any such
agreement will be on the terms set forth above.
The Company is also negotiating a loan of approximately $8,200,000
with Braveheart, Inc., a Delaware corporation, at a rate of 3% simple interest
per annum, and with the loan to be secured by shares of the Company's common
stock. In addition, the Company is in discussions with Capital Growth
Planning for a potential equity financing of approximately $5,000,000, to be
preceded by a bridge loan of $400,000 at 14% per annum, payable in six months.
However, the Company has not entered into any definitive agreements with
either of these entities and there can be no assurance that any such
agreements will be completed or that they will be entered into on the terms
set forth above.
The proceeds from the Company's anticipated fundraising efforts will
allow it to build out its IP Network and build infrastructure to manage it,
and to market the Company's services. The Company believes that the net
proceeds from its previous financings, as discussed above, will allow the
Company to carry on operations until the above-referenced financings are
complete.
Year 2000
---------
The Company uses a 16-line Triad System Star Plus Modavi, which is a
digital telecommunications system that can be used for both voice and data.
In addition, the Company uses Dell personal computers in its office. It has
determined that both its telecommunications system and its personal computer
system are Year 2000 compliant.
The Company's system vendors have given verbal assurance that their
systems are Year 2000 compliant. System vendors for the Company's IP telephony
operations are Cisco and Inter-Tel, both of which NASDAQ listed firms. None of
the Company's IP telephony systems are main frame based; they are PC based.
The two digit date problem is not a PC issue per se, and if it is a PC issue
it is resolved at little cost by readjusting the Bios inherent in the PC
motherboard.
Level 3 Communications and MCI/WorldComm are other providers. Both
of these companies have given the Company verbal assurances that they are in
Year 2000 compliance.
The worst case scenario, as management sees it, is that the power
grid could fail and the Company's telephony systems would not have power. This
has been resolved by Level3 and MCI/World Com by diesel powered back up
generator systems that are in stand-by mode ready to supply power to the
telephony systems in case of short term power failure. These backup power
generating systems have the capability to sustain power generation for long
32
<PAGE>
periods of time as long as fuel is available. A considerable amount of diesel
fuel is stored at both Level 3 and MCI/WorldComm facilities. The Company's
contingency plan is to continue to monitor the backup power systems at the
switching sites along with monitoring the diesel fuel supplies.
Item 3. Description of Property.
- ---------------------------------
The Company leases its principal executive offices, which are
located at 4275 Executive Square, Suite 510, La Jolla, California. These
offices consist of approximately 1500 square feet of office space. Rent
obligations are $2,525 per month. The lease will expire on December 31, 1999,
but the Company has an option to renew it for an additional one-year term, on
the same terms and conditions as the existing lease. Management is currently
seeking a larger facility and does not expect to renew its existing lease.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
The following table sets forth the share holdings of the Company's
directors and executive officers and those persons who own more than five
percent of the Company's common stock as of the date hereof. Information
regarding the capacities in which each director and executive officer serves
for the Company is contained in Item 5.
<TABLE>
<CAPTION>
Number of Shares Percentage
Name and Address Beneficially Owned of Class(1)
- ---------------- ------------------ --------
<S> <C> <C>
6M Family Trust (1) 582,000 17.1%
4275 Executive Square
Suite 510
La Jolla, California
92037
Paul J. Mills 385,000 (2) 11.3%
4275 Executive Square
Suite 510
La Jolla, California
92037
John E. Jordan 25,000 (3) 0.7%
4275 Executive Square
Suite 510
La Jolla, California
92037
James D. Boring -0- -0-
33
<PAGE>
4275 Executive Square
Suite 510
La Jolla, California
92037
</TABLE>
(1) The 6M Family Trust is controlled by the family of the Company's
President, Richard D. Mangiarelli.
(2) A total of 190,000 of these shares are held of record by
Mr. Mills' adult children; Mr. Mills may be deemed to have
voting control over these shares.
(3) These shares are held of record by Jordan Family Trust, which
is controlled by Mr. Jordan.
Changes in Control.
- -------------------
On July 19, 1999, the Roman J. Kownacki, M.D. Pension Fund; and
Roman J. Kownacki and Mary Jean Kownacki, as Trustees of the Kownacki Family
Trust dated February 8, 1972 (collectively, "Kownacki"), filed a Complaint for
Judgment Debtor's Interest in Property or Debt to Satisfy Money Judgment in
the Superior Court of the State of California for the County of San Diego (the
"Complaint"). The case was designated Case No. EC18601.
The Complaint sought (i) a declaration that Company securities held
directly or beneficially by the Company's President, Richard D. Mangiarelli,
are the property of Kownacki; (ii) an order that the securities be delivered
to the marshal of the County of San Diego for satisfaction of a judgment in
the amount of $170,470.82 that Kownacki had obtained against Mr. Mangiarelli
on May 28, 1997; (iii) an order to show cause why the Company should not be
enjoined from transferring such securities to any person or otherwise
disposing of the securities; (iv) a temporary restraining order and a
preliminary injunction to that effect; and (v) Kownacki's costs of suit and
attorney's fees and such other relief as the Court deemed proper.
On August 5, 1999, the Court entered an Order (i) enjoining the
Company, during the pendency of the action, from transferring to Mr.
Mangiarelli, concealing, selling or otherwise changing the form of title on
Mr. Mangiarelli's securities; (ii) requiring the Company to transfer all such
securities in its possession to the Marshal of the County of San Diego upon
demand, for application to the satisfaction of the judgment in favor of
Kownacki; (iii) that the Company disclose the existence of the Order to anyone
who inquires as to Mr. Mangiarelli's ownership interest in the Company's
securities; (iv) not accept any lien or other encumbrance upon Mr.
Mangiarelli's stock, options or right to exercise stock options or acquire
shares as a condition to his employment with the Company; and (v) advise the
Securities and Exchange Commission of the restrictions placed upon such stock
on or before August 10, 1999.
34
<PAGE>
In the event that any shares that are beneficially owned by Mr.
Mangiarelli are transferred to Kownacki, Kownacki would have the right to vote
those shares at any meeting of the Company's stockholders. The Company has
not received any indication of how Kownacki would vote the shares. However,
management does not anticipate that any such transfer would effect a change in
control of the Company, since Mr. Mangiarelli does not directly own any shares
of the Company's common stock and the 6M Family Trust, which is controlled by
Mr. Mangiarelli's family, owns only 17% of the Company's outstanding shares.
Accordingly, management does not believe that such transfer would have any
effect on its existing contracts or its future operations. Regardless of the
outcome of this matter, Mr. Mangiarelli intends to remain as a director and
executive officer of the Company and to continue with his present managerial
responsibilities.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
- ---------------------------------------------------------------------
Identification of Directors and Executive Officers.
- ---------------------------------------------------
The following table sets forth the names of all current directors
and executive officers of the Company. These persons will serve until the
next annual meeting of the stockholders or until their successors are elected
or appointed and qualified, or their prior resignations or terminations.
<TABLE>
<CAPTION>
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
- ---- ---- ----------- --------------
<S> <C> <C> <C>
Richard D. CEO 6/96 *
Mangiarelli President 6/96 *
Director 6/96 *
Paul J. Mills Chairman 6/96 *
Director 6/96 *
Secretary 6/96 *
John E. Jordan Director 6/96 *
James D. Boring Vice Pres., 8/99 *
Operations
</TABLE>
* These persons presently serve in the capacities indicated.
Business Experience.
- --------------------
35
<PAGE>
Richard D. Mangiarelli, Chief Executive Officer, President and
Director. Mr. Mangiarelli is 59 years old. In 1985, he founded USA Energy
Corporation, a licensed general and electrical contractor dedicated to energy
conservation contracting. He was the Chief Operating Officer of Fulham
Company, an electronic ballast manufacturer, from 1993 to 1995. Mr.
Mangiarelli holds a BA degree from the University of Connecticut and an MBA
degree from Pepperdine University. He is a licensed general contractor and
licensed electrical contractor and is retired from the United States Marine
Corps at the rank of Colonel.
Paul J. Mills, Secretary and Chairman of the Board of Directors.
Mr. Mills, age 77, has been a principal in Mills and Associates, a management
and consulting firm since 1985. Prior thereto, he founded and served as
president of a marketing company called Southwest Solar Products, Inc. from
1980 to 1986.
John E. Jordan, Director. Mr. Jordan is 63 years of age. In 1959,
he founded the Jordan Companies, a group of privately held, diversified
companies engaged in energy related engineering, manufacturing and marketing
activities, defense and aerospace consulting and international negotiations
and representation. He has served as chief executive officer and president of
these companies for over 20 years. Mr. Jordan is a graduate of Stanford
University, the Marine Corps Command and Staff College, the National Defense
University-Industrial College of the Armed Force program, the Naval War
College, and served as an Officer in both the U.S. Air Force and the Marine
Corps.
James D. Boring, Vice President, Operations. Mr. Boring, age 52, is
a 1971 graduate of Kansas State University. He has been actively involved in
the telecommunications industry since 1983. Mr. Boring was employed by Access
America Telemanagement, Inc., from 1990 to 1996, and served as Vice President
of Field Operations for that company from 1991 to 1996. After a one-year
sabbatical, Mr. Boring became President of Tritel Communications, LLC in June,
1997, and served in that capacity until February, 1999. At that time, Mr.
Boring began working for the Company.
Significant Employees.
- ----------------------
The Company does not currently have any employees who are not
executive officers, but who are expected to make a significant contribution to
its business.
Family Relationships.
- ---------------------
There are no family relationships between any director or executive
officer.
Involvement in Certain Legal Proceedings.
- -----------------------------------------
36
<PAGE>
During the past five years, no present or former director, executive
officer or person nominated to become a director or an executive officer of
the Company:
(1) was a general partner or executive officer of any business
against which any bankruptcy petition was filed, either at the time of the
bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities; or
(4) was found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment
has not been reversed, suspended or vacated.
Item 6. Executive Compensation.
- --------------------------------
The following table sets forth the aggregate compensation paid by
the Company for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual rictedlying Pay- Comp-
Position Ended ($) ($) Compen-Stock Optionsouts ensat'n
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Mangiarelli 12/31/98 -0- -0- -0- -0- -0- -0- -0-
CEO, Pres. 6/30/99 18,750 -0- -0- -0- -0- -0- -0-
and Director
37
<PAGE>
Paul J. 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Mills 12/31/98 -0- -0- -0- -0- -0- -0- -0-
Secretary 6/30/99 -0- -0- -0- -0- -0- -0- -0-
and Chairman
John E. 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Jordan 12/31/98 -0- -0- -0- -0- -0- -0- -0-
Director 6/30/99 -0- -0- -0- -0- -0- -0- -0-
James D. 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Boring 12/31/98 -0- -0- -0- -0- -0- -0- -0-
VP, Oper- 6/30/99 40,000 -0- -0- -0- -0- -0- -0-
ations
</TABLE>
No cash compensation, deferred compensation or long-term incentive
plan awards were issued or granted to the Company's management during the
year ended December 31, 1998, or the period ended March 31, 1999. In April,
1999, the Company began paying its Chief Executive Officer and President,
Richard D. Mangiarelli, an annual salary of $75,000; as of June 30, 1999, Mr.
Mangiarelli has been paid $18,750 in salary. James D. Boring was paid a
monthly salary of $5,000 in February and March, 1999; this salary was
increased to $6,000 per month in April, 1999.
On May 11, 1998, the Company authorized the granting of options to
Mr. Mangiarelli to purchase up to 1,500,000 shares of the Company's common
stock. However, these options were deemed to be "non-qualified" for purposes
of the Internal Revenue Code, and both the Company and Mr. Mangiarelli have
determined that it would be in the best interests of the Company to rescind
these options and adopt a "qualified" option plan for Mr. Mangiarelli in the
future. As of the date of this Registration Statement, Mr. Mangiarelli does
not have any options to purchase shares of the Company.
The Board of Directors has informally determined to grant Mr. Mills
an option to acquire 250,000 shares of the Company's common stock, subject to
Mr. Mills' meeting certain performance criteria. The Board of Directors has
determined to cancel these options and re-grant options pursuant to a
"qualified" option plan in the future. As of the date of this Registration
Statement, Mr. Mills does not have any options to purchase the Company's
shares.
In November 1996, the Board of Directors and majority stockholders
of the Company adopted an employee stock option plan under which 125,000
shares of common stock have been reserved for issuance upon performance of as
yet unspecified performance criteria. As of the date of this Registration
Statement, no options have been granted pursuant to such plan and the Company
has no present plans for the issuance thereof. The Company does not have a
defined benefit plan or any retirement or long-term incentive plan.
As of the date of this Registration Statement, the Company has not
reduced its option arrangements to writing.
38
<PAGE>
Compensation of Directors.
- --------------------------
There are no standard arrangements pursuant to which the Company's
directors are compensated for any services provided as a director. No
additional amounts are payable to the Company's directors for committee
participation or special assignments.
Employment Contracts and Termination of Employment and Change in Control
Arrangements.
- -------------
There are no employment contracts, compensatory plans or
arrangements, including payments to be received from the Company, with respect
to any director or executive officer of the Company which would in any way
result in payments to any such person because of his or her resignation,
retirement or other termination of employment with the Company or its
subsidiaries, any change in control of the Company, or a change in the
person's responsibilities following a change in control of the Company.
Item 7. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The only transactions between members of management, nominees to
become a director or executive officer, 5% stockholders, or promoters or
persons who may be deemed to be parents of the Company are:
- On August 1, 1996, issued a total of 612,000 shares of the
Company's common stock to the 6M Family Trust, which is controlled
by Mr. Mangiarelli's family, in consideration of services valued
at $12,250;
- On August 1, 1996, issued a total of 612,000 shares of the
Company's common stock to Paul J. Mills in consideration of
services valued at $12,250;
- Issued 90,000 shares of common stock to Paul J. Mills on June 1,
1997, for services valued at $180,000;
- On September 28, 1998, issued a total of 25,000 shares of the
Company's common stock to the Jordan Family Trust, which is
controlled by John E. Jordan in consideration of services valued
at $50,000; and
- Issued 30,000 shares to the 6M Family Trust on March 29, 1999, in
consideration of $3,900.
See the caption "Security Ownership of Certain Beneficial Owners and
Management" of this Registration Statement.
Item 8. Legal Proceedings.
- ---------------------------
39
<PAGE>
The Company is a party to Case No. EC18601, which is pending in the
Superior Court of the State of California for the County of San Diego. For a
description of this proceeding, see the heading "Changes in Control" of the
caption "Security Ownership of Certain Beneficial Owners and Management."
To the knowledge of management, no federal, state or local
governmental agency is presently contemplating any proceeding against the
Company. No director, executive officer or other person who may be deemed to
be an "affiliate" of the Company or owner of record or beneficially of more
than five percent of the Company's common stock is a party adverse to the
Company or has a material interest adverse to the Company in any proceeding.
Item 9. Market Price of and Dividends on the Company's Common Equity and
Other Stockholder Matters.
- --------------------------
Market Information.
- -------------------
Quotation of the Company's common stock on the OTC Bulletin Board of
the NASD only commenced August 3, 1998; no assurance can be given that any
established market for the Company's common stock will develop or be
maintained. For any market that develops for the Company's common stock, the
sale of "restricted securities" (common stock) pursuant to Rule 144 of the
Securities and Exchange Commission by members of management or any other
person to whom any such securities may be issued in the future may have a
substantial adverse impact on any such public market. Information about the
date when current holders' holding period of "restricted securities" commenced
can be found under the caption "Recent Sales of Unregistered Securities," Item
10. A minimum holding period of one year is required for resales under Rule
144, along with other pertinent provisions, including publicly available
information concerning the Company (this requirement will be satisfied by the
filing and effectiveness of this Registration Statement, the passage of 90
days and the continued timely filing by the Company of all reports required to
be filed by it with the Securities and Exchange Commission; limitations on the
volume of "restricted securities" which can be sold in any 90 day period; the
requirement of unsolicited broker's transactions; and the filing of a Notice
of Sale on Form 144.
The following quotations were provided by the National Quotations
Bureau, LLC, and do not represent actual transactions; these quotations do not
reflect dealer markups, markdowns or commissions.
<TABLE>
<CAPTION>
STOCK QUOTATIONS*
CLOSING BID
Quarter ended: High Low
- -------------- ---- ---
40
<PAGE>
<S> <C> <C>
August 3, 1998 2.125 1.375
(first available date)to
September 30, 1998
December 31, 1998 2 1.01
March 31, 1999 8.375 1.65625
June 30, 1999 6.1875 3.875
</TABLE>
Holders.
- --------
The number of record holders of the Company's securities as of the
date of this Registration Statement is approximately 143.
Dividends.
- ----------
The Company has not declared any cash dividends with respect to its
common stock or its preferred stock, and does not intend to declare dividends
in the foreseeable future. The future dividend policy of the Company cannot
be ascertained with any certainty, and if and until the Company completes any
sales of its products, no such policy will be formulated. There are no
material restrictions limiting, or that are likely to limit, the Company's
ability to pay dividends on its securities.
Item 10. Recent Sales of Unregistered Securities.
- -------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------
Date Number of Aggregate
Name Acquired Shares Consideration
---- -------- --------- -------------
<S> <C> <C> <C>
Founders 8/1/96 2,000,000 (1)
Subscribers of
offering under
Rule 504 (2) 125,000 (3) $250,000
Subscribers under (4) 45,500 $ 5,915
second Rule 504
offering
41
<PAGE>
Paul Mills 6/1/97 90,000 $180,000
Kaplan Trust 6/1/97 50,000 $ 10,000
Paul Ferandell 6/1/97 50,000 $ 25,000
Tony Cesare 6/1/97 10,000 $ 2,500
Equity Advisors
International 187,500
Five consultants 8/17/98 140,000 Services
valued at
$280,000
Five consultants 8/21/98 36,800 Services
valued at
$73,600
Milano Mondaile 12/15/98 100,000 $ 13,000
Swiss American Ltd. 12/15/98 100,000 $ 13,000
Southwest Products 12/23/98 25,000 $ 50,000
Southwest Products 1/21/99 10,000 $ 20,000
Three consultants 2/2/99 12,000 Services
valued at
$24,000
National Capital
Merc. 2/19/99 16,000 $ 40,800
National Capital
Merc. 3/25/99 20,000 $110,000
27 consultants 3/26/99 123,300 $ 19,500
6M Family Trust 3/29/99 30,000 $ 3,900
Jeffery Rush 4/20/99 10,000 Services
valued at
$20,000
Telebil 4/20/99 100,000 Services
valued at
$200,000
26 consultants 5/27/99 97,400 Services
valued at
$194,800
Holders of warrants
issued under Rule
504 offering (5) 375,000 $737,100
Eight consultants (6) Warrants to Services
purchase valued at
195,077 $390,154
shares
42
<PAGE>
(1) Of this amount, a total of 1,783,000 were authorized for
issuance on August 1,1996, and were issued on April 16, 1998,
for a combination of cash and services.
(2) Subscriptions under this offering were made at various times
from January, 1998 through July, 1998.
(3) This offering was of 125,000 units, at a price of $2.00 per
unit. Each unit consisted of one share of the Company's
common stock and warrants to purchase up to three additional
shares at a price of $2.00 per share. As of the date of this
Registration Statement, all or substantially all of these
warrants have been exercised.
(4) This offering was subscribed by various persons in March, 1998.
(5) These warrants were exercised over a period of time ranging from
approximately February 19, 1999, to February 28, 1999.
(6) These warrants were issued from June, 1997 to February, 1998.
They expired on or about March 10, 1999.
</TABLE>
Management believes each of the foregoing persons or entities was
either an "accredited investor," or "sophisticated investor" as defined in
Rule 506 of Regulation D of the Securities and Exchange Commission. Each had
access to all material information regarding the Company prior to the offer,
sale or issuance of these "restricted securities." The Company believes these
shares were exempt from the registration requirements of the Securities Act of
1933, as amended (the "1933 Act"), pursuant to Section 4(2) (with respect to
all issuances other than issuances as part the Company's offerings under Rule
504) or 3(b) thereof (with respect to the issuances under the Rule 504
offerings).
The Company has taken the following factors into account in
determining the valuations of the above-referenced shares: (i) the fact that
the shares are "restricted" (with the exception of the shares issued under
Rule 504 of the Securities and Exchange Commission); (ii) the limited market
for the Company's common stock on the OTC Bulletin Board of the NASD; (iii)
the low book value per share ($0.038 at December 31, 1998); and (iv) the
Company's history of limited revenues ($25,962 and $16,004 in 1997 and 1998,
respectively).
Item 11. Description of Securities.
- -----------------------------------
Common Stock
------------
The Company has two classes of securities authorized, consisting of
(i) 20,000,000 shares of common voting stock having a par value of one mill
($0.001) per share; and (ii) 5,000,000 shares of preferred stock having a par
43
<PAGE>
value of one mill ($0.001) per share. The holders of the Company's common
stock are entitled to one vote per share on each matter submitted to a vote at
a meeting of stockholders. The shares of common stock do not carry cumulative
voting rights in the election of directors.
The Company's preferred stock shall contain such rights and
preferences as the Board of Directors may authorize. As of the date of this
Registration Statement, the Board of Directors has not assigned any rights or
preferences to the preferred stock and no shares of preferred stock have been
issued.
Stockholders of the Company have no pre-emptive rights to acquire
additional shares of common stock or other securities. The common stock
carries no subscription or conversion rights. All shares of common stock now
outstanding are fully paid and non-assessable.
Outstanding Options, Warrants and Calls
---------------------------------------
See the caption "Executive Compensation" of this Registration
Statement for a description of all options to purchase shares of the Company's
common stock. There are presently no outstanding warrants or calls.
No Provisions Limiting Change of Control
----------------------------------------
There is no provision in the Company's Articles of Incorporation or
Bylaws that would delay, defer, or prevent a change in control of the Company.
Item 12. Indemnification of Directors and Officers.
- ---------------------------------------------------
Section 78.751(1) of the Nevada Revised Statutes ("NRS")
authorizes a Nevada corporation to indemnify any director, officer, employee,
or corporate agent "who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or
in the right of the corporation" due to his or her corporate role. Section
78.751(1) extends this protection "against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with the action, suit or proceeding if he
or she acted in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful."
Section 78.751(2) of the NRS also authorizes indemnification of
the reasonable defense or settlement expenses of a corporate director,
officer, employee or agent who is sued, or is threatened with a suit, by or in
the right of the corporation. The party must have been acting in good faith
and with the reasonable belief that his or her actions were not opposed to the
44
<PAGE>
corporation's best interests. Unless the court rules that the party is
reasonably entitled to indemnification, the party seeking indemnification must
not have been found liable to the corporation.
To the extent that a corporate director, officer, employee, or
agent is successful on the merits or otherwise in defending any action or
proceeding referred to in Section 78.751(1) or 78.751(2), Section 78.751(3) of
the NRS requires that he be indemnified "against expenses, including
attorneys' fees, actually and reasonably incurred by him or her in connection
with the defense."
Section 78.751 (4) of the NRS limits indemnification under
Sections 78.751 (1) and 78.751(2) to situations in which either (1) the
stockholders, (2)the majority of a disinterested quorum of directors, or (3)
independent legal counsel determine that indemnification is proper under the
circumstances.
Pursuant to Section 78.751(5) of the NRS, the corporation may
advance an officer's or director's expenses incurred in defending any action
or proceeding upon receipt of an undertaking. Section 78.751(6)(a) provides
that the rights to indemnification and advancement of expenses shall not be
deemed exclusive of any other rights under any bylaw, agreement, stockholder
vote or vote of disinterested directors. Section 78.751(6)(b) extends the
rights to indemnification and advancement of expenses to former directors,
officers, employees and agents, as well as their heirs, executors, and
administrators.
Regardless of whether a director, officer, employee or agent has
the right to indemnity, Section 78.752 allows the corporation to purchase and
maintain insurance on his behalf against liability resulting from his or her
corporate role.
Article IX of the Company's Articles of Incorporation limits the
personal liability of a director or executive officer for damages for breach
of fiduciary duty to acts or omissions involving intentional misconduct, fraud
or a knowing violation of law. In addition, Article X provides for
indemnification of the Company's directors and executive officers to
substantially the same extent as the NRS. See the Exhibit Index, Item 15 of
this Registration Statement.
Item 13. Financial Statements and Supplementary Data.
45
<PAGE>
CYBERTEL, COMMUNICATIONS CORP.
FINANCIAL STATEMENTS
Two Years Ended December 31, 1998
June 23, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Cybertel, Communications Corp.
Las Vegas, Nevada
We have audited the accompanying balance sheet of Cybertel, Communications
Corp. as of December 31, 1998, and the related statements of income,
stockholders' equity and cash flows for the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cybertel, Communications
Corp. as of December 31, 1998, and the results of its operations and its cash
flows for the two years then ended.
MALONE & BAILEY, PLLC
June 23, 1999
Houston, Texas
<TABLE>
<PAGE> CYBERTEL, COMMUNICATIONS CORP.
BALANCE SHEET
December 31, 1998
<CAPTION>
<S> <C>
ASSETS
Current Assets
Cash $ 50,344
Accounts receivable 1,278
Subscriptions receivable 34,500
Total Current Assets 86,122
Equipment, net of $2,612 accumulated depreciation 8,085
Deposits 4,500
TOTAL ASSETS $ 98,707
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 2,554
Accounts payable 2,241
Accrued interest 1,673
Loan from a founding stockholder 12,700
Total Current Liabilities 19,168
Long-term Debt 2,575
Total Liabilities 21,743
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued or outstanding
Common stock, $.001 par value, 20,000,000
shares authorized, 2,806,659 shares
issued and outstanding 2,807
Paid in capital 1,626,813
Stock subscriptions receivable ( 113,500)
Retained (deficit) (1,439,156)
TOTAL STOCKHOLDERS' EQUITY 76,964
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 98,707
</TABLE>
See accompanying accounting policies
and notes to financial statements.
2
<TABLE>
CYBERTEL, COMMUNICATIONS CORP.
INCOME STATEMENTS
For the Years Ended December 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
Revenues $ 16,004 $ 26,862
Operating Expenses
Selling 26,657 12,851
General and administrative
- paid in cash 174,661 74,275
- paid in stock 976,218 180,000
Depreciation 2,400 212
Interest (income) (1,553) ( 236)
Interest expense 2,262 975
Total Operating Expenses 1,180,645 268,077
NET INCOME (LOSS) $(1,164,641) $(241,215)
Net (loss) per common share $(0.51) $(0.13)
Weighted average common shares
outstanding 2,298,053 1,858,025
</TABLE>
See accompanying accounting policies
and notes to financial statements.
3
<TABLE>
CYBERTEL, COMMUNICATIONS CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<CAPTION>
Stock
Common Stock Subscrip. Paid in Retained
Shares $ Receivable Capital Deficit Totals
<S> <C> <C> <C> <C> <C> <C>
Balances,
December 31, 1996 2,000,000 $2,000 $(3,900) $ 38,000 $( 33,300) $ 2,800
Stock certificates
canceled ( 558,500) (559) 3,900 ( 3,341)
Cash contribution from
founding shareholder 8,702 8,702
Stock issued
- for cash 134,550 135 81,465 81,600
- less subscriptions
rec. (25,000) (25,000)
- for services 140,000 140 279,860 280,000
- less costs of
fundraising (100,000) (100,000)
Net (loss) (241,215) (241,215)
Balances,
December 31, 1997 1,716,050 1,716 (25,000) 304,686 (274,515) 6,887
Stock issued
- for cash 393,750 394 376,606 377,000
- less: subscriptions
rec. (88,500) (88,500)
- for services 696,859 697 1,393,021 1,393,718
- less costs of
fundraising
- in cash paid (30,000) (30,000)
- in stock issued (417,500) (417,500)
Net (loss) (1,164,641)(1,164,641)
Balances,
December 31, 1998 2,806,659 $2,807$(113,500)$1,626,813$(1,439,156) $ 76,964
</TABLE>
See accompanying accounting policies
and notes to financial statements.
4
<TABLE>
CYBERTEL, COMMUNICATIONS CORP.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS USED BY OPERATING ACTIVITIES
Net income (loss) $(1,164,641) $(241,215)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 2,400 212
Stock issued for services 1,393,718 180,000
Less: amount charged to equity ( 417,500)
Changes in
Accounts receivable 15,195 ( 16,473)
Accounts payable ( 1,477) 3,718
Accrued interest 762 910
NET CASH USED BY OPERATING ACTIVITIES ( 171,543) ( 72,848)
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of equipment ( 3,073) ( 7,624)
Deposits acquired ( 4,500)
NET CASH USED BY INVESTING ACTIVITIES ( 3,073) ( 12,124)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt proceeds 7,624
Repayment of debt ( 2,127) ( 367)
Loan from a shareholder 12,700
Sales of common stock, net of
costs of fundraising 224,000 65,302
NET CASH FLOWS FROM FINANCING ACTIVITIES 221,873 85,259
NET INCREASE IN CASH 47,257 287
CASH BALANCES
- Beginning of period 3,087 2,800
- End of period $ 50,344 $ 3,087
SUPPLEMENTAL DISCLOSURES
Interest paid $ 1,500 $ 64
Income taxes paid 0 0
</TABLE>
See accompanying accounting policies
and notes to financial statements.
5
NOTE 1 - ACCOUNTING POLICIES
Nature of Business. Cybertel, Communications Corp. ("Company") was
incorporated in Nevada in June, 1996. The Company sells telecommunications
services to commercial customers and began operations in 1997.
Estimates and assumptions. Preparing financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenue and expenses at the balance sheet date and for the period then ended.
Actual results could differ from these estimates.
Revenue recognition occurred when commercial businesses are signed up with
various commercial carriers, and incur long-distance bills. The Company earns
a fractional portion of these charges as a referral fee. Beginning May 1999,
the Company began purchasing time from carriers and reselling it to its
customers.
Equipment is computer-related and is stated at cost. Depreciation is computed
by the straight-line method using rates based on an estimated 3-year life of
the related assets.
Income taxes are computed using the tax liability method of accounting,
whereby deferred income taxes are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates that will be in effect when the differences
reverse.
Loss per share is reported under Statement No. 128 of the Financial Accounting
Standards Board ("FAS 128"). FAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share exclude any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share are very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to the FAS 128
requirement. For 1998, warrants outstanding are not included in the earnings
calculation because their effect in a loss year would be antidilutive.
NOTE 2 - INSTALLMENT DEBT
The Company capitalized two equipment leases payable in 24 equal remaining
installments of $246, beginning December 1997, using a 10% discount factor.
The debt is secured by the equipment, valued at about $4,000. Total debt of
$5,129 is due $2,554 in 1999 and $2,575 in 2000.
NOTE 3 - LOAN FROM A FOUNDING STOCKHOLDER
In 1997, a founding shareholder loaned $12,700 to the Company. This loan is
repayable on demand, and bears no interest.
NOTE 4 - INCOME TAXES
As of December 31, 1998, the Company has approximately $0,000 in unused net
operating loss carryforwards which expire in 2018.
NOTE 5 - COMMON STOCK
During 1998, the Company sold 393,750 shares of stock for $376,100 pursuant to
a placement offering exempt from registration under Rule 504 of the Securities
and Exchange Commission. Of this amount, $253,100 was collected during 1998
and another $34,500 was collected in 1999 prior to June 23, 1999, and is
recorded as an asset "Subscriptions receivable." The $88,500 balance is shown
as a reduction in Stockholders' Equity. The Company raised another $907,400
both through additional stock sales and through the exercise of warrants at $2
per share issued with the 1998 and 1999 stock sales through June 23, 1999 and
services worth another $986,800. Total stock issued in 1999 through June 23
is 777,250 shares.
570,077 warrants to purchase Company common stock at $2 were issued in
connection with this offering and other 1998 issuances. 368,550 have been
exercised in 1999 through June 23, 1999. 1999 sales of stock through June 23,
1999 totaled 777,250 shares for net cash proceeds of $907,400 and services
valued at $986,800.
NOTE 6 - OPERATING LEASES
The Company's office in La Jolla, California has 1,500 square feet. Rent
obligations are $2,525 per month for 11 remaining months in 1999.
NOTE 7 - SUBSEQUENT EVENTS
The Company is spending its 1999 stock sales proceeds to acquire equipment to
scale up its implementation of providing long distance and data
telecommunications services. In March 1999, the Company signed a service
agreement with General Telecom, Inc. to use its telecommunications equipment
for a one year term, with five renewable one-year options. Contract pricing
is per the agreement and is based on usage volume and line types, beginning at
$6,500 per month. Total equipment purchases to date are $37,909.
<PAGE>
<TABLE>
CYBERTEL COMMUNICATIONS CORPORATION
BALANCE SHEET
JUNE 30, 1999 AND JUNE 30, 1998
<CAPTION>
June 30, '99 June 30, '98
<S> <C> <C>
ASSETS
Current Assets
Cash $ 497,192 $ (841)
Accounts Receivable 135,083 500
Total Current Assets 632,275 (341)
Fixed Assets
Equipment 52,606 10,697
Accumulated Depreciation (4,179) (212)
Total Fixed Assets 48,427 10,485
Other Assets
Deposits 4,500 4,500
Total Other Assets 4,500 4,500
TOTAL ASSETS $ 685,202 14,644
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Other Current Liabilities
Accounts Payable $ 40,567 3,718
Accrued Interest 1,673 910
Loans from founding stockholder 12,700 12,700
Current portion-long term debt 2,554 2,312
Total Other Current Liabilities 57,494 19,640
Total Current Liabilities 57,494 19,640
Long Term Liabilities
Long term debt 2,575 4,945
Total Long Term Liabilities 2,575 4,945
Total Liabilities 60,069 24,585
Equity
Retained Earnings (1,439,156) (274,515)
Net Income (513,455) (101,828)
Capital Stock 3,409 1,831
Stock Subscription Receivable (113,500) (25,000)
Paid in capital 2,687,835 389,571
Total Equity 625,133 (9,941)
TOTAL LIABILITIES & EQUITY $ 685,202 14,644
</TABLE>
UNAUDITED
<PAGE>
<TABLE>
CYBERTEL COMMUNICATIONS CORPORATION
PROFIT AND LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
<CAPTION>
For the six months ended
June 30, 1999 June 30, 1998
<S> <C> <C>
Revenues $ 1,314,940 $ 0
Cost of Goods Sold 1,269,143 0
Gross Profit 45,797 0
Operating Expenses
Selling 11,844 0
General and Administrative 551,696 100,328
Depreciation 1,567 0
Interest (income) (6,355) 0
Interest Expense 500 1,500
Total Operating Expenses 559,252 101,828
NET INCOME (LOSS) $ (513,455) $ (101,828)
Net (loss) per common share $ (0.17) $ (0.06)
Weighted average common shares
outstanding 3,020,284 1,766,050
</TABLE>
UNAUDITED
<PAGE>
<TABLE>
CYBERTEL COMMUNICATIONS CORPORATION
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
<CAPTION>
For the six months ended
June 30, 1999 June 30, 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (513,455) (101,828)
Adjustments to reconcile Net Income
to net cash provided by operations:
Accounts Receivable (133,804) 15,973
Subscriptions receivable 34,500 0
Financing Costs 0 (30,000)
Accounts Payable 38,325 0
Stock Issued for Services 160,250 0
Net cash provided by Operating Activities (414,184) (115,855)
INVESTING ACTIVITIES
Equipment (41,911) (3,073)
Accumulated Depreciation 1,567 0
Net cash provided by Investing Activities (40,344) (3,073)
FINANCING ACTIVITIES
Capital Stock 602 115
Paid in capital 900,774 114,885
Net cash provided by Financing Activities 901,376 115,000
Net cash increase for period 446,848 (3,928)
Cash at beginning of period 50,344 3,087
Cash at end of period 497,192 841
</TABLE>
UNAUDITED
<PAGE>
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- ---------------------
During the Company's two most recent calendar years, and to the date
of this Registration Statement, the Company's principal independent accountant
has not resigned, declined to stand for re-election or been dismissed.
Item 15. Financial Statements and Exhibits
- -------------------------------------------
(a)
Malone & Bailey, PLLC
Index to Financial Statements
Independent Auditor's Report
Financial Statements
- --------------------
Audited Financial Statements as of December
31, 1998, and the two years then ended
--------------------------------------
Independent Auditors' Report
Balance Sheet
Income Statements
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
Unaudited Financial Statements as of June
30, 1999, and June 30, 1998 and the six
months then ended
----------------------------------------
Balance Sheet
Profit and Loss
Statement of Cash Flows
(b) The following exhibits are filed as a part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description*
- ------ ------------
<S> <C>
46
<PAGE>
3.1 Articles of Incorporation dated June 13, 1996.
3.2 Bylaws
10.1 Bell Atlantic IP Telephony Network Services Termination
Agreement
10.2 TeleHub Network Services Corporation Telecommunications
Service Agreement
10.3 Customer Order Form with Level 3 Communications
10.4 Letter of Intent with Swartz Private Equity, LLC
27 Financial Data Schedule
</TABLE>
* Summaries of all exhibits contained within this
Registration Statement are modified in their
entirety by reference to these Exhibits.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the Registrant has caused this Registration Statement to be signed on
its behalf by the undersigned, hereunto duly authorized.
CYBERTEL, COMMUNICATIONS CORP.
Date: 9/30/99 By: /s/ Richard D. Mangiarelli
--------- --------------------------
Richard D. Mangiarelli
CEO, President and Director
Date: 9/30/99 By: /s/ Paul J. Mills
--------- ------------------------
Paul J. Mills
Secretary and Director
Date: 9/30/99 By:/s/ John E. Jordan
--------- ------------------------
John E. Jordan
Director
47
ARTICLES OF INCORPORATION
OF
CYBERTEL, COMMUNICATIONS CORP.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a Corporation under and pursuant to the
laws of the State of Nevada, and we do hereby certify that:
ARTICLE I - NAME: The exact name of this Corporation is:
Cybertel, Communications Corp.
ARTICLE II - RESIDENT AGENT:
The Resident Agent of the Corporation is Max C. Tanner, Esq., The Law
Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada
89121.
ARTICLE III - DURATION: The Corporation shall have perpetual existence.
ARTICLE IV - PURPOSES: The purpose, object and nature of the business for
which this Corporation is organized are:
(a) To engage in any lawful activity;
(b) To carry on such business as may be necessary, convenient, or
desirable to accomplish the above purposes, and to do all other
things incidental thereto which are not forbidden by law or by
these Articles of Incorporation.
ARTICLE V - POWERS: The powers of the Corporation shall be those powers
granted by 78.060 and 78.070 of the Nevada Revised Statutes under which this
corporation is formed. In addition, the Corporation shall have the following
specific powers:
(a) To elect or appoint officers and agents of the Corporation and to
fix their compensation;
(b) To act as an agent for any individual, association, partnership,
corporation or other legal entity;
(c) To receive, acquire, hold, exercise rights arising out of the
ownership or possession thereof, sell, or otherwise dispose of,
shares or other interests in, or obligations of, individuals,
associations, partnerships, corporations, or governments;
(d) To receive, acquire, hold, pledge, transfer, or otherwise dispose
of shares of the corporation, but such shares may only be
purchased, directly or indirectly, out of earned surplus;
(e) To make gifts or contributions for the public welfare or for
charitable, scientific or educational purposes, and in time of
war, to make donations in aid of war activities.
ARTICLE VI - CAPITAL STOCK:
Section 1. Authorized Shares. The total number of shares which this
Corporation is authorized to issue is 25,000,000 shares of Common Stock
at $.001 par value per share.
(a) The total number of shares of Common Stock which this Corporation
is authorized to issue is 20,000,000 shares at $.001 par value per
share.
(b) The total number of shares of Preferred Stock which this
Corporation is authorized to issue is 5,000,000 shares at $.001
par value per share, which Preferred Stock may contain special
preferences as determined by the Board of Directors of the
Corporation, including, but not limited to, the bearing of
interest and convertibility into shares of Common Stock of the
Corporation.
Section 2. Voting Rights of Shareholders. Each holder of the Common
Stock shall be entitled to one vote for each share of stock standing in
his name on the books of the Corporation.
Section 3. Consideration for Shares. The Common Stock shall be issued
for such consideration, as shall be fixed from time to time by the Board
of Directors. In the absence of fraud, the judgment of the Directors as
to the value of any property for shares shall be conclusive. When
shares are issued upon payment of the consideration fixed by the Board
of Directors, such shares shall be taken to be fully paid stock and
shall be non-assessable. The Articles shall not be amended in this
particular.
Section 4. Pre-emptive Rights. Except as may otherwise be provided by
the Board of Directors, no holder of any shares of the stock of the
Corporation, shall have any preemptive right to purchase, subscribe for,
or otherwise acquire any shares of stock of the Corporation of any class
now or hereafter authorized, or any securities exchangeable for or
convertible into such shares, or any warrants or other instruments
evidencing rights or options to subscribe for, purchase, or otherwise
acquire such shares.
Section 5. Stock Rights and Options. The Corporation shall have the
power to create and issue rights, warrants, or options entitling the
holders thereof to purchase from the corporation any shares of its
capital stock of any class or classes, upon such terms and conditions
and at such times and prices as the Board of Directors may provide,
which terms and conditions shall be incorporated in an instrument or
instruments evidencing such rights. In the absence of fraud, the
judgment of the Directors as to the adequacy of consideration for the
issuance of such rights or options and the sufficiency thereof shall be
conclusive.
ARTICLE VII - ASSESSMENT OF STOCK: The capital stock of this Corporation,
after the amount of the subscription price has been fully paid in, shall not
be assessable for any purpose, and no stock issued as fully paid up shall ever
be assessable or assessed. The holders of such stock shall not be individually
responsible for the debts, contracts, or liabilities of the Corporation and
shall not be liable for assessments to restore impairments in the capital of
the Corporation.
ARTICLE VIII - DIRECTORS: For the management of the business,and for the
conduct of the affairs of the Corporation, and for the future definition,
limitation, and regulation of the powers of the Corporation and its directors
and shareholders, it is further provided:
Section 1. Size of Board. The members of the governing board of the
Corporation shall be styled directors. The number of directors of the
Corporation, their qualifications, terms of office, manner of election,
time and place of meeting, and powers and duties shall be such as are
prescribed by statute and in the by-laws of the Corporation. The name
and post office address of the directors constituting the first board of
directors, which shall be One (1) in number are:
NAME ADDRESS
Max C. Tanner 2950 East Flamingo Road
Suite G
Las Vegas, NV 89121
Section 2. Powers of Board. In furtherance and not in limitation of
the powers conferred by the laws of the State of Nevada, the Board of
Directors is expressly authorized and empowered:
(a) To make, alter, amend, and repeal the By-Laws subject to the power
of the shareholders to alter or repeal the By-Laws made by the
Board of Directors.
(b) Subject to the applicable provisions of the ByLaws then in effect,
to determine, from time to time, whether and to what extent, and
at what times and places, and under what conditions and
regulations, the accounts and books of the Corporation, or any of
them, shall be open to shareholder inspection. No shareholder
shall have any right to inspect any of the accounts, books or
documents of the Corporation, except as permitted by law, unless
and until authorized to do so by resolution of the Board of
Directors or of the Shareholders of the Corporation;
(c) To issue stock of the Corporation for money, property,services
rendered, labor performed, cash advanced, acquisitions for other
corporations or for any other assets of value in accordance with
the action of the board of directors without vote or consent of
the shareholders and the judgment of the board of directors as to
value received and in return therefore shall be conclusive and
said stock, when issued, shall be fully-paid and non-assessable.
(d) To authorize and issue, without shareholder consent, obligations
of the Corporation, secured and unsecured, under such terms and
conditions as the Board, in its sole discretion, may determine,
and to pledge or mortgage, as security therefore, any real or
personal property of the Corporation, including after-acquired
property;
(e) To determine whether any and, if so, what part, of the earned
surplus of the Corporation shall be paid in dividends to the
shareholders, and to direct and determine other use and
disposition of any such earned surplus;
(f) To fix, from time to time, the amount of the profits of the
Corporation to be reserved as working capital or for any other
lawful purpose;
(g) To establish bonus, profit-sharing, stock option, or other types
of incentive compensation plans for the employees, including
officers and directors, of the Corporation, and to fix the amount
of profits to be shared or distributed, and to determine the
persons to participate in any such plans and the amount of their
respective participations.
(h) To designate, by resolution or resolutions passed by a majority of
the whole Board, one or more committees, each consisting of two or
more directors, which, to the extent permitted by law and
authorized by the resolution or the By-Laws, shall have and may
exercise the powers of the Board;
(i) To provide for the reasonable compensation of its own members by
By-Law, and to fix the terms and conditions upon which such
compensation will be paid;
(j) In addition to the powers and authority herein before, or by
statute, expressly conferred upon it, the Board of Directors may
exercise all such powers and do all such acts and things as may be
exercised or done by the corporation, subject, nevertheless, to
the provisions of the laws of the State of Nevada, of these
Articles of Incorporation, and of the By-Laws of the Corporation.
Section 3. Interested Directors. No contract or transaction between
this Corporation and any of its directors, or between this Corporation
and any other corporation, firm, association, or other legal entity
shall be invalidated by reason of the fact that the director of the
Corporation has a direct or indirect interest, pecuniary or otherwise,
in such corporation, firm, association, or legal entity, or because the
interested director was present at the meeting of the Board of Directors
which acted upon or in reference to such contract or transaction, or
because he participated in such action, provided that: (1) the
interest of each such director shall have been disclosed to or known by
the Board and a disinterested majority of the Board shall have
nonetheless ratified and approved such contract or transaction (such
interested director or directors may be counted in determining whether a
quorum is present for the meeting at which such ratification or approval
is given); or (2) the conditions of N.R.S. 78.140 are met.
ARTICLE IX - LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS: The personal
liability of a director or officer of the corporation to the corporation or
the Shareholders for damages for breach of fiduciary duty as a director or
officer shall be limited to acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law.
ARTICLE X - INDEMNIFICATION: Each director and each officer of the
corporation may be indemnified by the corporation as follows:
(a) The corporation may indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with the action, suit or
proceeding, if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests
of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suite or proceeding, by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, does not of itself create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and that, with respect to any
criminal action or proceeding, he had reasonable cause to believe
that his conduct was unlawful.
(b) The corporation may indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending
or completed action or suit by or in the right of the corporation,
to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against expenses including amounts paid in settlement and
attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit,
if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue
or matter as to which such a person has been adjudged by a court
of competent jurisdiction, after exhaustion of all appeals there
from, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless and only to the extent that
the court in which the action or suit was brought or other court
of competent jurisdiction determines upon application that in view
of all the circumstances of the case the person is fairly and
reasonably entitled to indemnity for such expenses as the court
deems proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subsections (a) and (b) of this Article, or in defense of any
claim, issue or matter therein, he
must be indemnified by the corporation against expenses, including
attorney's fees, actually and reasonably incurred by him in
connection with the defense.
(d) Any indemnification under subsections (a) and (b) unless ordered
by a court or advanced pursuant to subsection (e), must be made by
the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances. The
determination must be made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a
quorum consisting of directors who were not
parties to the act, suit or proceeding;
(iii) If a majority vote of a quorum consisting of directors
who were not parties to the act, suit or proceeding so
orders, by independent legal counsel in a written
opinion; or
(iv) If a quorum consisting of directors who were not
parties to the act, suit or proceeding cannot be
obtained, by independent legal counsel in a written
opinion.
(e) Expenses of officers and directors incurred in defending a civil
or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any
rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any
contract or otherwise by law.
(f) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled
under the certificate or articles of incorporation or any
bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a
court pursuant to subsection (b) or for the advancement of
expenses made pursuant to subsection (e) may not be made to
or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of the
law and was material to the cause of action.
(ii) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE XI - PLACE OF MEETING; CORPORATE BOOKS: Subject to the laws of the
State of Nevada, the shareholders and the Directors shall have power to hold
their meetings, and the Directors shall have power to have an office or
offices and to maintain the books of the Corporation outside the State of
Nevada, at such place or places as may from time to time be designated in the
By-Laws or by appropriate resolution.
ARTICLE XII - AMENDMENT OF ARTICLES: The provisions of these Articles of
Incorporation may be amended, altered or repealed from time to time to the
extent and in the manner prescribed by the laws of the State of Nevada, and
additional provisions authorized by such laws as are then in force may be
added. All rights herein conferred on the directors, officers and
shareholders are granted subject to this reservation.
ARTICLE XIII - INCORPORATOR: The name and address of the sole incorporator
signing these Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
1. Max C. Tanner 2950 East Flamingo Road, Suite G
Las Vegas, Nevada 89121
IN WITNESS WHEREOF, the undersigned incorporator has executed these
Articles of Incorporation this 12th day of June, 1996.
/s/ Max C. Tanner
-----------------
Max C. Tanner
STATE OF NEVADA )
)ss:
COUNTY OF CLARK )
On June 12, 1996, personally appeared before me, a Notary Public, Max C.
Tanner, who acknowledged to me that he executed the foregoing Articles of
Incorporation for Cybertel, Communications Corp., a Nevada corporation.
/s/ Trisha Chapman
--------------------
Notary Public
BY-LAWS OF
CYBERTEL, COMMUNICATIONS INC.
ARTICLE I
SHAREHOLDERS
Section 1.01 Annual Meeting. The annual meeting of the shareholders
shall be held at such date and time as shall be designated by the board of
directors and stated in the notice of the meeting or in a duly-executed waiver
of notice thereof. If the corporation shall fail to provide notice of the
annual meeting of the shareholders as set forth above, the annual meeting of
the shareholders of the corporation shall be held during the month of November
or December of each year as determined by the Board of Directors, for the
purpose of electing directors of the corporation to serve during the ensuing
year and for the transaction of such other business as may properly come
before the meeting. If the election of the directors is not held on the day
designated herein for any annual meeting of the shareholders, or at any
adjournment thereof, the president shall cause the election to be held at a
special meeting of the shareholders as soon thereafter as is convenient.
Section 1.02 Special Meetings. Special meetings of the shareholders
may be called by the president or the Board of Directors and shall be called
by the president at the written request of the holders of not less than 51% of
the issued and outstanding shares of capital stock of the corporation.
All business lawfully to be transacted by the shareholders may be
transacted at any special meeting at any adjournment thereof. However, no
business shall be acted upon at a special meeting, except that referred to in
the notice calling the meeting, unless all of the outstanding capital stock of
the corporation is represented either in person or by proxy. Where all of the
capital stock is represented, any lawful business may be transacted and the
meeting shall be valid for all purposes.
Section 1.03 Place of Meetings. Any meeting of the shareholders of the
corporation may be held at its principal office in the State of Nevada or such
other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the shareholders entitled to vote may
designate any place for the holding of such meeting.
Section 1.04 Notice of Meetings.
(a) The secretary shall sign and deliver to all shareholders of
record written or printed notice of any meeting at least ten (10) days,
but not more than sixty (60) days, before the date of such meeting;
which notice shall state the place, date and time of the meeting, the
general nature of the business to be transacted, and, in the case of any
meeting at which directors are to be elected, the names of nominees, if
any, to be presented for election.
(b) In the case of any meeting, any proper business may be
presented for action, except that the following items shall be valid
only if the general nature of the proposal is stated in the notice or
written waiver of notice:
(1)Action with respect to any contract or transaction between
the corporation and one or
more of its directors or another firm, association, or corporation
in which one or more of its directors has a material financial
interest;
(2)Adoption of amendments to the Articles of Incorporation; or
(3) Action with respect to the merger, consolidation,
reorganization, partial or complete liquidation, or dissolution of
the corporation.
(c) The notice shall be personally delivered or mailed by first
class mail to each shareholder of record at the last known address
thereof, as the same appears on the books of the corporation, and the
giving of such notice shall be deemed delivered the date the same is
deposited in the United States mail, postage prepaid. If the address of
any shareholder does not appear upon the books of the corporation, it
will be sufficient to address any notice to such shareholder at the
principal office of the corporation.
(d) The written certificate of the person calling any meeting,
duly sworn, setting forth the substance of the notice, the time and
place the notice was mailed or personally delivered to the several
shareholders, and the addresses to which the notice was mailed shall be
prima facie evidence of the manner and fact of giving such notice.
Section 1.05 Waiver of Notice. If all of the shareholders of the
corporation shall waive notice of a meeting, no notice shall be required, and,
whenever all of the shareholders shall meet in person or by proxy, such
meeting shall be valid for all purposes without call or notice, and at such
meeting any corporate action may be taken.
Section 1.06 Determination of Shareholders of Record.
(a) The Board of Directors may at any time fix a future date as
a record date for the determination of the shareholders entitled to
notice of any meeting or to vote or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action. The record
date so fixed shall not be more than sixty (60) days prior to the date
of such meeting nor more than sixty (60) days prior to any other action.
When a record date is so fixed, only shareholders of record on that date
are entitled to notice of and to vote at the meeting or to receive the
dividend, distribution or allotment of rights, or to exercise their
rights, as the case may be, notwithstanding any transfer of any shares
on the books of the corporation after the record date.
(b) If no record date is fixed by the Board of Directors, then
(1) the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; (2) the record date for
determining shareholders entitled to give consent to corporate action in
writing without a meeting, when no prior action by the Board of
Directors is necessary, shall be the day on which written consent is
given; and (3) the record date for determining shareholders for any
other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto, or the
sixtieth (60th) day prior to the date of such other action, whichever is
later.
Section 1.07 Quorum: Adjourned Meetings.
(a) At any meeting of the shareholders, a majority of the issued
and outstanding shares of the corporation represented in person or by
proxy, shall constitute a quorum.
(b) If less than a majority of the issued and outstanding shares
are represented, a majority of shares so represented may adjourn from
time to time at the meeting, until holders of the amount of stock
required to constitute a quorum shall be in attendance. At any such
adjourned meetingat which a quorum shall be present, any business may be
transacted which might have been transacted as originally called. When
a shareholders' meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken, unless
the adjournment is for more than ten (10) days in which event notice
thereof shall be given.
Section 1.08 Voting.
(a) Each shareholder of record, such shareholder's duly
authorized proxy or attorney-in-fact shall be entitled to one (1) vote
for each share of stock standing registered in such shareholder's name
on the books of the corporation on the record date.
(b) Except as otherwise provided herein, all votes with respect
to shares standing in the name of an individual on the record date
(included pledged shares) shall be cast only by that individual or such
individual's duly authorized proxy or attorney-in-fact. With respect to
shares held by a representative of the estate of a deceased shareholder,
guardian, conservator, custodian or trustee, votes may be cast by such
holder upon proof of capacity, even though the shares do not stand in
the name of such holder. In the case of shares under the control of a
receiver, the receiver may cast votes carried by such shares even though
the shares do not stand in the name of the receiver provided that the
order of the court of competent jurisdiction which appoints the receiver
contains the authority to cast votes carried by such shares. If shares
stand in the name of a minor, votes may be cast only by the
duly-appointed guardian of the estate of such minor if such guardian has
provided the corporation with written notice and proof of such
appointment.
(c) With respect to shares standing in the name of a corporation
on the record date, votes may be cast by such officer or agents as the
by-laws of such corporation prescribe or, in the absence of an
applicable by-law provision, by such person as may be appointed by
resolution of the Board of Directors of such corporation. In the event
no person is so appointed, such votes of the corporation may be cast by
any person (including the officer making the authorization) authorized
to do so by the Chairman of the Board of Directors, President or any
Vice President of such corporation.
(d) Notwithstanding anything to the contrary herein contained,
no votes may be cast by shares owned by this corporation or its
subsidiaries, if any. If shares are held by this corporation or its
subsidiaries, if any, in a fiduciary capacity, no votes shall be cast
with respect thereto on any matter except to the extent that the
beneficial owner thereof possesses and exercises either a right to vote
or to give the corporation holding the same binding instructions on how
to vote.
(e) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, husband and wife as community property, tenants by
the entirety, voting trustees, persons entitled to vote under a
shareholder voting agreement or otherwise and shares held by two or more
persons (including proxy holders) having the same fiduciary relationship
respect in the same shares, votes may be cast in the following manner:
(1)If only one such person votes, the votes of such person
binds all.
(2)If more than one person casts votes, the act of the majority
so voting binds all.
(3)If more than one person casts votes, but the vote is evenly
split on a particular
matter, the votes shall be deemed cast proportionately as split.
(f) Any holder of shares entitled to vote on any matter may cast
a portion of the votes in favor of such matter and refrain from casting
the remaining votes or cast the same against the proposal, except in the
case of elections of directors. If such holder entitled to vote fails
to specify the number of affirmative votes, it will be conclusively
presumed that the holder is casting affirmative votes with respect to
all shares held.
(g) If a quorum is present, the affirmative vote of holders of a
majority of the shares represented at the meeting and entitled to vote
on any matter shall be the act of the shareholders, unless a vote of
greater number or voting by classes is required by the laws of the State
of Nevada, the Articles of Incorporation and these By-Laws.
Section 1.09 Proxies. At any meeting of shareholders, any holder of
shares entitled to vote may authorize another person or persons to vote by
proxy with respect to the shares held by an instrument in writing and
subscribed to by the holder of such shares entitled to vote. No proxy shall
be valid after the expiration of six (6) months from the date of execution
thereof, unless coupled with an interest or unless otherwise specified in the
proxy. In no event shall the term of a proxy exceed seven (7) years from the
date of its execution. Every proxy shall continue in full force and effect
until its expiration or revocation. Revocation may be effected by filing an
instrument revoking the same or a duly-executed proxy bearing a later date
with the secretary of the corporation.
Section 1.10 Order of Business. At the annual shareholders meeting,
the regular order of business shall be as follows:
(1)Determination of shareholders present and existence of
quorum;
(2)Reading and approval of the minutes of the previous meeting
or meetings;
(3)Reports of the Board of Directors, the president, treasurer
and secretary of the
corporation, in the order named;
(4)Reports of committee;
(5)Election of directors;
(6)Unfinished business;
(7) New business;
(8)Adjournment.
Section 1.11 Absentees Consent to Meetings. Transactions of any
meeting of the shareholders are as valid as though had at a meeting duly-held
after regular call and notice if a quorum is present, either in person or by
proxy, and if, either before or after the meeting, each of the persons
entitled to vote, not present in person or by proxy (and those who, although
present, either object at the beginning of the meeting to the transaction of
any business because the meeting has not been lawfully called or convened or
expressly object at the meeting to the consideration of matters not included
in the notice which are legally required to be included therein), signs a
written waiver of notice and/or consent to the holding of the meeting or an
approval of the minutes thereof. All such waivers, consents, and approvals
shall be filed with the corporate records and made a part of the minutes of
the meeting. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
if such objection is expressly made at the beginning. Neither the business to
be transacted at nor the purpose of any regular or special meeting of
shareholders need be specified in any written waiver of notice, except as
otherwise provided in Section 1.04(b) of these By-Laws.
Section 1.12 Action Without Meeting. Any action which may be taken by
the vote of the shareholders at a meeting may be taken without a meeting if
consented to by the holders of a majority of the shares entitled to vote or
such greater proportion as may be required by the laws of the State of Nevada,
the Articles of Incorporation, or these ByLaws. Whenever action is taken by
written consent, a meeting of shareholders needs not be called or noticed.
ARTICLE II
DIRECTORS
Section 2.01 Number, Tenure and Qualification. Except as otherwise
provided herein, the Board of Directors of the corporation shall consist of at
least one (1) but no more than nine (9) persons, who shall be elected at the
annual meeting of the shareholders of the corporation and who shall hold
office for one (1) year or until their successors are elected and qualify.
Section 2.02 Resignation. Any director may resign effective upon
giving written notice to the chairman of the Board of Directors, the
president, or the secretary of the corporation, unless the notice specifies a
later time for effectiveness of such resignation. If the Board of Directors
accepts the resignation of a director tendered to take effect at a future
date, the Board or the shareholders may elect a successor to take office when
the resignation becomes effective.
Section 2.03 Reduction in Number. No reduction of the number of
directors shall have the effect of removing any director prior to the
expiration of his term of office.
Section 2.04 Removal.
(a) The Board of Directors or the shareholders of the
corporation, by a majority vote, may declare vacant the office of a
director who has been declared incompetent by an order of a court of
competent jurisdiction or convicted of a felony.
Section 2.05 Vacancies.
(a) A vacancy in the Board of Directors because of death,
resignation, removal, change in number of directors, or otherwise may be
filled by the shareholders at any regular or special meeting or any
adjourned meeting thereof or the remaining director(s) by the
affirmative vote of a majority thereof. A Board of Directors consisting
of less than the maximum number authorized in Section 2.01 of ARTICLE II
constitutes vacancies on the Board of Directors for purposes of this
paragraph and may be filled as set forth above including by the election
of a majority of the remaining directors. Each successor so elected
shall hold office until the next annual meeting of shareholders or until
a successor shall have been duly-elected and qualified.
(b) If, after the filling of any vacancy by the directors, the
directors then in office who have been elected by the shareholders shall
constitute less than a majority of the directors then in office, any
holder or holders of an aggregate of five percent (5%) or more of the
total number of shares entitled to vote may call a special meeting of
shareholders to be held to elect the entire Board of Directors. The
term of office of any director shall terminate upon such election of a
successor.
Section 2.06 Regular Meetings. Immediately following the adjournment
of, and at the same place as, the annual meeting of the shareholders, the
Board of Directors, including directors newly elected, shall hold its annual
meeting without notice, other than this provision, to elect officers of the
corporation and to transact such further business as may be necessary or
appropriate. The Board of Directors may provide by resolution the place, date
and hour for holding additional regular meetings.
Section 2.07 Special Meetings. Special meetings of the Board of
Directors may be called by the chairman and shall be called by the chairman
upon the request of any two (2) directors or the president of the corporation.
Section 2.08 Place of Meetings. Any meeting of the directors of the
corporation may be held at its principal office in the State of Nevada, or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver or notice signed by the directors may designate any place
for the holding of such meeting.
Section 2.09 Notice of Meetings. Except as otherwise provided in
Section 2.06, the chairman shall deliver to all directors written or printed
notice of any special meeting, at least three (3) days before the date of such
meeting, by delivery of such notice personally or mailing such notice first
class mail, or by telegram. If mailed, the notice shall be deemed delivered
two (2) business days following the date the same is deposited in the United
States mail, postage prepaid. Any director may waive notice of any meeting,
and the attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, unless such attendance is for the express purpose of
objecting to the transaction of business threat because the meeting is not
properly called or convened.
Section 2.10 Quorum: Adjourned Meetings.
(a) A majority of the Board of Directors in office shall
constitute a quorum.
(b) At any meeting of the Board of Directors where a quorum is
not present, a majority of those present may adjourn, from time to time,
until a quorum is present, and no notice of such adjournment shall be
required. At any adjourned meeting where a quorum is present, any
business may be transacted which could have been transacted at the
meeting originally called.
Section 2.11 Action Without Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if a written consent thereto is signed by all
of the members of the Board of Directors or of such committee. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Directors or committee. Such action by written consent shall have
the same force and effect as the unanimous vote of the Board of Directors or
committee.
Section 2.12 Telephonic Meetings. Meetings of the Board of Directors
may be held through the use of a conference telephone or similar
communications equipment so long as all members participating in such meeting
can hear one another at the time of such meeting. Participation in such a
meeting constitutes presence in person at such meeting.
Section 2.13 Board Decisions. The affirmative vote of a majority of
the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors.
Section 2.14 Powers and Duties.
(a) Except as otherwise provided in the Articles of
Incorporation or the laws of the State of Nevada, the Board of Directors
is invested with the complete and unrestrained authority to manage the
affairs of the corporation, and is authorized to exercise for such
purpose as the general agent of the corporation, its entire corporate
authority in such manner as it sees fit. The Board of Directors may
delegate any of its authority to manage, control or conduct the current
business of the corporation to any standing or special committee or to
any officer or agent and to appoint any persons to be agents of the
corporation with such powers, including the power to sub-delegate, and
upon such terms as may be deemed fit.
(b) The Board of Directors shall present to the shareholders at
annual meetings of the shareholders, and when called for by a majority
vote of the shareholders at a special meeting of the shareholders, a
full and clear statement of the condition of the corporation, and shall,
at request, furnish each of the shareholders with a true copy thereof.
(c) The Board of Directors, in its discretion, may submit any
contract or act for approval or ratification at any annual meeting of
the shareholders or any special meeting properly called for the purpose
of considering any such contract or act, provided a quorum is present.
The contract or act shall be valid and binding upon the corporation and
upon all the shareholders thereof, if approved and ratified by the
affirmative vote of a majority of the shareholders at such meeting.
(d) In furtherance and not in limitation of the powers conferred
by the laws of the State of Nevada, the Board of Directors is expressly
authorized and empowered to issue stock of the Corporation for money,
property, services rendered, labor performed, cash advanced,
acquisitions for other corporations or for any other assets of value in
accordance with the action of the Board of Directors without vote or
consent of the shareholders and the judgment of the Board of Directors
as to the value received and in return therefore shall be conclusive and
said stock, when issued, shall be fully-paid and non-assessable.
Section 2.15 Compensation. The directors shall be allowed and paid all
necessary expenses incurred in attending any meetings of the Board, but shall
not receive any compensation for their services as directors until such time
as the corporation is able to declare and pay dividends on its capital stock.
Section 2.16 Board Officers.
(a) At its annual meeting, the Board of Directors shall elect,
from among its members, a chairman to preside at the meetings of the
Board of Directors. The Board of Directors may also elect such other
board officers and for such term as it may, from time to time, determine
advisable.
(b) Any vacancy in any board office because of death,
resignation, removal or otherwise may be filled by the Board of
Directors for the unexpired portion of the term of such office.
Section 2.17 Order of Business. The order of business at any meeting
of the Board of Directors shall be as follows:
(1)Determination of members present and existence of quorum;
(2)Reading and approval of the minutes of any previous meeting
or meetings;
(3)Reports of officers and committeemen;
(4)Election of officers;
(5)Unfinished business;
(6) New business;
(7)Adjournment.
ARTICLE III
OFFICERS
Section 3.01 Election. The Board of Directors, at its first meeting
following the annual meeting of shareholders, shall elect a president, a
secretary and a treasurer to hold office for one (1) year next coming and
until their successors are elected and qualify. Any person may hold two or
more offices. The Board of Directors may, from time to time, by resolution,
appoint one or more vice presidents, assistant secretaries, assistant
treasurers and transfer agents of the corporation as it may deem advisable;
prescribe their duties; and fix their compensation.
Section 3.02 Removal; Resignation. Any officer or agent elected or
appointed by the Board of Directors may be removed by it whenever, in its
judgment, the best interest of the corporation would be served thereby. Any
officer may resign at any time upon written notice to the corporation without
prejudice to the rights, if any, of the corporation under any contract to
which the resigning officer is a party.
Section 3.03 Vacancies. Any vacancy in any office because
of death, resignation, removal, or otherwise may be filled by the
Board of Directors for the unexpired portion of the term of such
office.
Section 3.04 President. The president shall be the general manager and
executive officer of the corporation, subject to the supervision and control
of the Board of Directors, and shall direct the corporate affairs, with full
power to execute all resolutions and orders of the Board of Directors not
especially entrusted to some other officer of the corporation. The president
shall preside at all meetings of the shareholders and shall sign the
certificates of stock issued by the corporation, and shall perform such other
duties as shall be prescribed by the Board of Directors.
Unless otherwise ordered by the Board of Directors, the president shall
have full power and authority on behalf of the corporation to attend and to
act and to vote at any meetings of the shareholders of any corporation in
which the corporation may hold stock and, at any such meetings, shall possess
and may exercise any and all rights and powers incident to the ownership of
such stock. The Board of Directors, by resolution from time to time, may
confer like powers on any person or persons in place of the president to
represent the corporation for these purposes.
Section 3.05 Vice President. The Board of Directors may elect one or
more vice presidents who shall be vested with all the powers and perform all
the duties of the president whenever the president is absent or unable to act,
including the signing of the certificates of stock issued by the corporation,
and the vice president shall perform such other duties as shall be prescribed
by the Board of Directors.
Section 3.06 Secretary. The secretary shall keep the minutes of all
meetings of the shareholders and the Board of Directors in books provided for
that purpose. The secretary shall attend to the giving and service of all
notices of the corporation, may sign with the president in the name of the
corporation all contracts authorized by the Board of Directors or appropriate
committee, shall have the custody of the corporate seal, shall affix the
corporate seal to all certificates of stock duly issued by the corporation,
shall have charge of stock certificate books, transfer books and stock
ledgers, and such other books and papers as the Board of Directors or
appropriate committee may direct, and shall, in general perform all duties
incident to the office of the secretary. All corporate books kept by the
secretary shall be open for examination by any director at any reasonable
time.
Section 3.07 Assistant Secretary. The Board of Directors may appoint
an assistant secretary who shall have such powers and perform such duties as
may be prescribed for him by the secretary of the corporation or by the Board
of Directors.
Section 3.08 Treasurer. The treasurer shall be the chief financial
officer of the corporation, subject to the supervision and control of the
Board of Directors, and shall have custody of all the funds and securities of
the corporation. When necessary or proper, the treasurer shall endorse on
behalf of the corporation for collection checks, notes and other obligations,
and shall deposit all monies to the credit of the corporation in such bank or
banks or other depository as the Board of Directors may designate, and shall
sign all receipts and vouchers for payments made by the corporation. Unless
otherwise specified by the Board of Directors, the treasurer shall sign with
the president all bills of exchange and promissory notes of the corporation,
shall also have the care and custody of the stocks, bonds, certificates,
vouchers, evidence of debts, securities and such other property belonging to
the corporation as the Board of Directors shall designate, and shall sign all
papers required by law, by these By-laws or by the Board of Directors to be
signed by the treasurer. The treasurer shall enter regularly in the books of
the corporation, to be kept for that purpose, full and accurate accounts of
all monies received and paid on account of the corporation and whenever
required by the Board of Directors, the treasurer shall render a statement of
any or all accounts. The treasurer shall at all reasonable times exhibit the
books of account to any directors of the corporation and shall perform all
acts incident to the position of treasurer subject to the control of the Board
of Directors. The treasurer shall, if required by the Board of Directors,give
a bond to the corporation in such sum and with such security as shall be
approved by the Board of Directors for the faithful performance of all the
duties of the treasurer and for restoration to the corporation in the event of
the treasurer's death, resignation, retirement, or removal from office, of all
books, records, papers, vouchers, money and other property belonging to the
corporation. The expense of such bond shall be borne by the corporation.
Section 3.09 Assistant Treasurer. The Board of Directors may appoint
an assistant treasurer who shall have such powers and perform such duties as
may be prescribed by the treasurer of the corporation or by the Board of
Directors, and the Board of Directors may require the assistant treasurer to
give a bond to the corporation in such sum and with such security as it may
approve,for the faithful performance of the duties of assistant treasurer, and
for the restoration to the corporation, in the event of the assistant
treasurer's death, resignation, retirement or removal from office, of all
books, records, papers, vouchers, money and other property belonging to the
corporation. The expense of such bond shall be borne by the corporation.
ARTICLE IV
CAPITAL STOCK
Section 4.01 Issuance. Shares of capital stock of the corporation
shall be issued in such manner and at such times and upon such conditions as
shall be prescribed by the Board of Directors.
Section 4.02 Certificates. Ownership in the corporation shall be
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal of the
corporation and shall be signed by the president or the vice president and
also by the secretary or an assistant secretary. Each certificate shall
contain the name of the record holder, the number, designation, if any, class
or series of shares represented, a statement of summary of any applicable
rights, preferences, privileges, or restrictions thereon, and a statement that
the shares are assessable, if applicable. All certificates shall be
consecutively numbered. The name and address of the shareholder, the number
of shares, and the date of issue shall be entered on the stock transfer books
of the corporation.
Section 4.03 Surrender: Lost or Destroyed Certificates. All
certificates surrendered to the corporation, except those representing shares
of treasury stock, shall be canceled and no new certificates shall be issued
until the former certificate for a like number of shares shall have been
canceled, except that in case of a lost, stolen, destroyed or mutilated
certificate, a new one may be issued therefor. However, any shareholder
applying for the issuance of a stock certificate in lieu of one alleged to
have been lost, stolen, destroyed or mutilated shall, prior to the issuance of
a replacement, provide the corporation with his, her or its affidavit of the
facts surrounding the loss, theft, destruction or mutilation and an indemnity
bond in an amount and upon such terms as the treasurer, or the Board of
Directors, shall require. In no case shall the bond be in amount less than
twice the current market value of the stock and it shall indemnify the
corporation against any loss, damage, cost or inconvenience arising as a
consequence of the issuance of a replacement certificate.
Section 4.04 Replacement Certificate. When the Articles of
Incorporation are amended in any way affecting the statements contained in the
certificates for outstanding shares of capital stock of the corporation or it
becomes desirable for any reason, including, without limitation, the merger or
consolidation of the corporation with another corporation or the
reorganization of the corporation, to cancel any outstanding certificate for
shares and issue a new certificate therefor conforming to the rights of the
holder, the Board of Directors may order any holders of outstanding
certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors.
The order may provide that a holder of any certificate(s) ordered to be
surrendered shall not be entitled to vote, receive dividends or exercise any
other rights of shareholders until the holder has complied with the order
provided that such order operates to suspend such rights only after notice and
until compliance.
Section 4.05 Transfer of Shares. No transfer of stock shall be valid
as against the corporation except on surrender and cancellation by the
certificate therefor, accompanied by an assignment or transfer by the
registered owner made either in person or under assignment. Whenever any
transfer shall be expressly made for collateral security and not absolutely,
the collateral nature of the transfer shall be reflected in the entry of
transfer on the books of the corporation.
Section 4.06 Transfer Agent. The Board of Directors may appoint one or
more transfer agents and registrars of transfer and may require all
certificates for shares of stock to bear the signature of such transfer agent
and such registrar of transfer.
Section 4.07 Stock Transfer Books. The stock transfer books shall be
closed for a period of ten (10) days prior to all meetings of the shareholders
and shall be closed for the payment of dividends as provided in Article V
hereof and during such periods as, from time to time, may be fixed by the
Board of Directors, and, during such periods, no stock shall be transferable.
Section 4.08 Miscellaneous. The Board of Directors shall have the
power and authority to make such rules and regulations not inconsistent
herewith as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of the capital stock of the
corporation.
ARTICLE V
DIVIDENDS
Section 5.01Dividends may be declared, subject to the provisions of the
laws of the State of Nevada
and the Articles of Incorporation, by the Board of Directors at any regular or
special meeting and may be paid in cash, property, shares of corporate stock,
or any other medium. The Board of Directors may fix in advance a record date,
as provided in Section 1.06 of these By-laws, prior to the dividend payment
for the purpose of determining shareholders entitled to receive payment of any
dividend. The Board of Directors may close the stock transfer books for such
purpose for a period of not more than ten (10) days prior to the payment date
of such dividend.
ARTICLE VI
OFFICES; RECORDS; REPORTS; SEAL AND FINANCIAL MATTERS
Section 6.01 Principal Office. The principal office of the corporation
in the State of Nevada shall be the Law Offices of Max C. Tanner, 2950 East
Flamingo Road, Suite G, Las Vegas, Nevada 89121, and the corporation may have
an office in any other state or territory as the Board of Directors may
designate.
Section 6.02 Records. The stock transfer books and a certified copy of
the By-laws, Articles of Incorporation, any amendments thereto, and the
minutes of the proceedings of the shareholders, the Board of Directors, and
committees of the Board of Directors shall be kept at the principal office of
the corporation for the inspection of all who have the right to see the same
and for the transfer of stock. All other books of the corporation shall be
kept at such places as may be prescribed by the Board of Directors.
Section 6.03 Financial Report on Request. Any shareholder or
shareholders holding at least five percent (5%) of the outstanding shares of
any class of stock may make a written request for an income statement of the
corporation for the three (3) month, six (6) month, or nine (9) month period
of the current fiscal year ended more than thirty (30) days prior to the date
of the request and a balance sheet of the corporation as of the end of such
period. In addition, if no annual report for the last fiscal year has been
sent to shareholders, such shareholder or shareholders may make a request for
a balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year. The
statement shall be delivered or mailed to the person making the request within
thirty (30) days thereafter. A copy of the statements shall be kept on file
in the principal office of the corporation for twelve (12) months, and such
copies shall be exhibited at all reasonable times to any shareholder demanding
an examination of them or a copy shall be mailed to each shareholder. Upon
request by any shareholder, there shall be mailed to the shareholder a copy of
the last annual, semiannual or quarterly income statement which it has
prepared and a balance sheet as of the end of the period. The financial
statements referred to in this Section 6.03 shall be accompanied by the report
thereon, if any, of any independent accountants engaged by the corporation or
the certificate of an authorized officer of the corporation that such
financial statements were prepared without audit from the books and records of
the corporation.
Section 6.04 Right of Inspection.
(a) The accounting books and records and minutes of proceedings
of the shareholders and the Board of Directors and committees of the
Board of Directors shall be open to inspection upon the written demand
of any shareholder or holder of a voting trust certificate at any
reasonable time during usual business hours for a purpose reasonably
related to such holder's interest as a shareholder or as the holder of
such voting trust certificate. This right of inspection shall extend to
the records of the subsidiaries, if any, of the corporation. Such
inspection may be made in person or by agent or attorney, and the right
of inspection includes the right to copy and make extracts.
(b) Every director shall have the absolute right at any
reasonable time to inspect and copy all books, records and documents of
every kind and to inspect the physical properties of the corporation
and/or its subsidiary corporations. Such inspection may be made in
person or by agent or attorney, and the right of inspection includes the
right to copy and make extracts.
Section 6.05 Corporate Seal. The Board of Directors may, by
resolution, authorize a seal, and the seal may be used by causing it, or a
facsimile, to be impressed or affixed or reproduced or otherwise. Except when
otherwise specifically provided herein, any officer of the corporation shall
have the authority to affix the seal to any document requiring it.
Section 6.06 Fiscal Year. The fiscal year-end of the corporation shall
be the calendar year or such other term as may be fixed by resolution of the
Board of Directors.
Section 6.07 Reserves. The Board of Directors may create, by
resolution, out of the earned surplus of the corporation such reserves as the
directors may, from time to time, in their discretion, think proper to provide
for contingencies, or to equalize dividends or to repair or maintain any
property of the corporation, or for such other purpose as the Board of
Directors may deem beneficial to the corporation, and the directors may modify
or abolish any such reserves in the manner in which they were created.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification. The corporation shall, unless prohibited
by Nevada Law, indemnify any person (an "Indemnitee") who is or was involved
in any manner (including, without limitation, as a party or a witness) or is
threatened to be so involved in any threatened, pending or completed action
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, including without limitation, any action, suit or proceeding
brought by or in the right of the corporation to procure a judgment in its
favor (collectively, a "Proceeding") by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise, against all Expenses and Liabilities actually
and reasonably incurred by him in connection with such Proceeding. The right
to indemnification conferred in this Article shall be presumed to have been
relied upon by the directors, officers, employees and agents of the
corporation and shall be enforceable as a contract right and inure to the
benefit of heirs, executors and administrators of such individuals.
Section 7.02 Indemnification Contracts. The Board of Directors is
authorized on behalf of the corporation, to enter into, deliver and perform
agreements or other arrangements to provide any Indemnitee with specific
rights of indemnification in addition to the rights provided hereunder to the
fullest extent permitted by Nevada Law. Such agreements or arrangements may
provide (i) that the Expenses of officers and directors incurred in defending
a civil or criminal action, suit or proceeding, must be paid by the
corporation as they are incurred and in advance of the final disposition of
any such action, suit or proceeding provided that, if required by Nevada Law
at the time of such advance, the officer or director provides an undertaking
to repay such amounts if it is ultimately determined by a court of competent
jurisdiction that such individual is not entitled to be indemnified against
such expenses, (iii) that the Indemnitee shall be presumed to be entitled to
indemnification under this Article or such agreement or arrangement and the
corporation shall have the burden of proof to overcome that presumption, (iii)
for procedures to be followed by the corporation and the Indemnitee in making
any determination of entitlement to indemnification or for appeals therefrom
and (iv) for insurance or such other Financial Arrangements described in
Paragraph 7.02 of this Article, all as may be deemed appropriate by the Board
of Directors at the time of execution of such agreement or arrangement.
Section 7.03 Insurance and Financial Arrangements. The corporation
may, unless prohibited by Nevada Law, purchase and maintain insurance or make
other financial arrangements ("Financial Arrangements") on behalf of any
Indemnitee for any liability asserted against him and liability and expenses
incurred by him in his capacity as a director, officer, employee or agent, or
arising out of his status as such, whether or not the corporation has the
authority to indemnify him against such liability and expenses. Such other
Financial Arrangements may include (i) the creation of a trust fund, (ii) the
establishment of a program of self-insurance, (iii) the securing of the
corporation's obligation of indemnification by granting a security interest or
other lien on any assets of the corporation, or (iv) the establishment of a
letter of credit, guaranty or surety.
Section 7.04 Definitions. For purposes of this Article:
Expenses. The word "Expenses" shall be broadly construed and,
without limitation, means (i) all direct and indirect costs incurred,
paid or accrued, (ii) all attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, food and
lodging expenses while traveling, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service, freight or
other transportation fees and expenses, (iii) all other disbursements
and out-of-pocket expenses, (iv) amounts paid in settlement, to the
extent permitted by Nevada Law, and (v) reasonable compensation for time
spent by the Indemnitee for which he is otherwise not compensated by the
corporation or any third party, actually and reasonably incurred in
connection with either the appearance at or investigation, defense,
settlement or appeal of a Proceeding or establishing or enforcing a
right to indemnification under any agreement or arrangement, this
Article, the Nevada Law or otherwise; provided, however, that "Expenses"
shall not include any judgments or fines or excise taxes or penalties
imposed under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or other excise taxes or penalties.
Liabilities. "Liabilities" means liabilities of any
type whatsoever, including, but not limited to, judgments or
fines, ERISA or other excise taxes and penalties, and
amounts paid in settlement.
Nevada Law. "Nevada Law" means Chapter 78 of the Nevada Revised
Statutes as amended and in effect from time to time or any successor or
other statutes of Nevada having similar import and effect.
This Article. "This Article" means Paragraphs 7.01 through 7.04
of these bylaws or any portion of them.
Power of Stockholders. Paragraphs 7.01 through 7.04, including
this Paragraph, of these Bylaws may be amended by the stockholders only
by vote of the holders of sixty-six and two-thirds percent (66 2/3%) of
the entire number of shares of each class, voting separately, of the
outstanding capital stock of the corporation (even though the right of
any class to vote is otherwise restricted or denied); provided, however,
no amendment or repeal of this Article shall adversely affect any right
of any Indemnitee existing at the time such amendment or repeal becomes
effective.
Power of Directors. Paragraphs 7.01 through 7.04 and this
Paragraph of these Bylaws may be amended or repealed by the Board of
Directors only by vote of eighty percent (80%) of the total number of
Directors and the holders of sixty-six and two-thirds percent (66 2/3)
of the entire number of shares of each class, voting separately, of the
outstanding capital stock of the corporation (even though the right of
any class to vote is otherwise restricted or denied); provided, however,
no amendment or repeal of this Article shall adversely affect any right
of any Indemnitee existing at the time such amendment or repeal becomes
effective.
ARTICLE VIII
BY-LAWS
Section 8.01 Amendment. Amendments and changes of these By-Laws may be
made at any regular or special meeting of the Board of Directors by a vote of
not less than all of the entire Board, or may be made by a vote of, or a
consent in writing signed by the holders of a majority of the issued and
outstanding capital stock.
Section 8.02 Additional By-Laws. Additional by-laws not inconsistent
herewith may be adopted by the Board of Directors at any meeting of the Board
of Directors at which a quorum is present by an affirmative vote of a majority
of the directors present or by the unanimous consent of the Board of Directors
in accordance with Section 2.11 of these By-laws.
CERTIFICATION
I, the undersigned, being the duly elected Presient of the Corporation,
do hereby certify that the foregoing By-laws were adopted by the Board of
Directors on the 13th day of June, 1996.
/s/ Richard Mangiarelli
-----------------------
Richard Mangiarelli, President
[LETTERHEAD OF BELL ATLANTIC]
BELL ATLANTIC IP TELEPHONY
NETWORK SERVICES TERMINATION AGREEMENT
THIS NETWORK SERVICES TERMNATION AGREEMENT is made and entered into as of this
1st day of July, 1999, by and between Cybertel a California corporation, with
an address of 4275 Executive Square, San Diego, CA, and Bell Atlantic Network
Services, Inc., a Delaware Corporation, with an address of 1310 N. Courthouse
Road, Arlington, Virginia 22201, acting on behalf of itself and the Bell
Atlantic Operating Telephone Companies ("Bell Atlantic").
A. WHEREAS, Cybertel desires to terminate IP Telephony Calls originating
from outside of Bell Atlantic's Region on Bell Atlantic facilities within a
designated LATA (Local Access Transport Area); and
B. WHEREAS, Cybertel and Bell Atlantic desire to reflect their
understanding regarding Bell Atlantic's provision of termination services to
Cybertel in this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and agreements herein made, the parties agree as follows:
1. DEFINITIONS
Terms used herein will be defined in Exhibit B.
2. TERMINATION SERVICES.
2.1 General. Cybertel shall deliver to Bell Atlantic IP Telephony
Calls that outside of Bell Atlantic's Region. Bell Atlantic will arrange for
IP Telephony Calls to be completed through the PSTN 24 hours a day, 7 days a
week, at the Termination Gateways and as of the date(s) in Exhibit C. Bell
Atlantic agrees that Cybertel may sell Bell Atlantic's wholesale Termination
Services to third parties. Bell Atlantic will be solely responsible for the
network costs incurred in connection with and use of the PSTN to complete an
IP Telephony Call.
2.2 PSTN Coverage. Bell Atlantic will terminate calls to end users
served by Bell Atlantic to the LATA(s) specified in Exhibit C. A complete
table of NPAs/NXXs serving each LATA will be supplied and updated every 30
days.
2.3 Bell Atlantic's Support Obligations. Bell Atlantic will provide
technical support sufficient to ensure the quality and availability of its
Termination Gateway(s) to Cybertel. Bell Atlantic will have English-speaking
technical support staff on duty, 24 hours a day, 7 days a week, to respond to
all interruptions or unacceptable degradations in service to a Termination
Gateway. Bell Atlantic will provide updated information on the status of each
instance of service trouble directly to Cybertel at least once every four (4)
hours, and more frequently if necessary, depending on the trouble. Bell
Atlantic will use best efforts to resolve all service troubles as soon as
possible.
2.4 Notification and Cessation of Service. Upon the occurrence of a
service trouble or if Bell Atlantic is unable to perform any required
Termination Services, Bell Atlantic will notify Cybertel as soon as
practicable via telephone and also in writing via facsimile or electronic
mail.
2.5 Exclusivity. Bell Atlantic Termination Services are not exclusive
to Cybertel. Bell Atlantic reserves the right to enter into similar agreements
for Termination Services with other Carriers and ITSPs. Bell Atlantic also
agrees that Cybertel will enter into agreements with other parties to purchase
Termination Services.
2.6 Engineering. Cybertel will supply Bell Atlantic with a one year
traffic forecast, by serving gateway (LATA), of which Bell Atlantic will use
to engineer facilities. Bell Atlantic reserves the right to reallocate unused,
overly engineered facilities to another ITSP.
3. AUTHENTICATION, AUTHORIZATION & SECURITY
3.1 Authentication and Authorization. Cybertel will perform the
Authentication process required to determine and confirm the identity of an
Origination ITSP and Authorize the use of Cybertel network/retail IP
Telephony Services.
3.2 Bell Atlantic will adhere to all security, Authentication and
Authorization Standards and procedures defined by the Cybertel.
4. ROUTING
General. Cybertel will route or cause Cybertel Subscribers' EP
Telephony Calls to be routed over the Cybertel network or the public Internet,
to a Termination Gateway owned and operated by Bell Atlantic. Bell Atlantic
will provide Cybertel with access to a terminating routing table, by NPA/NXX,
for each serving gateway (LATA). Cybertel will notify Bell Atlantic, as soon
as practicable, of any alternative termination agreements, that will have
significant impact on the volume of traffic terminating on Bell Atlantic's
gateways.
5. CALL DETAIL RECORDS
5.1 General. Bell Atlantic will collect and process Cybertel CDRs
monthly for billing, which will be made available to Cybertel upon request, if
ITSP requires such information to resolve disputes or to perform its
obligations under this Agreement. In addition, Cybertel CDRs will be made
available to Bell Atlantic if required to resolve disputes or to perform its
obligations under this Agreement. Both Bell Atlantic and Cybertel will retain
CDRs for at least 3 months from their original creation date.
5.2 Method of Delivery. Until settlement standards (like OSP and/or
iNOW!) are approved and implemented, Bell Atlantic will pass CDRs, through FTP
to Cybertel.
6. PRICING
6.1 Termination Rates to Cybertel. Cybertel agrees to pay Bell
Atlantic the rates for Termination Services in effect for the applicable
pricing period as stated on Exhibit C for all IP Telephony Calls that are
allowed by Cybertels routing software to terminate on Bell Atlantic's network.
6.2 Termination Rate Changes. Bell Atlantic may decrease Termination
Rates at any time, provided that Bell Atlantic notifies Cybertel as soon as
possible. Decreases may become effective as early as the next billing period.
6.3 Pricing Plans. Exhibit C will state the pricing plan offered by
Ben Atlantic to Cybertel. Pricing plans may be changed with 30 days notice.
Volume pricing plans are governed by Bell Atlantic's CDR extract dates (see
Volume Discounts, section 9)
7. SERVICE DEPLOYMENT SCHEDULE
7.1 Schedule. The parties will agree on a detailed schedule for
testing and initiation of Termination Services. The parties agree to use
commercially diligent efforts to achieve the deployment schedule stated on
Exhibit C.
7.2 New Gateways. For each new Gateway, Bell Atlantic will provide to
Cybertel a completed Exhibit C form as soon as possible, but not less than 30
days in advance of the proposed establishment of such new Gateway. Upon
Cybertel's receipt of a completed Exhibit C for a new Gateway, Cybertel will
provide written acknowledgment of its acceptance.
7.3 Eliminated Termination Gateways. Bell Atlantic shall provide
written notification to Cybertel of each Termination Gateway anticipated to be
eliminated as soon as possible, but not less than 90 days in advance of the
elimination of such Termination Gateway, which notice will be deemed to amend
Exhibit C.
8. INDEMNIFICATION/LIMITATION OF LIABILITY
8.1 Bell Atlantic Indemnification. Bell Atlantic will indemnify and
hold Cybertel, and its successors and assigns, harmless from and against all
loss, liability or claim arising from or in any manner connected with: (a) any
breach by Bell Atlantic of any material representation, warranty, covenant or
provision contained herein, (b) Bell Atlantic's fraud, gross negligence,
intentional misconduct or violation of any governmental law or regulation, (c)
claims or actions brought by any third party, including governmental agencies,
in connection with Bell Atlantic's provision of Termination Service to
Cybertel, and (d) any personal injury to or death of any person or persons, or
any loss, damage, or destruction of any property, whether owned by Bell
Atlantic or others, resulting from Bell Atlantic's provision of Termination
Services to Cybertel.
8.2 Cybertel Indemnification. Cybertel will indemnify and hold Bell
Atlantic, and its successors and assigns, harmless from and against all loss,
damage, liability or claim arising from or in any manner connected with: (a)
any breach by Cybertel of any material representation, warranty, covenant or
provision contained herein, (b) Cybertel's fraud, gross negligence,
intentional misconduct or violation of any governmental law or regulation, (c)
claims or actions brought by any third party, including governmental agencies,
in connection with Cybertel's network, and (d) any personal injury to or death
of any person or persons, or any loss, damage, or destruction of any property,
whether owned by Cybertel or others, resulting from Cybertel's provision
services to Bell Atlantic.
8.3 Limitation of Liability. Except as otherwise provided for in this
agreement, neither party shall be liable to the other for any loss, cost,
claim, injury, liability, or expense, including reasonable attorneys' fees,
relating to or arising out of any ordinary negligent act or omission by a
Party. In no event shall either Party be liable to the other for any indirect,
special, incidental or consequential damages, including, but not limited to,
loss of profits, income or revenue.
9. BILLING
9.1 Payment for Termination Services. Cybertel agrees to pay Bell
Atlantic the rates for Termination Services in effect for the applicable
pricing period as stated on Exhibit C, plus any applicable taxes, for all EP
Telephony Calls that are allowed by Cybertels routing software to terminate on
Bell Atlantic's network.
9.2 Statements. Bell Atlantic or its agent will issue a statement to
Cybertel, no later than 15 days following the close of a monthly billing
period following general availability of the services provided by the Parties
hereunder. Each statement will include an aggregate of total minutes of use,
by LATA, and associated price for the applicable billing period. Statement
will also include appropriate charges that were not invoiced or paid in the
prior period.
9.3 Payment. Any charges to be paid hereunder will be due and payable
by Cybertel within 30 days after the date of Bell Atlantic's invoice to
Cybertel.
9.4 Late Charges. Payments shall be made so as to be received by Bell
Atlantic within 30 days of the date of Bell Atlantic's invoice. Interest will
accrue on all overdue balances at the rate of 1.25% per month or the highest
rate permitted by law, whichever is lower, prorated for each day payment is
overdue.
9.5 U.S. Funds; Method of Payment. All billing and other transactions
will be paid in U.S. Dollars using the payment methods identified on the Bell
Atlantic invoice.
9.6 Billing Disputes. Bell Atlantic's records will be deemed
authoritative for billing calculations. Cybertel will provide Bell Atlantic
written notice, in hard copy or electronic format, of any dispute concerning
billing within 30 days of the date of the statement containing the disputed
charges. Cybertel waives any right it may have to dispute the billing or
statement of any charges for which written notice has not been provided to
Bell Atlantic within such period.
9.7 Reconciliation. The Parties will use best effort to resolve
disputes within 30 days.
9.8 Denial of Service. Bell Atlantic reserves the right, upon 7
business days' notice, to cease providing Termination Services to Cybertel if
Bell Atlantic bills become more than 30 days overdue.
9.9 Volume Discounts. Volume discounts will only be applied to usage
in the current month billing cycle. Usage not captured in the current billing
cycle due to delays in billing systems aggregation process will not be
included in the total minutes of use eligible for the monthly volume discount.
10. TESTING, NETWORK MONITORING AND TECEMCAL SUPPORT
10.1 Testing. Testing of new hardware and/or software required to
provide interoperablity between Bell Atlantic and Cybertel networks will be
mutual.
10.2 Technical Support. The provision of technical support will be
mutual to solve service affecting troubles.
10.3. Network Monitoring. Bell Atlantic will monitor Bell Atlantic
equipment/network 24 hours a day, seven days a week. if required by Cybertel
Bell Atlantic will provide Cybertel with management information (alarms and
traps) on a broadcast basis.
11. FRAUD/MISTAKE
If Bell Atlantic suspects any mistake and/or fraudulent activity
related to the subject matter of this agreement, including stolen subscriber
identification numbers, personal identification numbers and passwords, Bell
Atlantic shall notify Cybertel as soon as practicable.
12. EQUIPMENT
12.1 General. Each party will purchase, install, license (if
required), test and operate all equipment necessary to fulfill its obligations
under this Agreement.
12.3 Software Licensing. If Cybertel proprietary software is
required for Bell Atlantic to perform its obligations under this Agreement,
Bell Atlantic will license directly from Cybertel's third party software
provider(s).
12.4 Software Use. Bell Atlantic will not permit any other party to
adapt, modify, translate or create derivative works of Cybertel software or
its components, or assign, pledge, lease, loan or timeshare any software or
reverse compile, disassemble or otherwise attempt or allow attempts to
reconstruct the source code for such software. Bell Atlantic will not or
permit any other party to obfuscate, alter or remove any copyright, trademark
or other proprietary notice or legend on or in the software and associated
documentation and will include all such makings in all copies of such
materials. Bell Atlantic may not use or permit use of the software for any
purpose not authorized under this Agreement .
13. CONFIDENTIAL INFORMATION
Use, transfer, disclosure or ownership of this Agreement is governed by
the Non-Disclosure Agreement (NDA) between the Parties.
14. TERM AND TERMINATION
14.1 Term. The term of this Agreement will begin upon the effective
date of Exhibit C and will continue for a period of one year, with automatic
renewals for additional one year periods, unless either party provides the
other party written notice of non-renewal at least 90 days before the
expiration of the the current term; or (ii) otherwise terminated in accordance
with its terms.
14.2 Termination or Suspension for Breach. Cybertel may terminate
this agreement without further liability to Bell Atlantic, if Bell Atlantic
fails to perform any obligations under this Agreement, and such failure
continues uncured for a period of 30 days after the date of written notice to
Bell Atlantic from Cybertel identifying the breach.
14.3 Termination for Governmental or Other Regulation. THE PARTIES
RECOGNIZE THAT ANY SERVICE PROVIDED PURSUANT TO THIS AGREEMENT MAY BE OR
BECOME SUBJECT TO GOVERNMENT OR OTHER REGULATION. IF SUCH REGULATION
MATERIALLY AFFECTS THE PROVISIONS OF THIS AGREEMENT OR THE ABILITY OF A PARTY
TO PERFORM ITS OBLIGATIONS HEREUNDER, SUCH PARTY MAY TERMINATE THIS AGREEMENT
IMMEDIATELY UPON WRITTEN NOTICE TO THE OTHER PARTY.
15. STANDARD PROVISIONS
The standard provisions attached as Exhibit A are made a part of this
Agreement by reference.
IN WITNESS WHEREOF, the parties have caused this IP Telephony Termination
Services Agreement to be duly executed as of the date first above stated.
Cybertel Corp. Bell Atlantic Network Services, Inc.
By:/s/Richard Mangiarelli By: /s/ T W Caldwell
---------------------- ------------------------------
Name: Richard Mangiarelli Name: Tom Caldwell
Title: President & CEO Title: VP, Carrier Services Marketing
Date: July 6, 1999 Date:
<PAGE>
EXHIBIT A: STANDARD PROVISIONS
1. Force Majeure. Neither party will be liable for delay or failure of
performance of its obligations hereunder or its equipment due to causes
reasonably beyond the control of such party, including labor dispute or
shortage, act of war, riot or civil commotion, accident, fire, flood or other
act of God, any law, order, regulation, direction, action, or request
of the United States Government, or of any other government having or claiming
jurisdiction over either party, or of any instrumentality of any government,
or of any judicial action, or catastrophic technical failure or complete
service outage beyond the reasonable control of such party and such party has
exercised ordinary care in the prevention thereof. Force Majeure shall not
include any failure of a party's computer system or network, Internet
congestion or other related problems within the reasonable control of a party
2. Non-Waiver. The failure or delay in enforcing any provision hereof by
either party will in no way be construed to be a waiver of such provision nor
will such action be deemed a waiver of any other right available at law or in
equity.
3 Notices. All notices under this Agreement will be in writing and will be
addressed or sent to Bell Atlantic or Cybertel at the address provided for
such party at the beginning of this Agreement, or to such other address as
either party may designate by notice pursuant hereto. Notices may be sent via
(a) confirmed facsimile, which will be deemed received on the date sent;
(b)electronic mail, provided receipt is acknowledged or a return receipt is
received, which will be deemed received upon acknowledgment or receipt by
sender of the return receipt; (c) recognized overnight courier services, which
will be deemed received upon actual receipt thereof; or (d) certified or
registered U.S. Mail, if such notice is being posted in the United States,
which will be deemed received within three (3) business days after deposit in
the U.S. Mail.
4. Taxes. Applicable federal, state, and local taxes and surcharges required
by law will apply unless Cybertel is exempt. Cybertel will provide Bell
Atlantic with evidence, in writing, of all tax exemptions and/or resale
certificates.
5. Publicity. Both parties agree that neither will use the other's name in
connection with promotional, advertising or other marketing material
associated with this agreement without the written permission of the other.
The Parties acknowledge that this agreement contains commercially confidential
information which may be considered proprietary by either or both Parties and
agree to limit distribution of the agreement to those individuals in their
respective organizations with a need to know the contents of the agreement.
Neither Party shall disclose any of the terms or conditions of this Agreement
to any third Party which is not affiliated with either Party hereto, except as
may be required by law, regulation or order of any court or governmental
agency.
6. Trademarks; Intellectual Property. The use by one party of any name,
trademark, service mark or other mark or identification of the other party is
prohibited without such party's prior express written consent. Any inventions
developed by a party during the term of this Agreement will be the property of
that party. Either party will have the sole right, but not the obligation, to
pursue patents on inventions jointly developed by the parties, and either
party will, to the extent legally required, list the other party as a joint
owner of such patents.
7. Applicable Law. This Agreement and matters connected with the performance
thereof will be construed, interpreted, applied and governed in all respects
in accordance with the law of the state in which the Terminating Gateway
resides, without regard to such State's conflicts of laws provisions.
8. Assignment. Any assignment by either Party to any non-affiliated entity of
any right, obligation or duty, in whole or in part, or of any other interest
hereunder, without the written consent of the other Party shall be void. All
obligations and duties of any Party under this Agreement shall be binding on
all successors in interest and assigns of such Party.
9. Export Restrictions. Each party agrees to comply with all export laws and
regulations of the Department of Commerce or other United States or foreign
agency or authority, and not to export or allow the export or re-export
directly or indirectly, of any proprietary information or software or any copy
or direct product thereof in violation of any such restrictions, laws or
regulations, to any destination to which such export or reexport is restricted
or prohibited by U.S. or non-U.S. law.
10. Severability. If any term or provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect, such determination will not
affect any other provision of this Agreement, but such provision or provisions
will be ineffective only to the extent of such invalidity, illegality or
unenforceability without invalidating the remainder of such provision or
provisions or this Agreement. In such case, this Agreement will be construed
as if such invalid, illegal or unenforceable provision or provisions had never
been contained herein, unless the deletion of such provision or provisions
would result in such a material change as to cause performance by a party to
be unreasonable.
11. Survival of Obligations. The rights and obligations of the parties which
by their nature would continue beyond the termination or expiration of this
Agreement will survive such termination or expiration.
12. Expenses. Each party will bear its own legal, accounting and other
expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
13. Amendments. Except where otherwise specifically noted, this Agreement may
not be amended or supplemented except by a written agreement signed by both
parties.
14. Successors and Assigns. This Agreement will be binding upon and inure to
the benefit of the successors and permitted assigns of the parties.
15. No Third Party Rights. This Agreement is not intended and will not be
construed to create any rights or remedies in any parties other than Cybertel
and Bell Atlantic, and no person will assert any rights as a third party
beneficiary hereunder.
16. Headings. The titles and headings contained in this Agreement are for
reference purposes only and will not in any manner limit the construction of
this Agreement.
17. Counterparts. This Agreement may be executed in any number of
counterparts, all of which will be considered one and the same agreement.
18. Government or Other Regulation. Each Party is independently responsible
for ensuring that its activities (including the offering or providing of
services or facilities) will comply with applicable laws and government or
other regulation, including regulation of common carrier telecommunications
services and regulation of marketing activities. Each party will cooperate
with the other in defending any civil, criminal or other claim threatened or
brought by any governmental agency or third party.
20. Construction; Interpretation. The language in all parts of this Agreement
will in all cases be construed simply, as a whole and in accordance with its
fair meaning and not strictly for or against any party. Any time the word
"including" is used herein and followed by an example or examples, such term
shall be deemed to mean "including, without limitation,". The parties agree
that this Agreement has been negotiated by the parties in arm's length
negotiations, that each party has been given the opportunity to independently
review this Agreement with legal counsel, and that each party has the
requisite experience and sophistication to understand, and agree to the
particular provisions hereof.
21. Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties with respect to Termination Services. All
previous representations, understandings and agreements, either oral or
written, between the parties with respect to the subject matter hereof are
merged into and superseded by this Agreement. If there is a conflict between
the terms or provisions of this Agreement and any applicable tariffs, the
terms of such tariffs will govern.
EXHIBIT B: DEFINITION OF TERMS
Authentication means the process of verifying with certainty the identity of a
valid subscriber.
Authorization means the process of authorizing or allowing a subscriber to
place calls via an IP Telephony network.
Authentication and Authorization Standards means the guidelines by which the
Cybertel provides authorization to Bell Atlantic that a calls may be accepted
and completed through Bell Atlantic's Termination network.
LATA mean Local Access Transport Area. Bell Atlantic may provide transport
within LATA boundaries designated by the FCC.
Subscriber means an IP telephony customer, whether an individual, business,
reseller or another ITSP.
Termination Gateway means the equipment that translates IP to PSTN.
Termination Services means the combination of intra-LATA IP transport, gateway
conversion and intra-LATA PSTN termination to the end user.
<PAGE>
EXHIBIT C - 128
Termination Coverage:
Gateway ID Market Coverage NPAs (1)
XXXX-128 Eastern, Ma. (Boston) LATA 508, 617, 781, 978
(1) A complete routing table with all NXXs will be provided; see Deployment
Schedule below.
Capacity/Pricing/Commitment:
(The price for all minutes reduces as volumes within a LATA reach the next
band)
Monthly Band 1 Band 2 Band 3 Monthly
Forecast Pricing Pricing Pricing Minimum
(MOU) Price
.87M 1 - IM > IM-3M > 3M @ $9,600
@ $.024 @ $.022 $.019
Platform:
Equipment Network Services (2)
Cisco 5300 Gateways T1 IP connection to PSTN Voice termination
VocalTec Gatekeepers UUNet backbone PSTN Fax termination
Cisco PIX or Feature Group D from Cisco origination
Checkpoint Firewalls PSTN interface GWs initially; others
H.323 & G.723 or early in 2000
G.729
(2) Services must be interoperable with originating platform. Bell Atlantic is
committed to support of iNOW and OSP interoperability standards; once
finalized.
Planned Deployment Schedule:
Description Responsible Target
Party Date
1. Public announcement (optional) Cybertel & BA 8/15/99
2. Complete joint network planning Cybertel & BA 9/14/99
3. Complete platform installation BA 9/17/99
4. Provide all NPA-NXX routing tables
& addresses BA 9/17/99
5. Complete independent testing Cybertel & BA 9/28/99
6. Complete joint testing of platform
compatibility Cybertel & BA 9/30/99
7. Begin joint trial of Termination
Services Cybertel & BA 11/15/99
8. General availability of Termination
Services for Cybertel Cybertel & BA 11/22/99
Signatures: /s/ R. Mangiarelli Cybertel /s/ T W Caldwell Bell Atlantic
------------------ ----------------
<PAGE>
EXHIBIT C - 132
Termination Coverage:
Gateway ID Market Coverage NPAs (1)
XXXX-132 New York LATA 203, 212, 516, 718, 914, 917
(1) A complete routing table with all NXXs will be provided; see Deployment
Schedule below.
Capacity/Pricing/Commitment:
(The price for all minutes reduces as volumes within a LATA reach the next
threshold/tier)
Monthly Band I Band 2 Band 3 Monthly
Forecast Pricing Pricing Pricing Minimum
(MOU) Price
2M 1 - IM > IM - 3M >3M@ $22,000
@ $.024 @ $.022 $.019
Platform:
Equipment Network Services (2)
Cisco 5300 Gateways T1 IP connection to PSTN Voice termination
LTLJNet backbone
VocalTec Gatekeepers PSTN Fax termination
from Cisco origination
Cisco PIX or Feature Group D
Checkpoint Firewalls PSTN interface
GWs initially; others
Early in 2000
H.323 & G.723 or
G.729
(2) Services must be interoperable with originating platform. Bell Atlantic is
commi d to support of Now and OSP interoperability standards; once finalized.
Planned Deployment Schedule:
Description Responsible Target
Party Date
1. Public announcement (optional) Cybertel & BA 8/15/99
2. Complete joint network planning Cybertel & BA 9/14/99
3. Complete platform installation BA 9/17/99
4. Provide all NPA-NXX routing
tables & addresses BA 9/17/99
5. Complete independent testing Cybertel & BA 9/28/99
6. Complete joint testing of platform
compatibility Cybertel & BA 9/30/99
7. Begin joint trial of Termination
Services Cybertel & BA 10/18/99
8. General availability of Termination
Services for Cybertel Cybertel & BA 10/25/99
Signatures R. Mangiarelli Cybertel /s/ T W Caldwell Bell Atlantic
-------------- ----------------
<PAGE>
EXHIBIT C - 224
Termination Coverage:
Gateway ID Market Coverage NPAs (1)
XXXX-224 North New Jersey LATA 201,732,908,973
(1) A complete routing table with all N3M will be provided, see Deployment
Schedule below.
Capacity/Pricing/Commitment:
(The price for all minutes reduces as volumes within a LATA reach the next
threshold/tier)
Monthly Band I Band 2 Band 3 Monthly
Forecast Pricing Pricing Pricing Minimum
(MOU) Price
1.2M 1 - IM > IM-3M > 3M @ $14,400
@ $.024 @ $.022 $.019
Platform:
Equipment Network Services (2)
Cisco 5300 Gateways T1 IP connection to PSTN Voice termination
VocalTec Gatekeepers UUNet backbone PSTN Fax termination
Cisco PIX or Feature Group D from Cisco origination
Checkpoint Firewalls PSTN interface GWs initially; others
H.323 & G.723 or early in 2000
G.729
(2) Services must be interoperable with originating platform. Bell Atlantic is
committed to support of Now and OSP interoperability standards; once
finalized.
Planned Deployment Schedule:
Description Responsible Target
Party Date
1. Public announcement (optional) Cybertel & BA 8/15/99
2. Complete joint network planning Cybertel & BA 9/14/99
3. Complete platform installation BA 9/17/99
4. Provide all NPA-NXX routing tables
& addresses BA 9/17/99
5. Complete independent testing Cybertel & BA 9/28/99
6. Complete joint testing of
platform compatibility Cybertel & BA 9/30/99
7. Begin joint trial of Termination
Services Cybertel & BA 10/18/99
8. General availability of Termination
Services for Cybertel Cybertel & BA 10/25/99
Signatures R. Mangiarelli Cybertel /s/ T W Caldwell Bell Atlantic
------------ ----------------
<PAGE>
EXHIBIT C - 228
Termination Coverage:
Gateway ID Market Coverage NPAs (1)
XXXX-228 Philadelphia, Pa. LATA 215,302,610
(1) A complete routing table with all N3M will be provided; see Deployment
Schedule below.
Capacity/Pricing/Commitment:
(The price for all minutes reduces as volumes within a LATA reach the next
band)
Monthly Band I Band 2 Band 3 Monthly
Forecast Pricing Pricing Pricing Minimum
(MOU) Price
.85M 1-IM >IM-3M >3M@ $9,600
@ $.024 @ $.022 $.019
Platform:
Equipment Network Services (2)
Cisco 5300 Gateways T1 IP connection to PSTN Voice termination
VocalTec: Gatekeepers UUNet backbone PSTN Fax termination
Cisco PIX or Feature Group D from Cisco origination
Checkpoint Firewalls PSTN interface GWs initially; others
H.323 & G.723 or early in 2000
G.729
(2) Services must be interoperable with originating platform. Bell Atlantic is
committed to support of iNow and OSP interoperability standards; once
finalized.
Planned Deployment Schedule:
Description Responsible Target
Party Date
1. Public announcement (optional) Cybertel & BA 8/15/99
2. Complete joint network planning Cybertel & BA 9/14/99
3. Complete platform installation BA 9/17/99
4. Provide all NPA-NXX routing tables
& addresses BA 9/17/99
5. Complete independent testing Cybertel & BA 9/28/99
6. Complete joint testing of platform
compatibility Cybertel & BA 9/30/99
7. Begin joint trial of Termination
Services Cybertel & BA 10/4/99
8. General availability of Termination
Services for Cybertel Cybertel & BA 10/11/99
Signatures: R. Mangiarelli Cybertel /s/ T W Caldwell Bell Atlantic
--------------- ----------------
EXHIBIT C - 236
Termination Coverage:
Gateway ID Market Coverage NPAs (1)
XXXX-236 Washington, DC LATA 202,240,301,410,443,703
(1) A complete routing table with all NXXs will be provided; see Deployment
Schedule below.
Capacity/Pricing/Commitment:
(The price for all minutes reduces as volumes within a LATA reach the next
band)
Monthly Band 1 Band 2 Band 3 Monthly
Forecast Pricing Pricing Pricing Minimum
(MOU) Price
.83M 1-IM >1M-3M >3M@ $9,600
@ $.024 @ $.022 $.019
Platform:
Equipment Network Services (2)
Cisco 5300 Gateways T1 IP connection to PSTN Voice termination
VocalTec Gatekeepers UUNet backbone PSTN Fax termination
Cisco PIX or Feature Group D from Cisco origination
Checkpoint Firewalls PSTN interface GWs initially; others
H.323 & G.723 or early in 2000
G.729
(2) Services must be interoperable with originating platform. Bell Atlantic is
committed to support of iNow and OSP interoperability standards; once
finalized.
Planned Deployment Schedule:
Description Responsible Target
Party Date
1. Public announcement (optional) Cybertel & BA 8/15/99
2. Installation of all required
BA Equipment BA 9/14/99
3. Installation of PSTN lines BA 9/17/99
4. Installation of IP connectivity BA 9/17/99
5. Provide Cybertel with all NPA-NXX
routing tables & GW IP addresses BA 9/17/99
6. Independent testing of BA Equipment
and PSTN/lP BA 9/28/99
7. Joint testing of platform
compatibility Cybertel & BA 9/30/99
8. Joint trial of Termination Services Cybertel & BA ll/l/99
9. General availability of Termination
Services for Cybertel Cybertel & BA 11/8/99
Signatures R. Mangiarelli Cybertel, /s/ T W Caldwell Bell Atlantic
--------------- ----------------
<PAGE>
EXHIBIT C - 238
Termination Coverage:
Gateway ID Market Coverage NPAs (1)
XXXX-238 Baltimore, Md. LATA 240,301,410,443
(1) A complete routing table with all NXXs will be provided; see Deployment
Schedule below.
Capacity/Pricing/Commitment:
(The price for all minutes reduces as volumes within a LATA reach the next
band)
Monthly Band I Band 2 Band 3 Monthly
Forecast Pricing Pricing Pricing Minimum
(MOU) Price
34M 1-1M >IM-3M >3M@ $4,800
@ $.024 @ $.022 $.019
Platform:
Equipment Network Services (2)
Cisco 5300 Gateways T1 IP connection to PSTN Voice termination
VocalTec Gatekeepers UUNet backbone PSTN Fax termination
Cisco PIX or Feature Group D from Cisco origination
Checkpoint Firewalls PSTN interface GWs initially; others
H.323 & G.723 or early in 2000
G.729
(2) Services must be interoperable with originating platform. Bell Atlantic is
committed to support of iNow and OSP interoperability standards; once
finalized.
Planned Deployment Schedule:
Description Responsible Target
Party Date
1. Public announcement (optional) Cybertel & BA 8/15/99
2. Complete joint network planning Cybertel & BA 9/14/99
3. Complete platform installation BA 9/17/99
4. Provide all NPA-NXX routing tables
& addresses BA 9/17/99
5. Complete independent testing Cybertel & BA 9/28/99
6. Complete joint testing of
platform compatibility Cybertel & BA 9/30/99
7. Begin joint trial of Termination
Services Cybertel & BA 10/1/99
8. General availability of Termination
Services for Cybertel Cybertel & BA 11/8/99
Signatures R. Mangiarelli Cybertel /s/ T W Caldwell Bell Atlantic
-------------- ----------------
TeleHub.Network Services Corporation
TELECOMMUNICATIONS SERVICE AGREEMENT
This agreement (the "Agreement) is made this 28th day of June 1999, between
TeleHub Network Services Corporation, an Illinois corporation, with offices at
1175 Tri-State Parkway, Gurnee, Illinois 60031 ("the Supplier"), and Cybertel
Communications Corp., a corporation of the state of Nevada, with its principal
place of business at 4275 Executive, Square, Suite 510, LaJolla, California
92037 ("the Customer").
1. Scope of the Agreement.
A. Telecommunications Services. The Supplier is hereby authorized to
start provisioning the telecommunications services ("Services") listed in
Supplemental Service Agreement(s) (attached hereto and incorporated herein by
reference) on or before the 15th day of August, 1999 ("Service Commencement
Date") to the extent they are available, so that the Customer may resell these
services to its subscribers "End-Users").
B. Access Services. In conjunction with its provision of Services,
the Supplier will obtain from the incumbent local exchange carriers ("ILECs")
and competitive local exchange carriers ("CLECs") on the Customer's behalf,
all associated and necessary special access services, and may act on the
Customer's behalf to order the other services, if requested. Any charges not
represented in our contractual agreements may be passed through to the
Customer. The Supplier shalt pass through to the 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. Should this Agreement be
canceled by either party, the Customer shall be liable for any usage charges,
expenses or any other additional charges reasonably incurred by the Supplier
on behalf of the Customer acting as the Customer's Agent.
<PAGE>
C. Call Records. The Supplier will send to the Customer Call Detail
Records ("CDR's") for the Customer to re-bill End-Users forcalls placed
through the Supplier's network.
<PAGE>
2. Customer Responsibilities.
A. General Duties. The Customer shall use its best efforts to
solicit customers and resell the Services to End-Users. The Customer shall at
all times conduct its efforts in a commercially reasonable and ethical manner.
The Customer shall provide.its own billing and customer service to the
End-Users. To the extent the Customer makes any statements or representations
to third parties (including End-Users) with regard to the Supplier, the
Services, or the terms of this Agreement, such statements or representations
shall be true and not misleading.
B. End User Authorizations. The Customer shall obtain, prior to
relaying an order to the Supplier, 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. The Customer shall be
responsible for LEC Primary Inter-exchange 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, the 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 inter-exchange carrier,
(ii) The entity name under which such End-User's inter-state, intrastate
and/or operator services will be billed (if different from the Customer), and
(iii) All "primary" telephone number(s) to be used for maintenance and
questions concerning such End-User's longdistance service and/or billing.
The Customer agrees to provide the Supplier a copy of the documentation
the Customer uses to satisfy the above requirements promptly upon request. The
Supplier may change the foregoing requirements at any time in order to conform
to applicable FCC and state regulations. Notwithstanding the foregoing,
however, the 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. End User Credit Verification. The Customer has sole
responsibility to verify End-User credit worthiness and shall take reasonable
steps to do so. The Supplier bears no responsibility for End-User
uncollectibles.
D. Disputed Transfers. The Supplier will notify the Customer of all
disputed transfers in a timely manner. The Customer will be responsible for
all charges associated with the disputed transfer including, but not limited
to:
<PAGE>
(i) All charges incurred by the Supplier to change the End-User's PIC to the
Supplier's network;
(ii) All charges which arise from the disputed transfer and are incurred by
the Supplier to change the End-User back to its previous PIC;
(iii) An administrative charge of $20.00 per ANI, per occurrence;
(iv) Any other damages suffered by or awards against the Supplier arising from
the disputed transfers.
E. Records. The Customer will maintain documents and records
supporting the Customer's re-sale of Service, including, but not limited to,
appropriate and valid LOA's from End-Users, for a period of not less than
twenty-four (24) months or such longer period as may be required by applicable
law, rule or regulation. The Customer shall retain the signed LOA's and
promptly make originals available upon request of the Supplier, any local
exchange carrier ("LEC") or any regulatory agency. In the event of a disputed
transfer to the Suppliees network including but not limited to those resulting
from the Customer's inability or refusal to provide original End-User LOA's
when requested, the Customer shall indemnify the Supplier against any loss,
damage or liability arising from such disputed transfer, including, without
limitation, PIC Charges.
F. Volume Forecasts. Prior to the Service Commencement Date, and by
the end of each calendar quarter thereafter, the Customer shall provide the
Supplier with forecasts covering a good faith estimate of the monthly traffic
volume and distribution for the ordered Services for the nelt three calendar
months. The forecasts are to be in the format attached hereto as Exhibit "A".
In addition, the Customer shall notify the Supplier at least thirty days
prior to the implementation of any special advertising or promotion that will
likely result in a substantial amount of additional network usage of the
Service.
3. Credit/Credit Worthiness.
A. Credit Reserves. The Supplier reserves the right to withhold
initiation or full implementation of any or all Services under this Agreement
pending the Supplier's satisfactory credit review and approval thereof, which
may be conditioned upon terms specified by the Supplier including, but not
limited to, security for payments due hereunder in the form of a cash deposit
or other means. Supplier reserves the right to modify its requirements, if
any, with respect to any security. or other assurance provided by the Customer
for payments due hereunder in light of the Customer's actual usage when
compared to projected usage levels upon which any security or assurance was
based.
B. Rights of Supplier. If at any time there is a material adverse
change in the Customer creditworthiness, then in addition to any other
remedies available to the Supplier, the Supplier may elect in its sole
discretion to exercise any one or more of the following remedies:
<PAGE>
(i) Cease providing the Services pursuant to a Suspension notice;
(ii) Decline to accept a Service Request or other requests from the Customer
to provide Services which the Supplier may otherwise be obligated to accept;
and/or
(iii) Condition its provision of the Services or acceptance of Service
Requests on the Subscriber's assurance of payment, which shall be a deposit or
such other means to establish reasonable assurance of payment.
C. Material Adverse Changes . An adverse material change in the Customer's
creditworthiness shall include, but not be limited to:
(i) The Customer's material default of its obligations to the Supplier under
this or any other Agreement with the Supplier.
(ii) Failure of the Customer to make full payment of all undisputed charges
due hereunder on or before the Due Date (or disputed charges on or before the
Alternate Due Date) as defined in Section 7.
(iii) Acquisition of the 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 the
Supplier or any entity affiliated with the Supplier or which is a materially
greater credit risk than the Customer; or
(iv) The Customer's being subject to or having filed for bankruptcy or
insolvency proceedings or the legal insolvency of the Customer.
4. Security Deposit.
A. Amount Subject to paragraph "D" of Section "4", the Customer
shall furnish the Supplier simultaneously with the execution of this Agreement
a Security Deposit equal to the aggregate amount that the Supplier estimates,
in its sole discretion, would be due hereunder for the Services during one
month (the "Security Deposit") of usage.
The Security Deposit shall be one of the following:
(i) Cash, in US dollars in such amount to be held by the Supplier during the
term of the Agreement.
(ii) An unconditional irrevocable standby Letter of Credit for such amount,
naming the Supplier as the sole beneficiary, issued in a form, and by a bank,
reasonably acceptable to the Supplier, to remain outstanding during the term
of this Agreement.
<PAGE>
(iii) Such other instrument or device as mutually agreed to by the parties.
The Customer acknowledges and agrees that the Security Deposit is not a
prepayment to be applied against the future provision of the Services and the
entire Security Deposit amount, subject to paragraphs "B" and "D" of Section
W, i.s to remain outstanding at all times during the term of this Agreement.
B. Adjustment The Supplier may review the amount of the Security
Deposit on a quarterly basis. Should the Customer's actual aggregate Charges,
as defined in Section 7, exceed the amount of the Security Deposit, the
Supplier in its sole discretion may increase the amount of the Security
Deposit. The Customer shall, within five business days of receiving written
notice from the 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 the Customer shall bear all costs related to the issuance of the
Letter of Credit described above. The Supplier shall have no obligation to
return any portion of the Security Deposit unless and until the Customer has
paid all amounts due to the Supplier hereunder or otherwise. The 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 the Supplier as set
forth herein.
Upon application of any part of the Security Deposit the Customer shall,
within five business days of receiving written notice from the 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 the Supplier's right to terminate this Agreement under Section 14
(Customer Default).
D. Waiver. The Supplier, upon reviewing the Customer's financial
statements, may determine that the Customer's financial circumstances do not
require a Security Deposit. Accordingly, the Supplier may waive its right to
require a Security Deposit as set forth in this Section 4, or may reduce the
required amount of the Security Deposit, subject to its right to later require
the Customer to fully comply with the provisions of this Section 4. The
Customer represents that any financial statements provided to the Supplier
shall be prepared in accordance with generally accepted accounting principles
and will be true and correct.
5. Lockbox Agreement.
A. Deposits and Distributions. The Customer shall direct all of the
Customer's End-Users to deposit any money owed by such End-Users to the
Customer directly into a lockbox account at the Bank of Oklahoma, N.A., (the
"Bank"), owned jointly by the Customer and the Supplier. The Customer shall
authorize the Supplier to make automatic clearinghouse fund transfers from
such lockbox accounts to the account of the Supplier and the Customer
according to the terms and conditions of a Lockbox Agreement substantially in
the form attached hereto. The Bank shall provide both the Customer and the
Supplier with all records and statements with respect to the lockbox account
each month.
<PAGE>
The Supplier shall be entitled to receive from the lockbox account 80% of the
amount in the lockbox, which will be credited against amounts due for the
Services (the "Supplier Lockbox Payment"). Payment shall be made weekly. The
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 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"), the 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 the
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%) of the amount deposited until such time as the next
invoice is rendered.
In the event that the Supplier Lockbox Payment exceeds the amount owed to the
Supplier during any month for the Services provided hereunder, the Supplier
agrees to pay the 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 the Supplier (the aggregate amount by which the payment is
insufficient is referred to as the "Shortfall"), the Supplier Lockbox Payment
shall increase to one hundred percent (100%) of the amount deposited. The
Customer shall pay the Supplier any additional amount needed to cover any
Shortfall. When the Supplier has received sufficient funds from the lockbox
account to reduce the Shortfall to zero, the Supplier Lockbox and the Customer
Lockbox Payments shall revert to the percentages applicable on the date the
Shortfall first occurred.
C. Audit and Fees. The Supplier shall have the right to audit the
Customer's books and records including, without limitation, the Customer's
invoicing records, to assure that the Customer is in compliance hereunder. In
the event that the Customer enters into an agreement with a billing company to
provide billing services for the Customer or changes its billing company, the
Customer shall notify the Supplier and have its billing company execute an
agreement containing terms and conditions consistent with the Customer's
obligations under this Agreement and the Lockbox Agreement. The Customer shall
be responsible for all fees and expenses associated with said Lockbox
Agreement.
6. Rejected End-Users (ANI's).
A. Reasons for Rejection. The Supplier has the right to reject any
ANI supplied by the Customer for any of the following reasons:
<PAGE>
(i) The Supplier is not authorized to provide or does not provide long
distance services in the particular jurisdiction in which the ANI is located;
(ii) ANI submitted by the Customer is not in proper format;
(iii) The Customer is not certified to provide long distance services in the
jurisdiction in which the ANI is located;
(iv) The Customer is in default of this Agreement;
(v) The Customer fails to cooperate with the Supplier to implement reasonable
verification processes deemed necessary or appropriate in the conduct of
business as determined by the Supplier; or
(vi) Any other circumstances that the Supplier reasonably determines could
adversely affect the Supplier's performance under this Agreement or the
Supplier's general ability to transfer its other customers or other End-Users
to the Supplier's network.
B. Customer Notification. In the event the Supplier rejects an ANI,
the Supplier will notify the Customer within forty- eight (48) hours of its
decision specifically describing the rejected ANI and the reason(s) for
rejecting that ANI. The Supplier is under no obligation to accept ANIs within
the three-month period preceding the scheduled expiration of the term hereof.
7. Charges and Payment.
A. Charges for service (the "Charges") shall be based on:
(i) The rates for the Services set forth in the Supplemental Service
Agreement, as applicable; and
(ii) The actual usage of the Supplier's network from establishment of a
connection between the calling device and the called telephone number for
termination.
The Supplier shall not unreasonably discriminate against the Customer with
respect to the Charges vis-a-vis other similarly situated customers.
B. Payment All Charges shall be due and payable by the Customer to
the Supplier within thirty (30) days of the date of invoice (the "Due Date"),
without demand or set off by the Customer. The Charges are billed and payable
following the period in which actual usage has been incurred. If any invoice
is not paid when due, one or more of the following may occur:
<PAGE>
(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) The Supplier may suspend or terminate the Service; or
(iii) The Supplier may require additional security deposits.
If the Customer disputes a portion of the invoice because of what it considers
to be a difference between the CDR and the invoice, the Due Date for such
disputed portion shall be delayed for up to fifteen (15) days after receipt of
written notification of such dispute by the Customer, (the "Alternate Due
Date"), provided the Customer cooperates in good faith to resolve such a
dispute. The Customer agrees to reimburse the Supplier all collection charges,
court costs, and reasonable attorney fees and charges that the Supplier may
incur in the collection of amounts due the Supplier.
C. Provision of Financial Statements. Should the Supplier, for any
reason, feel the Customer is unable to pay for services rendered, the Supplier
may ask the Customer to provide a consolidated balance sheet as of the end of
the most recent fiscal quarter. The Customer is to provide consolidated
statements of income and retained earnings for the above-mentioned period and
the fiscal year to date ending with the quarter.
The above documents shall be provided in reasonable detail and authorized by
the Customer's chief financial officer as having been prepared in accordance
with generally accepted accounting principles, consistently applied. The
Supplier reserves the right to modify its requirements for security or other
assurance provided by the Customer at any time during the Term of this
Agreement should the Customer's actual usage be significantly greater than
projected usage levels, upon which any security or assurance was based.
8. Exogenous Charges.
A. Telecommunications Charges.In addition to the rates and charges
listed in the Supplemental Service Agreement, the Customer shall pay the
Supplier, on a direct pass-through basis, the following:
(i) All primary inter-exchange carrier change charges.
(ii) All primary inter-exchange carrier line charges ("PICC") as set by the
FCC and as outlined in the Supplier's tariff as filed with the FCC, as it may
change from time to time.
(iii) The Customer shall also reimburse the Supplier for amounts paid to pay
phone service providers for toH-free and access code calW,. originated by the
Customer's End-Users from pay phones.
(iv) With respect to toll-free numbers assigned to the Customers End-Users,
amounts paid to the National Administrative Services Center.
<PAGE>
(v) The Customer shall also pay for any universal service programs established
or imposed by the FCC, or any state, that are incurred when providing Service
to the Customer, and are paid by the Supplier.
(vi) The Customer shall also pay amounts, other charges or surcharges
imposed, directly or indirectly, on the Supplier by federal, state or local
governments or agencies.
B. Tax Exemption. Within ten (10) business days after the date
hereof, the Customer shall furnish the Supplier, and keep current during the
term of this Agreement, valid and appropriate tax exemption certificates in
the form attached hereto in Exhibit B.
The Customer shall also furnish the Supplier, and keep current during the
term of this Agreement, valid and appropriate sales, use and excise tax
exemption certificates for all applicable state and local jurisdictions in
which it provides service.
The Customer is responsible for properly charging tax to its End-Users and
for the proper and timely reporting and payment of applicable taxes to. the
taxing authorities. The Customer shall defend and indemnify the 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 the Supplier in
settling, defending or appealing any claims or actions brought against it
relating to said taxes. If the Customer fails to provide the required
certificates, the Supplier may choose to discontinue the Service until such
time as the required certificates are received.
9. Fraudulent Calls.
The Customer shall indemnify and hold the Supplier harmless from all costs,
expenses, claims or actions of any nature arising from fraudulent calls, the
charges for which may comprise a portion of the Services if the party claiming
the call(s) to be fraudulent is (or had been at the time of the call) an
End-user of the Services through the Customer or an EndUser of the Services
through the Customer's distribution channels.
The Customer shall not be excused from paying the Supplier for Services
provided to the Customer on the basis that charges for fraudulent calls
comprised a portion of the Services. In the event the Supplier discovers that
fraudulent calls are being made (or the Supplier reasonably believes
fraudulent calls are being made), the Supplier may take immediate action
(without prior notice to the Customer) that is reasonably necessary to prevent
the making of such fraudulent calls including, without limitation, denying
Services to particular ANIs or authorization codes, or terminating the
Services to or from specific locations.
10. Term.
<PAGE>
This Agreement is effective as of the date hereof and shall remain in force
and effect for a period of 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. Failure of Performance.
The Customer shall immediately notify the Supplier of any problems or End-User
complaints associated with the Service, including, but not limited to,
excessive noise, echo or loss of service. The liability of the Supplier for
damages due to mistakes, omissions, interruptions, delays, errors or defects
in transmission ("Failure of Performance") occurring in the furnishing of the
Services is limited to not charging the Customer for any Services that the
Supplier has failed to provide. Interruption for system maintenance does not
constitute a Failure of Performance. In the event of a Failure of Performance,
the Supplier shall use its reasonable efforts to correct such failure as soon
as reasonably practicable after the Supplier is notified of such failure.
Both the Supplier and the Customer, each in its sole discretion, shall have
the right to cancel the affected Service(s) in the event that:
(i) The Supplier notifies the Customer that the Supplier cannot correct a
Failure of Performance.
(ii) The Supplier fails to deliver Services meeting industry standards of
performance within five (5) days of written notice thereof by the Customer to
the Supplier.
In the event all, or any portion of, the Services are terminated pursuant to
this paragraph, the Customer shall remain liable for the Charges for the
affected Services that were rendered prior to the effective date of
termination.
12. Limitation of Liability.
The Supplier's liability arising from delays in restoration of the Services or
from mistakes, accidents, omissions, interruptions, errors or defects in
transmission in the provision of Services, shall be subject to the limitations
in Section 11 above and in the applicable Tariff.
For purposes of this Section, the term "Supplier' shall be deemed to include
the Supplier, its shareholders, directors, officers and employees, and any
person or entity assisting the Supplier in its performance pursuant to this
Agreement.
UNDER NO CIRCUMSTANCES SHALL THE SUPPLIER BE LIABLE TO THE CUSTOMER, OR ANY
END USER OR OTHER THIRD PARTY, IN ANY RESPECT INCLUDING, WITHOUT LIMITATION
<PAGE>
FOR:
(i) ANY DIRECT, INDIRECT, CONSEQUENTIAL, SPECIAL, ACTUAL, INCIDENTAL,
PUNITIVE, OR ANY OTHER DAMAGES.
(ii) ANY LOST PROFITS OF ANY KIND OR NATURE WHATSOEVER ARISING FROM MISTAKES,
ACCIDENTS, ERRORS, OMISSIONS, INTERRUPTIONS OR DEFECTS IN TRANSMISSION;
DELAYS, INCLUDING THOSE WHICH MAY BE CAUSED BY REGULATORY OR JUDICIAL
AUTHORITIES, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OBLIGATIONS
OF THE SUPPLIER PURSUANT TO THIS AGREEMENT.
THE SUPPLIER MAKES NO WARRANTY TO THE 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 THE SUPPLIER ARE HEREBY EXCLUDED AND DISCLAIMED.
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. All information concerning
either the Supplier's or the Customer's traffic volume/distribution and the
identity of the Suppliers or the Customers customers, given to either party
under this Agreement or learned in connection with this Agreement, or any
other transaction between the Supplier and the Customer, is .hereby
acknowledged by both the Supplier and the 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
the 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) 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) Any 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. For any such
request other than by a law enforcement agency as a part of that agency's
investigation of criminal activity, the recipient, however, shall take
reasonable steps to give the disclosing party sufficient
<PAGE>
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 partyor 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
6enefit from the use of such technology or information in the course of the
provision of Services.
D. Use of The Supplier Name. Upon execution of the Supplier's
Trademark License Agreement (a prerequisite to the execution of this
Agreement), the Customer may refer to itself as an authorized user of the
Supplier's network in promotional, advertising or other materials. Upon
execution of the Supplier's Trademark License Agreement, the Customer may use
the Supplier's logos, trademarks, and service marks in its promotional,
advertising or other materials. The Customer shall change or correct, at the
Customers expense, any such material which the Supplier, in its sole judgment,
determines to be inaccurate, misleading or otherwise objectionable in relation
to using Services. The 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." The Supplier reserves the right to
terminate the Supplier's Trademark License Agreement because of misuse or
other breach of this Agreement.
E. Use of The Customer's Name. The Supplier may use the Customer's
name in any press releases and other publications mentioning this Agreement or
the relationship of the Customer and Supplier evidenced by this Agreement.
F. Remedies. In the event of a breach or threatened breach of the
provisions of this Section 13, the aggrieved party 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.
14. Customer Default.
A. Definition. "Customer Default" means the 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 ten (10) days of receipt of written notice of the breach from the
Supplier.
(ii) Uses these 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 the Supplier.
<PAGE>
B. Remedies. Should Customer Default occur, the Supplier, upon
notice to the Customer (in addition to the other rights or remedies that the
Supplier may have under this Agreement, at law or in equity) may:
(i) Suspend Services to the Customer until such time that such
circumstance is corrected (provided the Supplier shall not be prohibited from
terminating this Agreement after suspending Services);
(ii) Declare all Usage Charges that have been billed to the
Customer by the Supplier to be immediately due and payable whereupon all such
amounts shall become immediately due and payable;
(iii) Declare all Minimum Monthly Usage Charges, as outlined in the
Supplemental Service Agreement(s), that are payable through the remainder of
the term of this Agreement to be due and payable, whereupon all such amounts
shall become immediately due and payable; and
(iv) Terminate this Agreement.
C. Insolvency, The Services shall terminate automatically, without
notice, if the Customer:
(i) 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.
(ii) Makes an assignment for the benefit of its creditors.
(iii) Enters into an agreement for the composition, extension or
readjustment of its obligation in connection with the foregoing.
(iv) Is acquired (whether in whole or by majority or controlling
interest) by an entity which (a) is insolvent, (b) is subject to bankruptcy or
insolvency proceedings, (c) owes past due amounts to the Supplier or any
entity affiliated with the Supplier or (d) is a materially greater credit
risk.
D. Cancellation or Default
(i) In the case of a cancellation or default, the Customer shall pay to
the Supplier a cancellation charge equal to the balance of the monthly service
charges (then in effect) for such cancelled service that otherwise would have
become due for the unexpired balance of any service commitment period.
(ii) The Customer is also liable for any charges, expenses, fees or
penalties incurred by the Supplier or its affiliated companies due to
cancellation, plus any costs, expenses or additional charges reasonably
incurred by the Supplier on behalf of the Customer as the Customer's agent.
<PAGE>
15. System Maintenance.
The Supplier may interrupt the Services to perform routine system maintenance,
in which case the Supplier will use reasonable efforts to notify the Customer
prior to the interruption, and to conduct such maintenance during non-peak
hours.
16. Customer Representation.
The 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. The 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, and will
furnish the Supplier copies of such certificates upon the Supplier's request.
This Agreement is subfect to, and the 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.
19. Force Majeure.
The 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.
<PAGE>
20. Effective Acquiescence.
The failure to give notice of default, to enforce or insist upon compliance
with any of the terms or conditions herein, or the granting of an extension of
time fQr performance by either the Supplier or the Customer shall not
constitute a permanent waiver of any term or condition herein. Each of the
provisions shall remain at all times in full force and effect
21. Survival.
The covenants and agreements of the Customer contained in this Agreement with
respect to payment of amounts due and indemnification shall survive any
termination of this Agreement.
22. Notices.
A list of contacts for the Customer for the administration of this Agreement
is attached as Exhibit C. 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 the Supplier: TeleHub Network Services Corporation
1175 Tri-State Parkway
Gurnee, IL 60031
Attention: G. Richard Cross,
Vice President, Sales & Marketing
Fax: (847) 263-4440
If to the Customer: Cybertel Communications Corp.
4275 Executive Square, Suite 510
LaJolla, CA 92037
Attention: Richard Mangiarelli
President
Fax: (619) 646-7414
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.
<PAGE>
24. Governing Law.
This Agreement shall be construed under the laws of the state of Illinois.
25. No Waiver.
The waiver of a breach hereof shall not be construed to be a waiver of any
subsequent breach.
26. Arbitration.
Any dispute relating hereto shall be resolved by binding arbitration in the
greater metropolitan Chicago area of Illinois under the rules of the American
Arbitration Association.
27. Partial Invalidity.
If any term hereof is held to be invalid or unenforceable, this Agreement
shall be construed without such invalid or unenforceable term.
28. Entire Agreement; Amendments.
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.
29. Assignment.
The Customer may not assign this Agreement without the prior written consent
of the Supplier.
30. Taxes.
The rates hereunder do not include any sales, use or utility taxes. The
Customer shall pay to the Supplier any such taxes that the Supplier may be
required to collect or pay.
31. Special Provisions.
Additional special provisions are attached as Exhibit D.
<PAGE>
To confirm their agreement to be bound hereby, the parties hereto have
executed this Agreement below:
TeleHub Network Services Corp. Cybertel Communications Corp.
By: By:
Name: G. Richard Cross Name: Richard Mangiarelli
Title: Vice President, Sales & Marketing Title: President
Date: Date:
<PAGE>
List of Exhibits
Exhibit A Projected Usage Forecast
Exhibit B Tax Exemption Form
Exhibit C Customer Contact & Data Information.
Exhibit D Special Provisions
Attachment: Supplemental Service Agreement
<PAGE>
Exhibit A
Projected Usage Forecast
To be provided in accordance with the provisions of this Agreement, Section 2E
(Volume Forecasts). This information is to be used for planning purposes only
and is in no way to be construed as a commitment by either party.
In the event the Customer's service traffic volumes result in a lower than
industry standard completion rate or otherwise adversely affect the Supplier's
network, the Supplier reserves the right to block the source of such adverse
traffic at any time. The Customer will provide the Supplier with additional
forecasts from time to time (upon the Supplier's request). This will not be
more frequently than once every three (3) months.
Company Name: Cybertel Communications Corp.
Date of Projected For cast:
Forecast TOTAL DOMESTIC Out- Toll Free Calling International
Year 1 Minutes of Use bound Card Terminating
(MOU) Min of Use
Switched Dedicated % % MOU MOU
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Total 1-6
Month 6-12
Total Year 2
Projected Usaqe Percentage by State
Alabama Alaska Arizona Arkansas
California Colorado Connecticut Delaware
Florida Georgia Hawaii Idaho
Illinois Indiana Iowa Kansas
<PAGE>
Kentucky Louisiana Maine Maryland
Massachusetts Michigan Minnesota Mississippi
Missouri Montana Nebraska Nevada
New Hampshire New Jersey New Mexico New York
North Carolina North Dakota Ohio Oklahoma
Oregon Pennsylvania Rhode Island South Carolina
South Dakota Tennessee Texas Utah
Vermont Virginia Washington West Virginia
Wisconsin Wyoming
INTERFACE ORDER FORMAT
Delivery Format ANI Records PIC Status Non-rated Non-Rated,
to TNS Records Raw CDR Monthly CDR
Media (Flat File via FTP) RAS RAS RAS I CD-Rom
Encoding ASCII ASCII ASCII ASCII
Frequency Daily Twice Daily Daily Monthly
<PAGE>
Exhibit B
Tax Exemption Form
STATEMENT RELIEVING TELEHUB NETWORK SERVICES CORPORATION
OF RESPONSIBILITY FOR BILLING AND COLLECTING FEDERAL
EXCISE TAX ON SERVICES PROVIDED COMMON CARRIERS
The undersigned hereby certifies that the services furnished by Telel-lub
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. Accordingly, the services furnished by TeleHub are
exempt from federal excise tax by Section 4251 of the Internal Revenue Code.
It is understood that federal tax will not be billed and collected by
Telel-lub on charges for said services and that it is the responsibility of
the undersigned to bill and collect such tax as may be due from its customers.
In the event the undersigned neglects to bill or collect such taxes, and in
the further event TeleHub is assessed such taxes, the undersigned agrees to
pay and/or reimburse Telel-lub such taxes, including interest and penalties.
Company Billing Name: Cybertel Communications Corp.
Address: 4275 Executive Square, Suite 510
City / State / Zip Code: LaJolla, California 92037
Signature:
------------------------
Name: Richard Mangiarelli
Title: President
Date: ------------------------
<PAGE>
[EXHIBIT C CUSTOMER CONTACT AND DATA INFORMATION]
<PAGE>
Exhibit D
Special Provisions
Discounted Pricing will become effective as of the first day of the next
scheduled billing cycle following execution of the Agreement by the Customer.
<PAGE>
TeleHub Network Services Corporation
SUPPLEMENTAL SERVICE AGREEMENT
This Supplemental Service Agreement (the "Supplemental Agreement") is made
this 28th day of June 1999 by and between TeleHub Network Services
Corporation, an Illinois corporation, with offices at 1175 Tri-State Parkway,
Gurnee, Illinois 60031 ( the "Supplier"), and Cybertel Communications Corp., a
corporation of the state of Nevada, with its principal place of business at
4275 Executive Square, Suite 510, LaJolla, California 92037 (the "Customer").
Background Information
The Supplier and the Customer entered into a Telecommunication Services
Agreement dated the 28th day of June 1999 (the "Agreement"). Accordingly, the
Supplier is making its Services listed below available to the Customer under
the Agreement and this Supplemental Agreement which sets the prices, plus
terms and conditions for the service.
1. Scope.
Upon execution, this Supplemental Agreement is to be collectively incorporated
into the Agreement, and is subject to all its Terms, Conditions, and Schedules
as well as the Terms, Conditions and Schedules set forth herein. All terms
that are defined in the Agreement will have the same meanings when used in
this Supplemental Agreement.
2. List of Services.
Indicate below the service(s) you wish covered under the terms and conditions
of this agreement.
Switched 1 + Service
Dedicated 1+ Service
Switched Toll-Free Service
<PAGE>
Dedicated Toll-Free Service
Calling Card
A description of the service that is covered by this Supplemental Agreement
and the applicable charges for that service are set forth in Attachment I to
this Supplemental Agreement, which is incorporated herein by reference. In
addition the provision of the General Terms attached hereto are incorporated
herein by reference. Discounted Pricing will become effective as of the first
day of the next scheduled billing cycle.
3. Special Provisions.
Additional special provisions are attached as Exhibit D in the Agreement.
To confirm their agreement to be bound hereby, the parties hereto have
executed this Supplemental Service Agreement below:
TeleHub Network Services Corp. Cybertel Communications Corp.
By: By:
-------------------------- ------------------------
Name: G. Richard Cross Name: Richard Mangiarelli
Title: Vice President, Sales & Marketing Title: President
Date: Date:
--------- ---------
<PAGE>
General Terms for all Services (as applicable)
(See Exhibit D of the Telecommunications Service Agreement
for any additional rate considerations)
Interstate Volume Discounts.
Assuming all invoices are current and paid within the previously agreed time
frames, the Supplier will provide the Customer with the following volume
discounts on all switched 1+ and toll-free interstate usage based on the
aggregated switched and dedicated volume of switched and dedicated 1+ and
toll-free interstate usage at the levels shown. The discount level is based
upon the monthly volume level actually attained in any given month.
For example, if in any given month the dedicated interstate volume is $45,000,
switched interstate volume is $125,000, and toll-free interstate volume is
$75,000 (all calculated at standard per-minute rates), the total volume for
the purposes of determining the applicable monthly discount level is $245,000,
which relates to a volume discount of 9%, as outlined in the table below.
This discount is applicable to the Switched 1 + and Toll-Free Interstate usage
only.
Monthly Revenue Level Volume Discount Rate
- ---------------------- --------------- ----
$ 0 to $75,000 No additional discount $0.0704
$ 75,001 to $175,000 5% $0.0669
$175,001 to $400,000 9% $0.0641
$400,001 to $650,000 13% $0.0613
$650,001 to $999,999 17% $0.0584
$1,000,000 and up 20% $0.0563
2. Non-RBOC Origination & Termination Charges.
The Supplier has assumed that at least 85% of the originating and terminating
access minutes of use that the Supplier incurs to provide the Services to the
Customer will be processed in tandem switches owned and operated by an RBOC,
and therefore subject to the RBOC's tariffed access charges. For purposes of
this Agreement, RBOC shall include Bell Atlantic/NYNEX, Ameritech, Bell South,
US West, SBC/Pacific Telesis, GTE, and resellers of the RBOC services.
The Supplier will apply a surcharge of $.02 per minute for each non-RBOC
originating and terminating access minute that it incurs in excess of this 15%
threshold to compensate for the significantly higher access charges that are
levied in non-RBOC territories. For example: assuming the 15% threshold has
been exceeded, a switched 1+ call both originating and terminating in non-RBOC
territory will be billed a $0.04 per-minute surcharge. A dedicated call is
subject to a $0.02 surcharge if it either originates or terminates in non-RBOC
territories.
The Intrastate Outbound and Toll Free rates include usage originating from &
terminating to exchanges in the same state for all time periods. If more than
20% of intrastate usage generated is terminated to non-RBOC locations, the
Supplier reserves the right to re-evaluate the rates charged for intrastate
calls to take into account the higher access charges that are incurred in many
non-RBOC jurisdictions.
<PAGE>
ATTACHMENT I
1. Switched Outbound Service
(See Exhibit D of the Telecommunications Service Agreement
for any additional rate considerations)
Description of Service.
Switched Outbound Service comprises all long distance calls originating from
anywhere in the contiguous 48 states and the District of Columbia ("Supplier's
Originating Territory"), and terminating anywhere in the contiguous 48 states
and the District of Columbia, non-mainland destinations, or the international
locations listed in the International Per-Minute Rate Table in Section 5 of
this Part I below.
2. Billing Increments.
All domestic calls are subject to a one (1) second minimum charge, followed by
additional billing increments of one (1) second.
Calls to Mexico shall be billed a minimum -,of sixty (60) seconds, followed by
additional billing increments of sixty (60) seconds.
All other International calls shall be billed a minimum thirty (30) secohd
charge followed by additional billing increments of six (6) seconds.
Per-Minute Rates
(Refer to General Terms, Item #2 for other applicable terms and conditions
affecting the product pricing.)
3. Interstate, all LATA Groups except LATA 836. $0.0704
The Interstate Switched Outbound (1+) rate includes Interstate usage
originating from and terminating to Suppliers Originating Territory.
4. LATA Group 836.
The following rates apply to Switched Outbound calls originating in the
Supplier's Originating Territory and terminating non-Mainland:
(i) to Wake and Midway Islands $0.1360
(ii) to Alaska, Hawaii, US Virgin Islands, Puerto Rico $0.0950
<PAGE>
Switched Outbound Service
The Intrastate Switched Outbound rates below apply to usage originating from
and terminating to exchanges in the same state for all time periods.
Intrastate and Intra-LATA Per-Minute Rates
State RATE* State RATE* State RATE*
AL $0.0487 MA $0.0645 OH $0.0504
AR $0.0825 MD $0.0645 OK $0.0888
AZ $0.0945 ME $0.1487 OR $0.0825
CA $0.0435 Ml $0.0610 PA $0.0805
CO $0.1015 MN $0.0974 RI $0.0626
CT $0.0482 MO $0.0600 SC $0.0919
DC $0.0487 MS $0.0752 SD $0.0945
DE $0.0525 MT $0.1087 TN $0.0885
FL $0.0693 NC $0.0945 TX $0.1135
GA $0.0617 ND $0.1075 UT $0.0770
IA $0.0845 NE $0.1015 VA $0.0915
ID $0.1050 NH $0.0835 VT $0.1135
IL $0.0500 NJ $0.0511 WA $0:0710
IN $0.0579 NM $0.1178 WI $0.0574
KS $0.0825 NV $0.0700 WV $0.0955
KY $0.0855 NY $0.0710 WY $0,1095
LA $0.0601 *Revised May 1, 1999
5. Switched International Per-Minute Rates
The Supplier hereby agrees to negotiate in good faith with international
carriers for rates to particular countries based on particular forecast End
User's usage demands. The rates set forth below are the rates that apply to
calls originating in the Supplier's Originating Territory and terminating
outside the United States as of the Service Commencement Date, and are subject
to change by the Supplier. The Supplier agrees to give the Customer prompt
notice of any changes to the international rates set forth below.
Destination Country RATE Destination Country RATE
Code Code Code
AFGHANISTAN 93 $1.7222 AUSTRALIA 61 $0.1278
ALBANIA 355 $0.4278 AUSTRIA 43 $0.2000
ALGERIA 213 $0.411 AZERBAIJAN 994 $0.4667
AMERICAN SAMOA 684 $0.5544 BAHAMAS 893 $0.2222
ANDORRA 376 $0.3889 BAHRAIN 973 $0.7889
ANGOLA 244 $0.6333 BANGLADESH 880 $0.9667
ANGUILLA 891 $0.5667 BARBADOS 894 $0.5222
ANTARCTICA 672 $0.4556 BELARUS 375 $0.4444
(SCOTT)
ANTIGUA/Barbuda 892 $0.5000 BELGIUM 32 $0.1889
<PAGE>
ARGENTINA 54 $0.5000 BELIZE 501 $0.7556
ARMENIA 374 $0.7222 BENIN 229 $0.6222
ARUBA 297 $0.3533 BERMUDA 895 $0.2556
ASCENSION ISL 247 $0.7111 *Revised July 1, 1998
Switched Outbound Service
International Switched Per-Minute Rates (Continued)
Destination Country RATE* Destination Country RATE*
Code Code
BHUTAN 975 $0.7444 FALKLAND ISLANDS 500 $0.8889
BOLIVIA 591 $0.6889 FIJI ISLANDS 679 $0.8444
BOSNIAIHERZEGOVINA 387 $0.4556 FINLAND 358 $0.2333
BOTSWANA 267 $0.6333 FRANCE 33 $0.1889
BRAZIL 55 $0.5460 FRENCH ANTILLES 590 $0.5167
BRITISH VIRGIN IS. 896 $0.4994 FRENCH GUIANA 594 $0.4556
BRUNEI (Negara) 673 $0.5725 FRENCH POLYNESIA 689 $0.6556
BULGARIA 359 $0.4963 GABON 241 $0.7444
BURKINA FASO 226 $0.8195 GAMBIA 220 $0.5222
BURUNDI 257 $1.0723 GEORGIA 995 $0.7840
CAMBODIA 855 $1.1063 GERMANY 49 $0.1244
CAMEROON 237 $1.0592 GHANA 233 $0.5389
CANADA (All NPA's) 1 $0.1023 GIBRALTAR 350 $0.4333
CAPE VERDE 238 $0.5896 GREECE 30 $0.3667
ISLAND
CAYMAN ISLANDS 897 $0.4000 GREENLAND 299 $0.6111
CENTRAL AFRICAN 236 $0.8123 GRENADA 900 $0.5833
REP
CHAD REPUBLIC 235 $1.1444 GUADELOUPE 590 $0.4900
CHILE 56 $0.2833 GUAM 671 $0.2000
CHINA 86 $0.8000 GUANTANAMO BAY 5399 $0.4667
CHRISTMAS ISLAND 672 $0.4684 GUATEMALA 502 $0.5222
COCOS ISLAND 61 $0.4684 GUINEA 224 $0.7000
COLOMBIA 57 $0.4278 GUINEA-BISSAU 245 $1.0556
COMOROS 269 $0.7000 GUYANA 592 $0.7222
CONGO 242 $0.7667 HAITI 509 $0.5667
COOK ISLANDS 682 $0.9556 HERZEGOVINA 387 $0,4556
COSTA RICA 506 $0.5573 HONDURAS 504 $0.5444
CROATIA- REP OF 385 $0.4000 HONG KONG 852 $0.2556
CUBA 53 $0.6333 HUNGARY 36 $0.2556
CUBA -GUANTANAMO 53 $0.4667 ICELAND 354 $0.2778
CYPRUS 357 $0.4556 INDIA 91 $0.7222
CZECH REPUBLIC 42 $0.3000 INDONESIA 62 $0.6667
DENMARK 45 $0.1944 IRAN 98 $0.9333
DIEGO GARCIA 246 $0.6778 IRAQ 964 $0.9444
DJIBOUTI 253 $0.8000 IRELAND 353 $0.2111
DOMINICA 898 $0.6389 ISRAEL 972 $0.4056
DOMINICAN REP 899 $0.2778 ITALY 39 $0.2278
ECUADOR 593 $0.4778 IVORY COAST 225 $0.9556
EGYPT 20 $0.7222 JAMAICA 901 $0.6111
EL SALVADOR 503 $0.5222 JAPAN 81 $0.2056
<PAGE>
EQ GUINEA 240 $1.1333 JORDAN 962 $0.7222
ERITREA 291 $1.2222 KAZAKHSTAN 7 $0.5778
ESTONIA 372 $0.3667 KENYA 254 $0.7444
ETHIOPIA 251 $0.9333 KIRIBATI 686 $0.9111
FAEROE ISLANDS 298 $0.3028 *Revised July 1, 1998
<PAGE>
Switched Outbound Service
International Switched Per-Minute Rates (Continued)
Destination Country RATE* Destination Country RATE*
Code Code
KOREA - North 850 $0.7667 MOZAMBIQUE 258 $0.6333
KOREA - South 82 $0.4278 MYANMAR(BURMA) 95 $0.9333
KUWAIT 965 $0.7667 NAMIBIA 264 $0.6556
KYRGYZSTAN 996 $0.5778 NAURU 674 $0.8000
LAOS 856 $0.8667 NEPAL 977 $0.9000
LATVIA 371 $0.3667 NETHERLANDS 31 $0.1600
LEBANON 961 $0.7889 NETH. ANTILLES 599 $0.2178
LESOTHO 266 $0.6778 NEVIS 904
LIBERIA 231 $0.5778 NEW CALEDONIA 687 $0.7722
LIBYA 218 $0.5747 NEW ZEALAND 64 $0.2000
LIECHTENSTEIN 41 $0.3004 NIGER REPUBLIC 227 $0.7667
LITHUANIA 370 $0.3778 NIGERIA 234 $0.6889
LUXEMBOURG 352 $0.2667 NIUE ISLAND 683 $0.9333
MACAO 853 $0.4852 NORFOLK ISLAND 672 $0.4000
MACEDONIA 389 $0.4889 NORWAY 47 $0.2056
MADAGASCAR 261 $1.0556 OMAN 968 $0.8667
MALAWI 265 $0.5000 PAKISTAN 92 $1.0000
MALAYSIA 60 $0.3500 PALAU REPUBLIC 680 $0.7778
MALDIVES 960 $0.6778 PANAMA 507
MALI REPUBLIC 223 $0.8000 PAPUA NEW GUINEA 675 0.5111
MALTA 356 $0.3000 PARAGUAY 595 $0.6778
MARIANAS ISLAND 0 $0.5000 PERU 51 $0.6444
MARSHALL ISLAND 692 $0.4667 PHILIPPINES 63 $0.4556
MARTINIQUE 596 $0.3556 POLAND 48 $0.3667
MAURITANIA 222 $0.7333 PORTUGAL 351 $0.3667
MAURITIUS 230 $0.6667 PUERTO RICO 809 $0.1000
MAYOTTE ISLAND 269 QATAR 974 $0.7556
MEXICO CITY $0.3889 REUNION ISLAND 262 $0.7778
MEXICO - 1 521 $0.1987 ROMANIA 40 $0.4222
MEXICO - 2 522 RUSSIA FORMER REP. 7 $0.4333
MEXICO - 3 523 $0.3320 City code 750x, 751x
MEXICO - 4 524 $0.3453 Moscow / ST. PETE 7 $0.3778
MEXICO - 5 525 $0.3987 7095,7096,7097
MEXICO - 6 526 $0.4653 7812 (Band R16)
MEXICO - 7 527 $0.5053 RWANDA 250 $0.9000
MEXICO - 8 528 $0.5320 SAINT HELENA 290 $0.7922
MICRONESIA 691 $0.9556 ST. KITTS 903 $0.5444
MIGUELON $0.5223 SAINT LUCIA 905 $0.5111
MOLDOVA 373 $0.8333 ST. PIERRE 508 $0.5223
MONACO 377 $0.2556 SAINT VINCENT 906 $0.6667
MONGOLIA 976 $0.8333 SAIPAN (ROTA) 670 $0 9478
MONTSERRAT 902 $0.5500 SAN MARINO 378 $0.4222
MOROCCO 212 $0.5000 *Revised_July 1, 1998
<PAGE>
Switched Outbound Service
International Switched Per-Minute Rates (Continued)
Destination Country RATE* Destination Country RATE*
Code Code
SAO TOME 239 $1.0667 TRINIDAD & TOBAGO 907 $0.5111
SAUDI ARABIA 966 $0.7833 TUNISIA 216 $0.4833
SENEGAL 221 $1.0111 TURKEY 90 $0.4393
SERBIA 381 $0.4444 TURKMENISTAN 993 $0.7333
SINGAPORE 65 $0.2389 TURKS & CAICOS ISL 908 $0.6000
SLOVAKIA 42 $0.3889 TUVALU 68 $0.8167
SLOVENIA 386 $0.3889 UGANDA 256 $0.6889
SEYCHELLES ISL 248 $1.1333 UKRAINE 380 $0.4556
SIERRA LEONE 232 $0.8333 UNITED ARAB EM 971 $0.5333
SOLOMON ISLANDS 677 $0.7778 UNITED KINGDOM 44 $0.0833
SOMALIA 252 $1.1111 URUGUAY 598 $0.6000
SOUTH AFRICA 27 $0.4444 UZBEKISTAN 998 $0.5667
SPAIN 34 $0.2667 VANUATU 678 $0.6889
SRILANKA 94 $0.9111 VATICAN CITY 39 $0.2333
SUDAN 249 $0.4444 VENEZUELA 58 $0.3667
SURINAME 597 $0.9222 VIETNAM 84 $0.9889
SWAZILAND 268 $0.2778 WALLIS & FUTUNAIS 681 $0.3944
SWEDEN 46 $0.1111 WESTERN SAMOA 685 $0.7778
SWITZERLAND 41 $0.1556 YEMEN ARAB REP 967 $0.9333
SYRIAN ARAB REP 963 $1.2827 YUGOSLAV REP 381 $0.4556
TAIWAN 886 $0.3778 ZAIRE 243 $016222
TAJIKISTAN 992 $0.4556 ZAMBIA 260 $0.7222
TANZANIA 255 $0.6111 ZANZIBAR 259 $0.8627
THAILAND 66 $0.6444 ZIMBABWE 263 $0.5333
TOGO 228 $0.7556 *Revised July 1, 1998
TONGA ISLANDS 676 $0.8778
<PAGE>
II. Switched Toll-Free Service
(See Exhibit D of the Telecommunications Service Agreement
for any additional rate considerations)
1 . Description of Service.
Switched Toll-Free Service comprises all long distance switched toll-free
calls originating from anywhere in the contiguous 48 states, the District of
Columbia, non-mainland U.S. locations or Canada and terminating onto a
subscriber's toll-free line anywhere in the contiguous 48 states and the
District of Columbia ("Supplier's Terminating Territory").
2. Billing Increments.
All domestic switched toll-free calls are subject to a one (1) second
minimum charge followed by additional billing increments of one (1) second.
Calls originating from extended non-mainland points shall be billed a minimum
thirty (30) second charge followed by additional billing increments of six (6)
seconds.
Per-Minute Rates
(Refer to General Terms, Item #2 for other applicable terms and conditions
affecting the product pricing)
3. Interstate, all LATA Groups, except LATA 836 $0.0704
Interstate Switched Toll-Free rate includes Interstate usage originating from
and terminating to Supplier's Terminating Territory.
4. LATA Group 836
The following rates apply to Toll-Free calls originating outside and
terminating in the Suppliers Terminating Territory:
(i) Domestic Mainland Alaska $0.1244
(ii) Hawaii $0.0750
(iii) Puerto Rico $0.0856
(iv) US Virgin Islands $0.1089
(v) Canada $0.2055
<PAGE>
Switched Toll-Free Service
5. Intrastate and Intra-LATA Rates
The Intrastate Switched Toll-Free rates below apply to usage originating from
and terminating to exchanges in the same state for all time periods.
Intrastate and Intra-LATA Rates
State RATE* State RATE* State RATE*
AL $0.0487 MA $0.0645 OH $0.0504
AR $0.0825 MD $0.0645 OK $0.0888
AZ $0.0945 ME $0.1487 OR $0.0825
CA $0.0435 MI $0.0610 PA $0.0805
CO $0.1015 MN $0.0974 RI $0.0626
CT $0.0482 MO $0.0600 SC $0.0919
DC $0.0487 MS $0.0752 SD $0.0945
DE $0.0525 MT $0.1087 TN $0.0885
FL $0.0693 NC $0.0945 TX $0.1135
GA $0.0617 ND $0.1075 UT $0.0770
IA $0.0845 NE $0.1015 VA $0.0915
ID $0.1050 NH $0.0835 VT $0.1135
IL $0.0500 NJ $0.0511 WA $0.0710
IN $0.0579 NM $0.1178 WI $0.0574
KS $0.0825 NV $0.0700 WV $0.0955
KY $0.0855 NY $0.0710
LA $0.0601 *Revised May 1, 1999
<PAGE>
III. Calling Card
(See Exhibit D of the Telecommunications Service Agreement
for any additional rate considerations)
1. Description of Service.
Subscribers can make calling card calls originating from and terminating to
anywhere in the contiguous 48 states and the District of Columbia,
non-mainland destinations, or the international locations set forth in the
International Per-Minute Rate Table in Section 6 of this Part Ill below.
2. Billing Increments.
All Domestic calls are subject to a thirty (30) second minimum charge,
followed by additional billing increments of six (6) seconds. Domestically
originated calls terminating in Mexico shall be billed a minimum of sixty (60)
seconds, followed by additional billing increments of sixty (60) seconds.
Domestically originated calls terminating to other international locations
shall be billed a minimum thirty (30) second charge, followed by additional
billing increments of six (6) seconds. International country-to-country
origination and termination calls are billed a minimum of sixty (60) seconds,
followed by additional billing increments of sixty (60) seconds.
Calling Card Per-Minute Rates
(Refer to General Terms, Item #2 for other applicable terms and conditions
affeciing the product pricing)
3. Interstate, all LATA Groups $0.1350
The Interstate Calling Card rate includes Interstate usage originating from
and terminating to all domestic exchanges for all time periods, for All LATA
Groups.
4. Intrastate and Intra-LATA (where approved) $0.1350
The Intrastate Calling Rate of $0.135 includes usage originating from and
terminating to exchanges in the same state or same LATA for all time-periods.
5. Volume Discount.
The Supplier will provide the Customer with a volume discount for Interstate
Calling Card usage, based upon the monthly volume level actually attained in
any given month. The table below represents a tiered pricing arrangement for
the Calling Card Service Interstate prici,ng. For example, if in any given
month the total card usage volume is 750,000 minutes, this relates to a
per-minute rate of $0.1181 as outlined in the table below. This discount is
applicable to interstate Calling Card usage only. All intrastate and
international minutes at standard per-minute rates contribute to the total
usage calculation, but are not eligible for the discount.
MONTHLY MINUTES OF USAGE Per-Minute
RATE
0 to 330,000 $0.1350
330,001 to 500,000 $0.1260
500,001 to 1,000,000 $0.1181
1,000,001 and up $0.1112
*Revised July 1/98
6. Domestically originated international rates.
The Supplier hereby agrees to negotiate in good faith with international
carriers for rates to particular countries based on particular forecast End
User's usage demands. The rates set forth below are the rates that apply to
calls originating in and terminating outside the United States as of the
Service Commencement Date, and are subject to change by the Supplier. The
Supplier agrees to give the Customer prompt notice of any changes to the
international rates set forth below.
Destination Country RATE* Destination Country RATE*
Code Code
ALASKA $0.257 BOTSWANA 267 $1.000
ALBANIA 355 $0.736 BRAZIL 55 $0.634
ALGERIA 213 $0.736 BRITISH VIRGIN IS. 896 $0.593
AMERICAN SAMOA 684 $0.857 BRUNEI (Negara) 673 $0.846
ANDORRA 376 $0.374 BULGARIA 359 $0.626
ANGOLA 244 $1.022 BURKINA FASO 226 $0.901
ANGUILLA 891 $0.670 BURUNDI 257 $1.264
ANTARCTICA 672 $0.670 CAMBODIA 855 .$1.538
(SCOTT)
ANTIGUA/Barbuda 892 $0.714 CAMEROON 237 $1.187
ARGENTINA 54 $0.616 CANADA (All NPA's) 1 $0.201
ARMENIA 374 $0.846 CAPEVERDE 238 $0.824
ISLAND
ARUBA 297 $0.538 CAYMAN ISLANDS 897 $0.703
ASCENSION 247 $1.176 CENT AFRICAN REP 236 $1.396
ISLANDS
AUSTRALIA 61 $0.248 CHAD REPUBLIC 235 $1.022
AUSTRIA 43 $0.418 CHILE 56 $0.477
AZERBAIJAN 994 $0.451 CHINA 86 $0.888
BAHAMAS 893 $0.407 CHRISTMAS ISLAND 672 $0.747
BAHRAIN 973 $1.088 COCOS ISLAND 61 $1.703
BANGLADESH 880 $1.080 COLOMBIA 57 $0.591
BARBADOS 894 $0.714 COMORO ISLANDS 269 $0.385
BELARUS 375 $0.736 CONGO 242 $1.231
BELGIUM 32 $0.284 COOK ISLANDS 682 $1.473
BELIZE 501 $1.000 COSTA RICA 506 $0.802
BENIN 229 $0.835 CROATIA- REP OF 385 $0.593
BERMUDA 895 $0.527 CUBA 53 $0.777
BHUTAN 975 $1.286 CUBA GUANTANAMO 53 $0.989
BOLIVIA 591 $1.044 CYPRUS 357 $0.648
BOSNIA/HERZEGOVINAI 387 $0.791 *Revised April 1, 1999
Calling Card
International Calling Card Per-Minute Rates (Continued)
Destination Country RATE* Destination Country RATE*
Code Code
CZECH REPUBLIC 42 $2.231 INMARSAT E. ATIL. 871 $12.648
DENMARK 45 $0.308 INIVIARSET, INDIAN 873 $1 2.648
DIEGO GARCIA 246 $1.077 INIVIARSET,PACIFIC 872 $12.648
DJIBOUTI 253 $1.143 INIVIARSET, W. ATL. 874 $12.648
DOMINICA 898 $0.714 ISRAEL 972 $0.649
DOMINICAN REP 899 $0.404 ITALY 39 $0.357
ECUADOR 593 $0.868 IVORY COAST 225 $1.231
EGYPT 20 $0.793 JAMAICA 901 $0.598
EL SALVADOR 503 $0.879 JAPAN 81 $0.356
EQ GUINEA 240 $1.725 JORDAN 962 $1.055
ERITREA 291 $1.484 KAZAKHSTAN 7 $1.154
ESTONIA 372 $0.549 KENYA 254 $1.077
ETHIOPIA 251 $1.275 KIRIBATI 686 $1.352
FAEROE ISLANDS 298 $0.451 KOREA - North 850 $2.758
FALKLAND ISLANDS 500 $1.044 KOREA - South 82 $0.695
FIJI ISLANDS 679 $1.319 KUWAIT 965 $1.022
FINLAND 358 $0.321 KYRGYZSTAN 996 $1.209
FRANCE 33 $0.295 LAOS 856 $1.495
FRENCH GUIANA 594 $0.769 LATVIA 371 0.604
GABON 241 $1.198 LEBANON 961 $1.143
GAMBIA 220 $0.813 LESOTHO 266 $1.143
GEORGIA 995 $1.000 LIBERIA 231 $0.813
GERMANY 49 $0.241 LIBYA 218 $0.703
GHANA 233 $0.879 LIECHTENSTEIN 41 $0.319
GIBRALTAR 350 $0.571 LITHUANIA 370 $0.681
GREECE 30 $0.472 LUXEMBOURG 352 $0.396
GREENLAND 299 $0.681 MACAO 853 $0.890
GRENADA 900 $0.714 MACEDONIA 389 $0.692
GUADELOUPE 590 $0.692 MADAGASCAR 261 $1.088
GUAM 671 $0.308 MADIERA 351 $1.958
GUATEMALA 502 $0.813 MALAWI 265 $0.780
GUINEA-BISSAU 245 $1.165 MALAYSIA 60 $0.659
GUINEA-CONAKY 224 $1.308 MALDIVES 960 $1.308
GUYANA 592 $1.110 MALI REPUBLIC 223 $1.143
HAITI 509 $0.835 MALTA 356 $0.571
HERZEGOVINA 387 $0.791 MARSHALL ISLAND 692 $0.802
HONDURAS 504 $0.846 MARTINIQUE 596 $0.769
HONG KONG 852 $0.375 MAURITANIA 222 $1.154
HUNGARY 36 $0.429 MAURITIUS 230 $1.000
ICELAND 354 $0.484 MAYOTTE ISLAND 269 $1.407
INDIA 91 $0.788 MEXICO (Bands 1-8) 52 $6.512
INDONESIA 62 $1.055 MICRONESIA 691 $0.967
IRAN 98 $1.308 MOLDAVA 373 $1.121
IRAQ 964 $1.363 MONACO 377 $0.341
IRELAND 353 $0.341 *Revised April 1, 1999
Calling Card
International Calling Card Per-Minute Rates (Continued)
Destination Country RATE* Destination Country RATE*
Code Code
MONGOLIA 976 $1.099 SINGAPORE 65 $0.369
MONTSERRAT 902 $0.714 SLOVAKIA 42 $2.231
MOROCCO 212 $0.692 SLOVENIA 386 $0.396
MOZAMBIQUE 258 $0.956 SOMALIA 252 $1.527
MYANMAR(BURMA) 95 $1.655 SOUTH AFRICA 27 $0.584
NAMIBIA 264 $1.154 SPAIN 34 $0.361
NAURU 674 $1.275 SRILANKA 94 $1.385
NEPAL 977 $1.385 SUDAN 249 $0.890
NETHERLANDS 31 $0.284 SURINAME 597 $1.286
NETH. ANTILLES 599 $0.582 SWAZILAND 268 $0.714
NEVIS 904 $0.714 SWEDEN 46 $0.214
NEW ZEALAND 64 $0.319 SWITZERLAND 41 $0.261
NIGER REPUBLIC 227 $1.143 SYRIAN ARAB REP $1.275
NIGERIA 234 $0.967 TAHITI 689 $0.857
NIUE ISLAND 683 $1.637 TAIWAN 886 $0.507
NORFOLK ISLAND 672 $1.132 TAJIKISTAN 992 $1.000
NORWAY 47 $0.308 TANZANIA 255 $1.154
OMAN 968 $1.044 THAILAND 66 $0.923
PAKISTAN 92 $1.319 TOGO 228 $1.330
PALAU REPUBLIC 680 $1.440 TONGA ISLANDS 676 $1.352
PANAMA 507 $0.901 TRINIDAD & TOBAGO 907 $0.714
PAPAU N. GUINEA 675 $0.879 TUNISIA 216 $0.637
PARAGUAY 595 $1.000 TURKEY 90 $0.615
PERU 51 $0.912 TURKMENISTAN 993 $1.165
PHILIPPINES 63 $0.634 TURKS & CAICOS ISL 908 $0.714
POLAND 48 $0.499 TUVALU 688 $1.132
PORTUGAL 351 $0.560 UGANDA 256 $1.099
PUERTO RICO 809 $0.257 UKRAINE 380 $0.736
QATAR 974 $1.055 UNITED ARAB EM 971 $0.879
REUNION ISLAND 262 $1.176 UNITED KINGDOM 44 $0.175
ROMANIA 40 $0.593 URUGUAY 598 $0.967
RUSSIA FORMER 7 $0.802 UZBEKISTAN 998 $1.121
REP.
RWANDA 250 $1.220 VANUATU 678 $0.978
SAINT HELENA 290 $1.022 VATICAN CITY 39 $1.857
ST. KITTS 903 $0.714 VENEZUELA 58 $0.476
SAINT LUCIA 905 $0.714 VIETNAM 84 $1.132
ST. PIERRE 508 $0.440 WALLIS & FUTUNA ISL 681 $0.637
SAINT VINCENT 906 $0.714 WESTERN SAMOA 685 $1.141
SAIPAN (ROTA) 670 $0.813 YEMEN ARAB REP 967 $1.121
SAN MARINO 378 $0.505 YUGOSLAV REP 381 $0.692
SAO TOME 239 $1.571 ZAIRE 243 $0.989
SAUDI ARABIA 966 $0.848 ZAMBIA 260 $1.077
SENEGAL 221 $1.495 ZIMBABWE 263 $0.857
SEYCHELLES ISL. 248 $1.571
SIERRA LEONE 23 $1.132 *Revised April 1, 1999
<PAGE>
Calling Card
7. Country to Country Rates.
Country to Country rates are available upon request or by access to Supplier's
FCC Tariff No. 3.
8. Additional Charges.
Calling Card features and associated charges are listed below:
FEATURE CHARGE
Operator Default Calling $1.95 surcharge per call
Operator Assistance $2.50 surcharge per call
Conference Calling $10.00 + $2.50 per line + $2.15 per
minute / line
Document Translation $5.00 surcharge + $0.30 per word
($50.00 Min)
Fax Transmission(Operator Assist) Standard line charges + $2.50 per
transmission
Access to US Toll-Free Numbers Standard line charges + $2.50 per call
On-line Language Interpretation Standard line charges + $2:50+ $1.50
minute
Custom Voice Prompts $600.00 per recording session
Multiple Language Prompts $100.00 per language
Custom Call Rating $600.00 + $100.00 per month
Customized Fraud Management $250.00 per development hour
Invoice Currency Conversion
3% of monthly billing amount
Callinq Guide Translation $650.00
Customer Service Links Standard line charges
Custom Customer Service Report $250.00 per development hour
Branded Customer Service Per quote
Customized Billing Report $250.00 per development hour
Customer menu Programming $250.00 per development hour
<PAGE>
IV. Dedicated Outbound Service
(See Exhibit D of the Telecommunications Service Agreement
for any additional rate.considerations)
1 Description of Service.
Dedicated Access ("Dedicated Access") is defined as one or more full-time
dedicated DS-1 connections from the End-User's Private Branch Exchange (PBX)
or other equipment to the Supplier's network through the Supplier's designated
Point of Presence ("POP"). Dedicated Access will automatically be comprised of
one (1) or more DS-1 , circuits unless otherwise requested. Dedicated
Outbound Service comprises all long distance calls originating from a
subscriber's dedicated line anywhere in the contiguous 48 states and the
District of Columbia ("Supplier's Originating Territory"), and terminating
anywhere in the contiguous 48 states and the District of Columbia,
non-mainland destinations, or the international locations listed in the
International Per-Minute Rate table in Section 10 of this Part IV below.
Connection to the POP from the End-Usees Private Branch Exchange (PBX) or
other equipment must be established either:
(i) By the Customer independently through a third party local access provider
or;
(ii) By arrangement with the Supplier, acting aNs an agent for a third party
local access provider.
The local access provider will supply connections between the End User's.
customer premise equipment (CPE), or his private branch exchange equipment
(PBX) and the Supplier's POP.
Access to Local Exchange
At the Customer's request the Supplier may act on the Customer's behalf to
order, provision, and maintain local access facilities between End-User
locations and the designated Supplier POP. All associated LEC / ILEC charges
will be either billed directly to the Customer by the LEC / ILEC, or billed to
the Customer through the Supplier as a pass-through, at the local access
provider's applicable tariff rates, subject to an administrative fee as
determined on a case by case basis. Additional charges that may be billed for
the Supplier's efforts on behalf of the Customer include but are not limited
to, engineering fees, circuit design fees, expedite fees, and move/add change/
delete charges as outlined in item 16 of Additional Charges.
2. Order Entry.
Each service order installation form for Dedicated Outbound Service will
describe the POP to which an interconnection is to be established, the
requested service date, the type and quantity of circuits comprising the
interconnection and any charges and other information relevant thereto, such
as the location of an End User's originating or terminating location.
<PAGE>
Dedicated Outbound Service
All orders for Dedicated Outbound Service must be accompanied by a completed
Order Entry Checklist ("OEC") and submitted on approved order forms to be
considered for acceptance. Failure to provide a completed OEC may result
in delay or refusal by the Supplier to accept the order until the OEC and all
required forms are provided and complete. In the event the Customer, End-User,
or any party other than the Supplier is to provision access facilities to
the POP, information describing the access facilities must be provided
according to the Supplier's specifications.
The Supplier will provision and maintain local access facilities between End
User locations and the POP, subject to any ILEC charges plus other applicable
terms and charges set forth in the Supplier's FCC Tariff No. 1. If other
private line inter-exchange facilities are necessary to establish Dedicated
Access, such facilities will be provided on an individual case basis.
3. Days to Provision.
Approximate actual days to provision: DS-1: 45 calendar days.
DS-3 or above: Per quote
Provisioning time as described above begins upon written notification issued
by the Supplier that an order has been accepted as complete.
4. Billing Increments
All Domestic Outbound calls are subject to a six (6) second minimum charge
followed by additional billing increments of six (6) seconds.
Calls to Mexico shall be billed a minimum of sixty (60) seconds, followed
by additional billing increments of sixty (60) seconds.
Other International calls (where applicable) shall be billed a minimum
thirty (30) second charge, followed by additional billing increments of six
(6) seconds.
5. Minimum Monthly Usage
Commencing on the first full calendar month following the start of service for
each circuit ordered, the Customer will maintain an average traffic loading
per site of not less than US $2,500.00 billing per calendar month for each
DS-1 interconnection ("Minimum Monthly Usage") before discounts. In the event
the Customer fails to maintain the Minimum Monthly Usage the Supplier will
charge, and the Customer agrees to pay, a "Deficiency Charge" to meet the
minimum performance requirement.
The Deficiency Charge is computed as the difference between the actual usage
and the Minimum Monthly Usage requirement. Deficiency Charges will be included
on regular billing statements payable at the same time payment is due for
billed services or, at the Supplier's option, billed separately as due and
payable upon demand.
Dedicated Outbound Service
6. Volume Discount
The Supplier will provide the Customer with a volume discount for Interstate
Dedicated Outbound Service usage, based upon the monthly volume level actually
attained in any given month. The table below represents a tiered pricing
arrangement for the Dedicated Outbound Service Interstate pricing within the
Supplier's Originating territory.
MONTHLY REVENUE LEVEL Volume per-Minute
DISCOUNT RATE*
$ 0 to $75,000 No additional discount $0.0425
$75,001 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
*Effective 7/1/98
The pre-discounted Dedicated Outbound Interstate and Intrastate Service usage
contributes to the total usage calculation for the Switched Outbound and
Toll-Free Interstate usage discount only (i.e. they are not eligible for
any discount other than that stated above).
Per-Minute Rates
(Refer to General Terms, Item #2 for other applicable terms and
conditions affecting the product pricing)
7. Interstate, all LATA Groups, except Non-Mainland $0.0425
The Interstate Dedicated 1+ rate of $.0425 includes Interstate usage
originating from the End-User's location via a dedicated access circuit and
terminating to the Supplier's Originating Territory for all time periods.
8. Non-Mainland
(i) Dedicated Outbound Calls originating in the Suppfier's
Originating Territory and terminating non-Mainland are charged the following
rates:
1+ to Hawaii $0.1163
1+ to Alaska $0.1176
1+ to Puerto Rico $0.1176
1+ to the US Virgin Islands $0.1176
<PAGE>
Dedicated Outbound Service
Non-Mainland (continued)
(ii) 1 + Calls originating non-Mainland and terminating in the US NA
(iii) 1 + Calls originating in Hawaii and terminating non-Mainland NA
9. Intrastate, all Intra-LATA Groups Per Table Below
The Intrastate Dedicated Outbound rates below apply to usage originating from
the End-User's location via a dedicated access circuit and terminating to
exchanges in the same state for all time periods.
State RATE* State RATE* State RATE*
AL $0.0343 MA $0.0557 OH $0.0398
AR $0.0590 MD $0.0421 OK $0.0687
AZ $0.0738 ME $0.0837 OR $0.0552
CA $0.0319 MI $0.0435 PA $0.0475
CO $0.0774 MN $0.0708 RI $0.0299
CT $0.0329 MO $0.0379 SC $0.0654
DC $0.0378 MS $0.0470 SD $0.0657
DE $0.0499 MT $0.0683 TN $0.0620
FL $0.0479 NC $0.0834 TX $0.0913
GA $0.0415 ND $0.0748 UT $0.0472
IA $0.0521 NE $0.0608 VA $0.0550
ID $0.0670 NH $0.0498 VT $0.0807
IL $0.0382 NJ $0.0355 WA $0.0500
IN $0.0425 NM $0.0649 WI $0.0410
KS $0.0575 NV $0.0440 WV $0.0600
KY $0.0648 NY $00549 WY $0.0705
LA $0.0450 *Effective Feb 1, 1999
10. International
The Supplier hereby agrees to negotiate in good faith with international
carriers for rates to particular countries based on particular forecast End
User's usage demands. The rates set forth below are the rates that apply to
calls originating in the Suppliers Originating Territory by Dedicated Access
and terminating outside the United States as of the Service Commencement Date,
and are subject to change by the Supplier. The Supplier agrees to give the
Customer prompt notice of any changes to the international rates set forth
below.
Dedicated Outbound Service
International Rates
Destination Country RATE* Destination Country RATE*
Code Code
AFGHANISTAN 93 $1.4836 CANADA - REGION 3 1 $0.1103
ALBANIA 355 $0.5151 CAMBODIA 855 $1.1063
ALGERIA 213 $0.5416 CAMEROON 237 $1.0592
AMERICAN SAMOA 684 $0.6278 CAPE VERDE 238 $0.5896
ISLAND
ANDORRA 376 $0.3496 CAYMAN ISLANDS 897 $0.5272
ANGOLA 244 $0.8531 CENT AFRICAN REP 236 $1.4027
ANGUILLA 891 $0.7622 CHAD REPUBLIC 235 $1.4392
ANTARCTICA 672 $0.7814 CHILE 56 $0.4003
(SCOTT)
ANTIGUA/Barbuda 892 $0.5686 CHINA 86 $1.1316
ARGENTINA 54 $0.7072 CHRISTMAS ISLAND 672 $0.4916
ARMENIA 374 $1.0418 COCOS ISLAND 61 $0.4916
ARUBA 297 $0.4807 COLOMBIA 57 $0.7227
ASCENSION 247 $0.9803 COMOROS 269 $0.3504
ISLANDS
AUSTRALIA 61 $0.2032 CONGO 242 $1.1611
AUSTRIA 43 $0.3011 COOK ISLANDS 682 $1.5161
AZERBAIJAN 994 $0.9541 COSTA RICA 506 $0.6512
BAHAMAS 893 $0.2782 CROATIA- REP OF 385 $0.4814
BAHRAIN 973 $0.9498 CUBA 53 $0.7009
BANGLADESH 880 $1.5291 CUBA -GUANTANAMO 53 $0.7009
BARBADOS 894 $0.6970 CYPRUS 357 $0.5483
BELARUS 375 $0.6229 CZECH REPUBLIC 42 $0.4110
BELGIUM 32 $0.2374 DENMARK 45 $0.2004
BELIZE 501 $0.9638 DIEGO GARCIA 246 $0.6778
BENIN 229 $0.7608 DJIBOUTI 253 $1.1956
BERMUDA 895 $0.2708 DOMINICA 898 $0.7003
BHUTAN 975 $1.1178 DOMINICAN REP 899 $0.4149
BOLIVIA 591 $0.7777 ECUADOR 593 $0.7753
BOSNIA/HERZEGOVINA 387 $0.6402 EGYPT 20 $0.9379
BOTSWANA 267 $0.9420 EL SALVADOR 503 $0.7173
BRAZIL 55 $0.5460 EQ GUINEA 240 $1.6866
BRITISH VIRGIN IS. 896 $0.4994 ERITREA 291 $1.5472
BRUNEI (Negara) 673 $0.5725 ESTONIA 372 $0.3976
BULGARIA 359 $0.4963 ETHIOPIA 251 $1.3377
BURKINA FASO 226 $0.8195 FAEROE ISLANDS 298 $0.4199
BURUNDI 257 $1.0723 FALKLAND ISLANDS 500 $1.0895
CANADA-REGION 1 1 $0.0893 FIJI ISLANDS 679 $1.2738
<PAGE>
CANADA - REGION 2 1 $0.0998 *Revised April 1, 1999
<PAGE>
Dedicated Outbound Service
International Rates (Continued)
Destination Country RATE* Destination Country RATE*
Code Code
FINLAND 358 $0.2220 KYRGYZSTAN 996 $1.2726
FRANCE 33 $0.1983 LAOS 856 $1.1543
FRENCH ANTILLES 590 $0.5782 LATVIA 371 $0.4720
FRENCH GUIANA 594 $0.6086 LEBANON 961 $1.0950
FRENCH POLYNESIA 689 $0.8994 LESOTHO 266 $1.0320
GABON 241 $1.1170 LIBERIA 231 $0.7619
GAMBIA 220 $0.8123 LIBYA 218 $0.6833
GEORGIA 995 $0.9298 LIECHTENSTEIN 41 $0.2320
GERMANY 49 $0.1792 LITHUANIA 370 $0.5430
GHANA 233 $0.7970 LUXEMBOURG 352 $0.1924
GIBRALTAR 350 $0.6305 MACAO 853 $0.6980
GREECE 30 $0.4839 MACEDONIA 389 $0.6486
GREENLAND 299 $0.6029 MADAGASCAR 261 $1.2851
GRENADA 900 $0.7257 MALAWI 265 $0.6330
GUADELOUPE 590 $0.6469 MALAYSIA 60 $0.4636
GUAM 671 $0.1971 MALDIVES 960 $0.9196
GUANTANAMO BAY 5399 $0.9296 MALI REPUBLIC 223 $1.1690
GUATEMALA 502 $0.6568 MALTA 356 $0.3914
GUINEA 224 $0.8788 MARSHALL ISLAND 692 $5.6811
GUINEA-BISSAU 245 $1.7475 MARTINIQUE 596 NA
GUYANA 592 $1.0663 MAURITANIA 222 $1.1310
HAITI 509 $0.8448 MAURITIUS 230 $1.0442
HERZEGOVINA 387 $0.6402 MAYOTTE ISLAND 269 $1.3504
HONDURAS 504 $0.8012 MEXICO - 1 521 $0.1995
HONG KONG 852 $0.5438 MEXICO - 2 522 $0.1995
HUNGARY 36 $0.3710 MEXICO - 3 523 $0.2625
ICELAND 354 $0.3994 MEXICO - 4 524 $0.2625
INDIA 91 $0.9695 MEXICO - 5 525 $0.2625
INDONESIA 62 $0.8311 MEXICO - 6 526 $0.4200
IRAN 98 $1.2093 MEXICO - 7 527 $0.4200
IRAQ 964 $1.5409 MEXICO - 8 528 $0.4200
IRELAND 353 $0.3075 MICRONESIA 691 $0.8490
ISRAEL 972 $0.5959 MIGUELON $0.5223
ITALY 39 $0.2656 MOLDOVA 373 $1.0051
IVORY COAST 225 $1.3578 MONACO 377 $0.5540
JAMAICA 901 $0.7386 MONGOLIA 976 $1.5728
JAPAN 81 $0.3666 MONTSERRAT 902 $0.6999
JORDAN 962 $0.9696 MOROCCO 212 $0.5540
KAZAKHSTAN 7 $1.1474 MOZAMBIQUE 258 $0.9193
KENYA 254 $0.9594 MYANMAR(BURMA) 95 $1.9788
KIRIBATI 686 $1.3183 NAMIBIA 264 $0.9550
KOREA - North 850 $1.1897 NAURU 674 $1.1420
KOREA - South 82 $0.5680 NEPAL 977 $1.2366
KUWAIT 965 $1.0430 *Revised April 1, 1999
<PAGE>
Dedicated Outbound Service
International Outbound Rates (Continued)
Destination Country RATE* Destination Country RATE*
Code Code
NETHERLANDS 31 $0.2047 SEYCHELLES ISL 248 $1.7630
NETH. ANTILLES 599 $0.4251 SIERRA LEONE 232 $1.1111
NEVIS 904 $0.5938 SOLOMON ISLANDS 677 $1.2444
NEW CALEDONIA 687 $1.0705 SOMALIA 252 $2.0130
NEW ZEALAND 64 $0.2210 SOUTH AFRICA 27 $0.6659
NIGER REPUBLIC 227 $1.1442 SPAIN 34 $0.3739
NIGERIA 234 $0.9410 SRILANKA 94 $1.1520
NIUE ISLAND 683 $1.4614 SUDAN 249 $0.7555
NORFOLK ISLAND 672 $0.7393 SURINAME 597 $1.3922
NORWAY 47 $0.1480 SWAZILAND 268 $0.7180
OMAN 968 $1.1015 SWEDEN 46 $0.1400
PAKISTAN 92 $1.4448 SWITZERLAND 41 $0.2126
PALAU REPUBLIC 680 $1.1170 SYRIAN ARAB REP 963 $1.282
PANAMA 507 $0.7379 TAIWAN 886 $0.5890
PAPUA NEW GUINEA 675 $0.6444 TAJIKISTAN 992 $1.1576
PARAGUAY 595 $0.9940 TANZANIA 255 $0.9741
PERU 51 $0.7384 THAILAND 66 $0.8652
PHILIPPINES 63 $0.6702 TOGO 228 NA
POLAND 48 $0.4610 TONGA ISLANDS 676 $1.1490
PORTUGAL 351 $0.4323 TRINIDAD & TOBAGO 907 $0.8337
PUERTO RICO 809 $0.1176 TUNISIA 216 $0.6224
QATAR 974 $1.0815 TURKEY 90 $0.5800
REUNION ISLAND 262 $0.8480 TURKMENISTAN 993 $1.1119
ROMANIA 40 $0.6423 TURKS & CAICOS ISL 908 $0.6436
RUSSIA FORMER REP 7 $0.7147 TUVALU 688 $1.1860
City code 750x, 751x UGANDA 256 $0.7635
MOSCOW/ ST. PETE 7 UKRAINE 380 $0.6283
7095,7096,7097 UNITED ARAB EM 971 $0.7680
7812 (Band R16) UNITED KINGDOM 44 $0.1205
RWANDA 250 $1.0720 URUGUAY 598 $0.9400
SAINT HELENA 290 $1.4504 UZBEKISTAN 998 $0.9750
ST. KITTS 903 $0.5938 VANUATU 678 $1.6018
SAINT LUCIA 905 $0.6450 VATICAN CITY 39 $0.4044
ST. PIERRE 508 $0.5223 VENEZUELA 58 $0.4610
SAINT VINCENT 906 $0.7651 VIETNAM 84 $1.3334
SAIPAN (ROTA) 670 $0.5590 WALLIS & FUTUNAIS 681 $0.4699
SAN MARINO 378 $0.5360 WESTERN SAMOA 685 $1.1360
SAOTOME 239 $1.3868 YEMEN ARAB REP 967 $1.0668
SAUDI ARABIA 966 $1.0350 YUGOSLAV REP 381 $0.5321
SENEGAL 221 $1.9346 ZAIRE 243 $0.6570
SERBIA 3 NA ZAMBIA 260 $0.8972
SINGAPORE 65 $0.3757 ZANZIBAR 259 NA
SLOVAK REPUBLIC 42 $0.4630 ZIMBABWE 263 $0.7600
SLOVENIA 386 $0.5060 *Revised April 1. 1999
<PAGE>
Additional Charges
11. Dedicated Access Non-recurring Charge.
A one-time installation charge of $400.00 applies per DS-1 switch port
(circuit). Non-recurring installation charge for DS-3 circuits comprising all
service interconnections (including dedicated Access interconnections) will be
determined on an individual case basis.
12. Dedicated Access Recurring Charge.
Recurring charges will be determined on an individual case basis, and will
depend on the distance from the Customer's location to the Supplier's
Point-of-Presence (POP).
13. Dedicated Access Local Loop Charge.
Charges incurred for providing local loop interconnection to an ILEC are
monthly recurring. Related charges are NPA/NXX specific and quotes for charges
will be provided on a case-by-case basis. Any and all charges will be due and
payable in full as outlined in the Agreement.
14. Dedicated Access Diagnostic I Troubleshooting Charges $50.00 / hour
15. Dedicated Access Local Ancillary Charges.
Expedite Charge per Port $50.00
Cancellation Charge per Port
Pre-Engineering $50.00
Post-Engineering $50.00
Date Change Charge per Port $50.00
Non-Administration Order
Pre-Engineering $50.00
Post-Engineering $50.00
Administration Order Charge per Port No Charge
16. Dedicated Access Moves, Adds, Changes, Deletes.
Changes to existing orders or orders that have not been fully provisioned
(orders in process) will result in additional charges to the Customer as
follows:
Expedite Charge per Port $150.00
Cancellation Charge per Port
Pre-Engineering $150.00
Post-Engineering $500.00
<PAGE>
V. Dedicated Toll-Free Service
(See Exhibit D of the Telecommunications Service Agreement
for any additional rate considerations)
1 . Description of Service.
Dedicated Access ("Dedicated Access") is defined as one or more full-time
dedicated DS-1 connections from the End-User's Private Branch Exchange (PBX)
or other equipment to the Supplier's network through a Supplier's designated
Point of Presence ("POP"). Dedicated Access will automatically be comprised of
one (1) or more DS-1 circuits unless otherwise requested. Dedicated Toll-Free
Service comprises all long distance switched toll-free calls originating from
anywhere in the contiguous 48 states and the District of Columbia, or
non-mainland locations and terminating onto a subscriber's dedicated
facilities anywhere in the contiguous 48 states and the District of Columbia
("Supplier's Terminating Territory"). Connection to the POP from the End-Users
Private Branch Exchange (PBX) or other equipment must be established either:
(i) by the Customer independently through a third party local access provider
or;
(ii) by arrangement with the Supplier, acting as an agent for a third party
local access provider.
The local access provider will supply connections between the End User's
customer premise equipment (CPE), or his private branch exchange equipment
(PBX) to the Supplier POP.
Access to Local Exchange
At the Customers request the Supplier may act on the Customer's behalf to
order, provision, and maintain local access facilities between End-User
locations and the designated Supplier POP. All associated LEC / ILEC
charges will be either billed directly to the Customer by the LEC / ILEC, or
billed to the Customer through the Supplier as a pass-through, at the local
access provider's applicable tariff rates, subject to an administrative fee
as determined on a case by case basis. Additional charges that may be billed
for the Supplier's efforts on behalf of the Customer include but are not
limited to; engineering fees, circuit design fees, expedite fees, and move /
add change / delete charges as outlined in item 16 of Additional Charges.
2. Order Entry.
Each service order installation form for Dedicated Toll-Free Service will
describe the POP to which an interconnection is to be established, the
requested service date, the type and quantity of circuits comprising the
interconnection and any charges and other information relevant thereto, such
as, the location of an End User's originating or terminating location.
<PAGE>
Dedicated Toll-Free Service
All orders for Dedicated Toll-Free Service must be accompanied by a completed
Order Entry Checklist ("OEC") and submitted on approved order forms to be
considered for acceptance. Failure to provide a completed OEC may result
in delay or refusal by the Supplier to accept the order until the OEC and all
required forms are provided and complete. In the event the Customer, End-User,
or any party other than the Supplier is to provision access facilities to
the POP, information describing the access facilities must be provided
according to the Supplier's specifications.
The Supplier will provision and maintain local access facilities between End
User locations and the POP, subject to any ILEC charges plus other applicable
terms and charges set forth in the Supplier's FCC Tariff No. 1. If other
private line inter-exchange facilities are necessary to establish Dedicated
Access, such facilities will be provided on an individual case basis.
3. Days to Provision.
Approximate actual days to provision: DS-1: 45 calendar days.
DS-3 or above: Per quote
Provisioning time as described above begins upon written notification issued
by the Supplier that an order has been accepted as complete.
4. Billing Increments
All Domestic Toll-Free calls are subject to a six (6) second minimum
charge, followed by additional billing increments of six (6) seconds.
Calls to Mexico shall be billed a minimum of sixty (60) seconds, followed
by additional billing increments of sixty (60) seconds.
Other International calls (where applicable) shall be billed a minimum
thirty (30) second charge, followed by additional billing increments of six
(6) seconds.
5. Minimum Monthly Usage
Commencing on the first full calendar month following the start of service for
each circuit ordered, the Customer will maintain an average traffic loading
per site of not less than US $2,500.00 billing per calendar month for each
DS-1 interconnection ("Minimum Monthly Usage") before discounts. In the event
the Customer fails to maintain the Minimum Monthly Usage the Supplier
will,charge, and the Customer agrees to pay, a "Deficiency Charge" to meet the
minimum performance requirement.
The Deficiency Charge is computed as the c1lifference between the actual usage
and the Minimum Monthly Usage requirement. Deficiency Charges will be included
on regular billing statements payable at the same time payment is due for
billed services or, at the Supplier's option, billed separately as due and
payable upon demand.
<PAGE>
Dedicated Toll-Free Service
6. Volume Discount
The Supplier will provide the Customer with a volume discount for Interstate
Dedicated Toll-Free Service usage, based upon the monthly volume level
actually attained in any given month. The table below represents a tiered
pricing arrangement for the Dedicated Toll-Free Service Interstate pricing
within the contiguous 48 states and the District of Columbia.
MONTHLY REVENUE LEVEL Volume per-Minute
DISCOUNT RATE*
$ 0 to $75,000 No additional discount $0.0519
$75,001 to $175,000 5% $0.0493
$175,001 to $400,000 9% $0.0472
$400,001 to $650,000 13% $0.0452
$650,001 and up 17% $0.0431
*Revised 7/1/98
The pre-discounted Dedicated Toll-Free Interstate and Intrastate Service usage
contributes to the total usage calculation for the Switched Outbound and
Toll-Free Interstate usage discount only (i.e. they are not eligible for
any discount other than that stated above).
Per-Minute Rates
(Refer to General Terms, Item #2 for other applicable terms and conditions
affecting the product pricing)
7. Interstate $0.0519
The Interstate Dedicated Toll-Free rates of $0.0519 includes usage originating
from an exchange outside the state of the subscriber's dedicated toll-free
circuit for all time-periods.
8. Non-Mainland. Per Table Below
Dedicated Toll-Free calls originating non-Mainland and terminating onto the
subscriber's dedicated circuit in the United States
800 from Hawaii $0.1343
800 from Alaska $0.2580
800 from Puerto Rico $0.1575
800 from the US Virgin Islands $0.1994
800 from Canada (Peak and Off-Peak) $0.2310
<PAGE>
Dedicated Toll-Free Service
9, Intra-State and Intra-LATA (where approved).
The Intrastate Dedicated Toll-Free rates below applies to usage originating
from an exchange in the same state as the subscriber's dedicated circuit for
all time-periods.
State RATE* State RATE* State RATE*
AL $0.0343 MA $0.0557 OH $0.0398
AR $0.0590 MD $0.0421 OK $0.0687
AZ $0.0738 ME $0.0837 OR $0.0552
CA $0.0319 MI $0.0435 PA $0.0475
CO $0.0774 MN $0.0708 RI $0.0299
CT $0.0329 MO $0.0379 SC $0.0654
DC $0.0378 MS $0.0470 SD $0.0657
DE $0.0499 MT $0.0683 TN $0.0620
FL $0.0479 NC $0.0834 TX $0.0913
GA $0.0415 ND $0.0748 UT $0.0472
IA $0.0521 NE $0.0608 VA $0.0550
ID $0.0670 NH $0.0498 VT $0.0807
IL $0.0382 NJ $0.0355 WA $0.0500
IN $0.0425 NM $0.0649 WI $0.0410
KS $0.0575 NV $0.0440 WV $0.0600
KY $0.0648 NY $0.0549 WY $0.0705
LA $0.0450 *Revised February 1,1999
10. Dedicated Access Toll-Free International Origination Not Applicable
Additional Charges
11. Dedicated Access Non-recurring Charge.
A one-time installation charge of $400.00 applies per DS-1 switch port
(circuit). Non-recurring installation charge for DS-3 circuits comprising all
service interconnections (including, dedicated Access interconnections) will
be determined on an individual case basis.
<PAGE>
Dedicated Toll-Free Service
12. Dedicated Access Recurring Charge.
Recurring charges will be determined on an individual case basis, and will
depend on the distance from the Customer's location to the Supplier's
Point-of-Presence (POP).
13. Dedicated Access Local Loop Charge.
Charges incurred for providing local loop interconnection to an ILEC are
monthly recurring. Related charges are NPA/NXX specific and quotes for charges
will be provided on a case-by-case basis. Any and all charges will be due and
payable in full as outlined in the Agreement.
14. Dedicated Access Diagnostic / Troubleshooting Charges $50.00 / hour
15. Dedicated Access Local Ancillary Charges.
Expedite Charge per Port $50.00
Cancellation Charge per Port
Pre-Engineering $50.00
Post-Engineering $50.00
Date Change Charge per Port $50.00
Non-Administration Order
Pre-Engineering $50.00
Post-Engineering $50.00
Administration Order Charge per Port No Charge
16. Dedicated Access Moves, Adds, Changes, Deletes.
Changes to existing orders or orders that have not been fully provisioned
(orders in process) will result in additional charges to the Customer as
follows:
Expedite Charge per Port $150.00
Cancellation Charge per Port
Pre-Engineering $150.00
Post-Engineering $500.00
<PAGE>
Dedicated Toll-Free Service
Dedicated Access Moves, Adds, Changes, Deletes (Continued)
Non-Administration Order
Pre-Engineering $150.00
Post-Engineering $500.00
Administration Order Charge per Port No Charge
Diagnostic / Troubleshooting Charge
Pre-Engineering $150.00 / hour
Post-Engineering $150.00 / hour
Level (3) Communications Customer Order Form
SECTION 1
CUSTOMER INFORMATION
Customer: Cybertel Communciations Corp.
Address: 4275 Executive Square, Suite #510
City/Town: La Jolla State: California Zip: 87027
Contact: Richard Mangiarelli Title: President Telephone: 619-646-7410
e-mail: [email protected]
SECTION 2
Metropolitan: Access Telephony co-location Internet Access: Dedicated
Dealer Circuit: Cross-
connected
SECTION 3
MCR: 3700 NRG: 3300 Commitment -0- 2 yr.
SECTION 4
[X] New
SECTION 5
Billing Address & Details
Customer: Cybertel Communications, Corp.
Address 1: 4275 Executive Square, Suite #510
City/Town: La Jolla, CA
Contact: Richard Mangiarelli
Facsimile: 619-646-7414
SECTION 6
Customer site details, Originating End
[X] on Net [X] within SSA
SECTION 7
Customer site details, terminating End
SECTION 8
Sales Account Executive Information
SECTION 9
Acceptance and Terms
This Customer Order is governed by Level 3 Communications, LLC's terms and
conditions for delivery of service (which are available for Customer's review
either upon request or on Level 3's web site), which are hereby incorporated
into this Customer Order. Neither party shall be liable for any indirect,
incidental special, consequential, exemplary or punitive damages (including
but not limited to damages for lost profits or lost revenues), whether or not
caused by the acts or omissions or negligence of the employees or agents, and
regardless of whether such party has been informed of the possibility or
likelihood of such damages.
/s/Richard Mangiarelli 3-12-99 Authorized customer name:
Richard Mangiarelli
Authorized Customer signature Date Title President
[LETTERHEAD OF SWARTZ PRIVATE EQUITY, LLC]
CYBERTEL COMMUNICATIONS CORPORATION (CYTP)
Letter of Agreement for a Private Line of Common
Stock Pursuant to Regulation D
Equity Line $20 million with a $20 million option
Commitment Amount:
Company: Cybertel Communications Corporation ("Cybertel")
Subscriber: Swartz Private Equity, LLC ("Swartz")
Subscription: Swartz shall execute an irrevocable Subscription
Agreement for the purchase of Common Stock from
Cybertel up to an aggregate amount equal to $20
million (the "Equity Line"). The Equity Line may be
expanded up to $40 million upon agreement between
both parties.
Securities Purchase Swartz shall make a firm commitment to purchase
Commitment: securities under the Equity Line as described herein
and shall sell the securities under a qualified
prospectus. The Private Equity Line shall be placed
to Swartz under Regulation D.
Equity Line: Subject to an effective Registration Statement and
ending 36 months from the initial Subscription Date,
Cybertel shall have the right at its sole discretion
to put Common Stock (a "Put") to Swartz, subject to
the dollar amount limitations and conditions
described below. The date of each Put is referred
to as the "Put Date".
Purchase Price of Swartz shall purchase Cybertel Common Stock at a per
Common Shares: share Purchase Price equal to 91% of the "Market
Price" (as defined below) in effect on the date of
sale to Swartz (the "Purchase Date"), subject to a
Floor Price specified by Cybertel under its Floor
Price option defined below. The sale to Swartz
shall occur on a date or dates during the Purchase
Period specified by Swartz during 20 business days
following each Put Notice (the "Purchase Period").
Market Price: "Market Price" shall equal the low trade price of
Common Stock for the 6 trading days prior tot he
date in question.
Floor Price: Cybertel at its option, may select a Floor Price
("Floor Price") for any specified Put below which
Cybertel will not sell shares to Swartz under that
Put.
Amount of Each Put The dollar amount sold to Swartz in each Put, may be
and Pricing Period: up to $3 million but shall not exceed 15% of the
aggregate dollar volume of the Common Stock traded
on the company's primary exchange during the 20 day
purchase Period beginning on the business day
following the Put Date for such Put, excluding any
days ("Excluded Days") where 91% of the low trade
price would be less than the Floor Price, unless
otherwise agreed by Swartz; provided that the
purchase period shall be extended by one business
day for each excluded day, up to a maximum extension
of 5 business days.
Purchase Warrants: For each Put, Swartz shall receive an amount of
warrants (the "Purchase Warrants") equal to 7% of
the number of shares purchased under such Put at an
Exercise Price equal to 115% of the Market Price on
the end of such Purchase Period.
Conditions to each Put: The following conditions must be met on each Put
Date unless mutually agreed between Swartz and
Cybertel:
a) The Common Stock shall be trading on the New York
Stock Exchange, American Stock Exchange, or
NASDAQ Market System (including NASDAQ small cap
or Bulletin Board Systems).
b) The Purchase Period for the prior Put shall have
ended.
c) Cybertel shall have given Swartz a minimum of 10-
business day's notice prior to each Put (unless
waived by Swartz).
d) A registration Statement is effective for the
resale of the Common Stock issued pursuant to
each Put.
Registration: Cybertel shall file a Registration Statement within
45 days of closing for the resale of the Common
Stock purchased under the Equity Line.
Warrant Commitment As compensation to enter into the Equity Line
Fee: Commitment, Swartz shall receive upon execution of
this Letter of Agreement, a Warrant to purchase
220,000 shares of Cybertel Common Stock (the
"Commitment Warrants"). The Commitment Warrants'
exercise price shall equal the lesser of the Market
Price on the date of Cybertel's execution of this
Equity Line Letter of Agreement or the Market Price
on the date of execution of this Equity Line Letter
of Agreement or the Market Price on the date of
execution of all "Closing Documents" (as defined
below). Swartz agrees to be locked up from
converting the commitment warrant for a period of 6
months from the date of execution of this letter of
agreement except in the event Cybertel is purchased.
Additional Warrant On each anniversary of the Equity Line term,
Issuance additional Warrants shall be issued to Swartz such
that the total aggregate warrants issued to Swartz
shall equal 4.3% of the fully diluted shares of
Cybertel on such anniversary.
Swartz's Delivery of Upon receipts by Swartz of the Commitment Warrant
Legal Documentation executed by Cybertel, Swartz shall deliver Cybertel
and Review by all legal documentation required to close the Equity
Company: Line transaction (the Closing Documents"). During
the 10-business day period following receipt of the
Closing Documents by Cybertel (the "Document Review
Period"), Cybertel and its legal counsel shall
review the Closing Documents and negotiate any
necessary modifications with Swartz's legal counsel.
Should Cybertel wish to reject the Closing Documents
(as modified by mutual agreement), Cybertel shall
provide Swartz written notice of such rejection (an
"Unacceptable Document Notice") prior to the last
day of the Document Review Period, in wich case
Swartz shall return the Commitment Warrant within 2
business days of such written notice and the Equity
Line Commitment by Swartz shall be terminated.
Unless a Due Diligence Notice (as defined below) is
transmitted by Swartz to the Company or an
Unacceptable Document Notice is transmitted by
Cybertel to Swartz prior to the end of the "Document
Review Period," the Commitment Warrant shall
irrevocably vest with Swartz.
Swartz Due Diligence During Cybertel's 10-business day Document Review
Period: Period Swartz shall conduct its Due Diligence o
Cybertel in order to finalize its irrevocable
commitment to the Equity Line Transaction. In the
event that Swartz notifies Cybertel in writing
during such period that, based upon its Due
Diligence Review, Swartz elects not to proceed with
the obligations under this Agreement (a "Due
Diligence Notice"), this Agreement and the
Commitment Warrants shall become null and void and
Swartz shall return the Commitment Warrants to
Cybertel.
Expense Re-Allowance: Upon execution of the Investment Agreement
("Investment Agreement") and all other associated
Closing Documents Swartz shall receive $25,000 to
cover its legal and due diligence expenses
associated with this transaction.
Non Usage Fee: In the event Cybertel fails to Put Swartz $1M of
Common Stock during each 6 month period of the
Equity Line term, Cybertel shall pay Swartz a Non
Usage Fee equal to $100,000, less 10% of the dollar
amount Put to Swartz during the 6 month period.
Warrants Referenced in Warrants referenced herein shall have piggyback
this Agreement: registration rights, reset provisions, shall be non-
dillutive due to reverse-stock-splits and shall have
a 5-year term.
Press Released Relating Any public announcement relating to this financing
to the Financing: (a "Press Release") shall be submitted to Swartz a
minimum of 2 business days prior to release. Swartz
shall provide written approval of the press release
prior to any public announcement by Cybertel.
SWARTZ PRIVATE EQUITY, LLC CYBERTEL COMMUNICATIONS CORPORATION
By: /s/ Eric Swartz By: /s/ Richard Mangiarelli
--------------------------- ---------------------------
Eric Swartz, Manager Print Name: President and CEO
Date: 7/8/99 Title: Richard Mangiarelli
-------------------------- -------------------------
Date: 7 July, 99
--------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
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