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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the Fiscal Year Ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ___________________
to _____________________
COMMISSION FILE NUMBER: 333-38623
MAXXIS GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
GEORGIA 58-22-78241
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1901 MONTREAL ROAD, SUITE 108, TUCKER, GEORGIA 30084
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (770) 696-6343
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference into Part III of this Form 10-K or any amendment to
this Form 10-K.
The aggregate market value of the Common Stock held by affiliates of the
Registrant as of September 23, 1999 was $5,429,985. This calculation is based
upon a price of $5.50 per share, or the price per share of Common Stock sold
during our recent public offering. There is no active trading market for the
Common Stock, and the $5.50 per share price is not necessarily indicative of
market value. There were 1,617,187 shares of Common Stock issued and
outstanding as of September 25, 1999.
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INDEX TO FORM 10-K
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PART I
Item 1. Business...............................................................................................1
Item 2. Properties............................................................................................10
Item 3. Legal Proceedings.....................................................................................11
Item 4. Submission of Matters to a Vote of Security Holders...................................................11
PART II
Item 5. Market for Common Equity and Related Shareholder Matters..............................................11
Item 6. Selected Consolidated Financial Data..................................................................12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................13
Item 7A. Quantitative and Qualitative Disclosures About Market Risks...........................................19
Item 8. Financial Statements and Supplementary Data...........................................................19
Item 9. Changes in and Disagreements with Accountants in Accounting and Financial Disclosure..................21
PART III
Item 10. Directors and Executive Officers of the Registrant....................................................21
Item 11. Executive Compensation................................................................................23
Item 12. Security Ownership of Certain Beneficial Owners and Management........................................27
Item 13. Certain Relationships and Related Transactions........................................................28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................28
SIGNATURES ......................................................................................................32
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PART I
ITEM 1. BUSINESS
This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended. These statements
appear in a number of places in this Report and include all statements that are
not historical statements of fact regarding the intent, belief or current
expectations of Maxxis or its directors or officers with respect to, among
other things: (i) our financing plans; (ii) trends affecting our financial
condition or results of operations; (iii) our growth strategy and operating
strategy; and (iv) our anticipated capital needs. When used in this Report, the
words "expects," "intends," "believes," "anticipates," "estimates," "may,"
"could," "should," "would," "will," "plans" and similar expressions and
variations thereof are intended to identify forward-looking statements.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, many of
which are beyond our ability to control, and that actual results may differ
materially from those projected in the forward-looking statements as a result
of various factors discussed herein and those factors discussed in detail in
our filing with the Securities and Exchange Commission, including the "Risk
Factors" section of our Registration Statement on Form S-1 (Registration Number
333-38623).
Our independent associates market communications and Internet services
and nutritional and health enhancement products through our multi-level network
marketing system. We operate through our subsidiaries: Maxxis 2000, Inc.
("Maxxis 2000"); Maxxis Communications, Inc. ("Maxxis Communications"); and
Maxxis Nutritionals, Inc. ("Maxxis Nutritionals").
We believe that our marketing system allows us to obtain customers for
our products and services in a cost effective manner. We believe that our
marketing system also enhances customer retention because of the personal
relationships between our independent associates, or IAs, and their customers.
Maxxis was incorporated in January 1997 and began sponsoring independent
associates and marketing telecommunications services in March 1997. We
generated aggregate net revenues of $6,991,000 for our fiscal year ended June
30, 1998 and $12,344,000 for the fiscal year ended June 30, 1999.
We initially built a customer base without committing capital or
management resources to construct our own communications network. In February
1997, we contracted with Colorado River Communications Corp. to allow our
independent associates to market long distance services provided by Colorado
River Communications. In September 1998, we leased telecommunications switching
equipment and ancillary hardware and software in order to create our own
communications network. In April 1999, we began to provide long distance
services using this equipment in eleven states where we had complied with
various regulatory requirements. We have substantially completed the process of
filing applications and tariffs to obtain the required regulatory approvals to
offer long distance service in the majority of the United States. As of
September 23, 1999, we have obtained regulatory approval in 48 states and the
District of Columbia. As we obtained approvals in each state, we began to
directly service our long distance subscriber base that was developed under our
agreement with Colorado River Communications. We are continuing to expand our
communications customer base through our multi-level network marketing system.
To the extent available, we also intend to lease or sell excess switch capacity
to third parties.
We began marketing private label dietary supplements to our customers
and independent associates in November 1997. During 1998, we began marketing
additional nutritional and health enhancement products. In September 1998, we
began providing Internet access and Web-page development and hosting services.
We believe that the persons who purchase telecommunications services through
our independent associates are also potential customers for our nutritional and
health enhancement products and Internet-related services.
Our products and services are marketed exclusively by our network of
independent associates. Our multi-level network marketing system and our
reliance upon independent associates are intended to reduce marketing costs,
customer acquisition costs and customer attrition. We believe that our
multi-level network
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marketing system will continue to build a base of potential customers for
additional services and products. We believe that independent associates are
generally attracted to our multi-level network marketing system because of the
potential for supplemental income and because they are not required to purchase
inventory, have no monthly sales quotas or account collection issues, have
minimal required paperwork and have a flexible work schedule. We encourage
independent associates to market services and products to persons with whom the
independent associates have an ongoing relationship, such as family members,
friends, business associates and neighbors. We also sponsor meetings at which
current independent associates are encouraged to bring in others for an
introduction to our marketing system.
STRATEGY
Our goal is to develop a national distribution system through which
large volumes of communications and Internet services, nutritional and health
enhancement products and other products and services may be sold. We intend to
increase our revenues by expanding our marketing network, increasing the number
of customers who purchase our products and services and providing additional
products and services for sale through our independent associates. We intend to
achieve our goals by:
- Growing and Developing our Network of Independent Associates
by enhancing our sponsoring and training services, continuing
to support the marketing efforts of independent associates
and introducing new income opportunities for independent
associates.
- Maintaining and Expanding the Number of Customers by offering
high quality, competitively-priced products and services
through a highly motivated network of independent associates.
- Offering Additional Communications Services that meet the
needs of subscribers, which may include, among other
services, paging, conference calling, wireless, cable,
cellular and local phone service.
- Improving and Expanding Our Product Lines by continuing to
evaluate and offer products that are attractive to our
independent associates and customers.
- Obtaining Competitive Prices on products and services through
the purchasing power of our nationwide network.
MAXXIS SWITCH
In September 1998, we entered into an agreement to lease a
telecommunications switch (the "Maxxis Switch") formerly owned by Cherry
Communications, Inc. Beginning in February 1999, our lease required us to make
payments of approximately $118,000 per month. However, we only recently began
to use and derive revenue from the operation of the Maxxis Switch based on
obtaining approval in 48 states as of September 23, 1999. We are in the process
of obtaining regulatory approval in the remaining states, but cannot guarantee
that we will obtain the necessary regulatory approvals in a timely manner or at
all. Until we receive all necessary regulatory approvals, we must bear the
total expenses associated with the Maxxis Switch without all potential
revenues, which could have a material adverse effect on our business, financial
condition and operating results.
As we obtain the required regulatory approvals, we have begun to
market services provided through the Maxxis Switch to the subscriber base that
was developed under our agreement with Colorado River Communications Corp., or
CRC, as well customers that we have obtained more recently. We are required to
obtain the consent of customers before changing their long distance service.
This process could be difficult, time consuming and expensive, and customers
may choose not to subscribe to our services. Additionally, the FCC has recently
enacted new, more stringent legislation that governs the procedure by which we
must obtain the consent of customers before changing their long distance
service. Because we derive a significant portion of our revenues from these
customers and because we are unsure as to how the new FCC regulations will be
interpreted, problems associated with the transition of these
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customers from CRC's network to our network could have a material adverse
effect on our business, financial condition and operating results.
MARKETING
We market products and services exclusively through our network of
independent associates. Currently, we have five independent associate positions
in our marketing system: associate; senior associate; director; regional
director; and executive director. Independent associates are paid only by
commissions, and we do not pay them any salary. Independent associate
commissions are a specified percentage or a designated amount of the gross
proceeds received by us from the sale of our services and products. We
designate a portion of our gross commissions as "commission value," or "CV,"
and allocate the CV among eligible participants in our marketing system.
Currently, 20% of the CV earned with respect to a long distance subscriber is
paid monthly to the independent associate who sponsored such subscriber, 75% of
the CV is paid monthly to eligible directors who have the independent associate
who sponsored the subscriber in their downline and the remaining 5% is retained
by us to be paid out to directors, regional directors and executive directors
in our performance bonus programs. All directors, executive directors and
regional directors who meet certain performance criteria are eligible to
receive additional performance bonuses.
To become an associate, individuals (other than individuals in North
Dakota) must complete an application and purchase a distributor kit.
Independent associates also pay an annual fee in order to maintain their status
as independent associates. The distributor kit is a package of basic materials
which assists an associate in beginning his or her business. Associates are
also entitled to purchase products from us at discounted prices for retail
sales. An associate becomes a senior associate when the associate sells $90 of
bonus-eligible products. Senior associates continue to receive a percentage of
CV with regard to all subscribers personally gathered by them and are also
entitled to purchase products from us at discounted prices for retail sales.
To become a director, a senior associate must sponsor two additional
senior associate positions. A director increases the size of the director's
sales organization by sponsoring additional persons to become senior
associates. These senior associates, and all senior associates that they, in
turn, sponsor, become part of the sales organization of the director who
sponsored them. Senior associates, through the growth of their sales
organizations, may become directors, regional directors or executive directors
and thereby increase the size of the sales organization of the person who was
their original sponsor. The organization that grows below each director through
this process is called a "downline." Directors are eligible to receive the same
commissions as senior associates and, if they directly gather and maintain a
minimum of four customers, are eligible to receive a percentage of the CV
produced by each independent associate that is within 15 levels below them in
their downline. In order to encourage the growth of our marketing system, we
also pay eligible directors a bonus amount, which is designated as "bonus
value," or "BV," for each sale of bonus-eligible products. We primarily
designate retail priced phone cards, nutritional products and Web-page
development and hosting services as bonus-eligible products. Directors become
regional directors and executive directors upon the achievement of certain
independent associate sales goals. Regional directors and executive directors
are eligible to receive the same commissions as directors and, if they qualify,
share in performance bonuses. Regional directors and executive directors are
eligible to serve on the Maxxis 2000 Advisory Board, which advises management
on issues regarding field leadership.
RELATIONSHIP WITH INDEPENDENT ASSOCIATES
We seek to contractually limit the statements that independent
associates make about our business. Each independent associate must also agree
to policies and procedures to be followed in order to maintain the independent
associate's status in our organization. We expressly forbid independent
associates from making any representation as to the possible earnings of any
independent associate or from making any representation with regard to this
offering of our Common Stock. We also prohibit independent associates from
creating any marketing literature that we have not pre-approved. While we have
these policies and procedures in place governing the conduct of the independent
associates, it is difficult to enforce such policies and procedures. Because
the independent associates are classified as independent contractors, we are
unable to provide them the same level of direction and oversight as our
employees.
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Violations of our policies and procedures may reflect negatively on
us and could have a material adverse effect on our business, financial
condition and operating results.
TRAINING AND MARKETING SUPPORT
We offer our independent associates a number of support services. We
currently provide to each independent associate without charge one printed
report describing such independent associate's downline and provide additional
reports for a fee. In addition, we offer training, information and motivational
support to the independent associate network through our training program and
regional meetings.
We provide all independent associates with the opportunity to receive
training through our training program. National training directors conduct the
training program, and the training program includes a detailed explanation of
our products, the independent associate compensation plan and the use of the
various marketing tools available to independent associates. In addition, we
encourage senior associates, directors and regional directors to become
managing directors, or MDs. MDs provide personal training to independent
associates. To become a MD, a senior associate, director or regional director
must attend a Maxxis-approved training school for a fee. MDs must also attend
continuing education training schools each year which also are subject to a
fee. National training directors that are selected by us are paid a fee by us
for training MDs. We do not receive any fees from independent associates for
the training provided by MDs.
Our third annual convention was held in September 1999, and we intend
to continue to hold additional annual conventions for independent associates.
This event provides recognition to the top performers, direct access to senior
management and a chance for independent associates to share experiences and
develop support systems. We intend to organize additional conventions
throughout the country that current independent associates and potential
independent associates can attend to learn more about us. We also publish a
newsletter for the independent associates containing informative and
motivational articles and recognizing independent associate achievements.
PRODUCTS AND SERVICES
Following is a summary of the various services and products we
currently provide to independent associates and customers. We may add and
remove services and products from our services and product lines from time to
time.
Communications Services and Products. Our independent associates
market a variety of long distance and other communications services and
products, which currently include 1-Plus long distance service, prepaid phone
cards and Internet-related services.
- 1-Plus Long Distance. Our 1-Plus long distance service serves
as a replacement for a customer's former long distance
service (such as the long distance services provided by AT&T
Corporation ("AT&T"), MCI WorldCom, Inc. ("MCI WorldCom") and
Sprint Corporation ("Sprint")). Our 1-Plus services are
billed on a flat rate basis, where the cost of a call does
not vary depending upon the distance of a call or the time of
day or day of week when the call is originated or terminated.
Our residential 1-Plus services are billed based on one
minute increments, and business 1-Plus service is billed
based on 6-second increments with a 30-second minimum.
- Prepaid Phone Cards. We offer prepaid phone cards in domestic
time increments of 1 hour and 30 minutes. These cards may be
used for domestic and international calls. We also offer
international prepaid phone cards that are denominated in
dollar amounts. Charges are deducted from these cards based
upon the rates applicable to the calls placed by cardholders.
- MAXXCONNECT. In September 1998, we began providing Internet
access through InteReach Internet Services, L.L.C. and also
began providing Web-page development and hosting services for
independent associates.
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Nutritional and Health Enhancement Products. We market a line of
private label nutritional and health enhancement products to our independent
associates and customers. Representative products include:
- 40/30/30 Maxxis Bar is an energy bar intended as a meal
replacement which contains approximately 40% carbohydrates,
30% protein, 30% dietary fat and various vitamins and
minerals.
- Maxx-A-Chol is a dietary supplement which is a specialized
combination of six herbs.
- MAXXIS MSM is a dietary supplement consisting of
methylsulfonylmethane, vitamin C, citrus bioflavonoid complex
and ginseng.
- MAXXIS Multivitamin is a multivitamin nutritional supplement
which is delivered by means of a spray.
- MAXXIS 02 is a nutritional supplement that contains
electrolytes, oxygen, trace elements, enzymes and amino
acids.
- BetaShield is a nutritional product containing an extract
from the cell walls of baker's yeast.
- Maxx-Life is a dietary supplement containing amino acids and
other ingredients, including lysine, arginine, GABA,
glutamine and ornithine.
- Weight-Ideal is a dietary supplement in capsule and spray
forms which contains a blend of nutrients, including chromium
picolinate, magnesium acetate and niacin.
- Maxxis Skin Care System consists of the following health and
beauty products: shampoo; conditioner; body wash; hand and
body conditioner; face wash; skin toner; and moisturizer.
Certain nutritional products are sold as a nutritional pak, and the skin care
products are sold as a complete system or individually.
Promotional Materials. We also derive revenues from the sale of
various educational and promotional materials designed to aid our independent
associates in maintaining and building their businesses. Such materials include
various sales aids, informational videotapes and cassette recordings and
product and marketing brochures.
INDEPENDENT ASSOCIATE SUPPORT AND INFORMATION SYSTEMS
We operate a call center where advisors answer independent associate
questions and provide information to independent associates. The call center
maintains a system that includes a current database of all independent
associates, their downlines and their long distance customers. We believe that
maintaining sophisticated and reliable transaction processing systems is
essential for multi-level network marketing companies. We use a commission
processing software system that incorporates the provisions of our marketing
program for purposes of processing detailed and customized independent
associate commission payments, monitoring and analyzing financial and operating
trends and tracking each independent associate's downline. We also maintain
transaction processing systems that facilitate the shipment of independent
associate training and marketing materials. In addition, our order processing
system tracks the receipt, storage, shipment and sale of our sales aid
products.
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SUPPLIERS
We historically have not owned a long distance network. As a result,
Maxxis Communications entered into the 1-Plus Agreement with CRC to allow our
independent associates to market CRC's telecommunications services. Subscribers
gathered by our independent associates were long distance customers on CRC's
network, and CRC provided subscriber support. Subscribers had the right to
change their service at any time. The 1-Plus Agreement, which expires on
February 20, 2000, provides that we will have certain rights to the subscriber
base developed under the agreement only upon generating certain minimum levels
of monthly revenues for CRC. We have reached these minimum levels, and we have
the right to market other carriers to the subscriber base in the event we
contract with such carriers.
During most of fiscal 1999 CRC was responsible for the accurate and
prompt billing of these subscribers. The failure of CRC to accurately and
promptly bill subscribers could lead to a loss of subscribers and could have a
material adverse effect on our business, financial condition and operating
results. In January of 1999, we notified CRC of our intent to terminate our
1-Plus agreement and begin a process of migrating our customers to the Maxxis
communications network. At that time, we entered into an agreement with MCI
WorldCom to provide us with the necessary private lines, circuits and other
network services to be able to originate and terminate telephone calls through
the Maxxis Switch. In March 1999, we entered an agreement with IXC
Communications Services, Inc. to provide switched services for carrying the
portion of the Maxxis traffic that does not go through the Maxxis Switch. A
provision of our contract with IXC requires a minimum monthly commitment
expiring in September 2000. We would be required to contract with other
carriers if either the IXC or MCI WorldCom agreements were terminated, the
usage or number of subscribers originated by our independent associates
exceeded the capacity that these suppliers could provide or if IXC or MCI
WorldCom failed to provide quality services. In such event, or in the event we
otherwise elected to use other carriers, the cost paid by us for long distance
services might exceed that paid under these agreements. If our agreements with
IXC or MCI WorldCom are terminated, there can be no assurance that we could
enter into new contracts with other suppliers.
In November 1997, we began marketing a line of private label
nutritional products. All of the nutritional products offered and distributed
by us are developed and manufactured by third-party suppliers. Certain of the
nutritional products offered by us are proprietary to these suppliers. We do
not have any commitment that these suppliers and manufacturers will continue to
sell us nutritional products. We believe that our relationships with our
suppliers are satisfactory; however, there can be no assurance that any or all
of these suppliers will continue to be reliable suppliers to us. Accordingly,
there is a risk that any or all of our suppliers or manufacturers, including
suppliers which provide proprietary products to us, could discontinue selling
their nutritional products to us. In the event any of the third-party
manufacturers become unable or unwilling to continue to provide the nutritional
products in required volumes, we would be required to identify and obtain
acceptable replacement sources, and we cannot guarantee that any alternative
replacement sources would become available to us on a timely basis.
CUSTOMER SUPPORT
During fiscal 1999, CRC was primarily responsible for the billing of
long distance customers and for providing customer service. Certain of our
communications services, including 1-Plus long distance and prepaid phone
cards, are provided under CRC's state, national and international tariffs. We
have been informed that CRC possesses all tariffs necessary to offer such
services. After we received tariffs from certain state authorities in April
1999, we assumed the responsibility for billing long distance and customer
service as we migrated customers from those states onto the Maxxis
communications network. We provide our Internet access services through
InteReach, which is responsible for billing certain Internet access customers
and for providing customer support.
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COMPETITION
We face competition for our products and services and for independent
associates.
Communications Services. The United States long distance
communications industry is intensely competitive, rapidly evolving and subject
to rapid technological change. In addition, the industry is significantly
influenced by the marketing and pricing practices of the major industry
participants. AT&T, MCI WorldCom and Sprint are the dominant competitors in the
domestic long distance communications industry. All of these companies are
significantly larger than we are and have substantially greater resources. Many
of our current and potential competitors have longer operating histories,
greater name recognition, larger customer bases and substantially greater
financial, personnel, marketing, technical and other resources than us. These
competitors employ various means to attract new customers, including television
and other advertising campaigns, telemarketing programs, network marketing and
cash payments and other incentives to new customers. Our ability to compete
effectively depends upon, among other factors, our ability to offer high
quality products and services at competitive prices. There can be no assurance
that we will be able to compete successfully.
Nutritional and Health Enhancement Products. We also compete in the
highly competitive market of dietary supplements and health enhancement
products. This market segment includes numerous manufacturers, other network
marketing companies, catalog companies, distributors, marketers, retailers and
physicians that actively compete for the business of consumers. We compete with
other providers of such nutritional and health enhancement products, especially
retail outlets, based upon convenience of purchase, price and immediate
availability of the purchased product. For the most part, our competitors
offering comparable products are substantially larger and have available
considerably greater financial resources. The market is highly sensitive to the
introduction of new products (including various prescription drugs) that may
rapidly capture a significant share of the market. As a result, our ability to
remain competitive depends in part upon the successful introduction of new
products at competitive prices.
Internet Access and Internet-Related Services. The market for the
provision of Internet access and Internet-related services is extremely
competitive. There are no substantial barriers to entry, and we expect that
competition will continue to intensify. We cannot guarantee that we will be
able to compete successfully against current or future competitors or that
competitive pressures faced by us will not materially adversely affect our
business, financial condition and operating results. Our current and future
competitors include, without limitation, the following types of Internet access
providers: (i) national commercial Internet service providers ("ISPs"); (ii)
numerous regional and local commercial ISPs; (iii) established on-line
commercial information service providers; (iv) national long distance carriers;
(v) regional telephone companies; and (vi) cable operators.
Independent Associates. We compete for independent associates with
other direct selling organizations, some of which have longer operating
histories and greater visibility, name recognition and financial resources. The
largest network marketing companies in our markets are: EXCEL Communications,
Inc.; American Communications Network; BeautiControl Cosmetics, Inc.;
HerbalLife International, Inc.; and Mary Kay, Inc. We compete for new
independent associates on the basis of our reputation, perceived opportunity
for financial success and quality and range of products offered for sale. We
envision the entry of many more direct selling organizations into the
marketplace. We cannot guarantee that we will be able to successfully meet the
challenges posed by this increased competition. We also compete for the time,
attention and commitment of our independent associates. Given that the pool of
individuals interested in the business opportunities presented by direct
selling is limited in each market, the potential pool of independent associates
for our products and services is reduced to the extent other network marketing
companies successfully attract these individuals. There can be no assurance
that other network marketing companies will not convince our existing
independent associates to join their organizations. In such event, our
business, financial condition and operating results could be materially
adversely affected.
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PROPRIETARY RIGHTS
We have applied for a federal registration for the mark "MAXXIS." In
addition, we rely upon common law rights to protect other marks used by us and
other rights that we consider to be our intellectual property. We cannot
guarantee that our measures to protect our intellectual property will prevent
or deter the use or misappropriation of our intellectual property by other
parties. Our inability to protect our intellectual property from use or
misappropriation from others could have a material adverse effect upon our
business, financial condition and operating results. From time to time,
companies may assert other trademark, service mark or intellectual property
rights in marks (including the mark "MAXXIS") or other intellectual property
used by us. We could incur substantial costs to defend any legal action taken
against us. Our use of our trademarks, service marks or other rights could be
found to infringe upon intellectual property rights of other parties. We could
be enjoined from further infringement and required to pay damages. In the event
a third party were to sustain a valid claim against us, and in the event any
required license were not available on commercially reasonable terms, our
business, financial condition and operating results could be materially
adversely affected. Litigation, which could result in substantial cost to and
diversion of our resources, may also be necessary to enforce our intellectual
property rights or to defend us against claimed infringement of the rights of
others.
REGULATION
Regulation of Long Distance Telephone Services. Various regulatory
factors affect our financial performance and our ability to compete. CRC and
Maxxis are telecommunications carriers, and both of our services are currently
subject to federal, state and local regulation. Pursuant to the Communications
Act , the FCC generally exercises jurisdiction over the facilities of, and
services offered by, telecommunications common carriers that provide interstate
or international communications services. State regulatory authorities retain
jurisdiction over the same facilities and services to the extent that they are
used to provide intrastate communications services. Various international
authorities may also seek to regulate the provision of certain services.
Federal Regulation. The FCC does not require long distance
telecommunications carriers to obtain prior authorization to provide domestic
interstate services, including operator services, although such carriers
currently must file tariffs at the FCC setting forth the rates, terms and
conditions for such services. FCC regulations require telecommunications
carriers to apply for and to obtain certification from the FCC prior to
offering international services, and to file international tariffs with the
FCC.
CRC and Maxxis must comply with the requirements applicable to common
carriers under the Communications Act, which include a duty to offer services
upon request at reasonable rates and on nondiscriminatory terms and conditions.
Long distance telecommunications carriers also are subject to a variety of
miscellaneous regulations that, for example, govern the documentation and
verifications necessary to change a consumer's long distance carrier, require
the filing of periodic reports and the payment of regulatory fees. Currently,
FCC regulations also require long distance telecommunications carriers to
permit resale of their transmission services, and local exchange carriers to
provide all long distance carriers with equal access to local exchange
facilities for purposes of origination and termination of long distance calls.
If either or both of these requirements were eliminated, CRC and, therefore, us
could be adversely affected.
The FCC generally has the authority to condition, modify, cancel,
terminate or revoke a carrier's authority to operate for failure to comply with
federal laws or FCC orders, rules, regulations or policies. Fines or other
penalties also may be imposed by such violations. The FCC has jurisdiction to
act upon complaints against any telecommunications carrier for failure to
comply with its statutory obligations. We cannot guarantee that the FCC or
third parties will not raise issues regarding our compliance with applicable
laws and regulations, which could have a material adverse effect on our
business, financial condition and operating results.
The enactment of the Telecommunications Act served to increase
competition in the long distance market. The Telecommunications Act, among
other things, allowed the Bell operating companies to provide long distance
service outside of their local service territories, but barred them from
immediately offering in-region, interLATA long distance services until they had
satisfied certain conditions. A Bell operating company must apply to the FCC to
provide in-region, interLATA long
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distance services and must satisfy a set of pro-competitive criteria intended
to ensure that Bell operating companies open their own local markets to
competition before the FCC will approve such application. We are unable to
determine how the FCC will rule on any such applications. As a result of the
Telecommunications Act, CRC and Maxxis may experience increased competition
from others, including the Bell operating companies. In addition, both CRC and
Maxxis may be subject to additional regulatory requirements and fees,
including, without limitation, universal service assessments, additional access
charge assessments, and payphone compensation surcharges resulting from the
implementation of the Telecommunications Act.
State Regulation. CRC and Maxxis are subject to varying levels of
regulation in states in which each company provides long distance services. The
vast majority of states require long distance carriers to apply for
certificates to provide telecommunications services, or at least to register or
to be found exempt from regulation, before they may commence providing
intrastate long distance services. This authorization process generally
requires the carrier to demonstrate that it has sufficient financial, technical
and managerial capabilities and that granting the authorization will serve the
public interest. Also, a majority of states require long distance carriers to
file and to maintain detailed tariffs listing rates for intrastate services.
Many states also impose various reporting and fee requirements, including,
without limitation, state universal service requirements. State regulatory
agencies also generally require prior notice or approval for (i) transfers of
control of certificated carriers, (ii) sales or transfers of carrier assets,
including customer bases, (iii) carrier stock offerings and (iv) a carrier's
incurrence of significant debt obligations. Certificates of authority can
generally be conditioned, modified, canceled, terminated or revoked by state
telecommunications regulatory agencies for failure to comply with state laws
and rules, regulations and regulatory policies. Fines and other penalties may
be imposed for such violations.
We believe that CRC has made the necessary filings with the various
state telecommunications regulatory agencies to provide intrastate long
distance services in the states where CRC currently conducts its operations. We
believe we have filed the necessary applications and tariffs with the states in
order to provide intrastate long distance services prior to offering such
services to its customers. We cannot guarantee that we will obtain all
necessary authorizations, that CRC will maintain its necessary authorizations
or that CRC will not provide services in a state where it is not properly
certificate or terrified. The occurrence of any or all of the foregoing could
have a material adverse effect on our business, financial condition or
operating results.
Regulation Affecting Nutritional and Health Enhancement Products. The
formulation, manufacturing, packaging, labeling, advertising, distribution and
sale of our nutritional products are subject to regulation by a number of
governmental agencies, the most active of which is the FDA, which regulates our
products under the FDCA and regulations promulgated thereunder. Our products
are also subject to regulation by the FTC, the CPSC, the USDA and the EPA. The
FDCA has been amended several times with respect to dietary supplements, most
recently by the NLEA and the DSHEA. Our nutritional products are generally
classified and regulated as dietary supplements under the FDCA, as amended, and
therefore are not subject to pre-market approval by the FDA. However, these
products are subject to extensive labeling regulation by the FDA and can be
removed from the market if shown to be unsafe. Moreover, if the FDA determines
on the basis of our labeling or advertising claims, that the "intended use" of
any of our nutritional products is for the diagnosis, cure, mitigation,
treatment or prevention of disease, the FDA can regulate those products as
drugs and require pre-market clearance for safety and effectiveness. In
addition, if the FDA determines that we have made claims regarding the effect
of dietary supplements on the "structure or function" of the body, such claims
could result in the regulation of such products as drugs.
The FTC and certain states regulate advertising, product claims and
other consumer matters, including advertising of our products. In the past
several years, the FTC has instituted enforcement actions against several
dietary supplement companies for false and misleading advertising of certain
products. In addition, the FTC has increased its scrutiny of the use of
testimonials. We cannot guarantee that the FTC will not question our
advertising or other operations. Moreover, we cannot guarantee that a state
will not interpret product claims presumptively valid under federal law as
illegal under that state's regulations. Furthermore, our independent associates
and customers may file actions on their own behalf, as a class or otherwise,
and may file complaints with the FTC or state or local consumer affairs
offices. These agencies may take action on their own initiative or on a
referral from independent associates, customers or others, including actions
resulting in entries of consent decrees and the refund of amounts
9
<PAGE> 12
paid by the complaining independent associate or customer, refunds to an entire
class of independent associates or customers, or other damages, as well as
changes in our method of doing business. A complaint because of a practice of
one independent associate, whether or not that practice was authorized by us,
could result in an order affecting some or all independent associates in a
particular state. In addition, an order in one state could influence courts or
government agencies in other states. Proceedings resulting from these
complaints may result in significant defense costs, settlement payments or
judgments and could have a material adverse effect on our business, financial
condition or operating results.
Although many of the ingredients in our nutritional products are
vitamins, minerals, herbs and other substances for which there is a long
history of human consumption, some of our nutritional products contain
ingredients as to which there is little history of human consumption. We have
not tested, and have not engaged any independent third party to test, any of
our nutritional products. Accordingly, we cannot guarantee that our nutritional
products, even when used as directed, will have the effects intended. Although
we believe that our nutritional products are safe when consumed as directed, we
have not sponsored clinical studies on the long-term effect of human
consumption.
Regulation of Network Marketing. Our multi-level network marketing
system is subject to extensive government regulation, including, without
limitation, federal and state regulations governing the offer and sale of
business franchises, business opportunities and securities. Various
governmental agencies monitor direct selling activities, and they could require
us to supply information regarding our marketing plan at any time. Although we
believe that our multi-level network marketing system is in material compliance
with the laws and regulations relating to direct selling activities, we cannot
guarantee that future legislation and regulations adopted in particular
jurisdictions will not adversely affect our business, financial condition and
operating results. We have not obtained no-action letters or advance rulings
from any federal or state securities regulator or other governmental agency
concerning the legality of our operations. Federal and state regulators may
find our multi-level network marketing system to be in noncompliance with
existing statutes or regulations as a result of, among other things, misconduct
by our independent associates, over whom we have limited control, the ambiguous
nature of certain of the regulations and the considerable interpretive and
enforcement discretion given to regulators. Any assertion or determination that
we or our independent associates are not in compliance with existing statutes
or regulations could require us to modify our multi-level network marketing
system, create negative publicity, affect distributor morale and loyalty and
have a material adverse effect on our business, financial condition and
operating results. An adverse determination by any one state regulator on a
regulatory matter could influence the decisions of regulatory authorities in
other jurisdictions.
FACILITIES
We operate out of offices in Atlanta, Georgia consisting of
approximately 26,000 square feet of leased space for general and administrative
office space, warehouse space and training space. We may be required to lease
or build additional facilities, including at least one additional call center
and new corporate headquarters, in order to adequately meet our future needs.
We believe that suitable additional or alternative space will be available in
the future on commercially reasonable terms as needed.
EMPLOYEES
As of June 30, 1999, we employed approximately 48 people. Our IAs are
classified as independent contractors. Our employees are not unionized, and we
believe our relationship with our employees is good.
ITEM 2. PROPERTIES
See the information provided in Item 1 above entitled "Business --
Facilities" for information with respect to our properties.
10
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
We are not a party to, nor is any of its property subject to, any
material legal proceedings, other than routine litigation incidental to its
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our security holders during the
fourth quarter of the year ended June 30, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
As of September 23, 1999, there were approximately 840 holders of our
Common Stock of record. There is no established trading market for the Common
Stock, and one is not expected to develop in the near future.
From January to February of 1999, we conducted our public offering of
common stock. Pursuant to this offering, we sold 46,450 shares of Common Stock
at an offering price of $5.50 per share pursuant to a registration statement on
Form S-1 (Commission File No. 333-38623). Our gross proceeds from the offering
were approximately $255,475; our proceeds, net of offering expenses were
approximately $1,000. During 1999, we used the proceeds from the offering to
expand our communications business, develop additional product lines and for
working capital and general corporate purposes.
All outstanding shares of our Common Stock are entitled to share
equally in dividends from funds legally available therefor, when, as and if
declared by the Board of Directors. We do not plan to declare any dividends in
the immediate future.
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<PAGE> 14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
for the periods presented. We were incorporated on January 24, 1997 and began
operations in March 1997. Our fiscal year ends on June 30. The statement of
operations data for the period from January 24, 1997 to June 30, 1997 (the
"Inception Period") and the fiscal years ended June 30, 1998 and 1999 and the
balance sheet data as of June 30, 1997, 1998 and 1999 are derived from our
audited Consolidated Financial Statements. The Consolidated Financial
Statements for the Inception Period and the year ended June 30, 1999 were
audited by Arthur Andersen LLP, independent public accountants. The selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and the related notes thereto appearing
elsewhere in this Report.
<TABLE>
<CAPTION>
JANUARY 24, 1997
INCEPTION TO YEAR ENDED JUNE 30,
JUNE 30, 1997 1998 1999
---------------- ----------- ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Communications services .......................... $ 2,322,000 $ 5,293,000 $ 8,416,000
Nutritional products ............................. -- 526,000 1,371,000
Marketing services ............................... 369,000 1,172,000 2,557,000
----------- ----------- ------------
Total net revenues ...................... 2,691,000 6,991,000 12,344,000
----------- ----------- ------------
Cost of services:
Communications services .......................... 761,000 1,351,000 2,166,000
Nutritional products ............................. -- 294,000 662,000
Marketing services ............................... 255,000 431,000 947,000
----------- ----------- ------------
Total cost of services .................. 1,016,000 2,076,000 3,775,000
----------- ----------- ------------
Gross margin .......................................... 1,675,000 4,915,000 8,569,000
----------- ----------- ------------
Operating expenses:
Selling and marketing ............................ 1,089,000 2,665,000 5,373,000
General and administrative ....................... 660,000 2,344,000 4,376,000
----------- ----------- ------------
Total operating expenses ................ 1,749,000 5,009,000 9,749,000
----------- ----------- ------------
Interest expense ...................................... -- 2,000 356,000
----------- ----------- ------------
Loss before income tax benefit ........................ (74,000) (96,000) (1,536,000)
Income tax benefit .................................... -- -- --
----------- ----------- ------------
Net loss .............................................. $ (74,000) $ (96,000) $ (1,536,000)
=========== =========== ============
PER SHARE DATA:
Net loss per share .................................... $ (0.05) $ (0.06) (0.96)
=========== =========== ============
Weighted average number of shares outstanding ......... 1,571,187 1,571,187 1,594,387
=========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ....................................... $ (13,000) $ 180,000 $ (1,942,000)
Property and equipment, net ........................... 92,000 169,000 5,842,000
Total assets .......................................... 596,000 1,263,000 8,286,000
Long-term obligations ................................. -- -- 4,005,000
Shareholders' equity (deficit) ........................ 293,000 484,000 (1,014,000)
</TABLE>
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<PAGE> 15
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the "Selected Consolidated Financial Data" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Report. This Report
contains certain forward-looking statements relating to, without limitation,
future economic performance, plans and objectives of management for future
operations and projections of revenues and other financial items that are based
on the beliefs of our management, as well as assumptions made by, and
information currently available to, our management. When used in this Report,
the words "intends," "believes," "anticipates," "estimates," "may," "could,"
"should," "would," "will," "plans" and similar expressions and variations
thereof are intended to identify forward-looking statements. The cautionary
statements set forth elsewhere in this Report identify important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements.
We market communications and Internet services and nutritional and
health enhancement products through our multi-level network marketing system of
independent associates. We operate through our subsidiaries: Maxxis 2000;
Maxxis Communications; and Maxxis Nutritionals.
We are a network marketing company that currently markets 1-Plus long
distance service, prepaid phone cards, 800 service and international
telecommunications services, Internet access and Web-page development and
hosting services, and nutritional and health enhancement products. We believe
that our marketing system allows us to obtain customers for our products and
services in a cost effective manner. We believe that our marketing system also
enhances customer retention because of the personal relationships between our
independent associates and their customers. We believe that the
telecommunications customers obtained by our independent associates are also
potential customers for our nutritional and health enhancement products and
Internet-related services.
We derive revenues from communications services, nutritional products
and marketing services. Communications services revenues are comprised of: (i)
sales of prepaid phone cards to our independent associates; (ii) usage and fees
from long distance services provided by the Maxxis network, net of allowances
for bad debt and billing adjustments; (iii) commissions from our agreement with
CRC whereby we receive a percentage of the long distance billings received by
CRC from the customers originated by our independent associates, net of
allowances for bad debts and billing adjustments; and (iv) subscription fees
from our Internet subscribers. Because of the administrative procedures that
must be complied with in order to establish 1-Plus customers and to collect the
usage and access fees, there is generally a delay of up to two to three months
from the time a prospective customer indicates a desire to become a 1-Plus
customer and the time that we begin to receive revenues from such customer's
usage. In the future, we believe that revenues generated on the sales of 1-Plus
long distance services will constitute an increasing percentage of our total
revenues.
Nutritional products revenues include sales of private-label
nutritional products to our nutrition customers. During fiscal 1999, we began
marketing new health enhancement products and additional nutritional products,
including a weight management program and skin care system. Marketing services
revenues include application fees from independent associates and purchases of
sales aids by independent associates, including distributor kits which consist
of forms, promotional brochures, audio and video tapes, marketing materials and
presentation materials. Marketing services revenues also include training fees
paid by senior associates and "managing directors" or "MDs." To become an
independent associate, individuals (other than individuals in North Dakota)
must complete an application and purchase a distributor kit. Independent
associates also pay an annual non-refundable fee, which we amortize into
revenues over the renewal period, in order to maintain their status as an
independent associate. MDs must attend continuing education training schools
each year which also are subject to a fee. The training fees are recognized at
the time the training is received. We do not receive any fees from independent
associates for the training provided by MDs or national training directors.
Cost of services consists of communications services cost, nutritional
products cost and marketing services cost. Historically, communications
services cost has consisted primarily of the cost of providing service
13
<PAGE> 16
for prepaid phone cards; since April 1999, communications services cost also
includes the network services cost to provide or purchase 1-Plus long distance
services. Nutritional products cost consists of the cost of purchasing private
label nutritional products. Marketing services cost includes the costs of
purchasing independent associate distributor kits, sales aids and promotional
materials and training costs. Operating expenses consist of selling and
marketing expenses and general and administrative expenses. Selling and
marketing expenses include commissions paid to independent associates based on:
(i) sales of products to new independent associates sponsored into Maxxis; (ii)
usage of long distance services by customers; and (iii) sales of additional
products and services to customers. General and administrative expenses include
costs for independent associate support services, information systems services
and administrative personnel to support our operations and growth.
Maxxis has a limited operating history, and our operations are subject
to the risks inherent in the establishment of any new business. We expect that
we will incur substantial initial expenses, and there can be no assurance that
we will maintain profitability. If we continue to grow rapidly, we will be
required to continually expand and modify our operational and financial
systems, add additional independent associates and new customers, and train and
manage both current and new employees and independent associates. Such rapid
growth would place a significant strain on our operational resources and
systems, and the failure to effectively manage any such growth could have a
material adverse effect on our business, financial condition and operating
results.
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenues
attributable to each category for the periods shown.
<TABLE>
<CAPTION>
JANUARY 24, 1997 YEAR ENDED JUNE 30,
(INCEPTION) TO ---------------------
---------------- 1998 1999
JUNE 30, 1997 ------ ------
<S> <C> <C> <C>
Net revenues:
Communications services ......................... 86% 76% 68%
Nutritional products ............................ -- 7 11
Marketing services .............................. 14 17 21
----- ----- -----
Total net revenues .......................... 100% 100% 100%
===== ===== =====
Cost of services:
Communications services ......................... 28% 19% 18%
Nutritional products ............................ -- 4 5
Marketing services .............................. 10 6 8
----- ----- -----
Total cost of services ...................... 38 29 31
Operating expenses:
Selling and marketing ........................... 41 38 44
General and administrative ...................... 24 34 35
----- ----- -----
Total operating expenses .................... 65% 72% 79%
===== ===== =====
</TABLE>
We were incorporated in January 1997 and commenced operations in March
1997. No comparisons are presented for the year ended June 30, 1998 compared to
the Inception Period because we commenced operations in March 1997 and we do
not believe the comparisons would be meaningful.
14
<PAGE> 17
Year Ended June 30, 1999 compared with June 30, 1998
Net Revenues. Total net revenues are derived from sales of
communications services, nutritional products and marketing services. Total net
revenues increased $5.4 million, or 77%, to $12.3 million for fiscal year ended
June 30, 1999 from $7.0 million for the same period in 1998. The increase in
total net revenues was primarily due to the growth in the number of IAs
enrolled in the Maxxis marketing network.
Communications services revenues consist of sales of prepaid phone
cards to IAs and commissions, fees and revenues generated from long distance
customers and fees generated from Internet services and web hosting activities.
Communications services revenues increased $3.1 million, or 59%, to $8.4
million for fiscal 1999 from $5.3 million for the same period in 1998. This
increase was primarily due to increased phone card sales to our IAs and
increased long distance telephone commissions resulting from our larger
communications customer base.
Nutritional products revenues consist of sales of private label
nutritional products. Nutritional products revenues increased $845,000, or
161%, to $1.4 million for fiscal 1999 from $526,000 for fiscal 1998. This
increase was primarily due to the fact that we did not begin selling
nutritional products until November 1997 combined with the more expansive
product line we offered during fiscal 1999.
Marketing services revenues consist of application fees paid by
independent associates, purchases of sales aids by independent associates,
registration fees for the annual Summit marketing meeting and training fees
paid to become a MD. Marketing services revenues increased $1.4 million, or
118%, to $2.6 million for fiscal 1999 from $1.2 million for the same period in
1998. This increase was due to the growth in the numbers of IAs and the
increased attendance of the IAs at our Summit meeting and our training schools
along with an increase in the price of our distribution kits.
Cost of Services. Cost of services includes communications services
cost, nutritional products cost and marketing services cost. Total cost of
services for fiscal 1999 was $3.8 million, or 31% of total net revenues, as
compared to $2.1 million, or 30% of total net revenues, for the same period in
1998. The increase in total cost of services as a percentage of total net
revenues was primarily the result of flat communications services margins which
was mitigated by an improvement in nutritional product and marketing services
margins.
Communications services cost consists primarily of the cost of
purchasing activated prepaid phone cards from CRC and other outside vendors as
well as the costs we incur in the operation of the Maxxis Switch.
Communications services cost was $2.2 million, or 18% of total net revenues,
for fiscal 1999, as compared to $1.4 million, or 19% of total net revenues, for
the same period in 1998. Nutritional products cost was $662,000 or 5% of total
net revenues for fiscal 1999 as compared to $294,000, or 4% of total revenues
for the comparable 1998 period. Marketing services cost was $947,000, or 8% of
total net revenues, for fiscal 1999 as compared to $431,000, or 6% of total net
revenues, for the same period in 1998. The increase in marketing services cost
as a percentage of total net revenues was primarily due to higher costs
associated with our 1999 annual Summit meeting for our IAs.
Gross Margin. Gross margin increased to $8.6 million for fiscal 1999
from $4.9 million for the same period in 1998. As a percentage of total net
revenues, gross margin declined to 69% for fiscal 1999 from 70% for fiscal
1998.
Operating Expenses. Selling and marketing expenses consist of
commissions paid to independent associates based on (i) sales of products to
new independent associates sponsored into Maxxis, (ii) usage of long distance
services by customers, and (iii) sales of additional products and services to
customers. For fiscal 1999, selling and marketing expenses were $5.4 million,
or 44% of total net revenues, as compared with $2.7 million, or 38% of total
net revenues, for the same period in 1998. Selling and marketing expenses
increased as a percentage of net revenues primarily for fiscal 1999 primarily
because of an incentive trip and other awards which were provided to our best
performing independent associates. General and administrative expenses were
$4.4 million, or 35% of total net revenues for 1999, as compared to $2.3
million, or 34% of total net revenues, for the same period in 1998. General and
administrative expenses increased as a percentage of total revenues in fiscal
1999 due to higher legal and other
15
<PAGE> 18
expenses in connection with our public stock offering and the filing of tariffs
in various states to offer long distance service. Total operating expenses
increased to 79% of net revenues for fiscal 1999 from 72% of net revenues for
fiscal 1998.
Interest Expense. For the year ended June 30, 1999, interest expense
was $356,000. The expense was largely comprised of interest cost related to the
Maxxis Switch and also included interest on the line of credit facility,
partially offset by interest earned on overnight cash balances. Interest
expense of $2,000 in fiscal 1998 was largely related to a loan from a Company
officer.
Net Loss. Net loss for fiscal 1999 was $1.6 million as compared to a
net loss of $96,000 for the same period in 1998.
YEAR ENDED JUNE 30, 1998
Maxxis was incorporated in January 1997 and commenced operations in
March 1997. No comparisons are presented for the year ended June 30, 1998
compared to the Inception Period because Maxxis commenced operations in March
1997, and we believe the comparisons would not be meaningful. Similarly, no
comparisons are presented for the Inception Period because Maxxis was not in
existence for the corresponding period in 1996.
INCEPTION PERIOD (JANUARY 24, 1997 TO JUNE 30, 1997)
Net Revenues. For the Inception Period, communications services
revenues were $2.3 million, or 86% of total revenues, and marketing services
revenues were $369,000, or 14% of total revenues. Communications services
revenues consist of sales of prepaid phone cards by and to our IAs and
commissions and fees generated from long distance usage customers. This amount
was minimal for the Inception Period because no customers were utilizing long
distance services until May 1997. Marketing services revenues include
application kit fees from IAs, purchases of sales aids by IAs and training fees
paid to become a MD.
Cost of Services. Communications services cost was $761,000, or 28% of
total revenues, for the Inception Period. Communications services costs include
the cost of purchasing activated prepaid phone cards. Marketing services cost,
which includes the costs of application kits and promotional materials, was
$255,000, or 10% of total revenues, for the Inception Period.
Operating Expenses. Selling and marketing expenses principally consist
of commissions paid to IAs based on (i) sales of products and services to new
IAs sponsored into Maxxis (ii) usage of long distance services by customers,
and (iii) sales of additional products and services to customers. Selling and
marketing expenses were $1.1 million, or 41% of total revenues, for the
Inception Period. General and administrative expenses were $660,000, or 25% of
total revenues, for the Inception Period. General and administrative expenses
consist primarily of salary expense for our customer service personnel, office
staff and executive personnel. Such expenses also include costs for IA support
services and information systems services.
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<PAGE> 19
SEASONALITY AND UNAUDITED QUARTERLY FINANCIAL INFORMATION
We have historically experienced, and expects to continue to
experience, significant seasonal fluctuations in the recruitment of its IAs and
the sale of its products and services. Our annual summit occurs in the first
quarter of our fiscal year, which has historically caused an increase in the
number of our IAs and sales of our products and services. Historically,
revenues have been lower in the second quarter than in other quarters of a
given year because of the number of new IAs added and product and service sales
have historically declined during the holiday season. Our operating results may
vary significantly in the future, partly due to such seasonal fluctuations. We
believe that recruitment of IAs and sales of our products and services will
continue to follow this seasonal cycle. Our quarterly results may fluctuate
significantly as a result of such seasonality. Because of the potential
quarterly fluctuations in our revenue and operating results, results for any
particular quarter may not be indicative of future quarterly or annual results.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
SEPT. 30, 1998 DEC. 31, 1998 MAR. 31, 1999 JUNE 30, 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Communications services ................... $ 3,686,000 $ 1,435,000 $ 1,166,000 $ 2,129,000
Nutritional products ...................... 375,000 255,000 303,000 438,000
Marketing services ........................ 1,042,000 398,000 427,000 690,000
----------- ----------- ----------- -----------
Total net revenues .................. 5,103,000 2,088,000 1,896,000 3,257,000
----------- ----------- ----------- -----------
Cost of services:
Communications services ................... 706,000 201,000 120,000 1,139,000
Nutritional products ...................... 202,000 159,000 118,000 183,000
Marketing services ........................ 552,000 84,000 183,000 128,000
----------- ----------- ----------- -----------
Total cost of services .............. 1,460,000 444,000 421,000 1,450,000
----------- ----------- ----------- -----------
Gross margin ................................ 3,643,000 1,644,000 1,475,000 1,807,000
----------- ----------- ----------- -----------
Operating Expenses:
Selling and marketing ..................... 2,005,000 1,054,000 1,126,000 1,188,000
General and administrative ................ 778,000 1,073,000 903,000 1,622,000
----------- ----------- ----------- -----------
Total operating expenses ............ 2,783,000 2,127,000 2,029,000 2,810,000
----------- ----------- ----------- -----------
Interest income (expense) ................... -- 5,000 (179,000) (182,000)
----------- ----------- ----------- -----------
Income (loss) before income tax benefit ..... 860,000 (478,000) (733,000) (1,185,000)
Income tax provision (benefit) .............. 280,000 (130,000) (150,000) --
----------- ----------- ----------- -----------
Net (loss) income ........................... $ 580,000 $ (348,000) $ (583,000) $(1,185,000)
=========== =========== =========== ===========
Net (loss) income per share:
Basic ..................................... $ 0.37 $ (0.22) $ (0.37) $ (0.74)
=========== =========== =========== ===========
Diluted ................................... $ 0.36 $ (0.22) $ (0.37) $ (0.74)
=========== =========== =========== ===========
</TABLE>
17
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
From January to February of 1999, we conducted our public offering of
common stock. Pursuant to this offering, we sold 46,450 shares of Common Stock
at an offering price of $5.50 per share pursuant to a registration statement on
Form S-1 (Commission File No. 333-38623). Our proceeds from the offering were
approximately $255,475; our proceeds, net of offering expenses were
approximately $1,000. During 1999, we used the proceeds from the offering to
expand our communications business, develop additional product lines and for
working capital and general corporate purposes.
On November 22, 1998, we entered into a line of credit with the Maxxis
Millionaire Society, a Georgia partnership. The line of credit was amended on
May 1, 1999. Ivey Stokes, our Chairman, Chief Executive Officer and President,
and Alvin Curry, our Chief Operating Officer, are partners in the Maxxis
Millionaire Society. Pursuant to the line of credit, Maxxis may borrow up to
$2,000,000 at 10% annual interest. No advances or interest thereon pursuant to
the line of credit are payable until November 22, 2000. As of June 30, 1999,
$1,390,000 principal amount was outstanding pursuant to the line of credit.
In November 1997, we entered into a demand promissory note to fund
expenses incurred in connection with the launch of our nutritional product
line. As of March 23, 1998, we had borrowed $200,000 under such promissory
note. On March 23, 1998, we converted the outstanding principal amount under
the promissory note into units ("Units") at a price of $5.50 per Unit with each
Unit consisting of one share of convertible preferred stock (the "Preferred
Stock") and a warrant (a "Warrant") to purchase one share of Common Stock at a
price of $5.50 per share. The Preferred Stock is: (i) non-voting; (ii) entitled
to an antidilution adjustment only upon a stock split, recapitalization or
similar event; (iii) entitled to a liquidation preference over the Common
Stock; and (iv) convertible into Common Stock at the option of the holder at
any time commencing 14 months following the date of the issuance of the
Preferred Stock and automatically upon the closing of a public offering that
occurs at least 14 months following the issuance of the Preferred Stock and
that provides us with gross proceeds of at least $7,500,000. The Warrants are
entitled to an antidilution adjustment only upon a stock split,
recapitalization or similar event, are not exercisable until 14 months
following their date of issuance and remain exercisable at the option of the
holder until the seventh anniversary of their issuance. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of the Preferred Stock and any additional preferred
stock that may be issued in the future.
In February 1998, we entered into a note with Thomas O. Cordy (the
"Cordy Note") to memorialize a loan in December 1997 of $53,000 from Mr. Cordy
to us to fund certain operational expenses. As of June 30, 1998, the Cordy Note
had been repaid in full.
We anticipate that cash generated from operations, together with
additional borrowings or equity financings, will be sufficient to meet our
capital requirements for the next 12 months. However, if we do not receive
sufficient funds from its operations and borrowings and equity financings to
fund its operations, we may need to raise additional capital. In addition, any
increases in our growth rate, shortfalls in anticipated revenues, increases in
expenses or significant acquisitions could have a material adverse effect on
the our liquidity and capital resources and could require us to raise
additional capital. We may also need to raise additional funds in order to take
advantage of unanticipated opportunities, such as acquisitions of complementary
businesses or the development of new products, or otherwise respond to
unanticipated competitive pressures. Sources of additional capital may include
venture capital financing, cash flow from operations, additional lines of
credit and private equity and debt financings. Our cash and financing needs for
1999 and beyond will be dependent on our level of IA and customer growth and
the related capital expenditures, advertising costs and working capital needs
necessary to support such growth. We believe that major capital expenditures
may be necessary over the next few years to develop additional product lines to
sell through its IAs and to develop and/or acquire information, accounting
and/or inventory control systems to monitor and analyze our growing multi-level
network marketing system. We have not identified financing sources to fund such
cash needs in 1999 and beyond. There can be no assurance that we will be able
to raise any such capital on acceptable terms or at all.
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<PAGE> 21
During 1999, we used net cash of $177,000 in operating activities, as
compared to net cash provided by operating activities of $235,000 for 1998.
Operating activities for 1999 consisted primarily of $1.5 million of net loss
and $1.4 million of changes in assets and liabilities, which were offset by
$501,000 of non-cash expenses.
Cash used in investing activities was $741,000 for 1999, as compared
to $185,000 for 1998. Investing activities for 1999 consisted primarily of
software development and organizational costs of $362,000, capital expenditures
totaling $279,000 and an investment in an internet service provider of
$100,000.
Cash provided from financing activities was $566,000 for 1999, as
compared to $287,000 for 1998. Financing activities for 1999 consisted
primarily of $1,390,000 borrowed pursuant to our line of credit and $1,000 of
proceeds from our public offering, which amounts were partially offset by
payments of $825,000 on lease obligations.
YEAR 2000 COMPLIANCE
Many installed computer software and network processing systems
currently accept only two-digit entries in the date code field and may need to
be upgraded or replaced in order to accurately record and process information
and transactions on and after January 1, 2000. Our business and relationships
with our customers and IAs depends significantly on a number of computer
software programs, internal operating systems and connections to other
networks, and the failure of these programs, systems or networks to
successfully address the Year 2000 problem could have a material adverse effect
on our business, financial condition and results of operations. The Maxxis
Switch is not Year 2000 compliant. Although we expect that the transactions
processed through the Maxxis Switch will be Year 2000 compliant by mid-December
1999, there is no assurance that we will be able to successfully address the
Year 2000 problem with respect to the Maxxis Switch by mid-December 1999 or at
all. Our failure to solve this issue could result in serious financial harm
due to the fact that we could lose a portion of or all of the revenues that
would otherwise be obtained from traffic routed over the Maxxis Switch.
We have conducted reviews to assess the extent to which our internal
systems and software and the network connections it maintains are adequately
programmed to address the Year 2000 issue. In addition, our ability to provide
services and support to our customers and IAs depends upon the continued
functioning of the software programs, operating systems and networking used by
its vendors and suppliers. We are also assessing the extent to which our
vendors and suppliers have successfully addressed the Year 2000 problem. It
currently is impossible for us to predict the potential expenditures that may
be required or the delay or interruption in service that may result due to the
Year 2000 problem. Based on these reviews, we expect to complete the necessary
steps to address potential operating issues in connection with the Year 2000
problem. Any failure by us or our vendors or suppliers to successfully address
the Year 2000 problem could significantly interrupt our business operations and
have a material adverse effect on our business, financial condition and results
of operations. We have established certain contingency plans relative to our
most critical operating procedures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements, including our consolidated
balance sheets as of June 30, 1998 and 1999 and consolidated statements of
operations, shareholders' equity (deficit) and cash flows for period from
Inception (January 24, 1997) to June 30, 1997 and for each of the two years in
the period ended June 30,
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<PAGE> 22
1999 together with the report thereof of Arthur Andersen LLP, dated September
17, 1999 are included on pages F-1 through F-19 of this Report.
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<PAGE> 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND
FINANCIAL DISCLOSURE
We had no disagreements on accounting or financial disclosure matters
with our accountants nor did we change accountants during the year ended June
30, 1999.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS AND DIRECTORS
Our directors and executive officers are set forth below. Our Board of
Directors consists of nine directors divided into three classes of directors,
serving staggered three-year terms. Our directors and executive officers are
elected to serve until they resign or are removed, or are otherwise
disqualified to serve, or until their successors are elected and qualified. Our
directors are elected at the annual meeting of shareholders. Our officers are
appointed at the Board's first meeting after each annual meeting of
shareholders. The ages of the persons set forth below are as of September 30,
1999.
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION EXPIRES
- ---- --- -------- -------
<S> <C> <C> <C>
Ivey J. Stokes .................... 40 Chairman of the Board of Directors, Chief Executive 2001
Officer and President
Alvin Curry ....................... 42 Chief Operating Officer and Director 2001
Daniel McDonough .................. 52 Chief Financial Officer and Secretary --
Larry W. Gates, II ................ 36 Vice President and Director 1999
Charles P. Bernstein .............. 48 Director 2000
Thomas O. Cordy ................... 58 Director 2001
Robert James Glover, Jr ........... 38 Director 1999
Terry Harris ...................... 44 Director 2000
Philip E. Lundquist ............... 63 Director 2000
John D. Phillips .................. 56 Director 1999
</TABLE>
IVEY J. STOKES has served as our Chairman of the Board of Directors
since our inception and as our Chief Executive Officer and President since
September 1999. Mr. Stokes began his marketing career in 1982 at A.L. Williams
Corporation ("A.L. Williams") where he became one of less than 400 National
Sales Directors out of 1.3 million insurance agents. In March 1991, Mr. Stokes
left the financial services industry to launch his own independent marketing
firm, Global Marketing Alliance ("Global Alliance"). Over the next five years,
Mr. Stokes became one of the leading money earners in several national network
marketing firms. Mr. Stokes' marketing firm, Global Alliance, has sponsored and
trained over 150,000 distributors since 1991. Mr. Stokes has a bachelors degree
in industrial management from the Georgia Institute of Technology.
THOMAS O. CORDY has served as a director since May 1997. Mr. Cordy
served as our Chief Executive Officer and President from May 1997 to September
1999. Prior to joining us, he served as President and Chief Executive Officer
of CI Cascade Corp. Mr. Cordy currently serves as Vice Chairman of the Board of
Trustees of Clark Atlanta University, Chairman of the Board of Renaissance
Capital Corporation and as a Director of Cox Enterprises. Mr. Cordy has a
bachelors degree from Morehouse College and a masters degree from Atlanta
University. Mr. Cordy has attended the Stanford Executive Program at the
Stanford School of Business and the University of Oklahoma National Lending
School.
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<PAGE> 24
DANIEL MCDONOUGH has served as our Chief Financial Officer since
October 1997. Prior to his employment with us, Mr. McDonough provided financial
consulting services to a number of start up companies at Creative Benefits,
Inc. In addition, from 1992 to 1994, Mr. McDonough was the controller of
Jostens Learning Corporation, a $75.0 million technology company specializing
in educational software. Prior to his employment with Jostens, Mr. McDonough
served as assistant controller to Alumax, Inc., a $2.5 billion integrated
aluminum company with over 100 manufacturing operations throughout the United
States. From 1973 to 1980, Mr. McDonough was employed by Price Waterhouse & Co.
Mr. McDonough is a licensed CPA and also holds a masters of business
administration degree from the University of Buffalo.
LARRY W. GATES, II has served as Vice President since our inception
and as a director since May 1997. Mr. Gates became a part-time independent
insurance agent for A.L. Williams in 1989 while serving in the U.S. Army. In
1993, he left the financial services industry and became a full-time
independent marketer of telecommunications services through his own independent
marketing firm, Classic Enterprises. Mr. Gates built a downline of over 10,000
distributors between 1993 and 1996. Mr. Gates has an associates degree from
Pierre College.
CHARLES P. BERNSTEIN has served as a director since May 1997. Since
1992, Mr. Bernstein has also served as President of Harvest Mortgage Co. From
1989 to 1992, Mr. Bernstein was the Vice President of Nationwide Mortgage
Resources, an underwriter and servicer of loans on residential and commercial
real estate. Mr. Bernstein holds an associates degree from the University of
South Carolina.
ALVIN CURRY has served as a director since our inception. He also
serves as our Executive Vice President and Chief Operating Officer. Mr. Curry
started his marketing career in 1986 with A.L. Williams, where he attained the
position of Senior Vice President in less than three years. In March 1991, Mr.
Curry left the financial services industry to join Mr. Stokes in Global
Alliance. Mr. Curry attended Northwest Mississippi Junior College and Tacoma
Community College, and he received a degree from the Knapp College of Business.
ROBERT JAMES GLOVER, JR. has served as a director since our inception.
Mr. Glover started his marketing career as an independent insurance agent with
A.L. Williams in 1985, where he attained the sales position of Senior Vice
President. In December 1993, Mr. Glover left the financial services industry
and became an independent marketer of telecommunications services through his
own independent marketing firm, Glover Enterprises. Mr. Glover's network
marketing firm has sponsored and trained over 10,000 distributors. Mr. Glover
attended Maryland University.
TERRY HARRIS has served as a director since May 1997. Since 1982, Mr.
Harris has served as Pastor and President of Tacoma Christian Center Inc. Mr.
Harris has a bachelors degree from the University of Puget Sound and attended
Rhema Bible School.
PHILIP E. LUNDQUIST has served as a director since May 1997. He also
serves as Chairman of Christopher Partners Inc. Since 1988, Mr. Lundquist has
owned and operated an investment banking consulting company as a sole
proprietorship. From 1985 to 1988, Mr. Lundquist was the Director of Corporate
Finance for Deloitte Haskins & Sells in Atlanta, Georgia. Mr. Lundquist has a
bachelors degree from Williams College and attended the Institute of Investment
Banking at the Wharton School, University of Pennsylvania.
JOHN D. PHILLIPS has served as a director since April, 1999. Since
December 1998, Mr. Phillips has served as the President and Chief Executive
Officer of World Access Corporation. Mr. Phillips was Chairman of the Board and
Chief Executive Officer of Cherry Communications Incorporated d/b/a Resurgens
Communications Group ("RCG") and Cherry Communications U.K. Limited from
October 1997 until December 1998, when both companies were acquired by World
Access, Inc. In October 1997, RCG filed for bankruptcy protection under Chapter
11 of the United States Bankruptcy Code. World Access acquired RCG pursuant to
RCG's resulting plan of reorganization. He was President, Chief Executive
Officer and a director of Metromedia International Group, Inc. from November
1995 until December 1996. Metromedia was formed in November 1995 through the
merger of The Actava Group, Inc. ("Actava"), Orion Pictures Corporation, MCEG
Sterling Incorporated and Metromedia
22
<PAGE> 25
International Telecommunications, Inc. He served as President, Chief Executive
Officer and a director of Actava from April 1994 until November 1995. In May
1989, Mr. Phillips became Chief Executive Officer of Resurgens Group, Inc. and
served in this capacity until September 1993 when Resurgens Group, Inc. merged
with Metromedia Communications Corporation and WorldCom.
COMMITTEES OF THE BOARD
The Executive Committee of our Board of Directors exercises, during
the interval between Board meetings, all of the powers of our Board of
Directors with certain limitations. During the year ended June 30, 1999, the
Executive Committee was composed of Thomas O. Cordy, Alvin Curry and Ivey J.
Stokes and held three meetings.
The Audit Committee of the Board of Directors reviews, with our
independent public accountants, our annual financial statements, reviews the
work of such independent public accountants and makes annual recommendations to
the Board of Directors for the appointment of independent public accountants
for the ensuing year. The Audit Committee also reviews the effectiveness of our
financial and accounting functions, organization, operations and management.
During the year ended June 30, 1999, the Audit Committee was composed of
Charles P. Bernstein, Terry Harris and Philip E. Lundquist and held one
meeting.
The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of our officers and administers the
issuance of stock options to our officers, employees, consultants and advisors.
The Compensation Committee also reviews general policy matters relating to the
compensation and benefits of our employees. During the year ended June 30,
1999, the Compensation Committee was composed of Charles P. Bernstein, Terry
Harris and Philip E. Lundquist and held one meeting.
We do not have a standing nominating committee. The Board of Directors
or the Executive Committee nominates candidates to stand for election as
directors. Our Amended and Restated Bylaws permit shareholders to make
nominations for directors but only if such nominations are made pursuant to
timely notice in writing to the Secretary of Maxxis. To be timely, notice of
shareholder nominations for directors must be delivered in writing to the
Secretary of Maxxis no later than 90 days prior to the anniversary of the
previous year's annual meeting, together with the identity of the nominator and
the number of shares of Common Stock owned, directly or indirectly, by the
nominator.
During the year ended June 30, 1999, our Board of Directors held four
meetings. John D. Phillips was elected to the Board at its April meeting, but
has not attended any meetings. With the exception of Mr. Phillips, all of our
directors have attended 75% or more of the aggregate of all Board meetings and
all meetings of committees of which they were members.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Members of the Board of Directors are reimbursed for their
out-of-pocket expenses for each meeting attended, but otherwise serve without
compensation.
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<PAGE> 26
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation
earned by our Chief Executive Officer during the years ended June 30, 1999 and
1998 and the Inception Period. No other executive officers received a combined
salary and bonus in excess of $100,000 during the years ended June 30, 1999 and
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------
NAME AND PRINCIPAL POSITION PERIOD SALARY BONUS(1)
- --------------------------- ----------- -------- ---------
<S> <C> <C> <C>
Thomas O. Cordy..................................... Fiscal 1999 $ 41,600 $ 83,400
Chief Executive Officer and President Fiscal 1998 41,600 $ 83,400
</TABLE>
- ---------------
(1) Represents amounts accrued as bonus compensation for the periods presented.
OPTION GRANTS DURING 1999
As of June 30, 1999, no options had been granted to our Chief
Executive Officer, and no executive officer received a combined salary and
bonus in excess of $100,000 during the year ended June 30, 1999.
EMPLOYMENT AGREEMENT
We entered into an employment agreement (the "Cordy Agreement") with
Mr. Cordy on May 1, 1997. In September 1999, Mr. Cordy resigned as our Chief
Executive Officer and President. At the time of Mr. Cordy's resignation, our
Executive Committee appointed our Chairman of the Board, Ivey J. Stokes, to
serve as our Chief Executive Officer and President. Mr. Stokes is not presently
a party to an employment agreement with us.
SALES REPRESENTATIVE AGREEMENTS
We entered into independent sales representative agreements
(collectively, the "Sales Representative Agreements") with ten independent
sales representatives, including Messrs. Stokes, Gates and Glover. The Sales
Representative Agreements provide for a minimum fee of $800.00 per week. Each
sales representative is also be eligible to receive quarterly payments of a
performance bonus which is a percentage of total revenue from Maxxis 2000. To
be paid a bonus, a sales representative must have 180 new activations in a
quarter. The bonus amount is then determined by the number of open centers in
that quarter. The bonus ranges from 1% of total revenue from Maxxis 2000 if
four centers are opened to 5% of the revenue if 20 centers are opened. Each
sales representative is an independent contractor, and we do not exercise
control over the activities of the sales representatives other than as set
forth in the Sales Representative Agreements.
Each of the Sales Representative Agreements has a term of one year,
and the term renews daily for an additional year until either party fixes the
remaining term at one year by giving written notice. We can terminate each
sales representative upon death or disability (as defined in the Sales
Representative Agreements) or with or without cause upon delivery to the sales
representative of a notice of termination. If a sales representative is
terminated, the sales representative will receive any accrued fees through the
termination date and any accrued performance bonus, unless the sales
representative is terminated for cause. If the sales representative is our
director or officer, the sales representative shall tender his resignation to
such positions effective as of the termination date. Under the Sales
Representative Agreements, each sales representative agrees to maintain the
confidentiality of our trade secrets and confidential business information.
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<PAGE> 27
CONSULTING AGREEMENT
In September 1997, we entered into a consulting agreement with Mr.
Robert P. Kelly. The consulting agreement provides for a minimum weekly salary,
and the consultant may participate in a bonus program and is eligible to
receive quarterly or annual payments of a performance bonus based upon the
achievement of targeted levels of performance and such other criteria as the
Board of Directors shall establish from time to time. The consultant is an
independent contractor, and we do not exercise control over the activities of
the consultant other than as set forth in the consulting agreement.
The consulting agreement has a term of one year, and the term renews
daily for an additional year until either party fixes the remaining term at one
year by giving written notice. We can terminate the consultant upon death or
disability (as defined in the consulting agreement) or with or without cause
upon delivery to the consultant of a notice of termination. If the consultant
is terminated because of death, disability or cause, the consultant will
receive any accrued fees through the termination date and any accrued
performance bonus, unless the consultant is terminated for cause. If the
consultant is terminated without cause, we shall pay the consultant severance
payments equal to his minimum base salary for each week during the six-month
period following the termination date.
Under the consulting agreement, the consultant agrees to maintain the
confidentiality of our trade secrets and confidential business information. The
consultant also agrees for a period of one year following the termination date,
if he is terminated or resigns for any reason, not to compete with or solicit
our employees or customers within a 30-mile radius of our corporate offices;
provided, that if the consultant is terminated without cause, the non-compete
period shall be six months.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to its Amended and Restated Articles of Incorporation, we are
obligated to indemnify each of our directors and officers to the fullest extent
permitted by the Georgia Business Corporation Code with respect to all
liability and loss suffered and reasonable expenses incurred by such person in
any action, suit or proceeding in which such person was or is made or
threatened to be made a party or is otherwise involved by reason of the fact
that such person is or was our director or officer. We are obligated to pay the
reasonable expenses of our directors and officers incurred in defending such
proceedings if the indemnified party agrees to repay all amounts advanced by us
if it is ultimately determined that such indemnified party is not entitled to
indemnification.
STOCK OPTION PLAN
On September 16, 1998, the Board of Directors adopted the Maxxis
Group, Inc. 1998 Stock Option Plan (the "Option Plan"), which permits us to
grant options to purchase shares of Common Stock to our officers, directors,
key employees, advisors and consultants. The purpose of the Option Plan is to
advance the interests of Maxxis, its subsidiaries and its shareholders by
affording certain employees and directors of Maxxis and its subsidiaries, as
well as key consultants and advisors to Maxxis or any subsidiary, an
opportunity to acquire or increase their proprietary interests in Maxxis.
Options granted under the Option Plan are intended to promote our growth and
profitability by providing the optionees with an additional incentive to
achieve our objectives through participation in our success and growth and by
encouraging optionees to continue their association with or service to us.
Generally, options granted under the Option Plan may be Incentive
Stock Options ("ISOs"), which are intended to meet the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified options, which are not intended to meet such requirements
("Non-Qualified Options"). ISOs must have terms of ten years or less from the
date of grant and the fair market value of grants of ISOs during any year on
the date of grant may not exceed $100,000. The Option Plan will be administered
by a committee (the "Committee"), having the duties and authorities set forth
in such Option Plan in addition to any other authority granted by the Board.
The Committee will have the full power and authority, in its discretion,
subject to the provisions of the Option Plan, to interpret the Option Plan, to
prescribe, amend, and rescind rules and regulations
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<PAGE> 28
relating to them, to determine the details and provisions of each stock option
agreement and restriction agreement, and to make all other determinations
necessary or advisable for the administration of the Option Plan, including,
without limitation, the amending or altering of such Plan and any options or
restricted stock awards granted thereunder, as may be required to comply with
or to conform to any federal, state, or local laws or regulations. The
Committee, in its discretion, will select the recipients of awards and the
number of options granted thereunder and determine other matters such as (i)
vesting schedules, (ii) the exercise price of options (which cannot be less
than 100% of the fair market value of the Common Stock on the date of grant for
ISOs) and (iii) the duration of awards (which cannot exceed ten years from the
date of grant or modification of the option).
Subject to shareholder approval, the aggregate number of shares of
Common Stock reserved for the issuance of options under the Option Plan will be
300,000 shares, subject to adjustment in accordance with the Option Plan. Any
or all shares of Common Stock subject to the Option Plan may be issued in any
combination of ISOs or Non-Qualified Options, and the amount of Common Stock
subject to the Option Plan may be increased from time to time, subject to
shareholder approval. Shares subject to an option may be either authorized and
unissued shares or shares issued and later reacquired by us. The shares covered
by any unexercised portion of an option that has terminated for any reason may
again be optioned or awarded under the Option Plan, and such shares shall not
be considered as having been optioned in computing the number of shares of
Common Stock remaining available for options under the Option Plan.
The class of persons eligible to participate in the Option Plan shall
consist of all persons whose participation in the Option Plan the Committee
determines to be in our best interests which shall include, but not be limited
to, all employees and directors of Maxxis, as well as key consultants and
advisors to Maxxis. The Committee will have the power to specify, with respect
to the Options granted to a particular Optionee, the effect of the termination
of such Optionee's employment or service under various circumstances on such
Optionee's right to exercise an Option, which effect may include immediate or
deferred termination of such Optionee's rights under an Option, or acceleration
of the date at which an Option may be exercised in full. As of September 30,
1999, options to purchase 74,634 shares of Common Stock were outstanding.
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<PAGE> 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of September 23, 1999 by: (i) each
person known by us beneficially to own more than 5% of the outstanding shares
of the Common Stock; (ii) each of our directors; and (iii) all of our directors
and executive officers as a group. Except as otherwise indicated, all persons
listed have sole voting and investment power with respect to their shares.
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF
BENEFICIAL COMMON STOCK
NAME AND ADDRESS(A) OF BENEFICIAL OWNER OWNERSHIP(B) OUTSTANDING
- --------------------------------------- ------------ -------------
<S> <C> <C>
Alvin Curry(c) ............................................. 636,363 40.5%
King David Trust(d) ........................................ 454,545 28.9
Cynthia Glover, trustee(e) ................................. 181,818 11.6
The Anchora Company(f) ..................................... 72,727 4.6
Charles P. Bernstein ....................................... 45,454
Larry W. Gates ............................................. 47,272 3.0
Thomas O. Cordy(g) ......................................... -- 2.9
Larry W. Gates, II ......................................... 45,454 2.9
Robert J. Glover(h) ........................................ -- --
Terry Harris ............................................... 3,636 *
Philip E. Lundquist ........................................ -- --
Ivey J. Stokes(i) .......................................... -- --
All directors and executive officers as a group
(10 persons) (c) - (i) .................................. 994,088 63.0
</TABLE>
- ---------------------
* Less than one percent
(a) The address of the King David Trust and Alvin Curry is c/o Maxxis
Group, Inc., 1901 Montreal Drive, Suite 108, Tucker, Georgia 30084.
The address of Cynthia Glover, trustee, U/A Louise Glover dated
January 10, 1997 is 7839 Taylor Circle, Riverdale, Georgia 30274. The
address of The Anchora Company is c/o Salem Management Company, Ltd.,
Design House, Leeward Highway, P.O. Box 150, Providenciales Turks &
Caicos Island, B.W.I.
(b) In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended, a person is deemed to be the beneficial owner, for
purposes of this table, of any shares of Common Stock if such person
has or shares voting power or investment power with respect to such
security, or has the right to acquire beneficial ownership at any time
within 60 days from September 30, 1999. As used herein, "voting power"
is the power to vote or direct the voting of shares and "investment
power" is the power to dispose or direct the disposition of shares.
(c) Includes 454,545 shares owned by the King David Trust of which Mr.
Curry, a director of, is the trustee. Mr. Curry disclaims beneficial
ownership of such shares.
(d) All such shares are owned by the King David Trust of which Mr. Curry
is the trustee and Mr. Stokes' minor children are the beneficiaries.
Mr. Stokes, the Chairman of the Board, disclaims beneficial ownership
of such shares.
(e) All such shares are owned by Cynthia Glover, trustee, U/A Louise
Glover dated January 10, 1997. Ms. Glover is the wife of Robert J.
Glover, a director. Mr. Glover is the sole beneficiary and disclaims
beneficial ownership of such shares. In addition, Ms. Glover disclaims
beneficial ownership of such shares.
(f) All such shares are owned by The Anchora Company of which Mr. Cordy, a
director, is the protector. Mr. Cordy disclaims beneficial ownership
of such shares.
(g) Excludes 72,727 shares owned by The Anchora Company, of which Mr.
Cordy is the protector. Mr. Cordy disclaims beneficial ownership of
such shares.
(h) Excludes 181,818 shares owned by Cynthia Glover, trustee, U/A Louise
Glover dated January 10, 1997 of which Mr. Glover is the sole
beneficiary. Mr. Glover disclaims beneficial ownership of such shares.
(i) Excludes 454,545 shares owned by the King David Trust of which Mr.
Stokes' minor children are the beneficiaries. Mr. Stokes disclaims
beneficial ownership of such shares.
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<PAGE> 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 22, 1998, Maxxis entered into a line of credit with the
Maxxis Millionaire Society, a Georgia partnership. The line of credit was
amended on May 1, 1999. Ivey Stokes and Alvin Curry, Maxxis' Chairman of the
Board and Chief Operating Officer are partners in the Maxxis Millionaire
Society. Pursuant to the line of credit, Maxxis may borrow up to $2,000,000 at
10% annual interest. No advances or interest thereon pursuant to the line of
credit are payable until November 22, 2000. As of March 31, 1999, $800,000
principal amount was outstanding pursuant to the line of credit. As of
September 30, 1999, $1,425,000 principal amount was outstanding pursuant to the
line of credit.
On February 16, 1997, Glover Enterprises, Inc., an affiliate of Robert
J. Glover, a director, loaned us $50,000 to fund our initial start-up costs. We
have repaid this loan.
During the Inception Period, we paid a fee of $184,000 to IS 14, Inc.
("IS 14"), a former Delaware corporation which was controlled by certain of our
directors and officers. The IS 14 fee was comprised of compensation for
managerial, marketing and administrative services performed by certain of our
officers and sales representatives prior to the establishment of our payroll.
IS 14 has been dissolved, and we will not make any additional payments to IS
14.
Pursuant to Mr. Cordy's employment agreement, The Anchora Company, an
affiliate of Mr. Cordy, purchased 800,000 shares of Common Stock, at a price of
$0.15 per share. In exchange, The Anchora Company gave us a $120,000 full
recourse promissory note which bears interest at an annual rate of 8.75%.
Subsequent to Mr. Cordy's recent resignation, we reached an oral agreement with
Mr. Cordy to cancel the $120,000 full recourse promissory note in exchange for
Mr. Cordy's agreement to cause the Anchora Company to return the 800,000 shares
of Common Stock to us. Upon receipt of the 800,000 shares and the cancellation
of the $120,000 full recourse promissory note, we will cancel the 800,000
shares formerly owned by the Anchora Company.
In December 1997, we borrowed approximately $53,000 from Mr. Cordy to
fund certain operating expenses. In February 1998, the Company entered into the
Cordy Note to memorialize such borrowing. The Cordy note has been repaid in
full.
Certain of the transactions described above may be on terms more
favorable to officers, directors and principal shareholders than they could
obtain in a transaction with an unaffiliated third party. We have adopted a
policy requiring that all material transactions between Maxxis and its
officers, directors or other affiliates must: (i) be approved by a majority of
the disinterested members of our Board of Directors; and (ii) be on terms no
less favorable to us than could be obtained from unaffiliated third parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Company are
filed as a part of this Report and are attached hereto as pages F-1
through F-19:
Consolidated Balance Sheets as of June 30, 1998 and 1999
Consolidated Statements of Operations for the Period from
Inception (January 24, 1997) to June 30, 1997, and
for the Years Ended June 30, 1998 and 1999
Consolidated Statements of Changes in Shareholders' Equity
for the Period from Inception (January 24, 1997) to
June 30, 1997, and for the Years Ended June 30, 1998
and 1999
28
<PAGE> 31
Consolidated Statements of Cash Flows for the Period from
Inception (January 24, 1997) to June 30, 1997, and
for the Years Ended June 30, 1998 and 1999
Notes to Consolidated Financial Statements
(A)(2) FINANCIAL STATEMENT SCHEDULES
Reference is made to Note 2 of the Notes to the Consolidated Financial
Statements on page F-9. All schedules have been omitted as they were
not required or not applicable or because the information required to
be presented is included in the Consolidated Financial Statements and
the related Notes thereto.
29
<PAGE> 32
(A)(3) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- -------- -------------------
<S> <C>
2.1* Plan of Reorganization of the Company effective as of February 17, 1998.
3.1* Amended and Restated Articles of Incorporation of the Company, as amended to date.
3.2* Amended and Restated Bylaws of the Company, as amended to date.
4.1* See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws defining the rights of holders of Common Stock of the Company.
4.2* Specimen Common Stock certificate.
4.3* Shareholders Agreement, dated as of September 1, 1997 among the Company and the holders of Class A Common Stock.
4.4* Amended and Restated Shareholders Agreement, dated as of February 18, 1998 among the Company and certain holders
of its Common Stock.
10.1* Form of Employment Agreement by and between the Company and certain of its officers.
10.2* Employment Agreement by and between the Company and Thomas O. Cordy dated May 1, 1997.
10.3* Promissory Note by The Anchora Company in favor of the Company dated as of May 1, 1997 in the original principal
amount of $120,000.
10.4* Guarantee by Thomas O. Cordy in favor of the Company dated May 1, 1997.
10.5* Form of Independent Sales Representative Agreement by and between the Company and certain of its sales
representatives.
10.6* Consulting Agreement by and between the Company and Robert P. Kelly dated as of September 1, 1997.
10.7* Software License Agreement between Summit V. Inc., a subsidiary of Jenkon International, Inc. and the Company
dated February 2, 1997.
10.8* Software Service Agreement between Summit V. Inc., a subsidiary of Jenkon International, Inc. and the Company
dated February 2, 1997.
10.9* Equipment Purchase Agreement between Summit V. Inc., a subsidiary of Jenkon International, Inc. and the Company
dated February 2, 1997.
10.10* Agreement for 1-Plus Services between Colorado River Communications Corporation and the Company dated February
20, 1997. +
10.11* Sublease Agreement between DowElanco and the Company dated February 14, 1997.
10.12* Warehouse lease between Malon D. Mimms and the Company dated March 17, 1997.
10.13* Warehouse lease between Malon D. Mimms and the Company dated June 23, 1997.
10.14* Demand Secured Promissory Note dated November 26, 1997 by the Company in favor of the lenders named on Schedule
I thereto.
10.15* Sub-Sublease Agreement between the Company and Simons Engineering, Inc. dated September 1, 1997.
10.16* Demand Promissory Note dated February 28, 1998 by the Company in favor of Thomas O. Cordy.
10.17* Form of Stock Purchase Warrant.
10.18** Maxxis Group, Inc. 1998 Stock Option Plan.
10.19** Lease Amendment Agreement dated June 5, 1998 among Malon D. Mimms, the Company and Richard Bowers & Co.
10.20** Lease Amendment Agreement dated August 14, 1998 among Malon D. Mimms, the Company and Richard Bowers & Co.
10.21# Software Purchase Agreement between UsefulWare Incorporated and the Company dated as of August 13, 1998. +
10.22# Asset Purchase Agreement by and among Cherry Communications Incorporated ("Cherry"), World Access, Inc. ("World
Access") and the Company dated as of September 29, 1998.
10.23# Promissory Note by the Company in favor of Cherry dated September 29, 1998.
</TABLE>
30
<PAGE> 33
<TABLE>
<S> <C>
10.24# Security Agreement between the Company and World Access dated as of September 29, 1998.
10.25# Software License Agreement between Alcatel USA Marketing, Inc. and the Company dated as of September 29, 1998.
10.26# Sublease between Cherry and the Company dated as of September 30, 1998.
10.27# Master Lease Agreement between Rockford Industries, Inc. and the Company dated as of September 29, 1998 (World
Access).
10.28# Master Lease Agreement between Rockford Industries, Inc. and the Company dated as of September 29, 1998 (NACT
Telecommunications, Inc.).
10.29# Employment Agreement between Daniel McDonough and the Company dated as of October 13, 1998.
10.30## Line of Credit between the Company and the Maxxis Millionaire Society dated as of November 22, 1998.
10.31## Investment Agreement between InteReach Internet Services, LLC and the Company dated as of December 8, 1998.
10.32## Virtual ISP Agreement between InteReach Internet Services, Inc. and the Company dated as of December 8, 1998.
10.33 Digital Services Agreement between Worldcom Network Services, Inc. and the Company dated as of January 21, 1999
10.34+ Telecommunications Services Agreement between Worldcom Network Services, Inc. and the Company dated as of
January 21, 1999.
10.35 Program Enrollment Terms to the Telecommunications Services Agreement dated as of January 21, 1999 between
Worldcom Network Services, Inc. and the Company.
10.36+ Master Service Agreement between IXC Communications Services, Inc. and the Company dated as of March 25, 1999.
10.37 Amendment to the Line of Credit between the Company and the Maxxis Millionaire Society dated as of May 1, 1999.
21.1 Subsidiaries of the Company.
24.1 Power of Attorney (contained on the signature page hereof).
27.1 Financial Data Schedule for period ended June 30, 1999 (for SEC use only).
</TABLE>
- -------------------
* Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-38623).
** Incorporated by reference to the Company's Form 10-K for the year
ended June 30, 1998 as filed with the Commission on September 25,
1998.
# Incorporated by reference to the Company's Form 10-Q for the quarter
ended September 30, 1998 as filed with the Commission on November 12,
1998.
## Incorporated by reference to the Company's Form 10-Q for the quarter
ended December 31, 1998 as filed with the Commission on February 16,
1999.
+ Confidential treatment has been requested for certain confidential
portions of this exhibit pursuant to Rule 406 under the Securities
Act. In accordance with Rule 406, these confidential portions have
been omitted from this exhibit and filed separately with the
Commission.
(B) REPORTS ON FORM 8-K
None.
31
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.
MAXXIS GROUP, INC.
October 13, 1999 By: /s/ Ivey J. Stokes
---------------------------------------
Ivey J. Stokes
Chief Executive Officer
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints jointly and severally, IVEY J.
STOKES and DANIEL MCDONOUGH, and each one of them, his attorneys-in-fact, each
with the power of substitution, for him in any and all capacities, to sign any
and all amendments to this Annual Report (Form 10-K) and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact, or his substitute or substitutes, may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
October 13, 1999 /s/ Ivey J. Stokes
-----------------------------------------------
Ivey J. Stokes
Chairman of the Board, Chief Executive Officer
and President
(Principal executive officer)
October 13, 1999 /s/ Daniel McDonough
-----------------------------------------------
Daniel McDonough
Chief Financial Officer and Secretary
(Principal financial and accounting officer)
October 13, 1999 /s/ Thomas O. Cordy
-----------------------------------------------
Thomas O. Cordy
Director
October 13, 1999 /s/ Larry W. Gates, II
-----------------------------------------------
Larry W. Gates, II
Vice President, Human Resources and Director
32
<PAGE> 35
-----------------------------------------------
Charles P. Bernstein
Director
October 13, 1999 /s/ Alvin Curry
-----------------------------------------------
Alvin Curry
Director
October 13, 1999 /s/ Robert J. Glover, Jr.
-----------------------------------------------
Robert J. Glover, Jr.
Director
October 13, 1999 /s/ Terry Harris
-----------------------------------------------
Terry Harris
Director
-----------------------------------------------
Philip E. Lundquist
Director
-----------------------------------------------
John D. Phillips
Director
33
<PAGE> 36
MAXXIS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1999
TOGETHER WITH
AUDITORS' REPORT
<PAGE> 37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................................................ F-2
Consolidated Balance Sheets as of June 30, 1998 and 1999................................................ F-3
Consolidated Statements of Operations for the Period from Inception (January 24, 1997)
to June 30, 1997, and for the Years Ended June 30, 1998 and 1999................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the Period from Inception
(January 24, 1997) to June 30, 1997, and for the Years Ended June 30, 1998 and 1999................ F-5
Consolidated Statements of Cash Flows for the Period from Inception (January 24, 1997)
to June 30, 1997, and for the Years Ended June 30, 1998 and 1999................................... F-6
Notes to Consolidated Financial Statements.............................................................. F-7
</TABLE>
F-1
<PAGE> 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Maxxis Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of MAXXIS GROUP,
INC. (a Georgia corporation) AND SUBSIDIARIES as of June 30, 1998 and 1999 and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the period from inception (January 24, 1997) to
June 30, 1997 and for the years ended June 30, 1998 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Maxxis Group, Inc. and
subsidiaries as of June 30, 1998 and 1999 and the results of their operations
and their cash flows for the period from inception (January 24, 1997) to June
30, 1997 and for the years ended June 30, 1998 and 1999 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
September 17, 1999
(except with respect to
the matter discussed
in Note 11, as to
which the date is October 12, 1999)
F-2
<PAGE> 39
MAXXIS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
ASSETS
1998 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 372,000 $ 20,000
Short-term investment 10,000 10,000
Communications receivable, net of allowance for doubtful accounts of $40,000 and
$113,000 in 1998 and 1999, respectively 316,000 652,000
Accounts receivable, net of allowance for doubtful accounts of $0 and $189,000 in
1998 and 1999, respectively 0 817,000
Inventories, net 218,000 354,000
Prepaid expenses and other current assets 43,000 110,000
----------- -----------
959,000 1,963,000
PROPERTY AND EQUIPMENT, NET (NOTE 3) 169,000 5,842,000
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET 126,000 352,000
OTHER ASSETS 9,000 129,000
----------- -----------
$ 1,263,000 $ 8,286,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 211,000 $ 1,218,000
Commissions payable 101,000 463,000
Accrued compensation 154,000 220,000
Sales taxes payable 130,000 317,000
Accrued expenses 128,000 428,000
Current maturities of capital lease obligations 0 929,000
Deferred revenue 55,000 330,000
----------- -----------
779,000 3,905,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
LINE OF CREDIT (NOTE 6) 0 1,390,000
----------- -----------
LONG-TERM CAPITAL LEASE OBLIGATIONS (NOTE 4) 0 4,005,000
----------- -----------
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, no par value; 10,000,000 shares authorized; 100,000 shares
designated as Series A; 36,359 Series A shares issued and outstanding 200,000 200,000
Common stock, no par value; 20,000,000 shares authorized, 1,571,187 and 1,617,637
shares issued and outstanding in 1998 and 1999, respectively 574,000 612,000
Shareholder note receivable (120,000) (120,000)
Accumulated deficit (170,000) (1,706,000)
----------- -----------
Total shareholders' equity (deficit) 484,000 (1,014,000)
----------- -----------
$ 1,263,000 $ 8,286,000
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-3
<PAGE> 40
MAXXIS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997) TO JUNE 30, 1997
AND FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
NET REVENUES:
Communications services $ 2,322,000 $ 5,293,000 $ 8,416,000
Nutritional products 0 526,000 1,371,000
Marketing services 369,000 1,172,000 2,557,000
----------- ----------- ------------
Total net revenues 2,691,000 6,991,000 12,344,000
----------- ----------- ------------
COST OF SERVICES:
Communications services 761,000 1,351,000 2,166,000
Nutritional products 0 294,000 662,000
Marketing services 255,000 431,000 947,000
----------- ----------- ------------
Total cost of services 1,016,000 2,076,000 3,775,000
----------- ----------- ------------
GROSS MARGIN 1,675,000 4,915,000 8,569,000
----------- ----------- ------------
OPERATING EXPENSES:
Selling and marketing 1,089,000 2,665,000 5,373,000
General and administrative 660,000 2,344,000 4,376,000
----------- ----------- ------------
Total operating expenses 1,749,000 5,009,000 9,749,000
----------- ----------- ------------
INTEREST EXPENSE 0 2,000 356,000
----------- ----------- ------------
LOSS BEFORE INCOME TAX BENEFIT (74,000) (96,000) (1,536,000)
INCOME TAX BENEFIT 0 0 0
----------- ----------- ------------
NET LOSS $ (74,000) $ (96,000) $ (1,536,000)
=========== =========== ============
BASIC AND DILUTED LOSS PER SHARE $ (0.05) $ (0.06) $ (0.96)
=========== =========== ============
WEIGHTED AVERAGE NUMBER OF
SHARES AND SHARE EQUIVALENTS
OUTSTANDING 1,571,187 1,571,187 1,594,387
=========== =========== ============
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
F-4
<PAGE> 41
MAXXIS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997) TO JUNE 30, 1997
AND FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK STOCK SHAREHOLDER
--------------- ------------------- SUBSCRIPTION NOTE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEPOSITS RECEIVABLE DEFICIT TOTAL
------ -------- --------- -------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 24, 1997 (INCEPTION) 0 $ 0 0 $ 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock 0 0 1,299,992 127,000 0 (120,000) 0 7,000
Stock subscription deposits 0 0 0 0 360,000 0 0 360,000
Net loss 0 0 0 0 0 0 (74,000) (74,000)
------ -------- --------- -------- --------- --------- ----------- -----------
BALANCE, JUNE 30, 1997 0 0 1,299,992 127,000 360,000 (120,000) (74,000) 293,000
Issuance of preferred stock 36,359 200,000 0 0 0 0 0 200,000
Issuance of common stock 0 0 271,195 447,000 0 0 0 447,000
Stock subscription deposits 0 0 0 0 (360,000) 0 0 (360,000)
Net loss 0 0 0 0 0 0 (96,000) (96,000)
------ -------- --------- -------- --------- --------- ----------- -----------
BALANCE, JUNE 30, 1998 36,359 200,000 1,571,187 574,000 0 (120,000) (170,000) 484,000
Issuance of common stock, net of
issuance expenses 0 0 46,450 1,000 0 0 0 1,000
Compensation expense for stock
option issuance 0 0 0 37,000 0 0 0 37,000
Net loss 0 0 0 0 0 0 (1,536,000) (1,536,000)
------ -------- --------- -------- --------- --------- ----------- -----------
BALANCE, JUNE 30, 1999 36,359 $200,000 1,617,637 $612,000 $ 0 $(120,000) $(1,706,000) $(1,014,000)
====== ======== ========= ======== ========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
F-5
<PAGE> 42
MAXXIS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997) TO JUNE 30, 1997
AND FOR THE YEARS ENDED JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (74,000) $ (96,000) $(1,536,000)
--------- --------- -----------
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 54,000 176,000 501,000
Stock compensation expense 0 0 37,000
Changes in operating assets and liabilities:
Accounts receivable 0 0 (817,000)
Communications receivable (25,000) (291,000) (336,000)
Inventories (185,000) (33,000) (136,000)
Prepaid expenses and other assets (55,000) 3,000 (87,000)
Commissions payable 42,000 59,000 362,000
Accounts payable 158,000 53,000 1,007,000
Accrued compensation 0 154,000 66,000
Sales taxes payable 0 130,000 187,000
Accrued expenses 103,000 25,000 300,000
Deferred revenue 0 55,000 275,000
--------- --------- -----------
Total adjustments 92,000 331,000 1,359,000
--------- --------- -----------
Net cash provided by (used in) operating activities 18,000 235,000 (177,000)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (99,000) (115,000) (279,000)
Investment in Internet service provider 0 0 (100,000)
Purchase of short-term investment (10,000) 0 0
Software development and organizational costs (241,000) (70,000) (362,000)
--------- --------- -----------
Net cash used in investing activities (350,000) (185,000) (741,000)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock subscriptions 360,000 0 0
Payments on lease obligations 0 0 (825,000)
Borrowings from line of credit 0 0 1,390,000
Proceeds from issuance of common stock 7,000 87,000 1,000
Proceeds from issuance of preferred stock 0 200,000 0
--------- --------- -----------
Net cash provided by financing activities 367,000 287,000 566,000
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH 35,000 337,000 (352,000)
CASH, BEGINNING OF PERIOD 0 35,000 372,000
--------- --------- -----------
CASH, END OF PERIOD $ 35,000 $ 372,000 $ 20,000
========= ========= ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest $ 0 $ 2,000 $ 0
========= ========= ===========
Stock issued for note receivable $ 120,000 $ 0 $ 0
========= ========= ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
F-6
<PAGE> 43
MAXXIS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1999
1. ORGANIZATION AND PRESENTATION
DESCRIPTION OF BUSINESS AND OPERATIONS
Maxxis Group, Inc., a Georgia corporation, was incorporated on January
24, 1997 ("Inception") and is headquartered in Tucker, Georgia. Maxxis
Group, Inc.'s principal business operations are carried out through its
wholly owned subsidiaries, Maxxis 2000, Inc. and Maxxis Telecom, Inc.,
which began operations in March 1997, and Maxxis Nutritionals, Inc.,
which began operations in December 1997. Maxxis Group, Inc., together
with its wholly owned subsidiaries (collectively referred to as the
"Company"), was founded for the purpose of providing communication
services, private label nutritional products, and other consumable
products and services through a multilevel marketing system of
independent associates ("IAs") to subscribers throughout the United
States. The Company currently markets long-distance services and
value-added communications services, such as travel cards, prepaid
phone cards, 800 service, Internet access, web page development and
hosting services, and international telecommunications service, as well
as private label nutritional products.
The Company has a limited operating history, and its operations are
subject to the risks inherent in the establishment of any new business.
Since the Company has only recently made the transition to an operating
company, the Company's ability to manage its growth and expansion will
require it to implement and continually expand its operational and
financial systems, recruit additional employees, and train and manage
both current and new employees. Growth may place a significant strain
on the Company's operational resources and systems, and failure to
effectively manage this projected growth would have a material adverse
effect on the Company's business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
All significant intercompany balances and transactions have been
eliminated in consolidation.
REVENUE RECOGNITION
Communications services revenues consist of prepaid phone card sales to
IAs, commissions generated from an agreement to resell long-distance
services, and long-distance services directly provided by the Company.
F-7
<PAGE> 44
From Inception through March 1999, the Company purchased prepaid phone
cards from an independent tariffed long-distance reseller (the
"Reseller"), and IAs, in turn, purchased these prepaid phone cards from
the Company. Revenues from prepaid phone cards were recognized when
the cards were sold to IAs, net of an estimate of sales returns for
defective or unused cards. Active IAs have the right to return
defective or unused cards for up to 30 days after the date of purchase.
IAs that terminate their relationship with the Company also have up to
one year from the date of purchase to return cards that are unused and
sealed in the original packaging, net of a restocking fee, for a
refund.
Communication services also consist of long-distance revenues generated
by the Company's agreement with the Reseller in which the Company
receives a percentage of the gross long-distance revenues generated by
the Company's customers, less billing adjustments. The Company
recognized long-distance revenues when services were provided by the
Reseller, net of an estimate for billing adjustments. The Reseller
assumed the risk of all bad debts. Amounts due to the Company from the
Reseller are included in communications receivables in the accompanying
consolidated balance sheets.
The Company entered into agreements for telecommunications services
with two independent tariffed long-distance providers (collectively,
the "Suppliers" or individually, the "Supplier") in January 1999 (the
"January Agreement") and March 1999 (the "March Agreement"). Under the
March Agreement, the Company is obligated to purchase approximately
$250,000 a month in telecommunication services. This agreement expires
in September 2000.
In February 1999, the Company entered into an agreement to lease
telephone switching equipment (the "Maxxis Switch"). The Maxxis Switch
provides the Company with the ability to directly provide long-distance
services. In April 1999, the Company began transferring its existing
long-distance customers from the Reseller's network to the Maxxis
Switch. In addition, the Maxxis Switch carries traffic related to the
Company's prepaid phone cards (the "Switch Phone Cards"). The traffic
from the Maxxis Switch is carried on the Supplier's network pursuant to
the January Agreement. The portion of the Company's traffic that is not
routed through the Maxxis Switch is provided by the Supplier pursuant
to the March Agreement. The Company purchases long-distance services
from this Supplier and sells the services to IAs and customers.
The Company recognizes long-distance revenues as services are provided,
net of an estimate for billing adjustments. The Company assumes the
risk of all bad debts. Amounts due to the Company related to direct
long-distance services are included in accounts receivable in the
accompanying consolidated balance sheets.
Nutritional services revenues consist of sales of private label
nutritional products manufactured by various suppliers and are recorded
as revenues when products are shipped.
Marketing services revenues primarily consist of receipts from IAs for
application fees, associate meeting fees, and purchases of distributor
kits and sales aids, which include forms, promotional brochures,
marketing materials, and presentation materials.
F-8
<PAGE> 45
DEFERRED REVENUE
Deferred revenue relates to the annual nonrefundable renewal fee
assessed to IAs and unused time related to Switch Phone Cards. The
annual nonrefundable renewal fee provides IAs with the right to sell
the Company's products and services. This fee is assessed to IAs after
their first year with the Company. The Company recognizes this revenue
on a straight-line basis over the IAs' renewal period. Unused time on
the Switch Phone Cards is recognized as revenue as the time is used.
COST OF SERVICES
Communications services costs primarily include the cost of purchasing
prepaid phone cards from the Reseller, the cost of long-distance
network services purchased from the Suppliers, and depreciation expense
related to the Maxxis Switch.
Nutritional services costs include the costs of purchasing nutritional
products from third-party suppliers.
Marketing services costs include the costs for printing and designing
associate applications, starter kits, associate meetings, and other
sales aids.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses primarily consist of commissions paid to
IAs based on the sponsoring of new IAs and the sale of communication
services and nutritional products.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses primarily consist of salary expense
for the Company's customer service personnel, office staff, and
executive personnel in addition to the cost of IA support services.
CONCENTRATION OF RISKS
The Company's customers are primarily residential and are not
concentrated in any specific geographic region of the United States.
During the majority of fiscal 1999, the Company purchased prepaid phone
cards from the Reseller. In January 1999 and March 1999, the Company
entered into an agreement with two long-distance providers to provide
the network services to originate and terminate calls through the
Maxxis Switch and to provide switched services for the telephone
traffic that does not go through the Maxxis Switch. If these agreements
were terminated, there could be no assurance that the Company could
enter into contracts with other suppliers.
In November 1997, the Company began marketing a line of private label
nutritional products. All of the nutritional products offered and
distributed by the Company are developed and manufactured by
third-party suppliers. Certain nutritional products the Company offers
are proprietary to such suppliers. The Company does not have any
written contracts or commitments from any of these suppliers or
manufacturers. There can be no assurance that these suppliers will
continue to be reliable suppliers to the Company.
F-9
<PAGE> 46
The Company's success will depend heavily on its ability to attract,
maintain, and motivate a large base of IAs who, in turn, sponsor other
IAs and sell the Company's products. The Company anticipates
significant turnover among its IAs, which the Company believes is
typical of direct selling.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities in the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
COMMUNICATIONS RECEIVABLE
A summary of changes in the allowance for doubtful accounts for the
period from Inception to June 30, 1997 and the years ended June 30,
1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of period $ 0 $ 0 $ 40,000
Provisions 0 40,000 73,000
Recoveries 0 0 0
Write-offs 0 0 0
-------- -------- --------
Balance, end of period $ 0 $ 40,000 $113,000
======== ======== ========
</TABLE>
ACCOUNTS RECEIVABLE
A summary of changes in the allowance for doubtful accounts for the
period from Inception to June 30, 1997 and the years ended June 30,
1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of period $ 0 $ 0 $ 0
Provisions 0 0 189,000
Recoveries 0 0 0
Write-offs 0 0 0
-------- -------- --------
Balance, end of period $ 0 $ 0 $189,000
======== ======== ========
</TABLE>
F-10
<PAGE> 47
INVENTORIES
Inventories consist of the following as of June 30, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
--------- --------
<S> <C> <C>
Prepaid phone cards $ 10,000 $ 25,000
Sales aids 158,000 160,000
Nutritional products 76,000 169,000
--------- --------
244,000 354,000
Less reserve (26,000) 0
--------- --------
Inventory, net $ 218,000 $354,000
========= ========
</TABLE>
Inventories are valued at the lower of purchased cost (determined on a
first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment consist primarily of furniture and fixtures,
office equipment, computer equipment, and leasehold improvements which
are stated at cost and are depreciated using the straight-line method
over the estimated useful lives of three to five years.
The Company continually evaluates the propriety of the carrying amount
of long-lived assets as well as the depreciation periods to determine
whether current events and circumstances warrant adjustments to the
carrying values and/or revised estimates of useful lives.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires that deferred income taxes be provided based on
estimated future tax effects of differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes calculated based on provisions
of enacted tax laws (Note 5).
ORGANIZATIONAL COSTS
The Company capitalized certain organizational costs related to
start-up activities and the legal formation of the Company during 1997.
These costs were amortized over one year, and amortization expenses
were $25,000, $76,000 and $0 for the period from Inception to June 30,
1997, for the years ended June 30, 1998 and 1999, respectively.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain software development costs pertaining to a software application
which is used internally for processing applications and customer
service have been capitalized as incurred. Capitalization of software
development costs begins upon the establishment of technological
feasibility. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized software
development costs require considerable judgement by management with
respect to certain external factors, including but not limited to,
anticipated future revenues, estimated economic life and changes in
software and hardware technologies. Software development costs are
amortized over an
F-11
<PAGE> 48
estimated useful life of three years, and amortization expenses were
$21,000, $62,000 and $136,000 for the period from Inception to June 30,
1997, and for the years ended June 30, 1998 and 1999, respectively.
OTHER ASSETS
Other assets are comprised primarily of a minority interest investment
in an Internet service provider. This investment is accounted for using
the cost method.
SHORT-TERM INVESTMENT
The short-term investment is a certificate of deposit recorded at cost,
which approximates the estimated fair value and matures in May 2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable, and debt. The carrying amounts of cash,
accounts receivable, and accounts payable approximate their fair values
because of the short-term maturity of such instruments. The carrying
value of the Company's debt approximates fair value because the
interest rates approximate current market rates.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
Computer equipment $154,000 $ 301,000
Capital leases 0 5,759,000
Furniture and fixtures 42,000 117,000
Leasehold improvements 13,000 59,000
Office equipment 5,000 16,000
-------- ----------
214,000 6,252,000
Less accumulated depreciation (45,000) (410,000)
-------- ----------
Property and equipment, net $169,000 $5,842,000
======== ==========
</TABLE>
Depreciation expense was $7,000, $38,000, and $365,000 for the period
from Inception to June 30, 1997 and for the years ended June 30, 1998
and 1999, respectively.
4. CAPITAL LEASE OBLIGATIONS
On September 29, 1998, the Company entered into certain leases for
telephone switching equipment, which are classified as capital lease
obligations. Monthly principal and interest payments are approximately
$118,000, with an interest rate of approximately 12%. These leases
expire within five years and have purchase options at the end of the
original
F-12
<PAGE> 49
lease term. The capital lease obligation is secured by the intangible
and tangible assets of the Company. In addition, the Company has
assigned the communications receivable to the lessor of the telephone
switching equipment (the "Lessor"). Assets under capital leases are
included in property and equipment at a fair market value of
approximately $5,759,000.
Maturities of capital lease obligations for the years subsequent to
June 30, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 1,416,000
2001 1,416,000
2002 1,416,000
2003 1,416,000
2004 and thereafter 706,000
-----------
6,370,000
Less amounts representing interest (1,436,000)
-----------
$ 4,934,000
===========
</TABLE>
5. INCOME TAXES
Significant components of the Company's deferred tax assets and
liabilities are as follows at June 30, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
--------- --------
<S> <C> <C>
Property and equipment $ 2,000 $(28,000)
Organizational costs 23,000 15,000
Net operating losses 35,000 653,000
Valuation allowance (60,000) (640,000)
--------- --------
Net deferred tax assets $ 0 $ 0
========= ========
</TABLE>
Based on uncertainties associated with the future realization of
deferred tax assets, the Company established a valuation allowance of
$60,000 and $640,000 at June 30, 1998 and 1999, respectively. At June
30, 1998 and 1999, the Company had net operating loss carryforwards of
approximately $90,000 and $1,719,000, respectively, which will begin
expiring in the year 2012 unless previously utilized.
A reconciliation of the benefit for income taxes at the statutory
federal income tax rate to the Company's tax benefit as reported in the
accompanying statements of operations is stated below:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Tax benefit computed at statutory
rate $ (25,000) $ (33,000) $(522,000)
State income taxes (3,000) (4,000) (61,000)
Nondeductible expenses 1,000 4,000 3,000
Change in valuation allowance 27,000 33,000 580,000
--------- --------- ---------
Income tax benefit $ 0 $ 0 $ 0
========= ========= =========
</TABLE>
F-13
<PAGE> 50
6. LINE OF CREDIT
On November 22, 1998, the Company entered into a line of credit (the
"Line of Credit") with the Maxxis Millionaire Society, a Georgia
partnership. Certain members of the Company's management are partners
in the Maxxis Millionaire Society. The Line of Credit was amended on
May 1, 1999. Pursuant to the Line of Credit, Maxxis may borrow up to
$2,000,000 at 10% annual interest. No advances or interest thereon
pursuant to the Line of Credit are payable until November 22, 2000.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain office equipment and office space under
operating leases. At June 30, 1997, 1998, and 1999, the Company's
total rental expenses were approximately $45,000, $84,000 and $168,000,
respectively.
Minimum lease payments under noncancelable leases for the years
subsequent to June 30, 1999 are as follows:
<TABLE>
<S> <C>
2000 $212,000
2001 202,000
2002 216,000
2003 185,000
2004 and thereafter 0
--------
$815,000
========
</TABLE>
LITIGATION
The Company is subject to various claims and legal actions which arise
in the ordinary course of business. In the opinion of management, the
ultimate resolution of such matters will not have a material adverse
effect on the Company's financial position, liquidity, or results of
operations.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain
executive officers (the "Employment Agreements"). Generally, the
Employment Agreements provide for a minimum weekly salary. In addition,
the employee may participate in a bonus program and shall be eligible
to receive quarterly or annual payments of a performance bonus based on
the achievement of targeted levels of performance and such other
criteria as the board of directors shall establish from time to time.
The chief executive officer's Employment Agreement provided for an
additional bonus payment on July 1, 1998 and 1999. All unpaid bonuses
are included in accrued compensation in the accompanying consolidated
balance sheets.
Each of the Employment Agreements has a term of one year, and the term
renews daily until either party fixes the remaining term at one year by
giving written notice. The
F-14
<PAGE> 51
Company can terminate each employee upon death or disability (as
defined in the Employee Agreements) or with or without cause upon
delivery of a notice of termination. If the employee is terminated
because of death, disability, or cause, the employee will receive any
accrued compensation through the termination date and any accrued
performance bonus, unless the employee is terminated for cause. If the
employee is terminated without cause, the Company shall pay the
employee severance payments equal to his/her minimum base salary for
each week during the six-month period following the termination date.
If the employee is a director or officer of the Company or any of its
affiliates, the employee shall tender his/her resignation to such
positions effective as of the termination date.
Under the Employment Agreements, each employee agrees to maintain the
confidentiality of the Company's trade secrets and confidential
business information. The employee also agrees for a period of one year
following the termination date if he/she is terminated or resigns for
any reason not to compete with or solicit employees or customers of the
Company or any of its affiliates within a 30-mile radius of the
Company's corporate offices, provided that if the employee is
terminated without cause, the noncompete period shall be six months.
RELATIONSHIP WITH IAS
Because IAs are classified as independent contractors and not as
employees of the Company, the Company is unable to provide them with
the same level of direction and oversight as company employees. While
the Company has policies and rules in place governing the business
conduct of IAs and intends to review periodically the sales practices
of its IAs, it may be difficult to enforce the Company's policies and
rules. Violation of these policies and rules might reflect negatively
on the Company and may lead to complaints to or by various federal and
state regulatory authorities. Violation of the Company's policies and
rules could subject the Company and its long-distance suppliers to
complaints regarding the unauthorized switching of subscribers'
long-distance carriers (also known in the industry as "slamming"). Such
complaints could have a material adverse effect on the Company's
business, financial condition, and results of operations.
REGULATION OF NETWORK MARKETING AND EFFECT OF STATE LAWS
The Company's network marketing system is subject to or affected by
extensive government regulation, including, without limitation, federal
and state regulations governing the offer and sale of business
franchises, business opportunities, and securities. Various
governmental agencies monitor direct selling activities, and the
Company could be required to supply information regarding its marketing
plan to such agencies. Although the Company believes that its network
marketing system is in material compliance with the laws and
regulations relating to direct selling activities, there can be no
assurance that legislation and regulations adopted in particular
jurisdictions in the future will not adversely affect the Company's
business, financial condition and results of operations. The Company
could also be found to be in noncompliance with existing statutes or
regulations as a result of, among other things, misconduct by IAs, who
are considered independent contractors over whom the Company has
limited control; the ambiguous nature of certain of the regulations;
and the considerable interpretive and
F-15
<PAGE> 52
enforcement discretion given to regulators. Any assertion or
determination that the Company or the IAs are not in compliance with
existing statutes or regulations could have a material adverse effect
on the Company's business, financial condition, and results of
operations. An adverse determination by any one state on any regulatory
matter could influence the decisions of regulatory authorities in other
jurisdictions.
YEAR 2000 COMPLIANCE
Many installed computer software and network processing systems
currently accept only two-digit entries in the date code field and may
need to be upgraded or replaced in order to accurately record and
process information and transactions on and after January 1, 2000. The
Company's business and relationships with their customers and IAs
depends significantly on a number of computer software programs,
internal operating systems and connections to other networks, and the
failure of these programs, systems or networks to successfully address
the Year 2000 problem could have a material adverse effect on our
business, financial condition and results of operations. The Maxxis
Switch is not Year 2000 compliant. Although the Company expects that
the transactions processed through the Maxxis Switch will be Year 2000
compliant by mid-December 1999, there is no assurance that the Company
will be able to successfully address the Year 2000 problem with respect
to the Maxxis Switch by mid-December 1999 or at all. The Company's
failure to address this issue could result in serious financial harm
due to the fact that the Company could lose a portion of or all of the
revenues that would otherwise be obtained from traffic routed over the
Maxxis Switch.
The Company has conducted reviews to assess the extent to which the
Company's internal systems and software and the network connections it
maintains are adequately programmed to address the Year 2000 issue. In
addition, the Company's ability to provide services and support to
their customers and IAs depends upon the continued functioning of the
software programs, operating systems and networking used by their
vendors and suppliers. The Company is also assessing the extent to
which their vendors and suppliers have successfully addressed the Year
2000 problem. It currently is impossible for the Company to predict the
potential expenditures that may be required or the delay or
interruption in service that may result due to the Year 2000 problem.
Based on these reviews, the Company expects to complete the necessary
steps to address potential operating issues in connection with the Year
2000 problem. Any failure by the Company or their vendors or suppliers
to successfully address the Year 2000 problem could significantly
interrupt business operations and have a material adverse effect on
business, financial condition and results of operations. The Company
has established certain contingency plans relative to their most
critical operating procedures.
8. SHAREHOLDERS' EQUITY
The Company and certain of its shareholders have entered into a
shareholders' agreement whereby the shareholders agreed to certain
restrictions on the transfer or other disposition of the shares of
common stock held by each holder. In the event a shareholder intends to
transfer their common stock to a nonpermitted transferee, the
Company and the remaining shareholders have a right of first refusal to
purchase the transferring shareholder's common stock at fair market
value. In addition, if the Company terminates a shareholder's
employment or engagement as a sales representative or consultant for
cause, the Company shall have the right to repurchase, at fair market
value, an amount of the shareholder's common stock which starts at 100%
and declines 20% per year for each completed year of service with the
Company. If the right of first refusal or the Company's right to
purchase is exercised, these provisions could have the effect of
further concentrating the stock ownership and voting power of the
Company.
In February 1997, the Company sold 1,227,265 shares of common stock to
the founders of the Company at $.006 per share. In May 1997, the
Company sold 72,727 shares of common stock to an executive officer for
$1.65 per share and accepted as payment a $120,000 note receivable from
an affiliate of that individual due on the earlier of (i) May 1, 2002
or (ii) the closing of an underwritten initial public offering with
aggregate net proceeds of at least $5 million. The note is guaranteed
by the executive officer, bears interest at 8.75% per year, compounded
annually, and is classified as a shareholder note receivable in the
shareholders' equity section of the consolidated balance sheets.
In August 1997, the Company completed a private placement offering for
shares of common stock at a price of $1.65 per share. Potential
investors were required to complete subscription agreements for the
common stock and to submit cash at the date of subscription. The
Company reserved the right to reject a subscription and refund amounts
to a subscriber at any time prior to the acceptance of the
subscription. At
F-16
<PAGE> 53
June 30, 1997, the Company had received paid subscriptions for 218,181
shares of common stock. However, since these subscriptions had not yet
been accepted by the Company and no shares had been issued as of June
30, 1997, amounts received from subscribers are included in stock
subscription deposits in the accompanying balance sheet at June 30,
1997. Subsequent to June 30, 1997, the Company accepted these
subscriptions and additional subscriptions for 53,014 shares of the
common stock.
Effective February 17, 1998, the Company declared a 1-for-11 reverse
stock split for all classes of common stock. The Company also effected
a plan of reorganization pursuant to which each outstanding share of
Class A common stock and Class B common stock was converted into one
share of common stock ("Common Stock"). All share, per share, and
weighted average share information in the financial statements has been
restated for this stock split and reorganization.
On November 26, 1997, the Company entered into a promissory note (the
"Note") agreement with various lenders for an aggregate principal
amount up to $200,000, which was secured primarily by the assets of the
Company. The Note accrued interest at 10%, payable monthly beginning on
January 1, 1998, and the principal was due on demand. On March 23,
1998, the Note was exchanged for 36,359 shares of the Company's Series
A nonvoting convertible preferred stock ("Series A Preferred Stock" or
"Series A") and warrants (the "Warrants") to purchase 36,359 shares of
the Company's Common Stock. The Warrants are exercisable 14 months
after the issuance date and provide the right to purchase Common Stock
at $5.50 per share. The Warrants expire seven years after the date of
issuance.
Additionally, in February 1998, the Company amended and restated its
articles of incorporation such that the Company is authorized to issue
20,000,000 and 10,000,000 shares of no par value Common Stock and
nonvoting preferred stock (the "Preferred Stock"), respectively.
100,000 shares of the Company's Preferred Stock have been designated as
Series A. The Series A Preferred Stock has a liquidation preference of
$5.50 per share (as adjusted for any combinations, consolidations,
stock distributions, or stock dividends with respect to such shares)
plus all declared or accumulated but unpaid dividends. The Series A
shareholders have the right to convert each share into shares of Common
Stock, pursuant to the articles of incorporation, at any time beginning
14 months after the date of issuance. As of June 30, 1998, all
outstanding shares of the Preferred Stock were Series A.
On September 16, 1998, the board of directors adopted the Maxxis Group,
Inc. 1998 Stock Option Plan which permits the Company to grant options
to purchase shares of Common Stock to Company officers, directors, key
employees, advisors and consultants. In December 1998, the board of
directors granted options to purchase 59,133 shares of Common Stock at
an exercise price of $5.50 per share, the estimated fair value at the
date of grant. The options vest based on time as defined in the option
agreement. As of June 30, 1999, 20,105 options were vested and
exercisable.
In addition, in December 1998, the board of directors granted options
to purchase 6,819 shares of Common Stock at an exercise price of $0 per
share. The options vest based on time as defined in the option
agreement. As of June 30, 1999, 3,410 options were vested and
F-17
<PAGE> 54
exercisable. The Company recorded $37,000 of compensation expense for
these options for the year ended June 30, 1999.
In 1999, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
for disclosure purposes. In accordance with disclosure requirements of
SFAS No. 123, the Company is required to calculate pro forma
compensation cost of all stock options granted using an option pricing
model. Accordingly, the fair value of the stock option grants has been
estimated as of the grant dates under the minimum value method using
the following assumptions for 1999: a risk-free interest rate of
approximately 4.65%, dividend yield of 0%, volatility of 0%, and
expected life of six years. Using these assumptions, the fair value of
the stock options at the dates of grant was $70,273. Pro forma
compensation expense for the year ended June 30, 1999 would have been
approximately $24,000.
9. SALES REPRESENTATIVE AGREEMENTS
The Company has entered into sales representative agreements
(collectively, the "Sales Representative Agreements") with ten
independent sales representatives. The Sales Representative Agreements
provide for a minimum weekly salary, and each sales representative
shall be eligible to receive quarterly payments of a performance bonus
based on the achievement of targeted levels of performance. Unpaid
bonuses are included in accrued compensation in the accompanying
consolidated balance sheets. Each sales representative is an
independent contractor, and the Company does not exercise control over
the activities of the sales representatives other than as set forth in
the Sales Representative Agreements.
Each of the Sales Representative Agreements has a term of one year, and
the term renews daily until either party fixes the remaining term at
one year by giving written notice. The Company can terminate each sales
representative upon death or disability (as defined in the Sales
Representative Agreements) or with or without cause upon delivery to
the sales representative of a notice of termination. If a sales
representative is terminated, the sales representative will receive any
accrued fees through the termination date and any accrued performance
bonus, unless the sales representative is terminated for cause. If the
sales representative is a director or officer of the Company or any of
its affiliates, the sales representative shall tender his resignation
to such positions effective as of the termination date. Under the Sales
Representative Agreements, each sales representative agrees to maintain
the confidentiality of the Company's trade secrets and confidential
business information.
10. SEGMENT REPORTING
The Company is a multi-level network marketing company with continuing
operations in three reportable segments: communication services,
nutritional products, and marketing services.
The Company's communications services segment markets long-distance
services and value-added services, such as travel cards, prepaid phone
F-18
<PAGE> 55
cards, 800 service, Internet access, web-page development and hosting
services and international telecommunications service.
The Company's nutritional products segment distributes a line of
private label nutritional and health enhancement products.
The Company's marketing services segment markets sales aids,
distributor kits, marketing materials, and support and training
services.
Included in corporate group are general administrative expenses and
certain long-term assets related to the corporate group.
<TABLE>
<CAPTION>
COMMUNICATIONS NUTRITIONAL MARKETING CORPORATE
SERVICES PRODUCTS SERVICES GROUP TOTAL
-------------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Inception to June 30, 1997:
Revenues $ 2,322,000 $ 0 $ 369,000 $ 0 $ 2,691,000
Gross profit 1,561,000 0 114,000 0 1,675,000
Depreciation and amortization 32,000 0 0 22,000 54,000
Operating income (loss) 12,000 0 72,000 (158,000) (74,000)
Segment assets 340,000 0 131,000 125,000 596,000
Capital expenditures 193,000 0 0 147,000 340,000
Year Ended June 30, 1998:
Revenues $ 5,293,000 $ 526,000 $ 1,172,000 $ 0 $ 6,991,000
Gross Profit 3,942,000 232,000 741,000 0 4,915,000
Depreciation and amortization 83,000 0 0 93,000 176,000
Operating income (loss) 7,000 22,000 484,000 (607,000) (94,000)
Segment assets 875,000 135,000 142,000 111,000 1,263,000
Capital expenditures 185,000 0 0 0 185,000
Year Ended June 30, 1999:
Revenues $ 8,416,000 $1,371,000 $ 2,557,000 $ 0 $ 12,344,000
Gross profit 6,250,000 709,000 1,610,000 0 8,569,000
Depreciation and amortization 388,000 1,000 2,000 110,000 501,000
Operating income (loss) (328,000) 129,000 (344,000) (637,000) (1,180,000)
Segment assets 7,450,000 458,000 298,000 80,000 8,286,000
Capital expenditures 598,000 5,000 13,000 25,000 641,000
</TABLE>
SUBSEQUENT EVENT
On October 12, 1999, the Company and the Lessor agreed that until
December 31, 1999, the Company would use proceeds collected related to
its communications receivable to make payments toward its monthly
capital lease obligations. If the amount collected by the Company
related to its communications receivable is less than the Company's
monthly capital lease obligations, the Lessor has agreed to defer any
shortfall to the end of the capital lease term.
F-19
<PAGE> 1
EXHIBIT 10.33
WORLDCOM NETWORK SERVICES, INC.
D/B/A WORLDCOM
CARRIER
DIGITAL SERVICES AGREEMENT
THIS DIGITAL SERVICES AGREEMENT (THE "AGREEMENT") is entered into on
the 21st day of January, 1999, by and between WORLDCOM NETWORK SERVICES, INC.,
a Delaware corporation ("WORLDCOM"), and Maxxis Communications, a Georgia
corporation ("Customer"), for the provision of the dedicated digital
telecommunications interexchange, local access and ancillary services described
in Service Orders accepted by WorldCom under this Agreement, subject to the
terms and conditions contained in this Agreement.
NOW THEREFORE, the parties agree to the following:
1. INCORPORATION OF DOCUMENTS AND CONTROLLING PROVISIONS: This
Agreement consists of all the terms and conditions contained (i) in this
Agreement, (ii) in Service Orders that conform hereto, and, (iii) in documents
incorporated herein specifically by reference. This Agreement constitutes the
complete and exclusive statement of the understanding between the parties and
supersedes all proposals and prior agreements (oral or written) between the
parties relating to Service provided hereunder. In the event any provision of
this Agreement conflicts with any statute, rule or order of any governmental
unit or regulatory body, or tariff filed by WorldCom, then, if required by law,
such statute, rule, order or tariff shall control.
2. SERVICE ORDERS: Service requested by Customer hereunder shall be
requested on (I) Digital Service Description forms in effect from time to time
or Customer's forms accepted in writing by an Authorized Headquarters
Representative of WorldCom as hereinafter provided, or (II) through the
WorldCom Electronic Order Processing system whereby Customer receives written
confirmation from WorldCom of the Service it has requested (hereinafter
collectively referred to as ("SERVICE ORDERS"). Each Service Order shall
reference this Agreement by Digital Service Agreement number ("DSA#") and shall
become a part of this Agreement only to the extent that it specifies the type
of Interexchange Service, quantity of circuits, originating and terminating
cities, Requested Service Date, Service Commitment Period, charges and other
information necessary for WorldCom to provide the Service to Customer. Any
other terms and conditions that are typed, printed or otherwise included in any
Service Order shall be deemed to be solely for the convenience of the parties.
No action by WorldCom (including, without limitation, provision of Service to
Customer pursuant to such Service Order) shall be construed as binding or
estopping WorldCom with respect to such term or condition, unless the Service
Order containing said specific term or condition has been signed by an
Authorized Headquarters Representative of WorldCom.
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3. EFFECTIVE DATE AND APPLICATION OF THIS AGREEMENT: This Agreement
shall be effective between the parties as of the date first written hereon.
This Agreement shall apply exclusively to Service provided to Customer pursuant
to Service Orders identified with this Agreement and accepted by WorldCom for
the Service Commitment Periods stated therein and any automatic extensions
thereof. WorldCom reserves the right not to accept a Service Order under this
Agreement at any time.
4. SERVICE COMMITMENT PERIOD, START OF SERVICE AND AUTOMATIC
EXTENSION: The Service Commitment Period for the Interexchange and Ancillary
Services subject to recurring charges and described in a Service Order shall
commence on the Requested Service Date or the date upon which the Service first
becomes available in conformity with the Technical Standards, whichever is
later ("START OF SERVICE"). Upon expiration, each Service Commitment Period
shall automatically be extended to a date specified in a written notice of
termination by either Customer or WorldCom not less than ninety (90) days after
delivery of said notice to the other party. The charges for Interexchange
Service during any such extension shall be the then-current WorldCom published
month-to-month charges not to exceed one hundred and twenty-five percent (125%)
of the Interexchange Service charges applicable to such Service upon the
expiration of the Service Commitment Period.
5. SERVICE TO BE PROVIDED: WorldCom will provide Customer with (I)
the installation and operation of dedicated digital telecommunications
interexchange service over transmission facilities provided by WorldCom or
third parties between WorldCom-designated termination points in cities served
by WorldCom (hereinafter "INTEREXCHANGE SERVICE"), and Ancillary Services (as
hereinafter defined). WorldCom will provide agency service for Customer in
provisioning Customer's Local Access (as hereinafter defined) all as may be
requested by Customer and accepted by WorldCom in accordance with the terms
hereof (Interexchange Service, Ancillary Service and agency for Customer's
Local Access shall be collectively referred to herein as the "SERVICE").
WorldCom's liability for delays in installation, testing and operation of
Interexchange Service, Local Access and Ancillary Services is limited in
Section 13 of this Agreement.
6. LOCAL ACCESS AND ANCILLARY SERVICES: (A) WorldCom may, at its
sole option and when reasonable under the circumstances, upon Customer's
request, act as Agent for Customer with responsibility for provisioning and the
initial testing of an interconnection (reasonably coordinated with Start of
Service) between selected Interexchange Service and a Customer designated
termination point and/or service (e.g., Feature Group Service) ("LOCAL
ACCESS"). Charges to Customer for Local Access Service administered on behalf
of Customer by WorldCom shall not exceed charges Customer would other-wise pay
the same local access provider for the relevant interconnection and/or service.
(B) WorldCom may also provide other services to Customer including but not
limited to: (i) multiplexing/demultiplexing service ("MUXING"), (ii) digital
cross-connect service ("DCS"), or (iii) extraordinary service for reasons
including but not limited to: (A) Customer's request to expedite Service
availability to a date earlier than WorldCom's published installation interval
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or a previously accepted Requested Service Date; (B) Service redesign or other
activity occasioned by receipt of inaccurate information from Customer; (C)
reinstallation charges following any suspension of the Service for cause by
WorldCom; (D) Customer's request for use of routes or facilities other than
those selected by WorldCom for provision of the Service; and (E) other
circumstances in which extraordinary costs and expenses are generated by
Customer and reasonably incurred by WorldCom (services under this Subsection
(13) are collectively referred to herein as "ANCILLARY SERVICES"). Recurring
and non-recurring, charges to Customer for Local Access (including WorldCom's
Local Access Coordination Fee) and Ancillary Services shall be established as
of WorldCom's acceptance of the Service Order relevant thereto. RECURRING
CHARGES FOR LOCAL ACCESS BILLING ADMINISTERED BY WORLDCOM AND CHARGED TO
CUSTOMER SHALL BE SUBJECT TO ADJUSTMENT AT SUCH TIMES AS WORLDCOM SHALL
DETERMINE, NOT TO EXCEED THE PREVAILING CHARGES OF SUCH LOCAL ACCESS PROVIDERS
AS WOULD OTHERWISE BE PAID DIRECTLY BY CUSTOMER FOR THE RELEVANT
INTERCONNECTION OR SERVICE.
7. CUSTOMER RESPONSIBILITIES: Customer has sole responsibility for
installation, testing and operation of facilities, services and equipment other
than that specifically provided by WorldCom as part of the Service described in
a Service Order ("CUSTOMER FACILITIES"). In no event will the untimely
installation or non-operation of Customer Facilities (including Local Access
when Customer is responsible therefor and customer premise equipment) relieve
Customer of its obligation to pay charges for the Service as of Start of
Service.
8. ADDITIONAL CHARGES: Customer acknowledges and understands that
all charges stated in Service Order are computed by WorldCom exclusive of any
applicable federal, state or local use, excise, gross receipts, sales and
privilege taxes, duties, fees or similar liabilities (other than general income
or property taxes), whether charged to or against WorldCom or Customer for the
Service provided to Customer ("ADDITIONAL CHARGES"), and that such Additional
Charges shall be paid by Customer in addition to all other charges provided for
herein.
9. PAYMENT OF CHARGES: Payment for all pro-rated monthly recurring
charges (charges for monthly Service provided for less than a calendar month),
installation and other non-recurring charges shall be due on the first day of
the month following the month in which the Service was provided. Payment for
all monthly recurring charges for full months during which the Service is to be
provided following Start of Service shall be due in advance on the first day of
that month. WorldCom's invoice to Customer will be computed each calendar month
in advance of the due date for charges as provided above and as of a billing
cut-off date determined by WorldCom, which shall not be earlier than the fifth
(5th) day or later than the fifteenth (15th) day of the month in which such
computation is made ("WORLDCOM BILLING CUT-OFF DATE"). The invoice date shall
not be determinative of the billing cut-off date used by WorldCom in the
preparation of any particular invoice. Customer agrees to remit payment to
WorldCom at the remittance address indicated on WorldCom
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invoices to Customer. In the event Customer fails to pay WorldCom's invoice in
full or remit payment to the proper address on or before thirty (30) days after
the due date, Customer shall also pay a late fee in the amount of the lesser of
one and one-half percent (1 1/2%) of the unpaid balance per month or the
maximum lawful rate under applicable state law. Notwithstanding the foregoing,
late fees shall apply to, but shall not be due and payable for, amounts
reasonably disputed by Customer for a period of ninety (90) days following the
due date therefor, provided: (I) Customer notifies WorldCom of the basis for
such dispute in writing on or before thirty (30) days after the due date; and
(II) negotiates in good faith with WorldCom for the purpose of resolving such
dispute within said ninety (90) day period. In the event, such dispute is
resolved in favor of WorldCom, Customer will pay to WorldCom the once disputed
amounts together with the applicable late fees within ten (10) business days of
the resolution. In the event such dispute is resolved in favor of Customer,
Customer will receive a credit for the amounts determined not to be owed
together with a credit for the applicable late fees. In the event the dispute
cannot be resolved within such ninety (90) day period, all disputed amounts
together with late fees shall become due and payable, and this provision shall
not be construed as preventing Customer from pursuing any available legal
remedies.
10. SUSPENSION OF SERVICE: In the event payment in full is not
received from Customer on or before thirty (30) days following the due date
with respect to undisputed amounts or on or before ninety (90) days following
the due date with respect to amounts reasonably disputed in accordance with the
prescriptions of Section 9, WorldCom shall have the right after giving Customer
ten (10) days notice and opportunity to cure to suspend all or any portion of
the Service to Customer, or upon subsequent notice, all or any additional
portions of the Service to Customer; and, in either event, until such time as
Customer has paid in full all charges then due, including any late fees as
specified herein. Following such payment, WorldCom shall be required to
reinstitute Service to Customer only upon the provision by Customer to WorldCom
of satisfactory assurance (such as a deposit) of Customer's ability to pay for
Service and Customer's advance payment of the cost of reinstituting Service. If
Customer fails to make such payment by a date determined by and acceptable to
WorldCom, Customer will be deemed to have canceled the Service suspended
effective the date of such suspension. Further, if at anytime there is a
material adverse change in Customer's creditworthiness, then in addition to any
other remedies available to WorldCom, WorldCom may elect, in its sole
discretion, to exercise one or more of the following remedies: (I) cause Start
of Service for Service described in a previously executed Service Order to be
withheld; (II) cease providing Service pursuant to a Suspension Notice; (III)
decline to accept a Service Order or other requests from Customer to provide
Service which WorldCom may otherwise be obligated to accept; and/or (IV)
condition its provision of Service or acceptance of a Service Order on
Customer's assurance of payment which shall be a deposit or such other means to
establish reasonable assurance of payment. An adverse material change in
Customer's creditworthiness shall include, but not be limited to: (A)
Customer's default of its obligations to WorldCom under this or any other
agreement with WorldCom; (B) failure of Customer to make full payment of
charges due hereunder on or before the Due Date on three (3) or more occasions
during any period of twelve (12) or fewer months or Customer's failure
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to make such payment on or before the Due Date in any two (2) consecutive
months; (C) acquisition of Customer (whether in whole or by majority or
controlling interest) by an entity which is insolvent, which is subject to
bankruptcy or insolvency proceedings, which owes past due amounts to WorldCom
or any entity affiliated with WorldCom or which is a materially greater credit
risk than Customer; or (D) Customer's being subject to or having filed for
bankruptcy or insolvency proceedings or the legal insolvency of Customer.
11. CANCELLATION: (A) After a Service Order is accepted by WorldCom,
Customer may cancel all or a portion of the Service described therein if
Customer provides written notification thereof to WorldCom thirty (30) days in
advance of the effective date of cancellation. In such case, Customer shall pay
to WorldCom all charges for Service provided through the effective date of such
cancellation plus a cancellation charge determined as follows: (I) if the
Service Commitment Period for the canceled Interexchange Service is one (1)
year or less, then the cancellation charge shall be an amount equal to the
balance of the monthly Interexchange Service charges (then in effect at the
time of cancellation) for such canceled Interexchange Service that otherwise
would have become due for the unexpired balance of the Service Commitment
Period (but in no event less than zero); (II) if the Service Commitment Period
for the canceled Interexchange Service is longer than one (1) year and such
cancellation becomes effective prior to completion of the first year of the
Service Commitment Period, then the cancellation charge shall be an amount
equal to the balance of the monthly Interexchange Service charges (then in
effect at the time of cancellation) for such canceled Interexchange Service
that otherwise would have become due for the unexpired portion of first year of
the Service Commitment Period plus twenty percent (20%) of the balance of such
monthly Interexchange Service charges for the remainder of the Service
Commitment Period beyond the first year; and, (III) if the Service Commitment
Period for the canceled Interexchange Service is longer than one (1) year and
such cancellation becomes effective after completion of the first year of the
Service Commitment Period, then the cancellation charge shall be an amount
equal to twenty percent (20%) of the balance of the monthly Interexchange
Service charges (then in effect at the time of cancellation) for such canceled
Interexchange Service that otherwise would have become due for the unexpired
portion of the Service Commitment Period. It is agreed that WorldCom's damages
in the event Service is canceled shall be difficult or impossible to ascertain.
The provisions provided for in this Section 11(A) are intended, therefore, to
establish liquidated damages in the event of cancellation and are not intended
as a penalty. (B) In the event of any cancellation described in Section 11(A),
Customer shall also pay WorldCom an amount equal to any termination charges,
expenses, fees or penalties incurred by WorldCom due to cancellation of Local
Access plus any other reasonable costs, expenses or additional charges incurred
in accordance with Sections 6 and 8. (C) The foregoing to the contrary
notwithstanding, and upon thirty (30) days prior written notice, either
Customer or WorldCom shall have the right, without cancellation charge or other
liability, to cancel an affected portion of the Service, if any material rate
or term contained herein and relevant to the affected Service is substantially
changed by order of the highest court of competent jurisdiction to which the
matter is appealed, the Federal Communications Commission, or other local,
state or federal government authority.
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12. FORCE MAJEURE: If WorldCom's performance of this Agreement or
any obligation hereunder is prevented, restricted or interfered with by causes
beyond their reasonable control including but not limited to acts of God, fire,
explosion, vandalism, cable cut, storm or other similar occurrence, any law,
order, regulation, direction, action or request of the United States government
or state or local governments, or of any department, agency, commission, court,
bureau, corporation or other instrumentality of any one or more said
governments, or of any civil or military authority, or by national emergencies,
insurrections, riots, wars, strikes, lockouts or work stoppages or other labor
difficulties, supplier failures, shortages, breaches or delays, then WorldCom
shall be excused from such performance on a day-to-day basis to the extent of
such prevention, restriction or interference. WorldCom shall use reasonable
efforts under the circumstances to avoid or remove such causes of
non-performance and shall proceed to perform with reasonable dispatch whenever
such causes are removed or cease. If such failure of performance shall be for
thirty (30) days or less, then the Service affected thereby shall continue
as-is but, upon receipt of a Customer request directed to Customer's designated
Customer Service Representative, a pro rata credit of the charges for the
affected Service shall be made; if for more than thirty (30) days, then said
pro rata credit shall continue, and the affected Service may be canceled by
either Customer or WorldCom on thirty (30) days notice without liability other
than Customer's liability for payment for Service provided prior to
cancellation.
13. SERVICE WARRANTY; GENERAL LIMITATION OF LIABILITY; INDEMNITY: (A)
WorldCom warrants that the Service will be provided to Customer in accordance
with prevailing telecommunications industry standards (hereinafter "TECHNICAL
STANDARDS"). WorldCom will use reasonable efforts under the circumstances to
remedy any delays, interruptions, omissions, mistakes, accidents or errors in
the Service (hereinafter "DEFECT" or "DEFECTS") and restore the Service in
accordance with the Technical Standards. Following Start of Service, if
Customer reports a Defect to WorldCom at WorldCom's Maintenance Control Center
and WorldCom is unable to restore the Service as warranted within one-half hour
of such report, Customer shall, upon request directed to Customer's designated
Customer Service Representative, receive a credit at the rate of 1/1440 of the
monthly charges applicable to the affected Service for each half hour or major
fraction thereof in excess of the first half hour that the affected Service
fails to conform to the Technical Standards. If a portion of the Service fails
to conform to the Technical Standards at any time and over a period of thirty
(30) days after written notice thereof by Customer to WorldCom, Customer may
terminate the affected portion of the Service without a cancellation charge.
Customer's credit and termination rights shall not apply, however, in the event
any Defect is caused or contributed to, directly or indirectly, by any act or
omission of Customer or its customers, affiliates, agents, representatives,
invitees or licensees.
THE FOREGOING WARRANTY AND REMEDIES ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES OR REMEDIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING
WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. IN THE EVENT OF ANY DEFECT IN THE SERVICE WHATSOEVER,
NEITHER
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WORLDCOM OR ANY THIRD PARTY PROVIDER OR OPERATOR OF FACILITIES EMPLOYED IN THE
PROVISION OF THE SERVICE SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
CONSEQUENTIAL, SPECIAL, ACTUAL, PUNITIVE OR ANY OTHER DAMAGES, OR FOR ANY LOST
PROFITS OF ANY KIND OR NATURE WHATSOEVER.
(B) In the event parties other than Customer shall have use of the Service
through Customer, then Customer agrees to forever indemnify and hold WorldCom
and any third party provider or operator of facilities employed in provision of
the Service harmless from and against any and all claim, demands, suits,
actions, losses, damages, assessments or payments which may be asserted by said
parties, arising out of or relating to any Defect in the Service.
14. INTERSTATE INTEREXCHANGE SERVICE: Customer may use any
Interexchange Service provided under this Agreement only if such Interexchange
Service is used for carrying interstate telecommunications (i.e.,
telecommunications subject to the jurisdiction of the Federal Communications
Commission). WorldCom shall only be obligated to provide the Interexchange
Service described in a Service Order (which has been accepted by WorldCom) when
Customer's interstate use of the Interexchange Service is greater than ten
percent (10%) of the total traffic on special access lines comprising Local
Access associated with the Interexchange Service. WorldCom shall not be
obligated to make available Interexchange Service on a circuit with end points
within a single state or service on a circuit which originates/terminates at
points both of which are situated within a single state unless Customer
represents in writing that such Interexchange Service or circuits shall be used
to carry interstate telecommunications, or the state in question permits the
Interexchange service to be provided. If it is determined at any time that such
Interexchange Service or circuit is subject to state regulation, WorldCom may
(i) provide the Interexchange Service or circuit pursuant to applicable state
laws, regulations and tariffs, (ii) assign the Interexchange Service or circuit
to an affiliated company to be provided in accordance with such affiliated
company's tariff, or (iii) discontinue provision of the affected Interexchange
Service or circuit.
15. NOTICES: Notices under this Agreement shall be in writing and
delivered to the person identified as the "PARTY TO RECEIVE NOTICES" at the
Full Business Addresses of the parties as they appear herein or as otherwise
provided for by proper notice hereunder and the effective date for any notice
under this Agreement shall be the date of delivery of such notice, not the date
of mailing.
16. USE OF SERVICE: Upon WorldCom's acceptance of a Service Order
hereunder, WorldCom will provide the Service specified therein to Customer upon
condition that the Service shall not be used for any unlawful purpose. The
provision of Service will not create a partnership or joint venture between the
parties or result in a joint communications service offering to any third
parties, and WorldCom and Customer agree that this Agreement, to the extent it
is subject to FCC regulation, is an inter-carrier agreement which is not
subject to the filing requirements of Section 21l(a) of the Communications Act
of 1934 (47 U.S.C. ss. 211(a)) as implemented in 47 C.F.R. ss. 43.501.
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17. PROPRIETARY INFORMATION: Customer understands and agrees that
the terms and conditions of this Agreement and all documents referenced herein
(including without limitation, invoices to Customer for Service provided
hereunder), communications between the parties regarding this Agreement or the
Service to be provided hereunder (including price quotes to Customer for any
Service proposed to be provided or actually provided hereunder), as well as
such information and price quotes relevant to any other agreement between the
parties are confidential as between Customer and WorldCom and shall not be
disclosed by Customer to any party other than the directors, officers and
employees of Customer or agents of Customer who have specifically agreed to
nondisclosure of the terms and conditions hereof. Violation by Customer or its
agents of the foregoing provision shall entitle WorldCom, at its option, to
cause discontinuation of the Service to Customer without further obligation or
liability of WorldCom to Customer. Customer further agrees that any Customer
generated press release, advertisement or publication regarding this Agreement,
the Service provided hereunder or in which WorldCom is to be mentioned, will be
submitted to WorldCom for its written approval prior to publication.
18. GENERAL PROVISIONS: (A) Customer will execute such other
documents, provide such information and affirmatively cooperate with WorldCom,
all as may be reasonably required by WorldCom and relevant to providing the
Service. In particular, Customer accepts the responsibility for providing
WorldCom with special access surcharge exemption forms as may be required by
local exchange telephone companies. (B) The failure of either Customer or
WorldCom to give notice of default or to enforce or insist upon compliance with
any of the terms or conditions of this Agreement shall not constitute the
permanent waiver of any term or condition of this Agreement. (C) The provision
of the Service will not create a partnership or joint venture between the
parties or result in a joint communications service offering to third parties.
(D) In the event suit is brought or an attorney is retained by WorldCom to
enforce the terms of this Agreement or to collect any moneys due hereunder or
to collect money damages for breach hereof, it shall be entitled to recover, in
addition to any other remedy, reimbursement for reasonable attorneys' fees,
court costs, costs of investigation and other related expenses incurred in
connection therewith. (E) No subsequent agreement concerning the Service or
modification to this Agreement shall be binding upon the parties unless it is
made in writing by an authorized representative of Customer and Authorized
Headquarters Representative of WorldCom Services. (F) This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors or assigns, provided, however, that Customer shall not
assign or transfer its rights or obligations under this Agreement without the
prior written consent of WorldCom, which consent shall not be unreasonably
withheld, and further provided that any assignment or transfer without such
consent shall entitle WorldCom to terminate the Service provided hereunder at
its option upon ten (10) days prior written notice. (G) This Agreement shall be
construed under the laws of the State of Oklahoma without regard to choice of
law principles. (H) If any part of any provision of this Agreement shall be
invalid or unenforceable under applicable law, said part shall be ineffective
to the extent of such invalidity only, without in any way affecting the
remaining parts of said provision or the remaining provisions of this
Agreement, and the Customer and WorldCom Services hereby agree to negotiate
with respect
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to any such invalid or unenforceable part to the extent necessary to render
such part valid and enforceable. (I) The terms and provisions contained in this
Agreement that by their sense and context are intended to survive the
performance thereof by the parties hereto shall survive the completion of
performance and termination of this Agreement, including, without limitation,
the making of any and all payments due hereunder. (J) Descriptive headings in
this Agreement are for convenience only and shall not affect the construction
of this Agreement. (K) Words having well-known technical or trade meanings
shall be so construed, and all listings of items shall not be taken to be
exclusive, but shall include other items, whether similar or dissimilar to
those listed, as the context reasonably requires. (L) No rule of construction
requiring interpretation against the draftsman hereof shall apply in the
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Digital Service
Agreement on the date first written above.
WORLDCOM NETWORK SERVICES,
INC.
By:/s/ Greg Frikor By:/s/ Thomas O. Cordy
--------------------------------- -------------------------------
(Signature) (Signature)
Greg Frikor Thomas O. Cordy
- ------------------------------------ ----------------------------------
(Print Name) (Print Name)
Regional Sales Director President/CEO
- ------------------------------------ ----------------------------------
(Title) (Title)
Full Business Address: Full Business Address:
WorldCom, Inc. Maxxis Communications
One Williams Center, Suite 2800 1901 Montreal Road
Tulsa, Oklahoma 74172 Tucker, GA. 30084
Attn: Contract Administration Attn:Pat Lentz
(Party to Receive Notices) (Party to Receive Notices)
Tel. No. 918-588-3210 Tel. No. 770/696-6343
Fax No. 770/552-8471
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EXHIBIT 10.34
CONFIDENTIAL TREATMENT
REQUESTED
WORLDCOM NETWORK SERVICES, INC.
CLASSIC/TRANSCEND(TM) SWITCHED SERVICES
TELECOMMUNICATIONS SERVICES AGREEMENT
This TELECOMMUNICATIONS SERVICES AGREEMENT (the "TSA") is entered
into as of the 21st day of January, 1999, by and between WORLDCOM NETWORK
SERVICES, INC., a Delaware corporation, with its principal office at 6929 North
Lakewood Avenue, Tulsa, Oklahoma 74117 ("WORLDCOM") and MAXXIS COMMUNICATIONS,
INC., a Georgia corporation, with its principal office at 1901 Montreal Road,
Suite 108, Tucker, Georgia 30084 ("CUSTOMER").
In consideration of good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. SWITCHED SERVICES; OTHER DOCUMENTS; START OF SERVICE.
(A) Services WorldCom agrees to provide and Customer agrees to
accept and pay for switched telecommunications services and other
associated services (collectively the "SWITCHED SERVICES") as further
described in the "SERVICE SCHEDULE" attached hereto and incorporated
herein by reference, which describes the particular services, specific
terms and other information necessary or appropriate for WorldCom to
provide the Service to Customer. The Switched Services provided by
WorldCom are subject to (i) the terms and conditions contained in this
TSA and the Program Enrollment Terms (the "PET") which are attached
hereto and incorporated herein by reference, (ii) the rates and
discounts set forth in the applicable Rate and Discount Schedule (the
"RATE SCHEDULE") attached hereto and incorporated herein by reference,
and (iii) each Service Request (described below) which is accepted
hereunder. The PET, as subscribed to by the parties, shall set forth
the Effective Date, the Service Term, Customer's minimum monthly
commitment, if any, and other information necessary to provide the
Switched Services under this TSA. In the event of a conflict between
the terms of this TSA, the PET, the Service Schedule, the Rate
Schedule and the Service Request(s), the following order of precedence
will prevail: (1) the PET, (2) the Rate Schedule, (3) the Service
Schedule, (4) this TSA, and (5) Service Request(s). This TSA, the PET,
the Service Schedule and the applicable Rate and Discount Schedule are
sometimes collectively referred to as the "AGREEMENT".
(B) Service Requests Customer's requests to initiate or cancel
Switched Services shall be described in an appropriate WorldCom
Service Request ("SERVICE REQUEST"). A Service Request may consist of
machine readable tapes, facsimiles or other means approved by
WorldCom. Further, Service Requests shall specify all reasonable
information, as determined by WorldCom, necessary or appropriate for
WorldCom to provide the Switched Service(s) in question, which shall
include without limitation, the type, quantity and end point(s) (when
necessary) of circuits comprising a Service
<PAGE> 2
Interconnection as described in the applicable Service Schedules, or
automatic number identification ("ANI") information relevant to the
Switched Service(s), the Requested Service Date, and charges, if any,
relevant to the Switched Services described in the Service Request.
After WorldCom's receipt and verification of a valid Service Request
for SWITCHED ACCESS Service (as defined in the Service Schedule)
requiring a change in the primary interexchange carrier ("PIC"),
WorldCom agrees to (i) submit the ANI(s) relevant to such Service
Requests to the following local exchange carriers ("LECS") (with which
WorldCom currently has electronic interface capabilities) within ten
(10) days: Ameritech, Bell Atlantic, BellSouth, Nynex, Pacific Bell,
Southwestern Bell, US West, GTE and United, and (ii) submit the ANI(s)
relevant to such Service Requests to those LECs with which WorldCom
does not have electronic interface capabilities within a reasonable
time.
(C) Start of Service WorldCom's obligation to provide and
Customer's obligation to accept and pay for non-usage sensitive charges
for Switched Services shall be binding to the extent provided for in
this Agreement upon the submission of an acceptable Service Request to
WorldCom by Customer. Customer's obligation to pay for usage sensitive
charges for Switched Services shall commence with respect to any
Switched Service as of the date the Switched Service in question is
made available to and used by Customer ("START OF SERVICE"), but in no
event later than the "REQUESTED SERVICE DATE" if such Switched Service
is available for Customer's use as of such Requested Service Date.
Start of Service for particular Services shall be further described in
the Service Schedule relevant to the Switched Services in question.
2. CANCELLATION.
(A) Cancellation Charge At any time after the Effective Date,
Customer may cancel this Agreement if Customer provides written
notification thereof to WorldCom not less than thirty (30) days prior
to the effective date of cancellation. In such case (or in the event
WorldCom terminates this Agreement as provided in Section 7), Customer
shall pay to WorldCom all charges for Services provided through the
effective date of such cancellation plus a cancellation charge (the
"CANCELLATION CHARGE") equal to one hundred percent (100%) of
Customer's commitment(s), if any, (as described in the PET) that would
have become due for the unexpired portion of the Service Term.
(B) Liquidated Damages It is agreed that WorldCom's damages in the
event Customer cancels this Agreement shall be difficult or impossible
to ascertain. The provision for a Cancellation charge in Subsection
2(A) above is intended, therefore, to establish liquidated damages in
the event of a cancellation and is not intended as a penalty.
(C) Cancellation Without Charge Notwithstanding anything to the
contrary contained in Subsection 2(A) above, Customer may cancel this
Agreement without incurring any cancellation charge if (i) WorldCom
fails to provide a network as warranted in Section 8 below; (ii)
WorldCom fails to deliver call detail records promptly based on the
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frequency selected by Customer (i.e., monthly, weekly or daily); or
(iii) WorldCom fails to submit ANI(s) relevant to such Service
Requests to the LECs within the time period described in Subsection
1(B) above. Provided, however, Customer must give WorldCom written
notice of any such default and an opportunity to cure such default
within five (5) days of the notice. In the event WorldCom fails to
cure any such default within the five-day period on more than three
(3) occasions within any six (6) month period, Customer may cancel
this Agreement without incurring any cancellation charge.
3. CUSTOMER'S END USERS.
(A) End Users Customer will obtain and upon WorldCom's request
provide WorldCom (within two (2) business days of the date of the
request) a written Letter of Agency ("LOA") acceptable to WorldCom [or
with any other means approved by the Federal Communications Commission
("FCC") or any applicable public utility commission ("PUC")], for each
ANI indicating the consent of such end user of Customer ("END USER")
to be served by Customer and transferred (by way of change of such End
User's designated PIC) to the WorldCom network prior to order
processing. Each LOA will provide, among other things, that the End
User has consented to the transfer being performed by Customer or
Customer's designee. When applicable, Customer will be responsible for
notifying its End Users, in writing (or by any other means approved by
the FCC) that (i) a transfer charge will be reflected on their LEC
bill for effecting a change in their PIC, (ii) the entity name under
which their interstate, intrastate and/or operator services will be
billed (if different from Customer), and (iii) the "primary" telephone
number(s) to be used for maintenance and questions concerning their
long distance service and/or billing. Customer agrees to send WorldCom
a copy of the documentation Customer uses to satisfy the above
requirements promptly upon request of WorldCom. WorldCom may change
the foregoing requirements for Customer's confirming orders and/or for
notifying End Users regarding the transfer charge at any time in order
to conform with applicable FCC and state regulations. Provided,
however, Customer will be solely responsible for ensuring that the
transfer of End Users to the WorldCom network conforms with applicable
FCC and state regulations, including without limitation, the
regulations established by the FCC with respect to verification of
orders for long distance service generated by telemarketing as
promulgated in 47 C.F.R., Part 64, Subpart K,ss.64.1100 or any
successor regulation(s).
(B) Transfer Charges/Disputed Transfers Customer agrees that it is
responsible for (i) all charges incurred by WorldCom to change the PIC
of End Users to the WorldCom network, (ii) all charges incurred by
WorldCom to change End Users back to their previous PIC arising from
disputed transfers to the WorldCom network plus, at WorldCom's option,
an administrative charge equal to twenty percent (20%) of such
charges, and (iii) any other damages suffered by or awards against
WorldCom resulting from disputed transfers.
(C) Excluded ANIs WorldCom has the right to reject any ANI supplied
by Customer for any of the following reasons: (i) WorldCom is not
authorized to provide or does not
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provide long distance services in the particular jurisdiction in which
the ANI is located, (ii) a particular ANI submitted by Customer is not
in proper form, (iii) Customer is not certified to provide long
distance services in the jurisdiction in which the ANI is located,
(iv) Customer is in material default of this Agreement, (v) Customer
fails to cooperate with WorldCom in implementing reasonable
verification processes determined by WorldCom to be necessary or
appropriate in the conduct of business, or (vi) any other circumstance
reasonably determined by WorldCom which could adversely affect
WorldCom's performance under this Agreement or WorldCom's general
ability to transfer its other customers or other end users to the
WorldCom network, including without limitation, WorldCom's ability to
electronically effect PIC changes with the LECs. In the event WorldCom
rejects an ANI, WorldCom will notify Customer of its decision
specifically describing the rejected ANI and the reason(s) for
rejecting that ANI, and will not incur any further liability under
this Agreement with regard to that ANI. Further, any ANI requested by
Customer for Switched Services may be deactivated by WorldCom if no
Switched Services billings relevant thereto are generated in any three
(3) consecutive calendar month/billing periods. WorldCom will be under
no obligation to accept ANIs within the last full calendar month
period preceding the scheduled expiration of the Service Term.
(D) Records Customer will maintain documents and records
("RECORDS") supporting Customer's re-sale of Switched Services,
including, but not limited to, appropriate and valid LOAs from End
Users for a period of not less than (twelve) 12 months or such longer
period as may be required by applicable law, rule or regulation.
Customer shall indemnify WorldCom for any costs, charges or expenses
incurred by WorldCom arising from disputed PIC selections involving
Switched Services to be provided to Customer for which Customer cannot
produce an appropriate LOA relevant to the ANI and PIC charge in
question, or when WorldCom is not reasonably satisfied that the
validity of a disputed LOA has been resolved.
(E) Customer Service Customer will be solely responsible for
billing its End Users and providing such End Users with customer
service. Customer agrees to notify WorldCom as soon as reasonably
possible in the event an End User notifies Customer of problems
associated with the Switched Services, including without limitation,
excess noise, echo, or loss of service.
4. CUSTOMER'S RESPONSIBILITIES.
(A) Expedite Charges In the event Customer requests expedited
services and/or changes to Service Requests and WorldCom agrees to
such request, WorldCom will pass through the charges assessed by any
supplying parties (e.g., local access providers) for such expedited
charges and/or changes to Service Requests involved at the same rate
to Customer. WorldCom may further condition its performance of such
request upon Customer's payment of such additional charges to
WorldCom.
(B) Fraudulent Calls Customer shall indemnify and hold WorldCom
harmless from
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all costs, expenses, claims or actions arising from fraudulent calls
of any nature which may comprise a portion of the Switched Services to
the extent that the party claiming the call(s) in question to be
fraudulent is (or had been at the time of the call) an End User of
such Switched Services through Customer or an end user of the Switched
Services through Customer's distribution channels. Customer shall not
be excused from paying WorldCom for Switched Services provided to
Customer or any portion thereof on the basis that fraudulent calls
comprised a corresponding portion of the Switched Services. In the
event WorldCom discovers fraudulent calls being made (or reasonably
believes fraudulent calls are being made), nothing contained herein
shall prohibit WorldCom from taking immediate action (without notice
to Customer) that is reasonably necessary to prevent such fraudulent
calls from taking place, including without limitation, denying
Switched Services to particular ANIs or terminating Switched Services
to or from specific locations.
5. CHARGES AND PAYMENT TERMS.
(A) Payment WorldCom billings for Switched Services hereunder are
made on a monthly basis (or such other basis as may be mutually agreed
to by the parties) following Start of Service. Subject to Subsection
5(C) below, Switched Services shall be billed at the rates set forth
in the applicable Rate and Discount Schedule attached hereto. Customer
will be notified of WorldCom's time of day rate periods (including
WorldCom Recognized National Holidays). Discounts, if any, applicable
to the rates for certain Services are set forth in the Rate and
Discount Schedule. Customer will pay all undisputed charges relative
to each WorldCom invoice for Switched Services within thirty (30) days
of the invoice date set forth on each WorldCom invoice to Customer
("DUE DATE"). If payment is not received by WorldCom on or before the
Due Date, Customer shall also pay a late fee in the amount of the
lesser of one and one-half percent (1 1/2%) of the unpaid balance of
the charges for Switched Services rendered per month or the maximum
lawful rate under applicable state law.
(B) Taxes Customer acknowledges and understands that WorldCom
computes all charges herein exclusive of any applicable federal, state
or local use, excise, gross receipts, sales and privilege taxes,
duties, fees or similar liabilities (other than general income or
property taxes), whether charged to or against WorldCom or Customer
because of the Switched Services furnished to Customer ("ADDITIONAL
CHARGES"). Customer shall pay such Additional Charges in addition to
all other charges provided for herein. Customer will not be liable for
certain Additional Charges if Customer provides WorldCom with an
appropriate exemption certificate.
(C) Modification of Charges WorldCom reserves the right to
eliminate particular Switched Services and/or modify charges for
particular Switched Services (which charge modifications shall not
exceed then-current generally available WorldCom charges for comparable
services), upon not less than sixty (60) days prior notice to Customer,
which notice will state the effective date for the charge modification.
In the event WorldCom notifies Customer of the elimination of a
particular Switched Service and/or an increase
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in the charges, Customer may terminate this Agreement without
incurring a cancellation charge only with respect to the Switched
Service(s) affected by the increase in charges. In order to cancel
such Switched Service(s), Customer must notify WorldCom, in writing,
at least thirty (30) days prior to the effective date of the increase
in charges. In the event Customer cancels its subscription to a
particular Switched Service as described in this Subsection 5(C),
WorldCom and Customer agree to negotiate in good faith concerning
Customer's minimum monthly commitment, if any, described in the PET.
(D) Billing Disputes Notwithstanding the foregoing, amounts
reasonably disputed by Customer (along with late fees attributable to
such amounts) shall apply but shall not be due and payable for a
period of sixty (60) days following the Due Date therefor, provided
Customer: (i) pays all undisputed charges on or before the Due Date,
(ii) presents a written statement of any billing discrepancies to
WorldCom in reasonable detail on or before the Due Date of the invoice
in question, and (iii) negotiates in good faith with WorldCom for the
purpose of resolving such dispute within said sixty (60) day period.
In the event such dispute is mutually agreed upon and resolved in
favor of WorldCom, Customer agrees to pay WorldCom the disputed
amounts together with any applicable late fees within ten (10) days of
the resolution (the "ALTERNATE DUE DATE"). In the event such dispute
is mutually agreed upon and resolved in favor of Customer, Customer
will receive a credit for the disputed charges in question and the
applicable late fees. In the event WorldCom has responded to
Customer's dispute in writing and the parties fail to mutually resolve
or settle the dispute within such sixty (60) day period (unless
WorldCom has agreed in writing to extend such period) all disputed
amounts together with late fees shall become due and payable, and this
provision shall not be construed to prevent Customer from pursuing any
available legal remedies. WorldCom shall not be obligated to consider
any Customer notice of billing discrepancies which are received by
WorldCom more than sixty (60) days following the Due Date of the
invoice in question.
6. CREDIT; CREDITWORTHINESS:
(A) Credit Customer's execution of this Agreement signifies
Customer's acceptance of WorldCom's initial and continuing credit
approval procedures and policies. WorldCom reserves the right to
withhold initiation or full implementation of any or all Switched
Services under this Agreement pending WorldCom's initial satisfactory
credit review and approval thereof which may be conditioned upon terms
specified by WorldCom, including, but not limited to, security for
payments due hereunder in the form of a cash deposit or other means.
WorldCom reserves the right to modify its requirements, if any, with
respect to any security or other assurance provided by Customer for
payments due hereunder in light of Customer's actual usage when
compared to projected usage levels upon which any security or
assurance requirement was based.
(B) Creditworthiness If at any time there is a material adverse
change in Customer's Creditworthiness, then in addition to any other
remedies available to WorldCom,
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WorldCom may elect, in its sole discretion, to exercise one or more of
the following remedies: (i) cause Start of Service for Switched
Services described in a previously executed Service Request to be
withheld; (ii) cease providing Switched Services pursuant to a
Suspension Notice in accordance with Section 7(A); (iii) decline to
accept a Service Request or other requests from Customer to provide
Switched Services which WorldCom may otherwise be obligated to accept
and/or (iv) condition its provision of Switched Services or acceptance
of a Service Request on Customer's assurance of payment which shall be
a deposit or such other means to establish reasonable assurance of
payment. An adverse material change in Customer's creditworthiness
shall include, but not be limited to: (i) Customer's material default
of its obligations to WorldCom under this or any other agreement with
WorldCom; (ii) failure of 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) on three (3) or
more occasions during any period of twelve (12) or fewer months or
Customer's failure to make such payment on or before the Due Date (or
the Alternate Due Date, if applicable) in any two (2) consecutive
months; (iii) acquisition of Customer (whether in whole or by majority
or controlling interest) by an entity which is insolvent, which is
subject to bankruptcy or insolvency proceedings, which owes past due
amounts to WorldCom or any entity affiliated with WorldCom or which is
a materially greater credit risk than Customer; or, (iv) Customer's
being subject to or having filed for bankruptcy or insolvency
proceedings or the legal insolvency of Customer.
7. REMEDIES FOR BREACH.
(A) Suspension of Service In the event all undisputed charges due
pursuant to WorldCom's invoice are not paid in full by the Due Date or
disputed charges owed by Customer, if any, are not paid in full by the
Alternate Due Date, WorldCom shall have the right, after giving
Customer at least ten (10) days prior notice and opportunity to pay
such charges within such 10-day period, to suspend all or any portion
of the Switched Services to Customer ("SUSPENSION NOTICE") until such
time (designated by WorldCom in its Suspension Notice) as Customer has
paid in full all undisputed charges then due to --- WorldCom,
including any late fees. Following such payment, WorldCom shall
reinstitute Switched Services to Customer only ---- when Customer
provides WorldCom with satisfactory assurance of Customer's ability to
pay for such Switched Services (i.e., a deposit, letter of credit or
other means acceptable to WorldCom) and Customer's advance payment of
the cost of reinstituting such Switched Services. If Customer fails to
make the required payment by the date set forth in the Suspension
Notice, Customer will be deemed to have canceled the Services
suspended effective as of the date of suspension which cancellation
shall not relieve Customer for payment of applicable cancellation
charges as described in Section 2.
(B) Disconnection of Service In the event Customer is in material
breach of this Agreement, including without limitation, failure to pay
all undisputed charges due hereunder by the date stated in the
Suspension Notice described in Subsection 7(A) above, WorldCom shall
have the right, after giving Customer at least five (5) days prior
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written notice and opportunity to cure (which notice may be given
instead of or in conjunction with the Suspension Notice described in
Subsection 7(A) above), and in addition to foreclosing any security
interest WorldCom may have, to (i) disconnect all or any portion the
Switched Services being provided hereunder and/or terminate this
Agreement; (ii) withhold billing information from Customer; and/or
(iii) contact the End Users (for whom calls are originated and
terminated solely over facilities comprising the WorldCom network)
directly and bill such End Users directly until such time as WorldCom
has been paid in full for the amount owed by Customer. If Customer
fails to make payment by the date stated in the Suspension Notice and
WorldCom, after giving Customer five (5) days prior written notice,
terminates this Agreement as provided in this Section 7, such
termination shall not relieve Customer for payment of applicable
cancellation charges as described in Section 2 above.
8. WARRANTY. WorldCom will use reasonable efforts under the circumstances
to maintain its overall network quality. The quality of Switched Services
provided hereunder shall be consistent with telecommunications common carrier
industry standards, government regulations and sound business practices.
WORLDCOM MAKES NO OTHER WARRANTIES ABOUT THE SWITCHED SERVICES PROVIDED
HEREUNDER, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.
9. LIABILITY; GENERAL INDEMNITY; REIMBURSEMENT.
(A) Limited Liability IN NO EVENT WILL EITHER PARTY HERETO BE LIABLE
TO THE OTHER PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL LOSSES OR DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF
REVENUE, LOSS OF CUSTOMERS OR CLIENTS, LOSS OF GOODWILL OR LOSS OF
PROFITS ARISING IN ANY MANNER FROM THIS AGREEMENT AND THE PERFORMANCE
OR NONPERFORMANCE OF OBLIGATIONS HEREUNDER.
(B) General Indemnity In the event parties other than Customer
(e.g., Customer's End Users) shall have use of the Switched Services
through Customer, then Customer agrees to forever indemnify and hold
WorldCom, its affiliated companies and any third-party provider or
operator of facilities employed in provision of the Switched Services
harmless from and against any and all claims, demands, suits, actions,
losses, damages, assessments or payments which those parties may
assert arising out of or relating to any defect in the Switched
Services.
(C) Reimbursement Customer agrees to reimburse WorldCom for all
reasonable costs and expenses incurred by WorldCom due to WorldCom's
direct participation (either as a party or witness) in any
administrative, regulatory or criminal proceeding concerning Customer
if WorldCom's involvement in said proceeding is based solely on
WorldCom's provision of Switched Services to Customer.
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10. FORCE MAJEURE. If WorldCom's performance of this Agreement or any
obligation hereunder is prevented, restricted or interfered with by causes
beyond its reasonable control including, but not limited to, acts of God, fire,
explosion, vandalism, cable cut, storm or other similar occurrence, any law,
order, regulation, direction, action or request of the United States
government, or state or local governments, or of any department, agency,
commission, court, bureau, corporation or other instrumentality of any one or
more such governments, or of any civil or military authority, or by national
emergency, insurrection, riot, war, strike, lockout or work stoppage or other
labor difficulties, or supplier failure, shortage, breach or delay, then
WorldCom shall be excused from such performance on a day-to-day basis to the
extent of such restriction or interference. WorldCom shall use reasonable
efforts under the circumstances to avoid or remove such causes or
nonperformance and shall proceed to perform with reasonable dispatch whenever
such causes are removed or cease.
11. STATE CERTIFICATION. Customer warrants that in all jurisdictions in
which it provides long distance services that require certification, it has
obtained the necessary certification from the appropriate governmental
authority and, if required by WorldCom, agrees to provide proof of such
certification acceptable to WorldCom. In the event Customer is prohibited,
either on a temporary or permanent basis, from continuing to conduct its
telecommunications operations in a given state, Customer shall (i) immediately
notify WorldCom by facsimile, and (ii) send written notice to WorldCom within
twenty-four (24) hours of such prohibition.
12. INTERSTATE/INTRASTATE SERVICE. Except with respect to Services
specifically designated as intrastate Services or international Services, the
rates provided to Customer in the Service Schedule are applicable only to
switched Services if such Switched Services are used for carrying interstate
telecommunications (i.e., Switched Services subject to FCC jurisdiction).
WorldCom shall not be obligated to provide Switched Services with end points
within a single state or Switched Services which originate/terminate at points
both of which are situated within a single state. In those states where
WorldCom is authorized to provide intrastate service (i.e., telecommunications
transmission services subject to the jurisdiction of state regulatory
authorities), WorldCom will, at its option, provide intrastate Switched
Services pursuant to applicable state laws, regulations and applicable tariff,
if any, filed by WorldCom with state regulatory authorities as required by
applicable law.
13. AUTHORIZED USE OF WORLDCOM NAME; PRESS RELEASES. Without WorldCom's
prior written consent, Customer shall not (i) refer to itself as an authorized
representative of WorldCom whenever it refers to the Switched Services in
promotional, advertising or other materials, or (ii) use WorldCom's logos,
trade marks, service marks, or any variations thereof in any of its
promotional, advertising or other materials. Additionally, Customer shall
provide to WorldCom for its prior review and written approval, all promotions,
advertising or other materials or activity using or displaying WorldCom's name
or the Services to be provided by WorldCom. Customer agrees to change or
correct, at Customer's expense, any such material or activity which WorldCom,
in its sole judgment, determines to be inaccurate, misleading or otherwise
objectionable. Customer is explicitly authorized to only use the following
statements in its sales literature or if in response to an inquiry by
Customer's end user: (i) "Customer utilizes the WorldCom network", (ii)
"Customer utilizes WorldCom's facilities", (iii)
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"WorldCom provides only the network facilities", and (iv) "WorldCom is our
network services provider". Except as specifically provided in this Section 13,
the parties further agree that any press release, advertisement or publication
generated by a party regarding this Agreement, the Services provided hereunder
or in which a party desires to mention the name of the other party or the other
party's patent or affiliated company(ies), will be submitted to the
non-publishing party for its written approval prior to publication.
14. NOTICES. Notices under this Agreement shall be in writing and
delivered to the person identified below at the offices of the parties as they
appear below or as otherwise provided for by proper notice hereunder. Customer
shall notify WorldCom in writing if Customer's billing address is different
than the address shown below. The effective date for any notice under this
Agreement shall be the date of actual receipt of such notice by the appropriate
party, notwithstanding the date of mailing or transmittal via hand delivery or
facsimile.
IF TO WORLDCOM: WorldCom Network Services, Inc.
6929 North Lakewood Avenue
Attn: Carrier Sales Dept.
Tulsa, Oklahoma 74117
IF TO CUSTOMER: Maxxis Communications, Inc.
1901 Montreal Road, Suite 108
Tucker, Georgia 30084
Attn: Patrick J. Lentz, Exec. VP
Telephone No.: 770-696-6343
Fax No.: 770-552-8471
15. NO-WAIVER. No term or provision of this Agreement shall be deemed
waived and no breach or default shall be deemed excused unless such waiver or
consent shall be in writing and signed by the party claimed to have waived or
consented. A consent to waiver of or excuse for a breach or default by either
party, whether express or implied, shall not constitute a consent to, waiver
of, or excuse for any different or subsequent breach or default.
16. PARTIAL INVALIDITY; GOVERNMENT ACTION.
(A) Partial Invalidity If any part of any provision of this
Agreement or any other agreement, document or writing given pursuant to
or in connection with this Agreement shall be invalid or unenforceable
under applicable law, rule or regulation, that part shall be
ineffective to the extent of such invalidity only, without in any way
affecting the remaining parts of that provision or the remaining
provisions of this Agreement. In such event, Customer and WorldCom will
negotiate in good faith with respect to any such invalid or
unenforceable part to the extent necessary to render such part valid
and enforceable.
(B) Government Action Upon thirty (30) days prior notice, either
party shall have the right, without liability to the other, to cancel
an affected portion of the Switched
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Service if any material rate or term contained herein and relevant to
the affected Switched Service is substantially changed (to the
detriment of the terminating party) or found to be unlawful or the
relationship between the parties hereunder is found to be unlawful by
order of the highest court of competent jurisdiction to which the
matter is appealed, the FCC, or other local, state or federal
government authority of competent jurisdiction.
17. EXCLUSIVE REMEDIES. Except as otherwise specifically provided for
herein, the remedies set forth in this Agreement comprise the exclusive
remedies available to either party at law or in equity.
18. USE OF SERVICE. Upon WorldCom's acceptance of a Service Request
hereunder, WorldCom will provide the Switched Services specified therein to
Customer upon condition that such Switched Services shall not be used for any
unlawful purpose. The provision of Switched Services will not create a
partnership or joint venture between the parties or result in a joint
communications service offering to any third parties, and WorldCom and Customer
agree that this Agreement, to the extent it is subject to FCC regulation, is an
inter-carrier agreement which is not subject to the filing requirements of
Section 211(a) of the Communications Act of 1934 (47 U.S.C. ss. 211(a)) as
implemented in 47 C. F.R. ss. 43.51.
19. CHOICE OF LAW; FORUM.
(A) Law This Agreement shall be construed under the laws of the
State of Oklahoma without regard to choice of law principles.
(B) Forum Any legal action or proceeding with respect to this
Agreement may be brought in the Courts of the State of Oklahoma in and
for the County of Tulsa or the United States of America for the
Northern District of Oklahoma. By execution of this Agreement, both
Customer and WorldCom hereby submit to such jurisdiction, hereby
expressly waiving whatever rights may correspond to either of them by
reason of their present or future domicile. In furtherance of the
foregoing, Customer and WorldCom hereby agree to service by U.S. Mail
at the notice addresses referenced in Section 14. Such service shall
be deemed effective upon the earlier of actual receipt or seven (7)
days following the date of posting.
20. PROPRIETARY INFORMATION.
(A) Confidential Information The parties understand and agree that
the terms and conditions of this Agreement (but not the existence
thereof), all documents referenced herein (including invoices to
Customer for Switched Services provided hereunder), communications
between the parties regarding this Agreement or the Switched Services
to be provided hereunder (including price quotes to Customer for any
services proposed to be provided or actually provided hereunder), as
well as such information relevant to any other agreement between the
parties (collectively "CONFIDENTIAL INFORMATION"), are confidential as
between Customer and WorldCom.
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(B) Limited Disclosure A party shall not disclose Confidential
Information (unless subject to discovery or disclosure pursuant to
legal process), to any other party other than the directors, officers,
and employees of a party or a party's agents including their
respective attorneys, consultants, brokers, lenders, insurance
carriers or bona fide prospective purchasers who have specifically
agreed in writing to nondisclosure of the terms and conditions hereof.
Any disclosure hereof required by legal process shall only be made
after providing the non-disclosing party with notice thereof in order
to permit the non-disclosing party to seek an appropriate protective
order or exemption. Violation by a party or its agents of the
foregoing provisions shall entitle the non-disclosing party, at its
option, to obtain injunctive relief without a showing of irreparable
harm or injury and without bond.
(C) Survival of Confidentiality The provisions of this Section 20
will be effective as of the date of this Agreement and remain in full
force and effect for a period which will be the longer of (i) one (1)
year following the date of this Agreement, or (ii) one (1) year from
the termination of all Services hereunder.
21. SUCCESSORS AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors or
assigns, provided, however, that Customer shall not assign or transfer its
rights or obligations under this Agreement without the prior written consent of
WorldCom, which consent shall not be unreasonably withheld or delayed, and
further provided that any assignment or transfer without such consent shall be
void.
22. GENERAL.
(A) Survival of Terms The terms and provisions contained in this
Agreement that by their sense and context are intended to survive the
performance thereof by the parties hereto shall so survive the
completion of performance and termination of this Agreement,
including, without limitation, provisions for indemnification and the
making of any and all payments due hereunder.
(B) Headings Descriptive headings in this Agreement are for
convenience only and shall not affect the construction of this
Agreement.
(C) Industry Terms Words having well-known technical or trade
meanings shall be so construed, and all listings of items shall not be
taken to be exclusive, but shall include other items, whether similar
or dissimilar to those listed, as the context reasonably requires.
(D) Rule of Construction No rule of construction requiring
interpretation against the drafting party hereof shall apply in the
interpretation of this Agreement.
23. ENTIRE AGREEMENT. This Agreement consists of (i) all the terms and
conditions
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contained herein, and (ii) all documents incorporated herein specifically by
reference. This Agreement constitutes the complete and exclusive statement of
the understandings between the parties and supersedes all proposals and prior
agreements (oral or written) between the parties relating to the Switched
Services provided hereunder. No subsequent agreement between the parties
concerning the Switched Services shall be effective or binding unless it is
made in writing and subscribed to by Customer and WorldCom.
24. OTHER AGREEMENTS. Customer acknowledges and agrees that this Agreement
and the Switched Services described herein may not be combined with any other
switched services products or services offered by WorldCom, WorldCom's parent
company or WorldCom's affiliates. Additionally, Customer acknowledges and
agrees that:
(A) Current Services As of the Effective Date of this Agreement,
(i) all switched telecommunications services ("CURRENT SERVICES")
offered by WorldCom, (formerly WilTel, Inc.), WorldCom's parent
company, WorldCom, Inc. (formerly LDDS Communications, Inc.) or any
of WorldCom's affiliates, including without limitation, IDB WorldCom
Services, Inc. (hereinafter referred to as the "WORLDCOM GROUP"),
which are currently being provided Customer (which for purposes of
this Section 24 will include Customer's parent company, Customer's
subsidiaries and any other entities under common control with
Customer; hereinafter referred to as the "CUSTOMER GROUP") pursuant to
existing service agreements ("EXISTING AGREEMENTS") will be canceled
and no longer in force or effect except for charges or credits due for
Current Services rendered as of the Effective Date of this Agreement
and provisions intended to survive termination, such as limitation of
liability, indemnification and confidentiality, and (ii) all Current
Services provided a member of the Customer Group by a member of the
WorldCom Croup will be provisioned under the terms and conditions of
this TSA. Simultaneous with the execution of this Agreement, if
applicable, Customer shall cause all members of the Customer Group to
agree to the cancellation of such Existing Agreements and the
provision of Current Services under the terms and conditions of this
Agreement and Customer agrees to provide WorldCom with reasonable
documentation evidencing such agreement.
(B) Third Party Agreements If Customer acquires or merges or
combines with a third party after the Effective Date of this
Agreement, and such third party has existing agreement(s) with a
member of the WorldCom Group (collectively referred to as the "THIRD
PARTY AGREEMENTS") for the provision of switched telecommunications
services ("THIRD PARTY EXISTING SERVICES"), then ninety (90) days
following the date of such acquisition, merger or combination (or such
earlier date contained in a written notice from Customer to WorldCom)
(the "TRANSFER DATE"), (i) the Third Party Agreements will be canceled
and no longer in force or effect except for commitments, if any,
contained in such Third Party Agreements and charges and credits due
for Services rendered prior to the Transfer Date, (ii) Third Party
Existing Services will be provisioned under this Agreement, and (iii)
the aggregate commitment(s) (e.g., revenue, volume, minute, etc.)
remaining under such Third Party Agreements, if any, shall be added on
a pro rata basis to the age commitment(s), if any, existing under this
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<PAGE> 14
Agreement. Simultaneous with the closing of such acquisition,
combination or merger, Customer will cause such third party and all of
its affiliates who are parties to such Third Party Agreements, to
agree to the cancellation of such Third Party Agreements and the
provision of Third Party Existing Services under the terms and
conditions of this Agreement and Customer agrees to provide WorldCom
with reasonable documentation evidencing such agreement. In the event
any Third Party Agreement(s) have a provision similar to the provision
contained herein, the parties agree to negotiate in good faith
concerning which agreement (i.e., this Agreement or any Third Party
Agreement) shall survive and which agreement(s) shall be terminated.
Example: Assume (i) Customer's Commitment is ****, (ii)
there are twenty-four (24) months remaining in the Service
Term of this Agreement, and (iii) Customer acquires a third
party who has an existing switched telecommunications
services agreement with a member of the WorldCom Group which
contains a minimum monthly revenue commitment of **** and
has ten (10) months remaining in the term of such agreement.
Customer's "new" Commitment will be **** for the remaining
twenty-flour (24) months in the Service Term {**** + [(****
x 10)/24]}.
IN WITNESS WHEREOF, the parties have executed this Telecommunications
Services Agreement as of the dates set forth below which Agreement will be
effective as described in the PET attached hereto.
WORLDCOM NETWORK SERVICES, INC. MAXXIS COMMUNICATIONS, INC
By: /s/ Charles M. Cole By: /s/ Thomas O. Cordy
---------------------------------- ----------------------------
(Signature) (Signature)
Charles M. Cole Thomas O. Cordy
- -------------------------------------- --------------------------------
(Print Name) (Print Name)
Vice President Carrier Sales President/CEO
- -------------------------------------- --------------------------------
(Title) (Title)
February 4, 1999 January 14, 1999
- -------------------------------------- --------------------------------
(Date) (Date)
**** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
Page 14 of 14
CONFIDENTIAL
<PAGE> 1
EXHIBIT 10.35
WORLDCOM NETWORK SERVICES, INC.
CLASSIC/TRANSCEND(TM) SWITCHED SERVICES
PROGRAM ENROLLMENT TERMS
These PROGRAM ENROLLMENT TERMS (the "PET") are made by and between
WorldCom Network Services, Inc. ("WORLDCOM") and Maxxis Communications, Inc.
("CUSTOMER") and are a part of their Telecommunications Services Agreement for
Switched Services. Capitalized terms not defined herein shall have the meaning
ascribed to them in the TSA, the Service Schedule or the applicable Rate and
Discount Schedule.
1. SERVICE TERM:
(A) The Service Term shall commence as of the Effective Date (as
described below) and shall continue for a period of thirty-six (36)
months (the "SERVICE TERM"). Upon expiration of the Service Term, the
Switched Services in question will continue to be provided pursuant to
the same terms and conditions as are then in effect (including without
limitation, the applicable rates, discounts and commitments, if any),
subject to termination by either party upon thirty (30) days prior
written notice to the other party. WorldCom will not be obligated to
accept any Service Request under this Agreement if Customer's initial
Service Request is (i) not submitted by Customer within thirty (30)
days of the Effective Date of this Agreement, and (ii) not subject to
a Requested Service Date within ninety (90) days of the Effective
Date.
(B) For purposes of this Agreement, the appropriate Effective Date
as determined below will be filled in by WorldCom where provided
above. If Customer has an existing switched services agreement with a
member of the WorldCom Group (as defined in Subsection 24(A) of the
TSA), the "EFFECTIVE DATE" will be the 1st day of the month following
the later of (i) twenty-one (21) days after this Agreement has been
fully executed by both parties, or (ii) Customer has received a
satisfactory credit review and approval from WorldCom's Credit
Department pursuant to Subsection 6(A) of the TSA, and all security
documentation, if any, required by WorldCom has been properly executed
and delivered to WorldCom (collectively, the "CREDIT REVIEW"). If
Customer does not have an existing switched services agreement with a
member of the WorldCom Group, the "EFFECTIVE DATE" will be the date
this Agreement has been fully executed by both parties and the Credit
Review has been completed.
2. CUSTOMER'S MINIMUM REVENUE COMMITMENT: Commencing with the first day
of the first (1st) billing period following the Effective Date (as
determined under Section 1 above) and continuing through the end of
the Service Term (including any extensions thereto) (the "COMMITMENT
PERIOD"), Customer agrees to maintain, on a take-or-pay basis, Monthly
Revenue (as defined in the applicable Rate and Discount Schedule) of
at least $0 ("CUSTOMER'S MINIMUM REVENUE COMMITMENT"). In the
Page 1 of 3
CONFIDENTIAL
<PAGE> 2
event Customer is not maintaining TERMINATION Service or TOLL FREE
ORIGINATION Service but is maintaining other Services from WorldCom
hereunder (e.g., SWITCHED ACCESS Service, DEDICATED ACCESS Service or
TRAVEL CARD Service), Customer's Minimum Revenue Commitment will be
the greater of (i) $10,000, or (ii) the amount stated above.
3. DEFICIENCY CHARGE: In the event Customer does not maintain Customer's
Minimum Revenue Commitment in any month during the Commitment Period
(regardless of whether Customer has commenced using any or all of the
Switched Services described herein), then for those month(s) only,
Customer will pay WorldCom the difference between Customer's Minimum
Revenue Commitment and Customer's actual Monthly Revenue (as described
in the applicable Rate and Discount Schedule) (the "DEFICIENCY
CHARGE"). The Deficiency Charge will be due at the same time payment is
due for Service provided to Customer, or immediately in an amount equal
to Customer's Minimum Revenue Commitment for the unexpired portion of
the Service Term, if WorldCom terminates this Agreement based on
Customer's default.
4. CHARGES AND PAYMENT TERMS. The parties agree to substitute Subsection
5(D) of the TSA to read in its entirety as follows:
(D) Billing Disputes Notwithstanding the foregoing, amounts
reasonably disputed by Customer (along with late fees attributable to
such amounts) shall apply but shall not be due and payable for a
period of sixty (60) days following the Due Date therefor, provided
Customer: (i) pays all undisputed charges on or before the Due Date,
(ii) presents a written statement of any billing discrepancies to
WorldCom in reasonable detail on or before the Due Date of the invoice
in question, and (iii) negotiates in good faith with WorldCom for the
purpose of resolving such dispute within said sixty (60) day period.
In this event both parties in good faith agree to consider alternate
methods of dispute resolution such as arbitration, mediation or
mini-trial; provided, however, any method must be mutually agreed to
in writing by both parties. In the event such dispute is mutually
agreed upon and resolved in favor of WorldCom, Customer agrees to pay
WorldCom the disputed amounts together with any applicable late fees
within ten (10) days of the resolution (the "ALTERNATE DUE DATE"). In
the event such dispute is mutually agreed upon and resolved in favor
of Customer, Customer will receive a credit for the disputed charges
in question and the applicable late fees. In the event WorldCom has
responded to Customer's dispute in writing and the parties fail to
mutually resolve or settle the dispute within such sixty (60) day
period (unless WorldCom has agreed in writing to extend such period)
all disputed amounts together with late fees shall become due and
payable, and this provision shall not be construed to prevent Customer
from pursuing any available legal remedies. WorldCom shall not be
obligated to consider any Customer notice of billing discrepancies
which are received by WorldCom more than sixty (60) days following the
Due Date of the invoice in question.
Page 2 of 3
CONFIDENTIAL
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed these Classic/TRANSCEND
(TM) Switched Services Program Enrollment Terms.
WORLDCOM NETWORK SERVICES, INC. MAXXIS COMMUNICATIONS, INC.
By: /s/ Charles M. Cole By: /s/ Thomas O. Cordy
-------------------------------- -----------------------------
(Signature) (Signature)
Charles M. Cole Thomas O. Cordy
- ------------------------------------ ---------------------------------
(Print Name) (Print Name)
Vice President Carrier Sales President/CEO
- ------------------------------------ ---------------------------------
(Title) (Title)
Page 3 of 3
CONFIDENTIAL
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.36
IXC
MASTER SERVICE AGREEMENT
This Agreement for telecommunications services is made as of the date of last
execution below (the "Effective Date") and entered into by and between IXC
COMMUNICATIONS SERVICES, INC., a Delaware corporation with its principal place
of business at 1122 Capital of Texas Hwy. South, Austin, Texas 78746-6426
("Supplier"), and MAXXIS GROUP, INC., a Georgia corporation with its principal
place of business at 1901 Montreal Road, Tucker, Georgia 30084-5223
("Customer").
WHEREAS, Customer desires to obtain telecommunications services as described
below (the "Service") from Supplier, and Supplier is willing to provide the
Service for the rates attached hereto.
NOW, THEREFORE, Customer and Supplier hereby mutually agree as follows:
CREDIT REQUIREMENTS: See Section 5, Additional Assurances, of the Master
Service Agreement Terms & Conditions.
SERVICE, TERM AND RATES: Supplier agrees to provide and Customer agrees to
purchase Service(s) indicated below. This agreement, including any terms and
conditions, addenda, schedules, supplements or exhibits which are attached
hereto and incorporated herein, constitutes the entire agreement (the
"Agreement") by Supplier and Customer pertaining to the subject matter(s)
hereof and supersedes all prior and contemporaneous agreements and
understanding in connection herewith.-
SERVICE TYPE:
SWITCHED SERVICE: BROADBAND SERVICE:
______X_____Xclusive ___________ATM
______X_____Xnet LATA ___________Fame Relay
____________ Xnet LEx ___________Network Management Services
PRIVATE LINE SERVICE: ___________Training
______X_____Digital CUSTOMER INTERFACE:
____________ Optical ___________Rack Space & Power
___________Shelf Space
___________Collocation
IXC Confidential 1 10/12/99
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
last written below.
IXC COMMUNICATIONS SERVICES, INC. MAXXIS GROUP, INC.
BY: /S/ LEO WELSH BY: /S/ THOMAS O. CORDY
--------------------------- ----------------------------
NAME: LEO WELSH NAME: THOMAS O. CORDY
------------------------- --------------------------
TITLE: PRES. - WHOLE SALE TITLE: PRESIDENT/CEO
------------------------ -------------------------
DATE: 3/25/99 DATE: MARCH 18, 1999
------------------------- --------------------------
FULL BUSINESS ADDRESS: FULL BUSINESS ADDRESS:
1122 CAPITAL OF TEXAS HWY. SOUTH 1901 MONTREAL ROAD
AUSTIN, TEXAS 78746-6426 TUCKER, GEORGIA 30084-5223
TELEPHONE: (512) 427-3700 TELEPHONE: (770) 696-6378
FACSIMILE: (512) 328-7902 FACSIMILE: (770) 552-8471
BILLING CONTACT: DEBIRA YOUNG
TELEPHONE: 770/696-6343
IXC Confidential 2 10/12/99
<PAGE> 3
MASTER SERVICE AGREEMENT
TERMS & CONDITIONS
1. CREDIT. All Services ordered hereunder are subject to credit approval.
Customer shall complete a credit application form attached hereto as
Exhibit A.
2. PROVISION OF BALANCE SHEET. Prior to commencement of Service, Customer
shall provide Supplier with financial statements including a
consolidated balance sheet of Customer as of the end of the most
recent quarter and consolidated statements of income and retained
earnings of such quarter and the fiscal year to date through such
quarter, all in reasonable detail and certified by Customer's chief
financial officer as having been prepared in accordance with generally
accepted accounting principles, consistently applied. Customer shall
provide updated financial statements as reasonably requested by
Supplier.
3. PAYMENT TERMS. Invoices for Service are due and payable within thirty
(30) days of the date of invoice (unless otherwise indicated in the
Credit Requirements section of the Master Service Agreement), without
demand or set off by Customer. Payments not received within thirty
(30) days of the date of invoice are considered past due. In addition
to Supplier undertaking any of the actions set forth in this
Agreement, if any invoice is not paid when due: (i) a late charge
shall accrue equal to 1-1/2% (or the maximum legal rate, if less) of
the unpaid balance per month; (ii) Supplier may require a Security
Deposit or other forms of security acceptable to Supplier; and/or
(iii) Supplier may take any action in connection with any other right
or remedy Supplier may have under this Agreement in law or in equity.
4. BILLING DISPUTES. If Customer in good faith disputes any portion of
any Supplier invoice, Customer shall submit to Supplier, within thirty
(30) days following the date of the invoice, full payment of the
undisputed portion of the invoice and written documentation
identifying and substantiating the disputed amount. If Customer does
not report a dispute within the thirty (30) day period, Customer shall
have waived its dispute rights for that invoice. Supplier and Customer
agree to use their respective best efforts to resolve any dispute
within fifteen (15) days after Supplier receives written notice of the
dispute from Customer. Any disputed amounts resolved in favor of
Customer shall be credited to Customer's account on the next invoice
following resolution of the dispute. Any disputed amounts determined
to be payable to Supplier shall be due within ten (10) days of the
resolution of the dispute.
Any dispute arising out of or relating to this Agreement which has not
been resolved by the good faith efforts of the parties will be settled
by binding arbitration conducted expeditiously in accordance with
Section 16.
5. ADDITIONAL ASSURANCES. If at any time during the term of this
Agreement there is a material and adverse change in Customer's
financial condition or business prospects, which shall be determined
by Supplier in its sole and absolute discretion, then Supplier may
demand that Customer provide a Security Deposit pursuant to Supplier's
standard terms and conditions, as security for the full and faithful
performance of Customer of the terms, conditions and covenants of this
Agreement; provided, however, that in no event shall the amount of the
Security Deposit ever exceed two months' estimated Usage Charges and
other amounts payable by Customer to Supplier hereunder.
6. CERTIFICATION. Customer hereby represents and warrants that it is
certified to do business in all jurisdictions in which it conducts
business and is in good standing in all such jurisdictions. Customer
further represents and warrants that it is certified by the proper
regulatory agencies to provide interstate, intrastate and
IXC Confidential 3 10/12/99
<PAGE> 4
international long distance services to End-Users in those
jurisdictions where such services are to be provided by Customer.
Customer shall keep current during the term of this Agreement, copies
of its Certificates of Public Convenience and Necessity or similar
documents certifying Customer's interstate, intrastate, or
international operating authority in any local, state, or federal
jurisdiction (collectively, "Service Compliance Certificates") and
furnish copies thereof to Supplier within ten days of written request
by Supplier. Supplier reserves the right to refuse or withhold Service
in any jurisdiction in which Customer's Service Compliance Certificate
has not been furnished to Supplier in a timely manner. Customer shall
defend and indemnify Supplier from any losses, expenses, demands and
claims in connection with Customer's failure to provide Supplier with
such Service Compliance Certificates. Such indemnification includes
costs and expenses (including reasonable attorney's fees) incurred by
Supplier in settling, defending or appealing any claims or actions
brought against it relating to Customer's failure to provide such
Service Compliance Certificates.
7. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and the validity and performance hereof, shall be
governed by the laws of the State of Texas without regard to its
principles of choice of law.
8. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given as of the date of
delivery, facsimile transmission or mailing, and if mailed, first
class postage prepaid, certified or registered mail, return receipt
requested to the following persons, unless contrary instructions are
given by the parties in writing:
If to Supplier:
IXC Communications Services, Inc.
1122 Capital of Texas Hwy. South
Austin, Texas 78746-6426
Attention: Contract Administration
If to Customer:
Maxxis Group, Inc.
1901 Montreal Road
Tucker, Georgia 30084-5223
Attention: Debira Young
9. WAIVER OF BREACH OR VIOLATION NOT DEEMED CONTINUING. The waiver by
either party of a breach or violation of any provision of this
Agreement shall not operate as or be construed to be a waiver of any
subsequent breach hereof.
10. BANKRUPTCY. In the event of the bankruptcy or insolvency of either
party hereto or if either party hereto shall make an assignment for
the benefit of creditors or take advantage of any act or law for
relief of debtors, the other party to this Agreement shall have the
right to terminate this Agreement without further obligation or
liability on its part.
11. BUSINESS RELATIONSHIP. This Agreement shall not create any agency,
employment, joint venture, partnership, representation, or fiduciary
relationship between the parties. Neither party shall have the
authority to, nor shall any party attempt to, create any obligation on
behalf of the other party.
12. INDEMNITY.
A. Each party shall indemnify, defend, release and hold harmless
the other party and all of its officers, agents, directors,
shareholders, subcontractors, subsidiaries, employees and other
affiliates (collectively "Affiliates") from and against any action,
claim, court cost, damage, demand, expense, liability, loss, penalty,
proceeding or suit, (collectively, together with related attorneys'
fees; including costs and disbursements, "Claims") imposed upon either
party by reason of damages to property or injuries, including death,
as a result of an intentional or a negligent act or omission on the
part of the indemnifying party or any of its Affiliates in connection
with: (i) the performance of this Agreement; or (ii) other activities
relating
IXC Confidential 4 10/12/99
<PAGE> 5
to the property or facilities which are the subject of this Agreement,
whether or not the Claims result from a sole negligent act or omission
on the part of the indemnifying party, whether the Claims result from
the concurrent negligent act or omission on the part of both parties,
or whether the Claims result from the negligent act or omission of the
indemnifying party and some other third party. In the event a Claim
relates to the negligence of both parties, the relative burden of the
Claim shall be attributed equitably between the parties in accordance
with the principles of comparative negligence.
B. In the event any action shall be brought against the indemnified
party, such party shall immediately notify the indemnifying party in
writing, and the indemnifying party, upon the request of the
indemnified party, shall assume the defense thereof on behalf of the
indemnified party and its Affiliates and shall pay all expenses and
satisfy all judgments which may be incurred by or rendered against the
indemnified party or its Affiliates in connection therewith, provided
that the indemnified party shall not be liable for any settlement of
any such action effected without its written consent.
C. Notwithstanding the termination of this Agreement for any
reason, this Section 12 shall survive such termination.
13. INSURANCE. Throughout the term of this Agreement and any extension
thereof, each party shall maintain and, upon written request, shall
provide to the other proof of adequate liability insurance:
(i) Worker's compensation insurance up to the amount of the
statutory limit in the state or states where work is to be performed;
(ii) Employer's liability insurance with a limit of not less than
$200,000 per claim with an all-states endorsement;
(iii) Comprehensive general liability insurance with a limit of not
less than $1,000,000 per occurrence for bodily injury liability and
property damage liability, including coverage extensions for blanket
contractual liability, personal injury liability and products and
completed operations liability; and
(iv) Comprehensive Auto Liability insurance with a limit of not less
than $1,000,000 per accident for Bodily Injury Liability and Property
Damage Liability arising out of the ownership, maintenance or use of
any vehicle in the performance of this Agreement.
14. AUTHORIZED USE OF SUPPLIER NAME. Without Supplier's prior written
consent, Customer shall not: (i) refer to itself as an authorized
representative of Supplier in promotional, advertising or other
materials; or (ii) use Supplier's logos, trade marks, service marks,
or any variations thereof in any of its promotional, advertising or
other materials or in any activity using or displaying Supplier's name
or the Services to be provided by Supplier. Customer agrees to change
or correct, at Customer's expense, any such material or activity which
Supplier, in its sole judgment, determines to be inaccurate,
misleading or otherwise objectionable in relation to using or
marketing Supplier's services. Customer is explicitly authorized to
only 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 our network services provider".
15. ASSIGNMENT. Neither party hereto may assign this Agreement without the
express written consent of the other party hereto, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing: (i) a
security interest in this Agreement may be granted by Supplier to any
lender to secure borrowings by Supplier or any of its affiliates; (ii)
Supplier may assign all its rights and obligations hereunder to any
Affiliate; and (iii) any subsidiary of Supplier may assign any amounts
due from Customer under any Supplement to Supplier for billing
purposes.
16. BINDING ARBITRATION. The parties will attempt in good faith to resolve
any controversy or claim arising out of or relating to this Agreement
promptly through discussions between themselves at
IXC Confidential 5 10/12/99
<PAGE> 6
the operational level. In the event a resolution cannot be reached,
such controversy or claim shall be negotiated between appointed
counsel or senior executives of the parties who have authority to
settle the controversy.
The disputing party shall give the other party written notice of the
dispute. If the parties fail to resolve such controversy or claim
within thirty (30) days of the disputing party's notice, either party
may seek arbitration as set forth below.
Any controversy or claim arising out of or relating to this Agreement,
or a breach of this Agreement, shall be finally settled by arbitration
in Austin, Texas and shall be resolved under the laws of the State of
Texas. The arbitration shall be conducted before a single arbitrator
in accordance with the commercial rules and practices of the American
Arbitration Association then in effect.
The arbitrator shall have the power to order specific performance if
requested. Any award, order, or judgment pursuant to such arbitration
shall be deemed final and binding and may be enforced in any court of
competent jurisdiction. The parties agree that the arbitrator shall
have no power or authority to make awards or issue orders of any kind
except as expressly permitted by this Agreement, and in no event shall
the arbitrator have the authority to make any award that provides for
punitive or exemplary damages. All such arbitration proceedings shall
be conducted on a confidential basis. The arbitrator may, as part of
the arbitration award, permit the substantially prevailing party to
recover all or part of its attorney's fees and other out-of-pocket
costs incurred in connection with such arbitration. Customer may, at
its option, continue to accept what it considers to be below-standard
Services and pay the charges hereunder relating thereto during such
pendency of such arbitration, without prejudice thereto.
17. LEGAL CONSTRUCTION. In the event one or more of the provisions
contained in this Agreement shall, for any reason be held to be
invalid, illegal, or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
In the event of any conflict between the provisions of these Terms &
Conditions and the applicable Supplement and Exhibits, the conflict
shall be resolved by reference to the following order of priority of
interpretation: a) Exhibits; b) Supplement; and c) Terms & Conditions.
Not withstanding the foregoing no Exhibit requiring execution shall be
binding unless and until such Exhibit has been executed by an
authorized officer of Customer.
18. NO PERSONAL LIABILITY. Each action or claim of any party arising under
or relating to this Agreement shall be made only against the other
party as a corporation, and any liability relating thereto shall be
enforceable only against the corporate assets of such party. No party
shall seek to pierce the corporate veil or otherwise seek to impose
any liability relating to, or arising from, this Agreement against any
shareholder, employee, officer or director of the other party. Each of
such persons is an intended beneficiary of the mutual promises set
forth in this Section and shall be entitled to enforce the obligations
of this Section.
19. NOTICE OF BREACH OF AGREEMENT. To be effective, written notice of any
material breach (except Payment Default) must prominently contain the
following sentences in capital letters: "THIS IS FORMAL NOTICE OF A
BREACH OF CONTRACT. FAILURE TO CURE SUCH BREACH WILL HAVE SIGNIFICANT
LEGAL CONSEQUENCES."
20. LIMITATION OF LIABILITY. Supplier's liability arising out of delays in
restoration of the Services to be provided under this Agreement or out
of mistakes, accidents, omissions, interruptions, or errors or defects
in transmission in the provision of Services or any other
telecommunications services, shall be subject to the limitations
IXC Confidential 6 10/12/99
<PAGE> 7
set forth below and in the applicable Tariff. EXCEPT OTHERWISE
PROVIDED HEREIN, IN NO EVENT SHALL SUPPLIER BE LIABLE TO CUSTOMER OR
ANY OF THE CUSTOMER'S OWN CUSTOMERS OR ANY OTHER THIRD PARTY IN ANY
RESPECT, INCLUDING, WITHOUT LIMITATION, FOR ANY DAMAGES, EITHER
DIRECT, INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL, ACTUAL,
PUNITIVE, OR ANY OTHER DAMAGES, OR FOR ANY LOST PROFITS OF ANY KIND OR
NATURE WHATSOEVER, ARISING OUT OF MISTAKES, ACCIDENTS, ERRORS,
OMISSIONS, INTERRUPTIONS, OR DEFECTS IN TRANSMISSION, OR DELAYS,
INCLUDING THOSE WHICH MAY BE CAUSED BY REGULATORY OR JUDICIAL
AUTHORITIES, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
OBLIGATIONS OF SUPPLIER PURSUANT TO THIS AGREEMENT; AND IN NO EVENT
SHALL SUPPLIER BE LIABLE AT ANY TIME FOR ANY AMOUNT IN EXCESS OF THE
AGGREGATE AMOUNT IT HAS PRIOR TO SUCH TIME COLLECTED FROM CUSTOMER
WITH RESPECT TO SERVICES DELIVERED HEREUNDER. SUPPLIER MAKES NO
WARRANTY TO CUSTOMER OR ANY OTHER PERSON OR ENTITY, WHETHER EXPRESS,
IMPLIED, OR STATUTORY, AS TO THE DESCRIPTION, QUALITY,
MERCHANTABILITY, COMPLETENESS OR FITNESS FOR ANY PURPOSE OF ANY
SERVICE PROVIDED HEREUNDER OR DESCRIBED HEREIN, OR AS TO ANY OTHER
MATTER, ALL OF WHICH WARRANTIES BY SUPPLIER ARE HEREBY EXCLUDED AND
DISCLAIMED. For purposes of this Section, the term "Supplier" shall be
deemed to include Supplier, its shareholders, directors, officers and
employees, and any person or entity assisting Supplier in its
performance pursuant to this Agreement.
21. SYSTEM MAINTENANCE. In the event Supplier determines to interrupt
Services for the performance of routine system maintenance, Supplier
will use reasonable efforts to notify Customer prior to the
interruption and to conduct such maintenance during non-peak hours. In
no event shall interruption for system maintenance constitute a
Failure of Performance by Supplier.
22. MAINTENANCE & TROUBLE REPORTING. Supplier's standard fees for Customer
maintenance support services are as follows:
Maintenance services shall be defined as all work performed by
Supplier on equipment provided by or on behalf of the Customer, or
supervision of the Customer's work within Supplier's terminal
facilities. Maintenance Service charges are not billed for troubles
found within that portion of a circuit provided by Supplier. The
following billing rates apply for these services:
A. $75 per hour (4 hour minimum-if dispatch is required) Monday
through Friday during the business hours of 8:00 a.m. - 5:00 p.m.
local time, exclusive of the following holidays: New Year's Day,
President's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and the day after Thanksgiving and Christmas Day.
B. $95 per hour (4 hour minimum) for overtime work done after
business hours (defined above) and/or on holidays (defined above)
and/or all day on Saturdays and Sundays.
C. As requests for maintenance services are typically made via
telephone, Supplier must be advised in writing as to the person(s) who
are authorized to request service. It is the Customer's responsibility
to keep Supplier apprised of any changes to its list of
representative(s).
D. To request technical assistance and help under the maintenance
services, a call must be made to Supplier's Network Control Center at
1-800-526-2488. This number should be used for Supplier technical
assistance, troubleshooting or testing of circuits, not for service
impairment or outages. The person calling in must be on the authorized
list in order to
IXC Confidential 7 10/12/99
<PAGE> 8
commit for charges for this technical assistance. If that person is
not on the list, the request cannot be accommodated.
The Network Control Center personnel will take the call, record the
caller's name and phone number along with facts concerning the
assistance and support needed. The caller will then be given the
number of the "Assistance Ticket."
Upon completion of work. this "Assistance Ticket" will be given to
Supplier's Accounting Department, and the Customer will subsequently
be billed based upon the information on that ticket. A copy will be
attached to the invoice.
Except for emergencies, Supplier's technicians cannot be dispatched
unless requests are made in accordance with the above call-out
procedure.
23. SUBJECT TO LAWS. This Agreement is subject to, and Customer agrees to
comply with, all applicable federal, state and local laws, and
regulations, rulings and orders of governmental agencies, including,
but not limited to, the Communications Act of 1934, the
Telecommunications Act of 1996, the Rules and Regulations of the
Federal Communications Commission ("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 Letter of Agencies ("LOAs").
24. FCC PERMITS, AUTHORIZATION AND FILINGS. Supplier shall take all
necessary and appropriate steps, as soon as possible, to procure from
the FCC the necessary authorizations, if any, to deliver Services
hereunder to Customer and whatever approvals are necessary from any
other federal or state agency. In the event that Supplier cannot obtain
all necessary federal, state or local authority to provide Services
hereunder, Supplier shall promptly give written notice thereof to
Customer, and such notice shall constitute termination without
liability of either party hereto of all obligations hereunder.
25. 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.
26. CONFIDENTIAL INFORMATION AND NONSOLICITATION. "Confidential
Information" shall mean all information disclosed in writing by one
party to the other party which is clearly marked "CONFIDENTIAL" by the
disclosing party at the time of disclosure. "Confidential Information"
shall also include certain oral information disclosed by one party to
the other party, provided that the disclosing party designates such
information as confidential at the time of disclosure and gives
recipient a written summary of such information within five business
days after the oral disclosure was made. Notwithstanding the
foregoing, all information concerning the traffic volume/distribution
of Supplier, pricing rates, and customer lists is hereby deemed to be
Confidential Information regardless of whether it is so identified.
The term "Confidential Information" does not include any information
which: (i) was as already known by the receiving party free of any
obligation to keep it confidential at the time of its disclosure by
the disclosing party, (ii) becomes publicly known through no wrongful
act of the receiving party, (iii) is rightfully received from a third
person without knowledge of any confidentiality obligation, (iv) is
independently acquired or developed without violating any of the
obligations under this Agreement, (v) is disclosed to a third person
by the disclosing party without similar confidentiality restrictions
on such third persons rights, or (vi) is approved for release by
written authorization of the disclosing party.
Further, the recipient may disclose Confidential Information pursuant
to any judicial or governmental request, requirement or order. The
recipient, however, shall take reasonable steps to give the disclosing
party sufficient prior notice to contest such request, requirement or
IXC Confidential 8 10/12/99
<PAGE> 9
order. Confidential Information shall remain the property of the
disclosing party, and shall be returned to the disclosing party or
destroyed upon request of the disclosing party. Supplier may make such
Confidential Information available to its lenders.
Accordingly, in the event of a breach or threatened breach of the
foregoing provisions, Supplier shall be entitled to an injunction or
restraining order, in addition to such other rights or remedies as may
be available under this Agreement, at law or in equity, including but
not limited to money damages.
27. FORCE MAJEURE. Supplier shall not be liable for any failure of
performance hereunder due to causes beyond its reasonable control,
including, but not limited to: acts of God, fire, explosion,
vandalism, cable cut, storm or other similar catastrophes; any law,
order, regulation, direction, action or request of the United States
government, or of any other government, including state and local
governments having jurisdiction over either of the parties, 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.
28. SURVIVAL. The covenants and agreements of Customer contained in this
Agreement with respect to payment of amounts due, confidentiality and
indemnification shall survive any termination of this Agreement. The
rights and obligations under this Agreement shall survive any merger
or sale of either party and shall be binding upon the successors and
permitted assigns of each party.
29. REGULATORY. Customer is responsible for payment of, or reimbursement
to Supplier for, Universal Service Fund and Lifeline Assistance
Charges (Presubscribed line charges) set forth in the National
Exchange Carrier Association (NECA) Tariff FCC #5, sections 8.5.,
8.5.2 and 17.1.4 (A) & (B), as the same may be amended from time to
time, or any successor tariffs or sections, with respect to any
Customer ANI's subscribed to Supplier. In addition, with respect to
the Services, Customer is responsible for payment of, or reimbursement
to Supplier for: (i) telecommunication relay service charges required
by the Americans with Disabilities Act or otherwise (both federal and
state); (ii) interexchange carrier fees payable to the FCC under the
Omnibus Budget Reconciliation Act of 1993 or otherwise; (iii) payphone
service provider compensation as determined by the FCC in CC Docket
No. 96-128; (iv) universal service fund charges, intraLATA
compensation charges; and (v) other federal or state fees or charges
imposed on Supplier. Supplier will furnish, at Customer's request,
documentation to support the fees or charges payable by Customer to
Supplier pursuant to this Section 29.
Customer shall furnish to Supplier valid and appropriate tax exemption
certificates for all applicable jurisdictions (federal, state and
local) in which it performs customer billing. Customer is responsible
for properly charging tax to its subscribers and for the proper and
timely reporting and payment of applicable taxes to the taxing
authorities and shall defend and indemnify Supplier from payment and
reporting of all applicable federal, state and local taxes, including,
but not limited to, gross receipts taxes, surcharges, franchise fees,
occupational, excise and other taxes (and penalties and interest
thereon), relating to the Services. Such indemnification includes
costs and expenses (including reasonable attorney's fees) incurred by
Supplier in settling, defending or appealing any claims or actions
brought against it relating to said taxes. If Customer fails to
provide and maintain the required certificates, Supplier may charge
Customer and Customer shall pay such applicable taxes.
The amounts payable by Customer under this Agreement do not include
any state or local sales or use taxes, or utility taxes, however
designated, which may be levied on the goods and services provided by
IXC Confidential 9 10/12/99
<PAGE> 10
Supplier hereunder. With respect to such taxes, if applicable,
Customer shall furnish Supplier with an appropriate exemption
certificate or pay to Supplier, upon timely presentation of invoices
therefore, such amounts thereof as Supplier may be by law required to
collect or pay. Any and all other taxes, including but not limited to
franchise, net or gross income, license, occupation, and real or
personal property taxes, shall be timely paid by Supplier. Customer
shall pay to Supplier any such taxes that Supplier may be required to
collect or pay.
30. OBLIGATIONS SEVERAL AND NOT JOINT. Each party shall be responsible
only for its own performance under the Agreement (including any
attachments, exhibits, schedules or addenda) and not for that of any
other party.
31. AMENDMENTS. This Agreement may only be modified or supplemented by an
instrument in writing executed by each party.
IXC Confidential 10 10/12/99
<PAGE> 11
IXC SWITCHED SERVICE SUPPLEMENT
XCLUSIVE SERVICES
1. SCOPE. Supplier is authorized: (i) to use its best efforts
(considering the needs of its other customers) to start provisioning
of Services (such services, together with the use of the IXC Online
Software, are referred to as the "Services") to Customer on or before
the Service Commencement Date, which is scheduled to be the first date
of order activation; and (ii) to act as Customer's agent in placing
orders with other carriers in order to provide telecommunications
services, if requested. Usage charges ("Usage Charges") hereunder
shall be based on: (i) the rates for Services set forth in Exhibit A,
as applicable; and (ii) actual usage of Supplier's network from
establishment of a connection between the calling telephone and the
called telephone to termination, as determined by Supplier.
2. TERM. This Agreement is for a term of two (2) years commencing on the
Effective Date, unless extended or earlier terminated pursuant to its
terms. This Agreement shall be automatically extended at the
expiration of the initial term on a month-to-month basis at Supplier's
then current month-to-month rates unless: (i) earlier terminated: or
(ii) written notice is given by either party at least thirty (30) days
before such expiration that such party does not consent to such
extension.
3. CUSTOMER RESPONSIBILITIES.
A. GENERAL DUTIES. Customer shall use its best efforts to solicit and
market the Services in accordance herewith and with applicable law.
Customer shall at all times conduct its efforts in a commercially
reasonable and ethical manner. Customer shall pay all its expenses in
connection with its business and its performance hereunder. Customer
shall provide its own billing and customer service to its customers
("End-Users"). Customer shall obtain a letter of agency ("LOA") from
each End-User in compliance with applicable Federal Communications
Commission ("FCC") and state regulations, however, Customer must
obtain a signed LOA from each End-User utilizing 800 service. Customer
shall retain the signed LOA's and promptly make originals available
upon request of Supplier, any local exchange carrier ("LEC") or any
regulatory agency. Customer shall be responsible for LEC Primary
Interexchange Carrier change charges ("PIC Charges") that may be
imposed on Supplier as a result of End-Users moving onto or off of the
Supplier's network. In the event of a dispute regarding a transfer to
the Supplier's network, including, but not limited to those resulting
from Customer's inability or refusal to provide original End-User
LOA's when requested, Customer shall pay Supplier such PIC Charges,
and any other expenses or damages suffered by Supplier relating to any
such transfer. To the extent Customer makes any statements or
representations to third parties (including End-Users) with regard to
Supplier, the Services, or the terms hereof, such statements or
representations shall be true and not misleading. When applicable,
Customer will be responsible for notifying each End-User, in writing
(or by any other means approved by the FCC that: (i) a transfer charge
will be reflected on such End-User's LEC bill for effecting a change
in primary interexchange carriers, (ii) the entity name under which
such End-User's interstate, intrastate and/or operator services will
be billed (if different from Customer), and (iii) the "primary"
telephone number(s) to be used for maintenance and questions
concerning such End-User's long distance service and/or billing.
Customer shall send Supplier a copy of the documentation Customer uses
to satisfy the above
IXC Confidential 1 10/12/99
<PAGE> 12
requirements promptly upon request. Supplier may change the foregoing
requirements at any time in order to conform with applicable FCC and
state regulations. Notwithstanding the foregoing, however, Customer
shall be solely responsible for ensuring that the transfer of
End-Users to the Supplier's network conforms with applicable FCC and
state regulations, including, without limitation, the regulations
established by the FCC with respect to verification of orders for long
distance service generated by telemarketing.
B. SLAMMING POLICY. Supplier will not tolerate the practice of
slamming, the intentional, unauthorized transfer of a customer's local
or long distance service provider. Customer shall obtain a letter of
agency ("LOA") from each End-User; valid proof of authorization
includes an exact match of the name and telephone number on the LOA
completed by the person authorized to make the switch or the actual
tape of authorization. Customer shall retain the signed LOAs for one
year and make originals available upon request of Supplier within four
(4) business days. A Customer is responsible for providing LOA's for
its agents or resellers. If Supplier receives a slamming complaint
from a regulatory body (FCC, state commissions, Federal and state
counsel) against Customer and finds that Customer has caused a change
in a telecommunications subscriber's PIC without prior valid
authorization, then Customer will be required to pay an Unauthorized
Carrier Change Charge of $200 for each unauthorized PIC change. This
charge is to cover the administrative costs for processing the
complaint and is in addition to any fines or penalties assessed by a
state or federal regulatory agency, such fines or penalties also being
the responsibility of the Customer. Continued acts of slamming by
Customer shall be considered grounds for revoking any and all
contracts with Customer and further refusing to provide service to
Customer.
C. VOLUME FORECASTS. Prior to the Service Commencement Date and by the
end of each quarter thereafter, Customer shall provide Supplier with
forecasts covering a good faith estimate of the monthly traffic volume
and distribution for the ordered Services for the next three calendar
months. Supplier shall provide Customer with any information
reasonably requested to help Customer with its forecasts. The
forecasts are to be in the format attached hereto as Exhibit B.
D. CERTIFICATION. Customer shall provide Supplier with a written
certification (the "Certification") of the percentage of interstate
(including international) and intrastate minutes of use relevant to
the minutes of traffic to be terminated in the same state in which the
Supplier HUB is located to which the Service Interconnection is made.
This Certification is attached as Exhibit E and shall be provided by
Customer prior to commencement of Service for any Service
Interconnection. It shall be updated from time to time: (i) as desired
by Customer; or (ii) upon request of Supplier made no more than once
each calendar quarter. Any such modification or Certification shall be
effective as of the first day of the calendar month following
forty-five days notice to Supplier from Customer. In the event
Customer fails to make such Certification, the relevant minutes of use
will be deemed to be subject to the Intrastate Rates provided for in
the Exhibit A. In the event Supplier or any other third party requires
an audit of Supplier's interstate/intrastate minutes of traffic,
Customer agrees to cooperate in such audit at its expense and make its
call detail records, billing systems and other necessary information
reasonably available to Supplier or any third party solely for the
purpose of verifying Customer's interstate/intrastate minutes of
traffic. Customer agrees to indemnify Supplier for any liability
Supplier incurs in the
IXC Confidential 2 10/12/99
<PAGE> 13
event Customer's Certification is not supported by such audit.
4. EXCLUDED ANIS. Supplier has the right to reject any automatic number
identifier ("ANI") supplied by Customer for any of the following
reasons: (i) Supplier is not authorized to provide or does not provide
long distance services in the particular jurisdiction in which the ANI
is located; (ii) a particular ANI submitted by Customer is not in
compliance with Supplier's then-current format, which shall be made
available to Customer upon request; (iii) Customer is not certified to
provide long distance services in the jurisdiction in which the ANI is
located; (iv) Customer is in default of this Agreement; (v) Customer
fails to cooperate with Supplier in implementing reasonable
verification processes determined by Supplier to be necessary or
appropriate in the conduct of business; or (vi) any other circumstance
reasonably determined by Supplier which could adversely affect
Supplier's performance under this Agreement or Supplier's general
ability to transfer its other customers or other End-Users to the
Supplier's network, including without limitation, Supplier's ability
to electronically effect PIC changes with the LEC's. However, whether
or not Supplier is electronically connected to the LEC's, Supplier
shall issue PIC orders on behalf of Customer. In the event Supplier
rejects an ANI, Supplier will use its best efforts to notify Customer
within forty-eight hours of its decision specifically describing the
rejected ANI and the reason(s) for rejecting that ANI. Further, any
ANI requested by Customer for Service may be deactivated by Supplier
after five days written notice to Customer if no Service billings
relevant thereto have been generated in any prior period of three (3)
consecutive calendar months.
5. RECORDS. Customer will maintain documents and records supporting
Customer's re-sale of Service, including, but not limited to,
appropriate and valid LOAs from End-Users for a period of not less
than twelve (12) months or such other longer period as may be required
by applicable law, rule or regulation. Customer shall indemnify
Supplier for any costs, charges or expenses incurred by Supplier
arising from disputed PIC selections involving Service to be provided
to Customer for which Customer cannot produce an appropriate LOA
relevant to the ANI and PIC Charge in question, or when Supplier is
not reasonably satisfied that the validity of a disputed LOA has been
resolved.
6. FRAUDULENT CALLS. Customer shall indemnify and hold Supplier harmless
from all costs, expenses, claims or actions arising from fraudulent
calls of any nature which may comprise a portion of the Service to the
extent that the party claiming the call(s) in question to be
fraudulent is (or had been at the time of the call) an End-User of the
Service through Customer or an End-User of the Service through
Customer's distribution channels. Customer shall not be excused from
paying Supplier for Service provided to Customer or any portion
thereof on the basis that fraudulent calls comprised a corresponding
portion of the Service. In the event Supplier discovers fraudulent
calls being made (or reasonably believes fraudulent calls are being
made), nothing contained herein shall prohibit Supplier from taking
immediate action that is reasonably necessary to prevent such
fraudulent calls from taking place, including without limitation,
denying Service to particular ANI's or terminating Service to or from
specific locations. Supplier shall use reasonable efforts to notify
Customer in the event Supplier takes action upon discovery of
fraudulent calls. In the event Customer discovers fraudulent calls
being made (or reasonably believes fraudulent calls are being made),
Customer shall notify Supplier as soon as possible at 1-800-353-3678.
IXC Confidential 3 10/12/99
<PAGE> 14
7. RATES CHANGES.
A. Supplier reserves the right to modify charges for international
service upon seven (7) days notice to the Customer.
B. HIGH COST TERMINATION/ORIGINATION. Following the Service
Commencement Date for all Products (e.g. Xnet, Xclusive), Customer
will maintain at least 80% of the originating and 80% of the
terminating minutes (during any calendar month or pro-rata portion
thereof) in the low cost services areas as defined in Exhibit G.
Supplier shall have the right to apply a $0.03 per minute surcharge to
the number of originating minutes and apply a $0.03 per minute
surcharge to the number of terminating minutes which low cost
origination/termination does not exceed 80% of the total monthly
Service and a $0.05 per minute surcharge to the number of high cost
originating and terminating minutes which exceeds 50% of total monthly
Service.
Low Cost Origination or Termination is defined as all international
calls and domestic calls to or from any NPA.NXX associated with the
Operating Company Numbers listed in Exhibit G.
C. UNDER-UTILIZATION CHARGE. An under-utilization fee per DS-1 will be
applied to the monthly invoice based on the following schedule:
<TABLE>
<CAPTION>
Minutes Per Trunk* Under-utilization Fee**
- ----------------- ---------------------
<S> <C>
0-19,999 $2,000.00
20,000-39,999 $1,500.00
40,000+ -0-
</TABLE>
*The average is calculated over all trunks. Usage includes both Xclusive
outbound and inbound Service.
**The penalty is applied on all trunks based on average minutes of usage per
trunk. A trunk is an equivalent T- 1 based on 24 DS-O's.
8. INVOICE & RATES.
A. DUE DATE. Usage Charges are billed and payable following the period
in which actual usage has been incurred. All Usage Charges contained
in this Agreement are calculated according to the rates set forth in
Exhibit A, attached hereto.
B. MONTHLY COMMITMENT. Customer shall have a six (6) month period (the
"Ramp-Up Period") beginning as of the Effective Date to purchase
Services hereunder of at least **** per month ("the Monthly Commitment
Level"). During the Ramp-Up Period, Customer shall use its best
efforts to utilize at least **** per month in Services hereunder;
however, Customer shall only be invoiced for actual Usage Charges,
based upon the rates in Exhibit A. Commencing on the first day after
six (6) complete calendar months after the Effective Date and
continuing for eighteen (18) months thereafter, Customer shall have a
"take or pay" commitment in the amount of the Monthly Commitment
Level. As used herein, a "take or pay" commitment means that Customer
has the obligation to pay for Services hereunder (at the same time as
payment is or would be due for Service for such month) in such amount
for each month during such periods, whether or not such Service is
actually used, excluding, without limitation, service charges,
interest, installation costs, local loops and nonrecurring charges.
Subject to the terms and conditions herein, Customer shall pay for
Services hereunder at the rates reflected in Exhibit A.
9. CALCULATION OF CALL DURATION. Supplier will calculate call duration
for Call Detail Records ("CDR's") which will be sent to Customer by
Supplier for Customer to rebill Customer's End-Users, based upon the
then-current IXC On-line software specifications.
IXC Confidential 4 10/12/99
<PAGE> 15
Customer will be billed according to the rates in the attached
exhibits based on call duration of each CDR. Call duration for
outbound services will be from answer supervision of the called party
to disconnect. Call duration for inbound service will be from trunk
seizure of the Customer's platform to disconnect. CDR's, upon request
by Customer will be sent by Supplier within five (5) business days
from the end of the month in which service is rendered. Customer shall
choose to have the CDR's delivered either by electronic transmission
or by CD ROM and shall pay for such delivery according to the schedule
set forth in Exhibit A. CDR's shall be made available for up to one
(1) year from the date of service. The information format of the CDR's
is included in the User Guide and is subject to change from time to
time at Supplier's sole discretion.
10. CUSTOMER DEFAULT. In the event of a "Customer Default", upon notice to
Customer, Supplier may (in addition to such other rights or remedies
as Supplier may have under this Agreement, at law or in equity), at
its sole option do any or all of the following: (i) suspend Services
to Customer until such time as such circumstance is corrected
(provided Supplier shall not be prohibited from terminating this
Agreement after suspending Services); (ii) cease accepting or
processing orders for services; (iii) withhold delivery of CDR's; (iv)
draw on any security deposit or other assurance of payment submitted
under this Agreement; (v) terminate this Agreement without liability
to Supplier, which termination may include immediate cancellation of
the Services; (vi) directly contact the End-Users to inform them that
their long distance service will no longer be provided through
Customer, but may be continued through Supplier directly; (vii) bill
and collect from such End-Users directly (or through its billing
agents) for services provided by Supplier to them; (viii) treat such
End-Users as Supplier customers for all purposes; (ix) require
Customer to use its reasonable efforts to cause part or all of
Customer's carrier identification codes and End-Users to be
re-directed to the Supplier network; or (x) pursue such other remedy
or relief as may be appropriate.
"Customer Default" shall mean 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
thirty days (five days with respect to the first three payment
breaches and no notice period with respect to any further payment
breach) of notice thereof by Supplier; or (ii) files or initiates
proceedings or has proceedings filed or initiated against it, relating
to its liquidation, insolvency, reorganization or other relief (such
as the appointment of a trustee, receiver, liquidator, custodian or
other official) under any bankruptcy, insolvency or other similar law
or makes an assignment for the benefit of its creditors or enters into
an agreement for the composition, extension or readjustment of its
obligations in connection with the foregoing. If Customer uses the
Services for any unlawful purpose or in any unlawful manner, Supplier
shall have the right to suspend any or all services hereunder to
Customer until the unlawful use ceases. Notwithstanding anything
herein to the contrary, no termination shall affect or reduce
Customer's obligation to make the "take or pay commitment" payments
required herein.
IXC Confidential 5 10/12/99
<PAGE> 16
EXHIBIT A - XCLUSIVE SWITCHED SERVICE PRICING
Customer: Maxxis Group, Inc.
XCLUSIVE INTERSTATE PRICING (1+SWITCHED, 8XX SWITCHED & XPIN)
2 YEAR TERM - **** TAKE OR PAY
<TABLE>
<CAPTION>
SWITCHED DEDICATED
OUTBOUND, INBOUND & XPIN OUTBOUND INBOUND
------------------------ ---------------------------
<S> <C> <C>
**** **** ****
</TABLE>
AN UNDER-UTILIZATION CHARGE PER DS-1 WILL APPLY AS OUTLINED IN THE XCLUSIVE
SERVICE SUPPLEMENT.
XCLUSIVE INTERSTATE EXTENDED AREAS PRICING (DAY RATES 8 AM TO 5 PM
MONDAY-FRIDAY)*
Tern: 2 Years
<TABLE>
<CAPTION>
1 + CALLS TO 8XX CALLS FROM
DEDICATED SWITCHED DEDICATED SWITCHED
------------------------- --------------------------
<S> <C> <C> <C> <C>
Hawaii **** **** **** ****
Alaska **** **** **** ****
USVI/PR **** **** **** ****
Guam **** **** **** ****
Northern
Mariana Is. **** **** **** ****
</TABLE>
NORTHERN MARIANA IS. INCLUDE ROTA, SAIPAIN & TINIAN.
*SUBJECT TO AVAILABILITY
XCLUSIVE INTERSTATE EXTENDED AREAS PRICING (NON-DAY RATES)*
Term: 2 Years
<TABLE>
<CAPTION>
1 + CALLS TO 8XX CALLS FROM
DEDICATED SWITCHED DEDICATED SWITCHED
------------------------- --------------------------
<S> <C> <C> <C> <C>
Hawaii **** **** **** ****
Alaska **** **** **** ****
USVI/PR **** **** **** ****
Guam **** **** **** ****
Northern
Mariana Is. **** **** **** ****
</TABLE>
NORTHERN MARIANA IS. INCLUDE ROTA, SAIPAIN & TINIAN.
*SUBJECT TO AVAILABILITY
IXC Confidential 6 10/12/99
- -------------------
**** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE> 1
EXHIBIT 10.37
AMENDMENT
This Amendment (the "Amendment") is made and entered into as of the
1st day of May, 1999, by and among Maxxis Group, Inc., a Georgia corporation
("Borrower") and the Maxxis Millionaire Society, a Georgia partnership
("Lender").
WITNESSETH:
WHEREAS, Borrower and Lender (collectively, the "Parties") entered
into that certain Line of Credit dated as of November 22, 1998, (the
Agreement") where the Borrower, for value received, promised to pay to the
order of the Lender the aggregate principal sum of up to $1,000,000 (the
"Maximum Amount") or such portion as may have been advanced to Borrower by
Lender;
WHEREAS, the Parties hereby deem it advisable and in their best
interests to amend the Agreement by increasing the Maximum amount from
$1,000,000 to $2,000,000;
NOW, THEREFORE, for and in consideration of the premises, the
covenants set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties,
intending to be legally bound, do hereby agree as follows:
ARTICLE I
AMENDMENT OF AGREEMENT
1. Amendment of Section 1 of the Agreement. The Parties hereby
amend the Agreement by deleting Section 1 in its entirety and replacing it with
the following:
1.1 Line of Credit. The Lender shall advance to the Borrower
such sums as the Borrower may request prior to the Due Date, but which advanced
sums (the "Advances") shall not exceed in the aggregate $2,000,000.00 (the
"Maximum Amount"). All Advances shall be due in full and payable on the Due
Date. Lender shall not request any Advances which exceed the Maximum Amount or
which would cause the aggregate amount of outstanding Advances (exclusive of
Advances that have been repaid by the Borrower and exclusive of any interest
that has accrued on the Advances) made pursuant hereto to exceed the Maximum
Amount.
ARTICLE II
MISCELLANEOUS
2.1 Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of Georgia applicable to contracts
between Georgia residents entered into and to be performed entirely within the
State of Georgia.
<PAGE> 2
2.2 Entire Agreement. The Amendment and Agreement constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof.
2.3 Counterparts. This Amendment may be executed in any number of
counterparts, each of which may be executed by less than all of the Parties,
each of which shall be enforceable against the Parties actually executing such
counterparts, and all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment on
the date first above written.
MAXXIS GROUP, INC.
1901 Montreal Road, Suite 108
Tucker, GA 30084
/s/ Thomas O. Cordy
-------------------------------------
Thomas O. Cordy
Chief Executive Officer and President
MAXXIS MILLIONAIRE SOCIETY
1901 Montreal Road, Suite 108
Tucker, GA 30084
/s/ Alvin Curry
------------------------------------
Alvin Curry
Partner
2
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF MAXXIS GROUP, INC.
Maxxis 2000, Inc., a Georgia corporation and wholly owned subsidiary
of Maxxis Group, Inc. ("Maxxis").
Maxxis Communications, Inc., a Georgia corporation and wholly owned
subsidiary of Maxxis.
Maxxis Nutritionals, Inc., a Georgia corporation and wholly owned
subsidiary of Maxxis.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MAXXIS GROUP, INC. FOR THE YEAR ENDED
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 20,000
<SECURITIES> 10,000
<RECEIVABLES> 1,771,000
<ALLOWANCES> 302,000
<INVENTORY> 354,000
<CURRENT-ASSETS> 1,963,000
<PP&E> 5,842,000
<DEPRECIATION> 501,000
<TOTAL-ASSETS> 8,286,000
<CURRENT-LIABILITIES> 3,905,000
<BONDS> 0
0
200,000
<COMMON> 612,000
<OTHER-SE> (1,826,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,286,000
<SALES> 12,344,000
<TOTAL-REVENUES> 12,344,000
<CGS> 3,775,000
<TOTAL-COSTS> 13,524,000
<OTHER-EXPENSES> 5,373,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 356,000
<INCOME-PRETAX> (1,536,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,536,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,536,000)
<EPS-BASIC> (0.96)
<EPS-DILUTED> (0.96)
</TABLE>
