<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
URSUS TELECOM CORPORATION
(Exact Name Of Registrant As Specified In Its Charter)
<TABLE>
<S> <C> <C>
FLORIDA 4825 65-0398306
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code Number)
organization) Number)
</TABLE>
------------------------------
440 SAWGRASS CORPORATE PKWY.
SUITE 112
SUNRISE, FLORIDA 33325
(954) 846-7887
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
LUCA M. GIUSSANI
PRESIDENT AND CEO
URSUS TELECOM CORPORATION
440 SAWGRASS CORPORATE PKWY.
SUITE 112
SUNRISE, FLORIDA 33325
(954) 846-7887
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
DANIEL LAMPERT, ESQ. RALPH V. DE MARTINO, ESQ.
M. ST. JOHN DAUGHERTY, ESQ. NEIL R.E. CARR, ESQ.
STROOCK & STROOCK & LAVAN LLP DE MARTINO FINKELSTEIN ROSEN & VIRGA
200 SOUTH BISCAYNE BOULEVARD 1818 N STREET, N.W.
33RD FLOOR SUITE 400
MIAMI, FLORIDA 33131-2385 WASHINGTON, DC 20036-2492
(305) 789-9384 (202) 659-0494
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act"), check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED SHARE PRICE (3) FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value........................... 1,925,000(1)(2) $11.00 $21,175,000 $6,246.63
Representative's Warrants(4)........................... 150,000 N/A $150 $.04
Common Stock Underlying Representative's Warrants(5)... 150,000 $13.20 $1,980,000 $584.10
Total.................................................. N/A N/A N/A $6,830.77
</TABLE>
(1) Includes 225,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
(2) Includes 200,000 shares of Common Stock owned by the Registering
Shareholders.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
(4) To be sold to the Representative of the Underwriters.
(5) Pursuant to Rule 416, this Registration Statement also covers such
additional number of shares of Common Stock as may be issuable pursuant to
anti-dilution provisions of the Representative's Warrants.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8, MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED , 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
[URSUS LOGO]
URSUS TELECOM CORPORATION
1,500,000 SHARES OF COMMON STOCK
------------------
Ursus Telecom Corporation ("Ursus," or the "Company") is hereby offering
(the "Offering") 1,500,000 shares of common stock, par value $.01 per share (the
"Common Stock"). Prior to the Offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price (the "Offering Price") will be between $9.00 and $11.00 per
share. See "Underwriting" for a discussion of the factors considered in
determining the Offering Price. Application is being made for quotation of the
Common Stock on the Nasdaq National Market under the symbol "UTCC."
An additional 200,000 shares of Common Stock are being registered herewith
on behalf of certain shareholders of the Company ("Registering Shareholders").
These shares are subject to a holdback agreement with Joseph Charles &
Associates, Inc. ("Representative") and may not be sold by the Registering
Shareholders without the consent of the Representative until 365 days after the
date of this Prospectus. See "Underwriting." The Company will not receive any of
the proceeds of the sale of shares of Common Stock by the Registering
Shareholders. The Company is paying all costs incurred in the registration of
shares of Common Stock.
--------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1)(2) COMPANY(3)(4)
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total(3)........................................... $ $ $
</TABLE>
(1) Does not include additional compensation to be paid to the Representative in
the form of: (a) warrants to purchase an aggregate of 150,000 shares of
Common Stock ("Representative's Warrants") at a price of $ per share
exercisable over four years, commencing one year from the date of this
Prospectus, (b) a 3% non-accountable expense allowance ($50,000 of which has
been advanced), and (c) a consulting agreement for a period of twenty-four
months for an aggregate consideration of $72,000 payable on the closing of
the Offering.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(3) Before deducting expenses of the Offering payable by the Company estimated
to be $ .
(4) The Company has granted the Underwriters a 45-day option ("Over-Allotment
Option") to purchase up to 225,000 additional shares of Common Stock, on the
same terms and conditions as set forth above, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
--------------------------
The shares of Common Stock offered by the Company pursuant to this
Prospectus are being offered by the Underwriters on a "Firm Commitment" basis
subject to prior sale, to withdrawal, cancellation or modification of the offer
without notice, to delivery to and acceptance by the Underwriters and to certain
further conditions. It is expected that delivery of certificates therefor will
be made at the offices of the Representative, in Beverly Hills, California or
through the facilities of the Depository Trust Company on or about ,
1998. The Representative has no agreement with the Registering Shareholders
regarding the sale of their shares.
--------------------------
JOSEPH CHARLES & ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET
PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN
THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE SET FORTH IN "RISK
FACTORS" AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS
SHOULD CONSIDER CAREFULLY THE INFORMATION SET FORTH UNDER "RISK FACTORS." EXCEPT
AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES (I) THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION AND THE REPRESENTATIVE'S WARRANTS ARE NOT
EXERCISED, AND (II) THE CONSUMMATION OF THE SPLIT (THE "STOCK SPLIT") OF FOUR
SHARES OF THE COMPANY'S CLASS A COMMON STOCK INTO 3,692.32 SHARES OF COMMON
STOCK AND ONE SHARE OF SERIES A PREFERRED STOCK, FOUR SHARES OF THE COMPANY'S
CLASS B STOCK INTO 3,692.32 SHARES OF COMMON STOCK AND ONE SHARE OF SERIES A
PREFERRED STOCK, AND OF EACH SHARE OF ITS CLASS C COMMON STOCK INTO 923.08
SHARES OF COMMON STOCK, WHICH WAS EFFECTED ON FEBRUARY 12, 1998. TECHNICAL TERMS
AND ACRONYMS USED IN THIS PROSPECTUS ARE DEFINED IN THE "GLOSSARY OF TERMS."
THE COMPANY
Ursus Telecom Corporation is a growing and profitable international
telecommunications company that exploits favorable market niches through the
timely provision of competitive and technologically advanced telecommunications
services. The Company focuses on small and medium sized businesses located in
emerging or deregulating markets, including South Africa, Latin America, the
Middle East (primarily Lebanon and Egypt), Russia and France, which it serves
through a network of independent exclusive agencies. The Company believes that
it derives a significant competitive advantage from its exclusive agency
network. Each agency provides marketing, customer support, billing and
collections, in local language and time, utilizing a proprietary turn-key Agency
Support System developed and provided by the Company. Each agency is supplied
near real time data for customer management, usage analysis, and billing from
the Company's local and wide area network. Through its agency network, the
Company develops and maintains close relationships with vendors of telephone
systems such as Siemens, Plessey, AT&T, Northern Telecom and Alcatel in key
markets in order to promote the Ursus line of telecommunications services,
thereby allowing the Company to offer competitively priced and value added
services that compare favorably to the pricing and service offerings of the
local incumbent telecommunication operators ("ITOs").
Ursus Telecom has traditionally entered a particular market using call
reorigination techniques or other methods that provide a U.S. dial tone to its
foreign customers. The Company derives approximately 80% of its revenues from
call reorigination, which essentially is a system that provides the Company's
overseas customers the opportunity to access a U.S. based switching center. Call
reorigination provides a customer with all the convenience and rate economies
provided by a U.S. dial tone, as opposed to locally imposed international rates,
which may be substantially higher. In order, however, to remain price
competitive and to mitigate the high proportion of variable costs per minute
associated with call reorigination, the Company plans to expand its direct
access services by locating switching platforms at network centers of major
telecommunications providers, such as WorldCom, Cable and Wireless and France
Telecom, and deploying smaller network access nodes in less populated service
areas that are connected via traditional circuit or IP Telephony based
facilities. This network topology, which the Company will first use in France,
provides subscribers with direct access service for voice and fax. Ultimately,
where regulatory conditions are favorable and calling volumes are adequate to
cover the associated fixed costs, the Company intends to migrate some of its
customers from call reorigination to direct access service.
Ursus Telecom has adopted and plans to implement a policy of rapid expansion
through internal growth, through sale of wholesale services to other carriers,
and by applying a portion of the Offering proceeds to acquire smaller
competitors and expand the business generated by its existing agencies. The
Company believes that its proprietary enterprise software system provides an
efficient infrastructure for back room processing, thereby giving it a strategic
advantage over its competitors. The Company's computerized back office systems
handle traditionally labor intensive processing tasks such as call rating,
3
<PAGE>
customer registration, billing, and network management with a high degree of
efficiency and short turn-around time, which will facilitate the rapid and
economical consolidation of acquired competitors.
The Company operates a digital, switch based telecommunications network (the
"Network") from its technical facilities in Sunrise, Florida, and plans to use a
portion of the Offering proceeds to expand its primary digital switching
platform and secondary network access nodes utilizing a hybrid network of
Internet, Intranet and circuit based facilities, thereby expanding its services
in a reliable, flexible and cost effective manner. The Company also plans to
exploit its market penetration and technological sophistication through the
application of the Internet Protocol (IP) telephony technology, particularly for
fax transmissions. Faxing represents a large portion of the overall
international telecommunications business, and IP faxing offers significant cost
savings and favorable regulatory treatment. In effect, IP telephony creates the
opportunity to bypass the switched telephone network by using cost-effective
packet switched networks such as private Intranets and/or the public Internet
for the delivery of fax and voice communications. Therefore, the Company plans
to use a portion of the Offering proceeds to establish a hybrid network for IP
fax and voice services, with the objective of solidifying opportunities and
realizing the potential cost savings provided by IP telephony technology. The
Company believes that this could increase the gross margins of its existing and
future retail business and allow it to accelerate its aggressive growth
strategy.
The Company expects that call reorigination will still continue to serve as
a low cost and profitable method of opening new markets and expects to continue
this method of business development in certain regulated markets in Africa, the
Middle East, Europe and Asia. Reoriginating a U.S. dialtone requires little
investment in equipment and a limited capital deployment in a foreign territory,
and allows the Company to develop a viable customer base by effectively
exploiting the difference between the local International Direct Dial ("IDD")
rate and the generally more favorable rates the Company enjoys in the U.S. The
Company and some of its competitors have successfully used this strategy to
develop foreign markets and have thereby created a revenue stream with little
more than marketing and incremental call costs. In addition, using IP Telephony
concurrently with call reorigination could significantly improve the
profitability of this business segment, without requiring the substantial
investments in switches of a direct access network. Accordingly, the Company's
strategy is to deploy IP technology where feasible in order to create a hybrid
network capable of carrying significant amounts of profitable customer traffic
on a low cost platform with a modest initial capital investment. This strategy
mitigates the risk that the Company will not attain, in some of its markets, the
critical mass of business required to amortize the fixed costs of a direct
access network, and affords the Company the opportunity to develop a market with
a relatively small financial risk.
In summary, the Company intends to become a significant provider of
international telecommunications services within the emerging and deregulating
markets. The Company intends to maximize its profit potential by leveraging its
existing infrastructure, success and profitability, market penetration,
expanding customer base and growing U.S. wholesale business. Furthermore, by
using its independent agent network, efficient back office systems, and
favorable vendor relationships with some of the major U.S. telecommunications
carriers, the Company believes it can gain strategic advantages while
capitalizing on the opportunities presented by deregulation and technological
advances in the global telecommunications industry.
Ursus provides an array of basic and value added services to its customers,
which include:
- long distance international telephone services
- direct dial access for corporate customers
- dedicated access for high volume users
- calling cards
- abbreviated dialing
4
<PAGE>
- international fax store and forward
- switched Internet services
- itemized and multicurrency billing
- follow me calling
- enhanced call management and reporting services
The Company's strategy of profitable growth has driven revenues from
approximately $13.2 million to $20.8 million, respectively, in the fiscal years
ended March 31, 1996 and March 31, 1997; and to $13.2 million in the six months
ended September 30, 1997. The Company's pretax profits have grown from $1.3
million in the year ended March 31, 1996 to $2 million in the year ended March
31, 1997, and to $0.8 million in the six months ended September 30, 1997.
The Company is a Florida corporation that was formed in March 1993. The
Company's principal executive offices are located at 440 Sawgrass Corporate
Parkway., Suite 112, Sunrise, Florida 33325, and its telephone number is (954)
846-7887.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company(1)....... 1,500,000 shares
Common Stock to be outstanding after the
Offering(2)................................ 6,500,000 shares
Use of Proceeds(3)........................... The estimated net proceeds of the Offering of
approximately $13 million will be used (i) to
acquire businesses operating in the same
industry segment as the Company; (ii) to
acquire equity interests in the Company's
existing independent sales agencies; (iii) to
expand the Network by acquiring switches and
other equipment and facilities; and (iv) for
general working capital purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol....... "UTCC"
Risk Factors................................. Prospective investors should carefully
consider all of the information set forth in
this Prospectus, and, particularly, should
consider the factors set forth in "Risk
Factors."
</TABLE>
- ------------------------
(1) Does not include 200,000 shares of Common Stock offered for sale by the
Registering Shareholders included in the registration statement filed in
connection with this Offering. Such shares are subject to a holdback
agreement between each of the Registering Shareholders and the
Representative and are not being offered on an underwritten basis and may
not be sold by the Registering Shareholders without the consent of the
Representative until 365 days after the date of this Prospectus. See
"Principal and Registering Shareholders." Also does not include (a) an
additional 225,000 shares of Common Stock which may be offered pursuant to
the Over-Allotment Option, or (b) an additional 150,000 shares of Common
Stock issuable upon exercise of the Representative's Warrants.
(2) Excludes approximately 415,000 shares of Common Stock subject to options to
be granted to certain of the Company's directors, officers and employees
upon the consummation of the Offering at an exercise price equal to the
Offering Price and the additional options that will be granted in the
future. See "Management--Stock Incentive Plan" and "Shares Eligible for
Future Sale."
(3) In the event that the Underwriters exercise their Over-Allotment Option in
full, the net proceeds to the Company from the sale of the 225,000 shares of
Common Stock offered pursuant to the Underwriters' Over-Allotment Option are
estimated to be $2,000,000, after deducting the underwriting discount and
estimated expenses and assuming an Offering Price of $10.00 per share (the
midpoint of the estimated range for the Offering Price).
6
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth certain summary financial information for the
Company for (i) the fiscal years ended March 31, 1995, 1996 and 1997, which have
been derived from the Company's audited financial statements and notes thereto
included elsewhere in this Prospectus, (ii) the fiscal year ended March 31,
1994, which have been derived from unaudited financial statements of the Company
which are not included herein, and (iii) the six months ended September 30, 1996
and 1997, which have been derived from unaudited financial statements of the
Company which are included herein. In the opinion of management, the unaudited
financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, which consist only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for these periods. The following
financial information should be read in conjunction with "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's financial statements and notes thereto
appearing elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31 SEPTEMBER 30
------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND OTHER OPERATING
DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Retail........................................... $ 848 $ 6,291 $ 13,228 $ 20,523 $ 9,546 $ 12,239
Wholesale........................................ -- -- -- 315 -- 975
--------- --------- --------- --------- --------- ---------
Total revenues................................. $ 848 $ 6,291 $ 13,228 $ 20,838 $ 9,546 $ 13,214
Gross profit....................................... $ 344 $ 2,544 $ 5,553 $ 8,643 $ 3,968 $ 4,445
Operating income (loss)............................ $ (814) $ 159 $ 1,369 $ 2,004 $ 890 $ 788
Net income (loss).................................. $ (813) $ 382 $ 790 $ 1,253 $ 547 $ 493
Net income (loss) per share (1).................... $ (.18) $ .08 $ .16 $ .25 $ .11 $ .10
Weighted average shares outstanding (1)............ 4,615 4,869 5,000 5,000 5,000 5,000
OTHER OPERATING DATA (AT END OF PERIOD):
Retail customers (2)............................... 833 4,456 9,791 15,729 12,406 24,236
Wholesale customers (3)............................ -- -- -- 1 -- 3
Number of employees................................ 9 10 12 17 17 19
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF MARCH 31 OF SEPTEMBER 30, 1997
------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 ACTUAL AS ADJUSTED (4)
--------- --------- --------- --------- --------- ---------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total current asset.............................. $ 381 $ 1,273 $ 2,363 $ 4,578 $ 5,014 18,014
Working capital (deficiency)..................... (129) 150 811 1,658 1,423 14,423
Total assets..................................... 683 1,720 2,797 5,243 6,012 19,012
Total current liabilities........................ 510 1,122 1,552 2,920 3,591 3,591
Long term debt, less current portion............. 729 730 580 425 -- --
Total shareholders' equity (capital
deficiency).................................... (563) (162) 609 1,861 2,355 15,355
</TABLE>
- ------------------------
(1) Net income (loss) per common share is computed based on the weighted average
number of common shares outstanding during each period, and gives
retroactive effect to the Stock Split. See Note 13 of Notes to Financial
Statements.
(2) Consists of active Company subscribers that were billed in the final month
of the respective periods.
(3) Wholesale customers that had active accounts with the Company in the
respective periods.
(4) As adjusted to give effect to the Offering. See "Use of Proceeds" contained
elsewhere in this Prospectus.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OF THE COMPANY INVOLVES CERTAIN RISKS AND
SUBSTANTIAL DILUTION. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, IN EVALUATING AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
TECHNICAL TERMS AND ACRONYMS USED IN THIS PROSPECTUS ARE DEFINED IN THE
"GLOSSARY OF TERMS". THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND IN "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
COMPANY RISKS
OPERATING RISKS
Historically, the Company has derived a significant portion of its revenues
by providing call reorigination services. The Company believes that as
deregulation occurs and competition increases in certain international markets,
the pricing advantage of call reorigination relative to conventional
international long distance service will diminish and may disappear in certain
markets. In order to maintain its existing customer base and attract new
business in such markets, the Company anticipates that it will have to offer
direct access services to certain destinations at prices significantly below the
current prices charged for call reorigination. The Company will seek to satisfy
this requirement in selected target markets by migrating its existing call
reorigination customers and attracting new business through the deployment of
direct access and other call-through access methods, including IP telephony.
There can be no assurance that the Company will succeed in such efforts. Failure
to accomplish this objective could have a material adverse effect on the
Company's business, financial condition, and results of operations.
The Company's future operating results will be subject to annual and
quarterly fluctuations due to several factors, many of which are outside the
control of the Company. These factors include the effects of governmental
regulation and regulatory changes, the introduction of new products and services
by the Company and its competitors, the mix of products and services sold and
the mix of channels through which those products and services are delivered and
sold, the general economic conditions prevailing in the Company's markets,
specific economic conditions in the telecommunications industry, user demand,
the costs, including unanticipated costs, of developing and expanding the
Company's Network, pricing strategies for competitive products and services, and
rapid changes in technology. In addition, the Company intends to expand its
operations, or to enter markets in which it has limited or no operating
experience.
In many of the Company's existing and target markets, the Company offers or
intends to offer new services or services that have previously been provided
only by the local ITOs. Accordingly, there can be no assurance that such
operations will generate operating or net income, and the Company's prospects
must therefore be considered in light of the risks, expenses, problems and
delays inherent in establishing a new business in a rapidly changing industry.
The Company's overall gross margins may fluctuate in the future based on its mix
of wholesale (selling minutes to other carriers) and retail (selling directly to
end-user customers) international long distance services and the percentage of
calls using direct access as compared to call reorigination, in addition to the
reaction to any significant international long distance rate reductions imposed
by ITOs to counter external competitive threats.
As a strategic response to a changing competitive environment, the Company
may elect from time to time to make certain pricing, service or marketing
decisions or enter into acquisitions, investments and strategic alliances that
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company believes that its industry has
reached a stage of development insofar that the gross profit margins associated
with its early stages have yielded to a moderated profit margin structure on an
industry-wide basis. Furthermore, the Company's strategic decisions to reduce
its pricing structure in particular markets to gain additional market share and
achieve operating efficiencies
8
<PAGE>
may materially adversely affect the profitability of the Company's operations in
such markets. As a result of the foregoing factors, the Company may in the
future experience materially adverse circumstances that could reduce the price
of the Company's Common Stock. See "-Risks Associated with Expansion by
Acquisitions, Strategic Alliances and Similar Transactions," and "-Management's
Discussion and Analysis of Financial Condition and Results of Operations".
RISKS OF INTERNATIONAL TELECOMMUNICATIONS BUSINESS
The Company's international telecommunications business is subject to
certain risks, such as changes in foreign governmental regulations and
telecommunications standards, licensing requirements, tariffs, taxes, customs,
duties and other trade barriers, as well as political and economic instability.
In addition, the Company's revenues and cost of long distance services are
sensitive to changes in international settlement rates, changes in the ratios
between outgoing and incoming traffic, and the Company's ability to obtain
international transmission facilities. International rates charged to customers
are likely to decrease in the future for a variety of reasons, including
increased competition between existing carriers, entry of new carriers into
niche markets and the consummation of joint ventures among large international
carriers that facilitate targeted pricing and cost reductions. In addition, the
Company's business could be adversely affected by a reversal in the current
trend toward deregulation of government-owned telecommunications carriers. There
can be no assurance that the Company will be able to increase its traffic volume
or reduce its operating costs sufficiently to offset any resulting rate
decreases.
RISKS RELATING TO EMERGING MARKETS
In the six months ending September 30, 1997 the Company derived
approximately 82% of its revenues from operations in emerging markets, where the
Company's businesses are subject to numerous risks and uncertainties, including
political, economic and legal risks, such as unexpected changes in regulatory
requirements, tariffs, customs, duties and other trade barriers, difficulties in
staffing and managing foreign operations, problems in collecting accounts
receivable, foreign exchange controls which restrict or prohibit repatriation of
funds, technology export and import restrictions or prohibitions, delays from
customs brokers or government agencies, seasonal reductions in business
activity, and potentially adverse tax consequences resulting from operating in
multiple jurisdictions with different tax laws, which could materially adversely
impact the Company's business, results of operations and financial condition.
The political systems of many of the emerging market countries in which the
Company operates or plans to operate are slowly emerging from a legacy of
totalitarian rule. Political conflict and, in some cases, civil unrest and
ethnic strife may continue in some of these countries for a period of time. Many
of the economies of these countries are weak, volatile and reliant on
substantial foreign assistance. Expropriation of private businesses in such
jurisdictions remains a possibility, whether by an outright taking or by
confiscatory tax or other policies. There can be no assurance that the Company's
operations will not be materially and adversely affected by such factors.
Legal systems in emerging market countries frequently have little or no
experience with commercial transactions between private parties. The extent to
which contractual and other obligations will be honored and enforced in emerging
market countries is largely unknown. Accordingly, there can be no assurance that
difficulties in protecting and enforcing rights in emerging market countries
will not have a material adverse effect upon the Company and its operations.
Additionally, the Company's businesses operate in uncertain regulatory
environments. The laws and regulations applicable to the Company's activities in
emerging market countries are in general new and subject to arbitrary change
and, in some cases, incomplete. There can be no assurance that local laws and
regulations will become stable in the future, or that changes thereto will not
materially adversely affect the Company's operations or financial condition.
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DEPENDENCE ON INDEPENDENT EXCLUSIVE AGENTS
The Company provides its services through a network of independent and
exclusive agents. Its international market penetration primarily reflects the
marketing, sales and customer service activities of these agents, who market the
Company's services on a commission basis. As of September 30, 1997, the Company
had 17 agents located in approximately 27 countries. The use of these agents
exposes the Company to significant risks, including the fact that the Company
depends on the continued viability and financial stability of its agents. In
fiscal year 1997, four agents generated approximately 57% of the Company's
revenues and these agents in the aggregate accounted for approximately 66% of
the Company's revenues for the six months ended September 30, 1997. Although the
Company has not historically experienced significant attrition in agencies,
there can be no assurance that it will not suffer the loss of one or more
significant agents in the future. If one or more of these agents were to suffer
financial problems, terminate its relationship with the Company, or were unable
to satisfy customers, this could create a material adverse effect on the
Company's business, financial condition or results of operations, including, but
not limited to lost revenues, bad debt expense, lost customers, potential
liability under contracts the agents commit the Company to perform, and damage
to the Company's business reputation.
The Company's continuing success depends in substantial part on its ability
to recruit, maintain and motivate its agents. The Company is subject to
competition in the recruiting of agents from other organizations that use agents
to market their products and services, including those that market
telecommunications services. Because the Company enters into exclusive
relationships with its agents, the success of the Company's business within the
exclusive territory largely depends on the effectiveness of the local agent in
conducting its business. If an agent were to become ineffective in conducting
its business, the Company might seek to terminate its relationship with the
agent; and under certain local laws the Company's exclusive arrangements with
such agent might be difficult or expensive to terminate. The Company has entered
into non-compete agreements with its agents prohibiting their competition with
the Company during their engagement and for a period of time after its
termination; however, there can be no assurance that any such non-compete
agreement would be enforceable as a practical matter or under the applicable
laws of the jurisdiction in which an agent operates. Because of the number of
factors that affect the recruiting, performance and viability of the Company's
agents and the Company's relationship with its agents, the Company cannot
predict when or to what extent the Company will be able to continue to recruit,
maintain and motivate agents effectively, nor can it predict the difficulties or
costs associated with terminating any of its agency relationships or enforcing
its non-compete agreements with its agents.
The Company expects to minimize some of the risks of marketing its services
through independent exclusive agents by using a portion of the Offering
proceeds: (a) to acquire an equity interest in some of its currently independent
agents, the proceeds of which will be applied to enhance marketing and services
provided in the agent's territory while further improving the Company's mutual
business interests with the agencies, and (b) to penetrate certain new markets
by acquisitions or strategic alliances rather than through independent agents.
The Company has no agreements to make any such acquisitions of competitors or
investments in agencies, except for pending transactions in South Africa and
France. See "-Certain Relationships and Related Party Transactions" and "Use of
Proceeds." However, such measures entail other risks. See "-Credit Risks",
"-Risks Associated with Expansion by Acquisitions, Strategic Alliances and
Similar Transactions," and "-Foreign Exchange Rate Risks."
CREDIT RISKS
Many of the foreign countries in which the Company operates do not have
established credit bureaus, thereby making it more difficult to ascertain the
creditworthiness of potential customers. Under the Company's exclusive agency
arrangements, the agent, and not the Company is responsible for analyzing the
creditworthiness of the customer and assumes this credit risk. The Company
believes that using this local platform for its business minimizes its credit
risk, and the Company's bad debt expenses have historically been minimal.
However, the Company has in certain circumstances supported its agency
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relationships by bearing some credit losses. Also, there is a credit risk
inherent in the use of independent agents by the Company; because the agent and
not the ultimate user of the Company's services is responsible for the payment.
There can be no assurance that, with regard to any particular time period or
periods or a particular geographic location or locations or any particular agent
or agents, the Company's bad debt expense will not rise significantly above
historic or anticipated levels. While the Company continually seeks to minimize
bad debt, the Company's experience indicates that a certain portion of past due
receivables will never be collected and that such bad debt is a necessary cost
of conducting business in the telecommunications industry. As the Company
implements its plans to expand its customer base and wholesale business and move
into new territories, whether directly, through arrangements with agents,
acquisitions or otherwise, the credit risk to which the Company is exposed will
increase. See "-Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH AND IMPLEMENTING EXPANSION STRATEGY
The Company has experienced significant growth in recent periods. The
Company's ability to manage and respond to growth will be critical to its
success. The Company anticipates that future growth will depend on a number of
factors, including the effective and timely development of customer
relationships, the ability to enter new markets and expand in existing markets,
and the recruitment, motivation and retention of qualified agents. Sustaining
growth will require the continuing enhancement of the Company's operational
systems and additional management, operational and financial resources. If the
Company is successful in its growth strategy, there will be additional demands
on its customer support, marketing, distribution and other resources. There can
be no assurance that the Company will be able to manage its expanding operations
effectively or that it will be able to maintain or accelerate its rate of
growth. See "-Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
The Company's strategy is to continue its growth by expanding its service
offerings and principal geographic markets in Africa, the Middle East, Latin
America and targeted areas of Europe and Russia, especially in deregulating
markets. To accommodate its growth strategy, the Company will be required to
invest additional capital and resources to enhance its information systems by
replacing or upgrading certain existing systems and integrating new systems.
There can be no assurance that the Company can add services or expand its
geographic markets or that existing regulatory barriers to its current or future
operations will be reduced or eliminated. Even if the Company succeeds in adding
services or expanding into new markets, there can be no assurance that its
administrative, operational, infrastructure and financial resources and systems
will remain adequate. See "-Dependence on Effective Information Systems."
As the Company grows, it may have difficulty accurately forecasting its
telecommunications traffic. Inaccuracies in such forecasts could result in the
Company making investments in insufficient or excessive transmission facilities
and incurring disproportionate fixed expenses, as well as cause it to route
excessive overflow traffic to other carriers. The Company would not be able to
assure that the quality of services routed to other carriers would be
commensurate with the transmission quality provided by the Company.
Interruptions of or a decline in the quality of the Company's services resulting
from expansion difficulties could have a material adverse effect on the
Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH EXPANSION BY ACQUISITIONS, STRATEGIC ALLIANCES AND SIMILAR
TRANSACTIONS
As part of its growth strategy, the Company intends to reduce its exposure
to risks associated with the use of exclusive independent agents in existing and
new markets, by acquiring some or all of the equity interest in, entering into
joint venture arrangements with, or forming strategic alliances with, agents and
other strategic partners whose businesses complement that of the Company. The
Company at present has not entered into any such arrangements, except with
Central Call and Mondial Telecom, with each of
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which the Company has entered into a memorandum of understanding with respect to
the acquisition of customer lists, and with Orion Telecom in South Africa where
the Company will acquire an equity interest in the South African Agency. See
"--Certain Relationships and Related Party Transactions." Any future
acquisition, investment, strategic alliance or related effort will be
accompanied by the risks commonly encountered in such transactions or efforts.
Such risks include, among others, the difficulty of identifying appropriate
acquisition candidates or partners, the difficulty of assimilating the
operations of the respective entities, the potential disruption of the Company's
ongoing business, possible costs associated with the development and integration
of such operations, the potential inability of management to maximize the
Company's financial and strategic position by successfully incorporating
licensed or acquired technology into the Company's service offerings, the
failure to maintain uniform standards, controls, procedures and policies, the
impairment of relationships with employees, customers and agents as a result of
changes in management, and higher customer attrition with respect to customers
obtained through acquisitions. There can be no assurance that the Company would
be successful in overcoming these risks or any other problems encountered with
such acquisitions, investments, strategic alliances or related efforts.
Acquisitions also involve other risks, including changes in pricing due to
competition, difficulties in integrating the acquired operations, diversion of
management resources, obtaining any required regulatory approvals and the risks
associated with entering new markets. There can be no assurance that
acquisitions, strategic alliances or any other similar events will result in
increased sales or an expanded customer base, give the Company the presence in
new territories that it seeks, or enable the Company to effectively penetrate
its target markets.
Acquisitions by the Company could entail potentially dilutive issuances of
equity securities of the Company, as well as significant transaction expenses
and interest expense, which could have a material adverse effect on the
Company's operating results.
DISCRETION OF MANAGEMENT AS TO USE OF CERTAIN OFFERING PROCEEDS
Approximately $10,000,000 of the proceeds from this Offering are allocated
for unspecified acquisitions, investments in foreign agencies, joint ventures,
strategic alliances and the like. Identification of candidates for these
transactions, the decision whether to proceed with such transactions and with
whom, and the terms of the transactions, will be in management's discretion.
Therefore, purchasers in this Offering will not have the opportunity to evaluate
the specific merits or risks of any one or more such transactions, some of which
may be significant, but instead will be dependent on the discretion and judgment
of management in such matters. There can be no assurance that determinations
ultimately made by the Company's management will permit the Company to achieve
its business objectives, or that the decisions made by management will not have
a material adverse effect on the Company's business, financial condition or
results of operations. See "-Use of Proceeds."
RISK OF NETWORK FAILURE
The success of the Company is largely dependent upon its ability to deliver
high quality, uninterrupted telecommunication services and on its ability to
protect its software and hardware against damage from fire, earthquake, power
loss, telecommunications failure, natural disaster such as hurricanes and
similar events. Any systems or hardware failure that causes interruptions in the
Company's operations could have a material adverse effect on the Company.
Because the Company at the present time operates only one switch, located in
Florida, physical damage to this facility (including damage by hurricane) could
not be remedied by using redundant facilities of the Company located elsewhere,
and could have a material adverse effect on the Company. As the Company expands
and call traffic grows, there will be increased stress on hardware, circuit
capacity and traffic management systems. There can be no assurance that the
Company will not experience system failures. The Company's operations are also
dependent on its ability to successfully expand and integrate new and emerging
technologies and equipment, which could increase the risk of system failure and
result in further strains. The Company attempts to minimize customer
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inconveniences in the event of a system disruption by routing traffic to other
circuits and switches which may be owned by other carriers. However, significant
or prolonged system failures, or difficulties for customers in accessing and
maintaining connection could damage the Company's reputation and result in
customer attrition and financial losses. Additionally, any damage to the
Company's operations center could have a negative impact on the Company and its
ability to maintain its operations and generate accurate call detail reports.
EXPOSURE TO FRAUD
The telecommunications industry has historically been exposed to fraud
losses. The Company has implemented anti-fraud measures, such as employment
agreements with its employees, limiting and monitoring access to its information
systems and monitoring use of its services in order to minimize losses relating
to fraudulent practices. However, there can be no assurance that the Company
will effectively control fraud when operating in the international
telecommunications arena. Fraud has historically been a more significant problem
for large providers of telecommunications services than it has for the Company,
whose few employees and switching facilities are relatively easier to monitor
than those of the large providers. As the Company continues to grow and hire new
employees and implement its plans to increase the number of switching facilities
that it owns, its exposure to fraud losses will increase. The Company's failure
to control fraud effectively could have a material adverse effect on the
Company's business, financial condition and results of operations.
COMPETITION
The international telecommunications industry is highly competitive and
subject to the introduction of new services facilitated by advances in
technology. International telecommunications providers compete on the basis of
price, customer service, transmission quality, breadth of service offerings and
value-added services. The Company competes with a variety of international long
distance telecommunications providers in each of its markets, including the
respective ITO in each country in which the Company operates, various
independent providers similar to the Company in size and resources, and, to a
lesser extent, major international carriers and their global alliances. Other
potential competitors include cable television companies, wireless telephone
companies, Internet access providers and large end users which have dedicated
circuits or private networks. Many of the Company's current or potential
competitors have substantially greater financial, marketing and other resources
than the Company. If the Company's competitors were to devote significant
additional resources to the provision of international long distance
telecommunications services to the Company's target customer base of small and
medium-sized businesses in the Company's targeted geographic markets, then the
Company's business, financial condition and results of operations could be
materially adversely affected. There can be no assurance that the Company will
be able to compete successfully against new or existing competitors. See "-Risks
of International Telecommunications Business."
LESSENING OF BARRIERS TO ENTRY IN MARKETS WHERE COMPANY OPERATES
The call reorigination business has a small capital requirement, and
regulatory limitations often form the most significant barrier to entry. The
Company anticipates that as the markets in which it operates or will operate
continue to deregulate, the Company will increase its investments in
telecommunications infrastructure and the Company or its relevant agency will
increase marketing expenditures to address increased competition resulting from
decreased regulatory difficulties of entry into those markets and because the
cost of providing telecommunications services is relatively low and not a
significant barrier to entry into the markets where Ursus provides services. As
a result, the Company may experience increased costs of operation in those
markets. Additional competitors with greater resources than the Company could
enter these markets and acquire customers of the Company or force the Company to
reduce its
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prices to maintain its customer base, which could materially adversely affect
the Company's business operations.
GOVERNMENT REGULATION
The international telecommunications industry is subject to international
treaties and agreements, and to laws and regulations that vary from country to
country. Enforcement and interpretation of these laws and regulations can be
unpredictable and are often subject to informal views of government officials
and ministries that regulate telecommunications in each country. In some cases,
such government officials and ministries are subject to influence by ITOs.
In some countries where the Company operates or plans to operate, local laws
or regulations limit or require prior government approval for the provision of
international telecommunications service in competition with state-authorized
carriers. For example, the Company's provision of services over facilities in
its Network or by purchasing minutes from other carriers for resale to its
customers, or its ownership of facilities may be affected by increased
regulatory requirements in a foreign jurisdiction. Moreover, the Company's use
of transit agreements or arrangements, if any, may be affected by laws or
regulations in either the transited or terminating foreign jurisdiction. Also,
local laws and regulations differ significantly among the jurisdictions in which
the Company operates, and, within such jurisdictions, the interpretation and
enforcement of such laws and regulations can be unpredictable. There can be no
assurance that future regulatory, judicial, legislative or political changes
will permit the Company to offer to residents of such countries all or any of
its services or will not have a material adverse effect on the Company, that
regulators or third parties will not raise material issues regarding the
Company's compliance with applicable laws or regulations, or that regulatory
decisions will not have a material adverse effect on the Company. If the Company
is unable to provide the services which it presently provides or intends to
provide or to use its existing or contemplated transmission methods due to its
inability to obtain or retain the requisite governmental approvals for such
services or transmission methods, or for any other reason related to regulatory
compliance or lack thereof, such developments could have a material adverse
effect on the Company's business, financial condition and results of operations.
The services provided by the Company consist primarily of call reorigination
services. In some countries, use of call reorigination is restricted or
prohibited. If it is demonstrated that the law of a foreign jurisdiction
expressly prohibits call reorigination using uncompleted call signaling, and
that the foreign government attempted but failed to enforce its laws against
U.S. service providers, the FCC may require U.S. carriers to cease providing
call reorigination services using uncompleted call signaling. To date, the FCC
has ordered carriers to cease providing call reorigination using uncompleted
call signaling to customers in the Philippines, although it is expected that the
FCC will take this action with respect to carriers providing call reorigination
using uncompleted call signaling to customers in Saudi Arabia. Prior to taking
such action, the FCC permits countries to submit information to the FCC
regarding the legal status of call reorigination services in their respective
countries. According to FCC records, 30 countries thus far have submitted such
information to the FCC, including the Bahamas, Egypt, Lebanon and South Africa.
Submission of this information does not imply that the FCC believes that the
country's laws expressly prohibit call reorigination using uncompleted call
signaling.
The Company has pursued and expects to continue to pursue a strategy of
providing its services to the maximum extent it believes to be permissible under
applicable laws and regulations. To the extent that the interpretation or
enforcement of applicable laws and regulations is uncertain or unclear, the
Company's aggressive strategy may result in the Company's (i) providing services
or using transmission methods that are found to violate local laws or
regulations or (ii) failing to obtain approvals required under such laws or
regulations to which the Company believes that it is subject, or the Company
otherwise discovers that it is in violation of local laws and regulations and
believes that it is subject to enforcement actions by the FCC or the local
authority, it typically seeks to modify its operations or discontinue operations
so as to comply with such laws and regulations. There can be no assurance,
however, that the Company will not be subject
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to fines, penalties or other sanctions as a result of violations even though
such violations are corrected. If the Company's interpretation of applicable
laws and regulations proves incorrect, it could lose, or be unable to obtain,
regulatory approvals necessary to provide certain of its services or to use
certain of its transmission methods. The Company also could have substantial
monetary fines and penalties imposed against it. See "Governmental
Regulation--Overview."
The Company provides a substantial portion of its customers with access to
its services through the use of call reorigination. Revenues attributable to
call reorigination represented 80% of the Company's revenues during the six
months ended September 30, 1997. A substantial number of countries have
prohibited certain forms of call reorigination as a mechanism to access
telecommunications services. Such actions have caused the Company to cease
providing call reorigination services in the Bahamas and may require it to do so
in other jurisdictions in the future. As of November 20, 1997, reports had been
filed with the FCC and/or the ITU that the laws of 79 countries prohibit call
reorigination. While the Company provides call reorigination services in some of
those countries, the only country in that list that accounts for a material
share of the Company's total revenues is South Africa which accounts for
approximately 29% of the Company's revenues for the six months ended September
30, 1997. There can be no assurance that certain of the Company's services and
transmission methods will not continue to be or will not become prohibited in
certain jurisdictions, and, depending on the jurisdictions, services and
transmission methods may become affected, which could result in a material
adverse effect on the Company's business, financial condition and results of
operations. To the extent that a country that has expressly prohibited call
reorigination using uncompleted call signaling is unable to enforce its laws
against call reorigination using uncompleted call signaling, it can request that
the FCC enforce such laws in the United States, by e.g., requiring the Company
to cease providing call reorigination services to such country or, in extreme
circumstances, by revoking the Company's authorizations.
The Company's interstate and international facilities-based and resale
services are subject to regulation by the Federal Communications Commission
("FCC"), and regulations promulgated by the FCC are subject to change in the
future. See "--Government Regulation--United States."
THE FCC'S POLICIES ON TRANSIT AND REFILE. The FCC is currently considering
a 1995 request (the "1995 Request") to limit or prohibit the practice whereby a
carrier routes, through its facilities in a third country, traffic originating
from one country and destined for another country. The FCC has permitted third
country calling where all countries involved consent to the routing arrangements
(referred to as "Transiting"). Under certain arrangements referred to as
"Refiling,", the carrier in the destination country does not consent to
receiving traffic from the originating country and does not realize the traffic
it receives from the third country is actually originating from a different
country. While the Company's revenues attributable to Refiling arrangements are
minimal, Refiling may constitute a larger portion of the Company's operations in
the future. The FCC to date has made no pronouncement as to whether Refiling
arrangements are inconsistent with U.S. or International Telecommunications
Union ("ITU") regulations. It is possible that the FCC will determine that
Refiling violates U.S. and/or international law, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
THE FCC'S INTERNATIONAL SETTLEMENTS POLICY. The Company is also required to
conduct its facilities-based international business in compliance with the FCC's
international settlements policy (the "ISP"). The ISP establishes the
permissible arrangements for facilities-based carriers that are based in the
U.S. and their foreign counterparts to compensate each other for terminating
each other's traffic over their respective networks. Several of the Company's
arrangements with foreign carriers are subject to the ISP and it is possible
that the FCC could take the view that one or more of these arrangements do not
comply with the existing ISP rules. The FCC recently enacted certain changes in
its rules designed to permit alternative arrangements outside of its ISP as a
means of encouraging competition and achieving lower, cost-based accounting and
collection rates as more facilities-based competition is permitted in foreign
markets. If the Company enters into a traffic agreement with a foreign carrier
for the provision of telecommunications services that does not comply with the
ISP, it may be required to obtain FCC approval
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under this alternative arrangements mechanism. If the FCC, on its own motion or
in response to a challenge filed by a third party, determines that the Company's
foreign carrier arrangements do not comply with FCC rules, among other measures,
it may issue a cease and desist order, impose fines on the Company or, in
extreme circumstances, revoke or suspend its FCC authorizations. See "--Recent
and Potential FCC Actions." Such action could have a material adverse effect on
the Company's business, financial condition and results of operations.
THE FCC'S TARIFF REQUIREMENTS FOR INTERNATIONAL LONG DISTANCE SERVICES. The
Company is also required to file with the FCC a tariff containing the rates,
terms and conditions applicable to its international telecommunications
services. The Company is also required to file with the FCC any agreements with
customers containing rates, terms, and conditions for international
telecommunications services, if those rates, terms, or conditions are different
than those contained in the Company's tariff. If the Company charges rates other
than those set forth in, or otherwise violates, its tariff or a customer
agreement filed with the FCC, or fails to file with the FCC carrier-to-carrier
agreements, the FCC or a third party could bring an action against the Company,
which could result in a fine, a judgment or other penalties against the Company.
Such action could have a material adverse effect on the Company's business,
financial condition and results of operations.
RECENT AND POTENTIAL FCC ACTIONS. Regulatory action that has been and may
be taken in the future by the FCC may enhance the intense competition faced by
the Company. In addition to its new policy on alternative arrangements, the FCC
has also established lower ceilings ("benchmarks") for the rates that U.S.
carriers will pay foreign carriers for the termination of international
services. Moreover, the FCC recently changed its rules to implement the WTO
Agreement, in part by allowing U.S. carriers to accept certain exclusive
arrangements with certain foreign carriers. While these rule changes may provide
the Company with more flexibility to respond more rapidly to changes in the
global telecommunications market, they will also provide similar flexibility to
the Company's competitors. The implementation of these changes could have a
material adverse effect on the Company's business, financial condition and
results of operations.
U.S. DOMESTIC LONG DISTANCE SERVICES. The Company currently carries a DE
MINIMIS amount of U.S. domestic long distance traffic, if any, for its
foreign-billed customers. Such traffic generally would be limited to incidental
interstate or intrastate calls made by payphone users in the United States that
are billed in foreign countries but that brought their calling cards to the
United States while traveling. The Company's ability to provide domestic long
distance service in the United States is subject to regulation by the FCC and
relevant state Public Service Commissions ("PSCs") which regulate interstate and
intrastate rates, respectively, ownership of transmission facilities, and the
terms and conditions under which the Company's domestic U.S. services are
provided. In general, neither the FCC nor the relevant state PSCs exercise
direct oversight over prices charged for the Company's services or the Company's
profit levels, but either or both may do so in the future. The Company, however,
is required by federal and state law and regulations to file tariffs listing the
rates, terms and conditions of services provided. Any failure to maintain proper
federal and state tariffing or certification or file required reports, or any
difficulties or delays in obtaining required authorizations, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The FCC also imposes some requirements for marketing of
telephone services and for obtaining customer authorization for changes in the
customer's primary long distance carrier. If these requirements are not met, the
Company may be subject to fines and penalties.
To originate and terminate calls in connection with providing their
services, long distance carriers such as the Company may have to purchase access
services from local exchange carriers ("LECs") or competitive local exchange
carriers ("CLECs"). Access charges represent a significant portion of the
Company's cost of U.S. domestic long distance services and, generally, such
access charges are regulated by the FCC for interstate services and by PSCs for
intrastate services. The FCC has undertaken a comprehensive
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review of its regulation of LEC access charges to better account for increasing
levels of local competition. While the resolution of these issues is uncertain,
if these proposed rate structures are adopted, many long distance carriers,
including the Company, could be placed at a significant cost disadvantage to
larger competitors. In addition, the FCC has adopted certain measures to
implement the 1996 Telecommunications Act that will impose new regulatory
requirements, including the requirement that the Company contribute some portion
of its telecommunications revenues to a universal service fund designated to
fund affordable telephone service for consumers, schools, libraries and rural
healthcare providers. These contributions will become payable beginning in 1998
for all interexchange carriers but not for providers of solely international
services. The Company believes that it is not subject to universal service
contribution requirements, but there can be no guarantee that the FCC will not
find that the Company is subject to such requirements.
In some instances, the Company may be responsible for city sales taxes on
calls made within the jurisdiction of certain U.S. cities. The Company is
implementing software to track and bill for this tax liability. However, the
Company may be subject to sales tax liability for calls transmitted prior to the
implementation of such tax software and against which it has no corresponding
customer compensation. While the Company believes that any such liability will
not be significant, there can be no assurance that such tax liability, if any,
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
The FCC issued an order on October 9, 1997, concluding that interexchange
carriers must compensate payphone owners at a rate of $.284 per call for all
calls using their payphones. This compensation method will be effective from
October 7, 1997 through October 7, 1999. After this time period, interexchange
carriers will be required to compensate payphone owners at a market-based rate
minus $0.066 per call. A number of carriers have appealed this FCC order to the
U.S. Court of Appeals for the D.C. Circuit or have sought FCC reconsideration of
this order. Although the Company cannot predict the outcome of the FCC's
proceedings on the Company's business, it is possible that such proceedings
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The FCC and certain state agencies also impose prior approval requirements
on transfers of control, including pro forma transfers of control (without
public notice), and corporate reorganizations, and assignments of regulatory
authorizations. Such requirements may delay, prevent or deter a change in
control of the Company or the Company's acquisition of another company. The FCC
also imposes certain restrictions on U.S.-licensed telecommunications companies
that are affiliated with foreign telecommunications carriers, especially if the
foreign telecommunications carrier obtains a 25% or greater interest in a
company. If the Company becomes controlled by or under common control with a
foreign telecommunications carrier, or if the Company obtains a greater than 25%
interest in or control over a foreign telecommunications carrier, the FCC could
restrict the Company's ability to provide service on certain international
routes.
SOUTH AFRICA. In South Africa, the Company's future provision of certain
services will be, and its current provision of call reorigination services may
be, subject to the Telecommunications Act of 1996 and the Post Office Act of
1958. The SA Telecommunications Act permits a party to provide a range of
services other than public switched services under, and in accordance with, a
telecommunications license issued to that party in accordance with the SA
Telecommunications Act. Although the Company believes that South African law
does not prohibit the Company from providing its call reorigination services to
customers in South Africa without a license, the telecommunications regulator in
South Africa ("SATRA") has ruled that the provision of call reorigination
services to customers in South Africa without a license violates the SA
Telecommunications Act. Several entities filed a lawsuit to stay and reverse
SATRA's ruling on the basis that SATRA lacks the authority to issue such a
ruling and that the SA Telecommunications Act does not prohibit the provision of
call reorigination services. SATRA has agreed not to prosecute any person in the
call reorigination industry unless the South African courts rule that it may. It
is anticipated that final adjudication of this lawsuit could take up to two
years to occur. If the Company is determined to be
17
<PAGE>
providing a telecommunications service without a required license, it could be
subject to fines, to the termination of its call reorigination service to
customers in South Africa and, potentially, to the denial of license
applications to provide liberalized services. There can be no guarantee that the
courts in South Africa will not rule that call reorigination is illegal, that
they will not do so within two years, or that the South African legislature will
not promulgate an explicit prohibition on call reorigination. For the six months
ended September 30, 1997, South Africa comprised the Company's most significant
single market and accounted for approximately 29% of the Company's total
revenues. Any such adverse legal action could therefore have a material adverse
effect on the Company's business, financial condition and results of operation.
BAHAMAS. The Company has entered into an operating agreement with the
Bahamas Telephone Company ("Batelco"), for the purpose of providing, among other
things, international telecommunications services to customers in the Bahamas.
Recently, Batelco has taken several actions designed to block the Company's
ability to offer services to customers in the Bahamas. The Company believes that
these actions violate the terms of its operating agreement with Batelco. The
Company also believes that Batelco's actions are inconsistent with U.S. policy
and is working with the U.S. government, including the U.S. Embassy in the
Bahamas and the U.S. Federal Communications Commission, to restore the Company's
circuits to full capacity. If Batelco is permitted to block permanently or over
a protracted period of time the Company's provision of service to customers in
the Bahamas, such action could have a material adverse impact on the Company's
business, financial condition and results of operation. For the six months ended
September 30, 1997, the Company derived approximately 6% of its revenues from
services it provided in the Bahamas.
RAPID CHANGES IN TECHNOLOGY AND CUSTOMER REQUIREMENTS
Rapid and significant technological advancements and introductions of new
products and services utilizing new technologies characterize the
telecommunications industry. As new technologies develop, the Company may be
placed at a competitive disadvantage, and competitive pressures may force the
Company to implement new technologies at substantial cost. In addition,
competitors may implement new technologies before the Company is able to
implement such technologies, allowing those competitors to provide enhanced
services and quality, or services at more competitive costs, compared with that
which the Company is able to provide. There can be no assurance that the Company
will be able to respond to such competitive pressures and implement such
technologies on a timely basis or at an acceptable cost. One or more of the
technologies currently utilized by the Company, or which it may implement in the
future, may not be preferred by its customers or may become obsolete. If the
Company is unable to respond to competitive pressures, implement new
technologies on a timely basis, or penetrate new markets in a timely manner in
response to changing market conditions or customer requirements, or if new or
enhanced services offered by the Company do not achieve a significant degree of
market acceptance, then the Company's business, financial condition and results
of operations could be materially adversely affected. See "--Risks of
International Telecommunications Business" and "Competition."
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS
While the Company believes that its information systems are sufficient for
its current operations, such systems will require enhancements, replacements and
additional investments to continue their effectiveness in the future,
particularly to enable the Company to manage an expanded Network. There can be
no assurance that the Company will not encounter difficulties in enhancing its
systems or integrating new technology into its systems. The inability of the
Company to implement any required system enhancement, to acquire new systems or
to integrate new technology in a timely and cost effective manner could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "-Business-Strategy" and "-Business-Information
Systems."
18
<PAGE>
DEPENDENCE ON ARRANGEMENTS WITH CARRIERS
The Company obtains most of its transmission capacity under a variety of
volume-based resale arrangements with facilities-based and other carriers,
including ITOs. Under these arrangements, the Company is subject to the risk of
unanticipated price fluctuations and service restrictions or cancellations. The
Company generally has not experienced sudden or unanticipated price
fluctuations, service restrictions or cancellations imposed by such
facilities-based carriers., except in the Bahamas. See "-Government
Regulation-Bahamas." Although the Company believes that its arrangements and
relationships with such carriers generally are satisfactory, the deterioration
or termination of the Company's arrangements and relationships, or the Company's
inability to enter into new arrangements and relationships with one or more of
such carriers, could have a material adverse effect upon the Company's cost
structure, service quality, network coverage, results of operations and
financial condition.
The Company's growth strategy in new markets is to some extent based on its
ability to enter into operating agreements with domestic and foreign carriers.
In accordance with industry practices, operating agreements entered into by the
Company will be terminable upon short notice. While the Company has been
successful in negotiating and maintaining operating agreements, none of which
has been terminated to date, the trend toward deregulation of telephone
communications in many countries and a significant reduction in outgoing traffic
carried by the Company, among other things, could cause foreign partners to
decide to terminate their operating agreements, or could cause such operating
agreements to have substantially less value to the Company. Termination of these
operating agreements could have a material adverse effect on the Company's
business.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its four most senior officers and
on its ability to hire and retain qualified management personnel. The loss of
the services of one or more of these individuals could materially and adversely
affect the business of the Company and its future prospects. The Company has
entered into employment agreements with Messrs. Luca Giussani, Jeffrey Chaskin,
Johannes S. Seefried and Richard McEwan and maintains key person life insurance
on Messrs. Giussani and Chaskin in the amount of $2,000,000. The Company's
future success will also depend on its ability to attract and retain additional
management, technical, marketing, sales, financial and other personnel required
in connection with the growth and development of its business. See
"-Management."
FOREIGN CORRUPT PRACTICES ACT
As a result of the Offering, the Company will become subject to the Foreign
Corrupt Practices Act ("FCPA"), which generally prohibits U.S. companies and
their intermediaries from bribing foreign officials for the purpose of obtaining
or keeping business. The Company may be exposed to liability under the FCPA as a
result of past or future actions taken without the Company's knowledge by
agents, strategic partners or other intermediaries. Violations of the FCPA may
also call into question the credibility and integrity of the Company's financial
reporting systems. The Company's focus on certain emerging markets may tend to
increase this risk. Such liability under the FCPA could have a material adverse
effect on the Company's business, financial condition and results of operations.
FOREIGN EXCHANGE RATE RISKS
The Company currently bills primarily in United States Dollars and generally
is paid by customers outside of the United States either in United States
Dollars or in local currency at predetermined exchange rates. Substantially all
of the costs to develop and improve the Company's switching facilities and the
Network have been, and will continue to be, denominated in United States
Dollars. If the United States Dollar appreciates relative to the local currency,
then the Company may suffer a competitive disadvantage because its services will
grow more expensive than those of its competitors, such as the ITOs, that deal
only
19
<PAGE>
in the local currency. Any depreciation of the value of the United States Dollar
relative to the local currency may adversely affect the Company by effectively
increasing the cost of the Company's capital expenditures made in such local
currency. As the Company's business develops and expands, the Company
anticipates that in many countries it may bill and receive payment in local
currency at prevailing exchange rates. The Company's focus on emerging markets
may tend to increase the risks that currency fluctuations pose. Although the
Company has minimal operations in the Asian countries affected by recent
substantial currency fluctuations, there can be no assurance that currency
speculation and fluctuation will not affect the Company in Latin America, South
Africa, the Middle East or its other emerging markets. The Company monitors
exposure to currency fluctuations, and may, as appropriate, use certain
financial hedging instruments in the future. However, there can be no assurance
that the use of financial hedging instruments will successfully offset exchange
rate risks, or that such currency fluctuations will not have a material adverse
effect on the Company's business, results of operations and financial condition.
See "-Risks of International Telecommunications Business" and "-Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CAPITAL EXPENDITURES
The Company believes that the proceeds of this Offering, combined with other
existing and anticipated sources of liquidity, will be sufficient to fund its
capital requirements for approximately 18 months after consummation of the
Offering. However, certain events could occur that would require the Company to
obtain additional financing. Such events could include faster than expected
growth or lower than anticipated funds generated from operations. In such case,
the Company could require additional capital to continue to expand and upgrade
the Network, fund the acquisition of businesses or investments in joint ventures
and strategic alliances, or to otherwise implement its growth strategy. The
exact amount of the Company's future capital requirements will depend upon many
factors, including the cost, timing and extent of upgrades to and expansion of
the Network and existing and new services, the Company's ability to penetrate
new markets, regulatory changes, the status of competing services, the magnitude
of potential acquisitions, investments and strategic alliances and the Company's
results of operations. Individually or collectively, variances in these and
other factors could materially change the Company's actual capital requirements.
If additional capital is required, there can be no assurance that the Company
will be able to raise such capital, or, if raised, that the terms of such
financing will be favorable to the Company or will not be dilutive to the
investments of purchasers of Common Stock in the Offering.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have fluctuated and may continue
to fluctuate due to various factors, including the timing of investments,
general economic conditions, specific economic conditions in the
telecommunications industry, the effects of governmental regulation and
regulatory changes, user demands, capital expenditures, costs relating to the
expansion of operations, the introduction of new services by the Company or its
competitors, the mix of services sold and the mix of channels through which
those services are sold, changes in prices charged by the Company's competitors,
and other factors outside of the Company's control. Any combination of such
factors, or any one of such factors, may in the future cause fluctuations in
quarterly operating results. Variations in the Company's operating results could
materially affect the price of the Company's Common Stock, see "-Management's
Discussion and Analysis of Financial Condition and Results of Operations"; and
in particular, the discussion therein of the results of operations in the first
six months of 1997 and 1996.
PROTECTION OF INTELLECTUAL PROPERTY
The Company relies on unpatented proprietary know-how and continuing
technological advancements to maintain its competitive position. Although the
Company has entered into confidentiality and invention agreements with certain
of its employees and consultants, no assurance can be given that such
20
<PAGE>
agreements will be honored or that the Company will be able to effectively
protect its rights to its unpatented trade secrets and know-how. Moreover, no
assurance can be given that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets and know-how. See "-Business-The Network" and
"-Business-Information Systems."
The Company has not registered or trademarked "Ursus" and the Company's logo
in any jurisdiction. The Company is proposing to file registrations of its name
and logo in the United States, but there can be no assurance that it will obtain
adequate trademark, service mark or similar protection of its name and logo.
CONTROL BY EXISTING SHAREHOLDERS
Immediately after the Offering, the Company's current shareholders (the
"Existing Shareholders") will beneficially own an aggregate of 76.9% of the
outstanding shares of the Company's Common Stock (or 74.3% if the Underwriters'
Over-Allotment Option is exercised in full) and 100% of the Company's Series A
Preferred Stock. The Series A Preferred Stock has the exclusive rights to elect
two (2) of the five (5) members of the Company's Board of Directors, and one
member less than a numerical majority of any expanded Board. Moreover, the
Common Stock votes cumulatively for the election of Directors, which means that
the Existing Shareholders have the power to elect at least one member of the
Board of Directors so long as they control at least 33.3% of the outstanding
Common Stock (or an even smaller percentage if the size of the Board is
expanded). Accordingly, the Existing Shareholders will retain voting control of
the Company after the consummation of the Offering, with the ability to elect a
majority of the members of the Board of Directors and to approve certain
fundamental corporate transactions (including mergers, consolidations and sales
of assets). As long as the Existing Shareholders are the controlling
shareholders of the Company, third parties will not be able to gain control of
the Company through purchases of Common Stock not beneficially owned or
otherwise controlled by the Existing Shareholders. Accordingly, the price of the
Common Stock offered hereby would not reflect any premium which may be
attributable to such ability to exercise or obtain control over the Company.
While each of the Existing Shareholders has advised the Company that his current
intention is to continue to hold all of the shares of Series A Preferred Stock
and substantially all of the Common Stock beneficially owned following the
Offering, there can be no assurance that any of the Existing Shareholders will
not decide to sell all or a portion of their holdings at some future date after
the applicable hold back period or that in any transfer by any of the Existing
Shareholders of a controlling interest in the Company that any other holders of
Common Stock will be allowed to participate in such transaction or will realize
any premium with respect to their shares of Common Stock. See "-Effects of
Certain Anti-Takeover Provisions," "-Principal and Registering Shareholders" and
"-Description of Capital Stock--Certain Provisions of the Company's Articles of
Incorporation and Bylaws and Statutory Provisions."
21
<PAGE>
OFFERING RISKS
ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
The Company has applied for quotation of the Common Stock on the Nasdaq National
Market. However, there can be no assurance that, upon approval of the
application, an active public trading market for the Common Stock will develop
after the Offering or that, if developed, such market will be sustained. The
initial public offering price of the Common Stock offered hereby was determined
by negotiations between the Company and the Representative, and may not be
indicative of the price at which the Common Stock will trade after the Offering.
Consequently, there can be no assurance that the market price for the Common
Stock will not fall below the initial public offering price. See
"-Underwriting."
The market price of the Common Stock may experience fluctuations unrelated
to the Company's operating performance. In particular, the price of the Common
Stock may be affected by general market price movements as well as developments
specifically related to the telecommunications industry such as, among other
things, announcements concerning the Company or its competitors, technological
innovations, government regulations, and litigation concerning proprietary
rights or other matters.
DILUTION
Upon completion of the Offering, and assuming no exercise of the
Underwriter's Over-Allotment Option or the Representative's Warrants, purchasers
of the Common Stock offered hereby will experience immediate and substantial
dilution in net tangible book value of Common Stock of $7.65 per share, assuming
an Offering Price of $10.00 per share (the midpoint of the estimated range of
the Offering price). If the Underwriters exercise their Over-Allotment Option in
full, an additional 225,000 shares of Common Stock will be sold, and purchasers
of the Common Stock offered hereby will experience immediate and substantial
dilution in net tangible book value of Common Stock of $7.43 per share, assuming
an Offering price of $10.00 per share (the midpoint of the estimated range of
the Offering price). And if, as anticipated, the Company uses its stock to make
acquisitions, additional dilution will occur. Dilution represents the difference
between the price of the Common Stock sold hereby and the pro forma net tangible
book value per share of the Company after the Offering. See "--Dilution."
SHARES AVAILABLE FOR RE-SALE
All of the currently outstanding shares of Common Stock are beneficially
owned or otherwise controlled by the Existing Shareholders, either directly or
indirectly. The 1,500,000 shares of Common Stock sold in the Offering will be
freely tradable by persons other than "affiliates" of the Company, as that term
is defined in Rule 144 ("Rule 144") under the Securities Act of 1933, as amended
(the "Securities Act"), without restriction under the Securities Act. Generally,
Rule 144 permits unaffiliated stockholders to resell, after satisfying a one
year holding period, into the public market within any three month period a
number of shares which does not exceed the greater of 1% of the shares
outstanding or the average weekly trading volume during the four calendar weeks
preceding the sale and allows affiliates to resell such securities after
satisfying a two year holding period and subject to the foregoing volume
limitations. After completion of the Offering, the Existing Shareholders will
beneficially own or otherwise control an aggregate of 5,000,000 shares of the
Common Stock and 1,000 shares of Series A Preferred Stock. Each of the Existing
Shareholders has agreed not to sell any shares he beneficially owns, and not to
permit any sales of any shares he otherwise controls, for 365 days following
completion of the Offering without the prior written consent of the
Representative. However, upon expiration of these agreements, the Existing
Shareholders will be free to sell any Common Stock held by them, subject to the
rules and regulations promulgated under the Securities Act. Furthermore, the
Company intends to register within 90 days of the date of the Offering
approximately 1,000,000 shares of Common Stock reserved for issuance pursuant to
the Company's stock option plan, including options to purchase 415,000 shares at
the initial public offering
22
<PAGE>
price to be granted upon commencement of the Offering. The Representative has
permitted the Registering Shareholders to register their sale of 200,000 shares
of Common Stock, which shares may not be sold without the consent of the
Representative until 365 days after the date of this Prospectus. Any future
sales of a substantial number of shares of Common Stock, or the perception that
such sales could occur, could have a material adverse effect on the prevailing
market price of the Common Stock and could impair the Company's future ability
to raise capital through an offering of its equity or convertible securities.
See "-Management-Stock Incentive Plan" and "-Shares Eligible for Future Sale."
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws and
Florida law could delay or frustrate the removal of incumbent directors and
could make difficult a merger, tender offer or proxy contest involving the
Company, even if such events could be viewed as beneficial by the Company's
shareholders. For example, the Articles of Incorporation permit cumulative
voting for directors, and the 1,000 shares of outstanding Series A Preferred
Stock has the right to elect one less than a majority of the Board of Directors.
In addition, the Board of Directors has the ability to issue "blank check"
preferred stock without shareholder approval. Although the Board has no present
plan to issue additional shares of preferred stock, the rights of the holders of
common stock may be materially limited or qualified by the issuance of
additional preferred stock in the future. See "Description of Capital Stock" and
"-Control by Existing Shareholders." Upon amendment prior to the Offering, the
Articles of Incorporation will require a 66 2/3% vote of shareholders to amend
certain provisions of the Articles of Incorporation and will provide for a
staggered Board of Directors.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statement containing the words "believes," "plans," "anticipates,"
"intends," "expects," and words of similar import, constitute "forward-looking
statements." Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or the international long distance
telecommunications industry to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions; prospects for the international long distance
telecommunications industry; competition; changes in business strategy or
development plans; the loss of key personnel; the availability of capital; and
other factors referenced in this Prospectus, including, without limitation,
under the captions "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
results of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
USE OF PROCEEDS
Assuming no exercise of the Underwriters' Over-Allotment Option or
Representative's Warrants, the net proceeds to the Company from the sale of the
1,500,000 shares of Common Stock offered by the Company, based upon an Offering
Price of $10.00 per share (the midpoint of the estimated range for the Offering
Price), and after deducting the estimated Offering expenses payable by the
Company, including underwriting discounts and commissions, a 3% non-accountable
expense allowance and a two year consulting fee to the Representative, will be
approximately $13 million ($15 million if the Underwriter's Over-Allotment
Option is exercised in full). The Company anticipates that it will use these net
proceeds as follows:
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<PAGE>
(a) Approximately $5 million as the equity component of the purchase
price for strategic acquisitions to open new markets for the Company and
expand business in existing markets. The target businesses to be acquired
include competitors and independent reseller organizations. The Company
projects that such acquisitions may add substantial additional annual
revenues to its business; but the Company has no agreements regarding any
such acquisitions and there can be no assurance that the Company will be
able to consummate any such acquisition on acceptable terms, or at all.
(b) Approximately $5 million to acquire equity interests in the
Company's exclusive independent agencies in select markets, including South
Africa, Egypt, Lebanon, Argentina and Peru, and planned agencies or
subsidiaries in France, Germany and possibly Brazil. These agencies conduct
the marketing and customer support aspects of the Company's business, and
furnish a local base for conducting that business, and these investments
will finance expansion of the Company's business in these territories and
further cement the contractual relationships between the Company and these
agencies. The Company has entered into agreements with its French and South
African agencies to conclude such arrangements (see "Certain Relationships
and Related Party Transactions"), but it has no other agreements regarding
any other such transactions, and there can be no assurance that the Company
will be able to consummate any such transaction on acceptable terms, or at
all.
(c) Approximately $2 million to purchase or make the down payment under
financing arrangements for telecommunications infrastructure facilities,
including switches and other equipment. These investments will allow the
Company's business to expand by migrating customers in some markets to a
direct access network, by deploying a network of Internet servers using IP
telephony technology primarily for fax transmissions beginning in 1998, and
for potential joint venture programs in Africa or elsewhere.
(d) Approximately $1 million for general working capital purposes.
The Company retains broad discretion in allocating the proceeds of this
Offering, and the estimates given above, and, in particular, the allocation of
the $10 million between purchasing complementary businesses and investing in the
Company's agencies, will likely change in response to the opportunities for
investments and acquisitions the Company seeks to exploit. Although the Company
is holding ongoing discussions with various parties and agencies regarding
possible acquisitions or investments, the Company does not have at present any
firm commitments therefor, other than agreements to form a new joint venture
with the Company's French partners and agency and purchase a minority interest
in its South African agency which will at this point require aggregate
investments by the Company of approximately $900,000 of the net proceeds of this
Offering. See "Certain Relationships and Related Party Transactions."
Pending their use, the Company will invest the net proceeds of this Offering
in short term, investment grade, interest bearing securities and deposit
accounts. The Company projects that the net proceeds of this Offering will be
adequate to fund its anticipated capital requirements for approximately 18
months after the consummation of this Offering.
The Company continuously reviews opportunities to develop and expand its
business through strategic alliances with, investments in, or acquisitions of
companies that are complementary to the Company's operations. The Company may
finance such a venture with a portion of the net proceeds from the Offering, or
alternatively through debt or capital stock in the Company, or the Company may
also raise financing through bank debt or one or more public offerings of
private placement of securities. Dilution of the Company's shareholders will
occur if the Company issues additional shares of its stock to obtain financing.
However, other than with respect to the agreements with its French and South
African agencies discussed above and in "Certain Relationships and Related Party
Transactions," the Company has no present understanding, commitment or agreement
with respect to any such venture, and there can be no assurance that any such
venture will occur, or that the funds to finance such venture will be available
on reasonable terms, or at all.
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<PAGE>
CAPITALIZATION
The following table shows the capitalization of the Company as of September
30, 1997 and pro forma as adjusted to reflect the Stock Split of the Company's
Class A and Class B shares into Series A Preferred Stock and Common Stock, and
of its Class C Stock into Common Stock and the sale of the 1,500,000 shares of
Common Stock hereby offered by the Company (assuming no exercise of the
Over-Allotment Option, the Representative's Warrants or employee stock options)
at an initial public offering price of $10.00 per share (the midpoint of the
range of the estimated initial public offering price), after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company, and the application of the net proceeds therefrom as described
under "Use of Proceeds." This table should be read in conjunction with the
Company's financial statements and notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
<S> <C> <C>
PRO FORMA
AS
ACTUAL ADJUSTED(2)
--------- -------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DEBT:
Loans payable............................................................................ $ 250 $ 250
Total debt............................................................................. 250 250
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 1,000,000 shares authorized; 1,000 shares issued and
outstanding, pro forma as adjusted..................................................... -- --
Common Stock, $.01 par value; 20,000,000 shares authorized; 6,500,000 shares issued and
outstanding, pro forma as adjusted (1)................................................. -- 65
Common Stock--Class A: $50 par value; 500 shares authorized, issued and outstanding...... 25 --
Common Stock--Class B: $50 par value; 15,500 shares authorized, 3,500 issued and
outstanding............................................................................ 175 --
Common Stock--Class C: $50 par value; 4,000 shares authorized, 1,416.67 shares issued and
outstanding, net of discount of $2,084................................................. 69 --
Stock subscription receivable............................................................ (19) --
Additional paid-in capital............................................................... -- 13,185
Retained earnings........................................................................ 2,105 2,105
--------- -------------
Total shareholders' equity............................................................. 2,355 15,355
--------- -------------
Total capitalization................................................................. $ 2,605 $ 15,605
--------- -------------
--------- -------------
</TABLE>
- ------------------------
(1) Excludes 150,000 Representative's Warrants and 415,000 shares of Common
Stock subject to options to be granted upon commencement of the Offering and
the additional options that will be granted in the future under the
Company's 1998 Stock Incentive Plan. See "Management-Stock Incentive Plan."
(2) Gives effect to the Stock Split of the Company's Class A and Class B shares
into Series A Preferred Stock and Common Stock, and of its Class C stock
into Common Stock. See Note 13 of Notes to Financial Statements.
25
<PAGE>
DIVIDEND POLICY
The Company has not paid any cash dividends to its shareholders since
inception and does not anticipate paying any cash dividends in the foreseeable
future. Any determination in the future to pay dividends will depend on the
Company's financial condition, capital requirements, results of operations,
contractual limitations and any other factors deemed relevant by the Board of
Directors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
DILUTION
The net tangible book value of the Common Stock as of September 30, 1997 was
$2.3 million, or $.45 per share of Common Stock. "Net tangible book value" per
share represents the amount of the Company's Shareholders' equity, less
intangible assets, divided by the number of shares of Common Stock outstanding.
Dilution per share represents the difference between the amount per share paid
by purchasers of shares of Common Stock in the Offering made hereby and the pro
forma net tangible book value per share of Common Stock immediately after
completion of the Offering. After (i) giving effect to the sale of 1,500,000
shares of Common Stock the Company offers hereby (and assuming no exercise of
the Over-Allotment Option or the Representative's Warrants) at an assumed public
offering price of $10.00 per share (the midpoint of the estimated range of the
initial public offering price), (ii) deducting the underwriting discount,
non-accountable expense allowance, and consulting fee and estimated offering
expenses payable by the Company, the pro forma net tangible book value of the
Company as of September 30, 1997 would have been $15.3 million, or $2.35 per
share. This represents an immediate increase in pro forma net tangible book
value to the Existing Shareholders of $1.90 and an immediate dilution of $7.65
to new public investors purchasing Common Stock in the Offering, as illustrated
in the following table:
<TABLE>
<S> <C>
Assumed offering price per share.................................... $ 10.00
Net tangible book value per share at September 30, 1997........... .45
Increase in net tangible book value per share attributable to new
public investors................................................ 1.90
---------
Pro forma net tangible book value per share after the Offering...... 2.35
---------
Dilution per share to new public investors.......................... $ 7.65
---------
---------
</TABLE>
The following table sets forth on a pro forma basis giving effect to the
Offering as of September 30, 1997 the difference between Existing Shareholders
and the purchasers of shares in the Offering with respect to the number of
shares purchased from the Company, the total consideration paid and the average
price paid per share at an assumed public offering price of $10 per share (the
midpoint of the estimated range of the initial public offering price):
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
----------------------- -------------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders.................... 5,000,000(1) 77%(1) $ 250,000(2) 2%(2) $ .05
New public investors..................... 1,500,000(3) 23% $ 15,000,000 98% $ 10.00
---------- --- ------------- ---
Total.................................. 6,500,000 100% $ 15,250,000 100%
---------- --- -------------
---------- --- -------------
</TABLE>
- ------------------------
(1) Excludes the effect of 415,000 shares of Common Stock subject to options to
be granted upon commencement of the Offering at the Offering Price and the
additional options that will be granted in the future.
(2) No portion of the initial purchase price is allocated to the 1,000
outstanding shares of Series A Preferred Stock.
(3) Assumes no exercise of the Underwriters' Over-Allotment Option or the
Representative's Warrants.
26
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain selected financial information for
the Company for (i) the fiscal years ended March 31, 1995, 1996 and 1997, which
have been derived from the Company's audited financial statements and notes
thereto included elsewhere in this Prospectus, (ii) the fiscal year ended March
31, 1994, which has been derived from unaudited financial statements of the
Company which are not included herein, and (iii) the six months ended September
30, 1996 and 1997, which have been derived from unaudited financial statements
which are included herein. The information presented as "Other Operating Data"
and for EBITDA is not audited. In the opinion of management, the unaudited
financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, which consist only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for these periods. The following
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's financial statements and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31 SEPTEMBER 30
------------------------------------------ --------------------
1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND OTHER OPERATING
DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Retail.......................................... $ 848 $ 6,291 $ 13,228 $ 20,523 $ 9,546 $ 12,239
Wholesale....................................... -- -- -- 315 -- 975
--------- --------- --------- --------- --------- ---------
Total revenues.............................. $ 848 $ 6,291 $ 13,228 $ 20,838 $ 9,546 $ 13,214
Gross profit...................................... $ 344 $ 2,544 $ 5,553 $ 8,643 $ 3,968 $ 4,445
Operating income (loss)........................... $ (814) $ 159 $ 1,369 $ 2,004 $ 890 $ 788
Net income (loss)................................. $ (813) $ 382 $ 790 $ 1,253 $ 547 $ 493
Net income (loss) per share (1)................... $ (.18) $ .08 $ .16 $ .25 $ .11 $ .10
Weighted average shares outstanding (1)........... 4,615 4,869 5,000 5,000 5,000 5,000
OTHER OPERATING DATA (AT END OF PERIOD):
Retail customers(3)............................... 833 4,456 9,791 15,729 12,406 24,236
Wholesale customers (4)........................... -- -- -- 1 -- 3
Number of employees............................... 9 10 12 17 17 19
OTHER FINANCIAL DATA:
EBITDA (2)........................................ $ (771) $ 231 $ ,463 $ 2,140 $ 945 $ 885
Net cash provided by (used in) operating
activities...................................... $ (497) $ 229 $ 672 $ 858 $ 406 $ 212
Net cash (used in) investing activities........... $ (338) $ (173) $ (222) $ (439) $ (246) $ (342)
Net cash (used in) provided by financing
activities...................................... $ 995 $ (40) $ (150) $ (155) $ (130) $ (259)
Capital expenditures.............................. $ 330 $ 143 $ 93 $ 352 $ 164 $ 199
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
AS OF MARCH 31 ---------------------------
------------------------------------------ AS ADJUSTED
1994 1995 1996 1997 ACTUAL (5)
--------- --------- --------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Total current assets.................................... $ 381 $ 1,273 $ 2,363 $ 4,578 $ 5,014 $ 18,014
Working capital (deficiency)............................ (129) 150 811 1,658 1,423 14,423
Total assets............................................ 683 1,720 2,797 5,243 6,012 19,012
Total current liabilities............................... 510 1,122 1,552 2,920 3,591 3,591
Long term debt, less current portion.................... 729 730 580 425 -- --
Total shareholders' equity (capital deficiency)......... (563) (162) 609 1,861 2,355 15,355
</TABLE>
- ------------------------
(1) Net income (loss) per common share is computed based on the weighted average
number of common shares outstanding during each period, and gives
retroactive effect to the Stock Split. See Note 13 of Notes to Financial
Statements.
(2) EBITDA represents net income (loss) plus net interest expense (income),
income taxes, depreciation and amortization. While EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be construed as a substitute for net income (loss)
as a measure of performance, or cash flow as a measure of liquidity, it is
included herein because it is a measure commonly used by securities
analysts.
(3) Consists of active Company subscribers that were billed in the final month
of the respective periods.
(4) Wholesale customers that had active accounts with the Company in the
respective periods.
(5) As adjusted to give effect to the Offering. See "Use of Proceeds" contained
elsewhere in this Prospectus.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE RELATED NOTES AND OTHER INFORMATION REGARDING THE COMPANY
INCLUDED ELSEWHERE IN THE PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED RESULTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING, BUT NOT LIMITED TO THE "RISK FACTORS" DISCUSSED ELSEWHERE IN
THE PROSPECTUS.
OVERVIEW
The Company is a provider of international telecommunications services. The
Company offers a broad range of discounted international and enhanced
telecommunication services, including U.S. originated long distance service and
direct-dial international service, typically to small and medium sized
businesses and travelers. The Company's primary service provided is call
reorigination, which accounted for approximately 80% of its revenues for the six
month ended September 30, 1997. The Company also sells services to other
carriers on a wholesale basis. The Company's retail customer base, which
includes corporations and individuals, is primarily located in South Africa,
Latin America, the Middle East (Lebanon and Egypt), Russia and France. The
Company operates a switched-based digital telecommunications network. The
Company installed its first switch in Sunrise, Florida, which became fully
operational in October 1993. Revenues were first earned in November 1993. The
Company has acquired an additional switch, which it intends to install in Paris,
France in the quarter ending March 31, 1998. From November 1993 until the
current time, the Company has derived its growth by marketing its services
through a worldwide network of independent agents which service in the aggregate
approximately 26,000 registered Company subscribers as of November 30, 1997.
Minutes of use of the Company's services has increased from 552,374 in the
fiscal year ended March 31, 1994 to 19,346,832 in the eight months ended
November 30, 1997. The Company has generated a positive EBITDA (see definition
of EBITDA in "Selected Financial Data") for its first full year of operations
(March 31, 1995) and for every period since then.
The Company's Management believes that the funds raised by the Offering will
allow the Company to expand its customer base and the number of markets it
penetrates by:
a) Using $5 million of the proceeds as the equity component of the
purchase price for strategic acquisitions, and using debt as the other
component of payment. The Company projects that such leveraged structured
acquisitions could add substantial additional annual revenues to its
business. As telecommunications services move from a monopoly structure to a
deregulated industry inviting new competitors to exploit market
opportunities, the cost of growth increases due to competitive pressures,
and the window of opportunity to gain market share narrows accordingly. Such
a trend creates a strong motivation to gain market share rapidly in
selective markets through timely acquisitions.
b) Acquiring equity interests in the Company's exclusive agencies in
selected markets to further cement the contractual relationships with these
agencies, and to finance the expansion of the Company's business in the
markets that may offer favorable opportunities and returns.
c) Deploying new technologies such as Internet Protocol (IP) Telephony,
thereby creating the opportunity to bypass today's switched telephone
network by using cost-effective packet switched networks and/or the public
Internet for the delivery of fax and some voice communications. The Company
intends to deploy a number of Fax Servers into selected countries to exploit
the opportunities provided by IP Telephony technology, particularly in its
application to fax transmission. This strategy will not only allow for a
more aggressive market penetration in selected markets, particularly in
regulated markets, but may also allow the Company to reduce its transmission
costs.
29
<PAGE>
d) Purchasing under leveraged financing arrangements telecommunications
equipment including switches, in order to allow the Company to expand its
U.S. wholesale business and also expand its direct access Network,
particularly where demand by existing customers warrants the capital
investment required to migrate such customers from a call reorigination to a
direct access method.
There can be no assurance that the Company will be able to achieve these
goals. See "Risk Factors."
REVENUE
The geographic origin of the Company's revenues is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER
YEAR ENDED MARCH 31, 30,
------------------------------------------ ---------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
------------ ------------- ------------- ------------ -------------
Africa.............................. $ 369,087 $ 1,403,094 $ 3,899,701 $ 1,492,006 $ 3,989,068
Europe.............................. 316,903 1,988,030 4,252,104 2,233,553 2,043,914
Latin America....................... 4,387,351 6,337,284 7,265,473 3,447,061 3,465,699
Middle East......................... 413,796 2,101,864 3,741,890 1,749,399 2,094,143
Other............................... 803,375 1,397,802 1,363,852 624,146 983,212
United States....................... -- -- 315,407 -- 638,415
------------ ------------- ------------- ------------ -------------
$ 6,290,512 $ 13,228,074 $ 20,838,427 $ 9,546,165 $ 13,214,451
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
</TABLE>
The Company's subscriber base has grown as follows:
<TABLE>
<CAPTION>
AS OF: NUMBER OF SUBSCRIBERS
- ------------------------------------------------------------------------------------------- ---------------------
<S> <C>
September 30, 1997......................................................................... 24,236
March 31, 1997............................................................................. 15,729
March 31, 1996............................................................................. 9,791
March 31, 1995............................................................................. 4,456
</TABLE>
The number of the Company's independent agents has varied as follows:
<TABLE>
<CAPTION>
AS OF: NUMBER OF INDEPENDENT AGENCY AGREEMENTS
- ------------------------------------------------------------------------- ---------------------------------------------
<S> <C>
September 30, 1997....................................................... 17
March 31, 1997........................................................... 17
March 31, 1996........................................................... 15
March 31, 1995........................................................... 11
</TABLE>
The percentage of retail (minutes sold to retail end users) and wholesale
(minutes sold to other telecommunication carriers) revenues has been as follows:
<TABLE>
<CAPTION>
PERIOD ENDED RETAIL % WHOLESALE %
- ------------------------------------------------------------------------------------------ ----------- ---------------
<S> <C> <C>
Six Months Ended September 30, 1997....................................................... 92.6% 7.4%
Year Ended March 31 1997.................................................................. 98.5% 1.5%
Year Ended March 31, 1996................................................................. 100% --
Year Ended March 31, 1995................................................................. 100% --
</TABLE>
The Company expects that wholesale revenues will increase in the near term,
and may become a more significant portion of the Company's total revenue. The
Company generates its retail revenues primarily through its independent agents.
No single Company subscriber represents 1% or more of the Company's revenue.
Agency agreements generally are exclusive and typically have an initial term of
five years with two additional three-year option periods. The four largest
independent agents account for approximately 66% of the Company's revenue for
the six months ended September 30, 1997, and any material disruption in or
30
<PAGE>
termination of these agreements could have a material adverse effect on the
Company's operations. See "Risk Factors--Dependence on Independent Exclusive
Agents" and Note 10 to the financial statements, "Significant Customers."
The Company believes its retail services are competitively priced below
those of the ITOs in each country in which the Company offers its services.
Prices for telecommunications services in many of the Company's core markets
have declined as a result of deregulation and increased competition. The Company
believes that worldwide deregulation and increased competition are likely to
continue to reduce the Company's retail revenues per billable minute. The
Company believes, however, that any decrease in retail revenues per minute will
be at least partially offset by an increase in billable minutes by the Company's
customers, and by a decreased cost per billable minute as a result of the
deployment of direct access facilities, the application of Internet protocol (
IP ) telephony particularly for fax transmissions, the Company's ability to
exploit purchasing discounts based on increased traffic volumes, while
optimizing the Company's available least cost routing choices in additional
markets. The Company will, nonetheless, continue to use call reorigination
services in markets that do not justify the capital commitments associated with
establishing switching facilities, or which are subject to adverse regulatory
impediments to direct access or other alternative services.
COST OF GOOD SOLD AND GROSS MARGIN
The most significant portion of the Company's cost of telecommunications
services are transmission and termination costs, which vary based on the number
of minutes used. The Company purchases the switched minutes from other carriers.
The Company historically purchased a portion of the minutes subject to fixed
volume commitments (see notes to the financial statements) and other contractual
arrangements. The carriers have recently reserved the right to terminate these
agreements upon short notice. (See "Risk Factors"--"Dependence on Availability
of Transmission Facilities" and "Dependence on Arrangements with Carriers.") The
Company has historically been able to arrange favorable volume purchase
arrangements based upon its high usage and its excellent credit history, and
these arrangements continue under the newer terminable agreements.
During the last year, the Company's segment of the international
telecommunications industry has experienced a general tightening of gross
margins, due to declining retail and wholesale prices. The Company's own gross
margin results, particularly in the six months ended September 30, 1997, have
reflected this trend, which has ultimately brought the Company's past gross
margin results more in line with industry wide standards. Factors impacting the
Company's lower gross margin as compared to earlier periods include declining
retail prices, the start of the wholesale business with lower profit margins
(averaging approximately 5% to 10%), and increased incremental costs associated
with the Company's call reorigination customers. The reduction in retail prices
reflects competition from deregulation as well as the Company's strategic
decision to gain market share and increase revenue by more competitive pricing.
By increasing total minutes purchased not only through an aggressive retail
expansion, but also through wholesale business, the Company expects to reduce
the rates it pays for switched minutes through volume discounts and other
mechanisms. However, the benefits of such cost reductions are slower to mature
than the revenue reductions from price discounting. The Company expects that
deregulation and increasing competition will continue to reduce revenues per
minute thereby reducing profit margins, particularly for the Company's call
reorigination business, which results in high variable costs, including
non-billable access costs. The Company's strategic response focuses on reduction
of its cost of providing telecommunication services by deploying the proceeds of
this Offering to expand its business, migrate its customer business from call
reorigination to a direct access call method when this is feasible, and
deploying IP telephony servers in strategic markets.
The Company's costs of providing telecommunications services to customers
consist largely of: a) variable costs associated with the origination,
transmission and termination of voice and data telecommunications services over
other carriers' facilities, and b) costs associated with owning or leasing and
31
<PAGE>
maintaining switching facilities and circuits. Currently, the variable portion
of the Company's cost of revenue predominate, based on the large proportion of
call reorigination customers and the number of minutes of use transmitted and
terminated over other carrier's facilities. Thus, the Company's existing gross
profitability primarily reflects the difference between revenues and the cost of
transmission and termination over other carrier's facilities. Therefore, the
Company seeks to lower the variable portion of its cost of services by
eventually originating, transporting and terminating a higher portion of its
traffic over its own Network or via media such as the Internet and private data
networks, and by increasing its purchasing power and volume discounts through
the increase of the number of minutes it purchases for other carriers.
The Company realizes higher gross margins from its retail services than from
its growing wholesale services. However, wholesale services provide a source of
additional revenue and add significant minutes originating and terminating on
the Company's Network, thus enhancing the Company's purchasing power for
switched minutes and enabling it to take advantage of volume discounts which
should eventually translate into enhanced profits for the Company.
The Company seeks to reduce its cost of revenues by: a) expanding and
upgrading the Ursus Network, by adding to the Network more owned and leased
facilities, and by increasing the traffic volume carried by these facilities, so
that the percentage of the Company's revenues based on variable costs, including
higher access costs from call reorigination, will decline as revenues based on a
fixed cost structure increase, thereby allowing the Company to spread the fixed
costs over increasing traffic volumes; b) negotiating lower cost of transmission
over the facilities owned and operated by other carriers, principally through
increased purchasing volumes; and c) expanding the Company's least cost routing
choices and capabilities.
The Company's overall gross margins may, however, fluctuate in the future
based on its mix of wholesale and retail international long distance services
and the percentage of calls using direct access and/ or call-through as compared
to call reorigination. Gross margins may also change to reflect any significant
international long distance rate reductions imposed by ITOs to counter external
competitive threats.
OPERATING EXPENSES
Operating expenses include: 1) commissions, 2) selling expenses, 3) general
and administrative expenses, and 4) depreciation and amortization expenses.
The Company pays commission expense to its network of independent agents
pursuant to long term agency agreements. The Company's decision to use
independent agents has been primarily driven by the low initial fixed costs
associated with this distribution channel, and the agents' familiarity with
local business and marketing practices. The percentage of retail revenue paid
for commissions has been as follows:
<TABLE>
<S> <C>
Six Months Ended September 30, 1997................................................. 17.4%
Six Months Ended September 30, 1996................................................. 18.7%
Year Ended March 31, 1997........................................................... 18.4%
Year Ended March 31, 1996........................................................... 18.4%
Year Ended March 31, 1995........................................................... 19.5%
</TABLE>
Because the Company's contracts with its agents generally are long term in
nature, the Company expects these costs to remain stable as a percentage of
revenue. The Company has not paid commissions to generate wholesale sales. It is
possible that this will occur in future periods. The aggregate sales commissions
paid by the Company have increased over the past three years as its business has
expanded. The Company anticipates that in the future revenues from direct access
(which carries lower commission rates) and especially wholesale services (which
involves minimal or no commissions) will increase relative to its existing
services, and that therefore commissions will decline as a percentage of
revenues.
32
<PAGE>
Selling expenses (exclusive of commissions) consist of the selling and
marketing costs, including salaries and benefits, associated with attracting new
independent agents and servicing the agents. The Company performs standard due
diligence prior to signing agency agreements and then expends significant time
training the agents in the Company's practices and procedures.
The Company's general and administrative expenses consist of salaries and
benefits and corporate overhead. Included in salaries through September 30, 1997
is a bonus paid to two officers of the Company representing 20% of the Company's
pretax profits computed without regard to the bonus. (See Note to Financial
Statements--Note 9.--Commitments) These arrangements have been terminated and
replaced with new employment agreements. See "Management--Employment
Agreements." Bad debt expense has never exceeded 0.4% of total retail revenue.
In addition, the cost of collecting accounts receivable is also minimal. The
Company has achieved these results because of its ability to attract, train and
retain high quality independent agents and because the independent agents
contractually assume the risk of credit loss and the cost of collection on the
underlying sales. The Company's financial results may reflect higher levels of
bad debt losses as its wholesale and other lines of business expand and as it
makes investments in the equity of its independent agencies. The Company expects
that general and administrative expenses may increase as a percentage of
revenues in the near term as the Company incurs additional costs associated with
its development and expansion, the expansion of its marketing and sales
organization, and the introduction of new telecommunications services. See
"--Risk Factors--Dependence on Independent Exclusive Agents" and "--Risk
Factors--Credit Risk."
In addition to the Company's efforts to reduce its cost of goods sold by
migrating customers to direct access by deploying IP telephony technology, and
by maximizing volume discounts; the Company also actively manages and seeks to
reduce its selling, general and administrative expenses. As part of this focus,
the Company uses its network of exclusive independent agencies to bear much of
the marketing expenses that its competitors may have to bear directly.
Furthermore, the Company's strategy of using its competitor's infrastructure to
carry its telecommunications traffic also reflects this approach, and keeps the
Company's fixed costs controllable. Even more importantly, the Company
aggressively manages its back office systems, by developing and implementing
efficient computerized systems in order to maximize selling, general and
administrative expenses ("SG&A") efficiency (e.g., Revenue and EBITDA per Dollar
of SG&A) and maximize the Company's existing productivity per employee.
Depreciation and amortization expense consists primarily of the expenses
associated with the Company's investments in equipment, and will continue to
increase substantially as the Company installs additional switches and other
fixed facilities. The Company expects these increased costs will be amortized
over an increased revenue base, resulting in stable percentage costs.
Since telecommunications capacity is generally readily available to service
international long distance routes, the Company carefully evaluates whether
investing in its own facilities will increase the profit potential of a given
market. The Company's ongoing strategy has been to carefully evaluate any
network expansion through the acquisition and deployment of switches or other
equipment to avoid having to cover these substantial investments in advance of a
proven marketing plan or in the absence of an existing customer base. This
concept can generally be monitored and illustrated in each market by examining
the relationship between EBITDA and property, plant and equipment, which
reflects the cash flow being generated by the Company's infrastructure
investments.
Other income (expense) consists primarily of interest expense on long term
debt and interest income earned in connection with advances to officers and
consultants and short-term investments.
33
<PAGE>
Summary of Operating Results (Stated As A Percentage of Revenues)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER 30,
YEAR ENDED MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
Revenue................................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................................................... 59.6 58.0 58.5 58.4 66.4
Gross profit........................................................... 40.4 42.0 41.5 41.6 33.6
Operating expenses:
Commission........................................................... 19.5 18.4 18.1 18.5 17.4
Selling, general and administrative (exclusive of bonuses paid to
officers).......................................................... 16.9 10.0 10.8 11.3 9.4
Bonuses paid to officers............................................. 0.4 2.5 2.4 1.9 1.5
Depreciation and amortization........................................ 1.1 0.7 0.6 0.6 0.7
Total operating expenses............................................... 37.9 31.6 31.9 32.3 27.7
Operating income....................................................... 2.5 10.3 9.6 9.3 6.0
Other expense.......................................................... 1.0 0.4 0.1 0.2 --
Income before income taxes............................................. 1.6 9.9 9.6 9.1 6.0
Income tax expense (benefit)........................................... (4.5) 4.0 3.5 3.4 2.3
Net income............................................................. 6.1 6.0 6.0 5.7 3.7
</TABLE>
YEAR ENDED MARCH 31, 1997 COMPARED TO MARCH 31, 1996
REVENUES. Revenues increased $7.6 million (57.6%), from $13.2 to $20.8
million. The increase in revenues was primarily derived from an increase in
billed customer minutes from retail sales, principally in the international call
reorigination business. This increase reflects the Company's increased market
penetration, especially in the South African, Russian and Middle Eastern
markets. The total number of independent agents increased from 15 to 17. In
addition, the Company earned wholesale revenues of $0.3 million in 1997 with no
corresponding amount in 1996.
COST OF REVENUES. Cost of revenues increased $4.5 million (58.9%) from $7.7
million in 1996 to $12.2 million in 1997, principally reflecting the increased
amount of traffic being handled by the Company. The slight (0.5%) increase in
cost of revenues as a percentage of revenues reflects almost exclusively the
Company's wholesale revenues in the period (with a lower profit margin than
retail revenues) of $0.3 million, with no corresponding amount in the prior
period.
GROSS PROFIT. Gross profit increased $3.1 million (55.6%) from $5.5 million
in 1996 to $8.6 million in 1997 reflecting the increase in number of minutes
billed. As a percentage of revenue gross profit was 42.0% in 1996 and 41.5% in
1997.
OPERATING EXPENSES. Operating expenses increased $2.4 million (58.7%) from
$4.2 million to $6.6 million. This increase was due to an increase in commission
costs of $1.3 million attributable to the increased sales volume generated by
the Company's independent agents. Bonuses paid to officers pursuant to their
employment agreements, additional consulting and travel expenses related to
maintaining and improving agency relations, additional legal and professional
fees and travel expenses related to the attempt by the Company to secure
expansion financing and negotiate strategic alliances resulted in increased
costs of $0.5 million. In addition the Company increased staffing levels from 12
to 17 and secured additional office facilities at its headquarters in Sunrise,
Florida resulting in increased costs of $0.2 million. The growth in other
categories of operating expenses of $0.4 million was related primarily to the
Company's increased level of activity.
34
<PAGE>
Depreciation and amortization expense increased approximately $30,000 as a
result of switch upgrades, the purchase of additional computer equipment and
software, and leasehold improvements incurred in connection with the office
expansion.
As a percentage of revenue, operating expenses increased slightly to 31.9%
in 1997 from 31.6% in 1996, as the additional revenue offset the additional
costs and expenses.
OPERATING INCOME. Operating income increased by $0.6 million (46.4%) from
$1.4 million in 1996 to $2.0 million in 1997. As a percentage of revenue,
operating income decreased by 0.7% to 9.6% in 1997 from 10.3% in 1996, primarily
reflecting a 0.5% reduction created by the impact of the commencement of the
lower margin wholesale business in 1997.
INTEREST EXPENSE. Interest expense decreased to approximately $40,000 from
approximately $60,000, reflecting reductions in long-term debt.
NET INCOME. As a result of these factors, and principally reflecting the
growth in the Company's minutes billed to customers, net income increased to
$1.3 million from $0.8 million in 1996.
YEAR ENDED MARCH 31, 1996 COMPARED TO MARCH 31, 1995
REVENUES. Revenues increased $6.9 million (110.3%) from $6.3 million in
1995 to $13.2 million in 1996, primarily from an increase in billed customer
minutes from international call reorigination. The Company also opened new
markets by entering into four new independent agency agreements in the period,
and also increased its market penetration within existing markets.
COST OF REVENUES. Cost of revenues increased $4.0 million from $3.7 million
in 1995 to $7.7 million in 1996, primarily as a result of the increase in
traffic volume. Cost of revenues as a percentage of revenues decreased from
59.6% to 58.0%, reflecting the negotiation of volume discounts and other
favorable carrier agreements.
GROSS PROFITS. Gross profits increased $3.0 million (118.3%) from $2.5
million in 1995 to $5.6 million in 1996. As a percentage of revenue, gross
profit increased to 42.0% in 1996 from 40.4% in 1995 due to favorable
negotiations of the cost of switched minutes provided by carriers.
OPERATING EXPENSES. Operating expenses increased $1.8 million (75.4%) from
$2.4 million in 1995 to $4.2 million in 1996. As a percentage of revenues,
overall operating expenses decreased from 37.9% in 1995 to 31.6% in 1996,
primarily because increased selling, general and administrative expenses were
more than offset by increased revenues in the period, and the Company's overhead
expenses were absorbed by a larger base of revenues. Commissions increased by
$1.2 million from 1995 to 1996 as a direct result of increased revenues.
Commissions as a percentage of revenue decreased from 19.5% in 1995 to 18.4% in
1996, primarily because of commission adjustments with the agents. Officers'
salaries and bonuses increased $0.2 million from $0.4 million in 1995 to $0.7
million in 1996 primarily as a result of the provisions, in effect until
December 31, 1997, contained in the officers' contracts that provided for bonus
payments as a fraction of the Company's income before taxes. These agreements
have been terminated and replaced by new contracts with these officers effective
January 1, 1998. See "Management-Employment Agreements." Other expenses
increased $0.3 million, primarily as a result of increases in employment and
payments under a consulting agreement.
Depreciation and amortization expense increased approximately $20,000 from
approximately $70,000 in 1995 to approximately $90,000 in 1996, primarily due to
capital expenditures for switch equipment and computer equipment.
INTEREST EXPENSE. Interest expense was approximately $60,000 in 1995 and
1996. Average long term debt outstanding, and the interest rate charged during
the two periods did not change significantly.
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OPERATING INCOME. Operating income increased by $1.2 million, from $0.2
million in 1995 to $1.4 million in 1996, as a result of increased sales and the
resultant increased gross profit. In addition the Company's operating expenses
declined from 37.9% to 31.6% of total revenues from 1995 to 1996 as a result of
a decrease in the commission pay-out to agents and a decrease in SG&A of 6.5% in
relation to total revenues.
NET INCOME. Net income increased $0.4 million (107%) from $0.4 million in
1995 to $0.8 million in 1996 as a result of 1) increased levels of operating
income and 2) the Company eliminated its deferred tax asset valuation allowance
in 1995 resulting in an increased income in 1995 of $0.3 million. Had this tax
benefit not been realized in 1995 net income in 1996 would have increased by
$0.7 million over 1995 amounts.
SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1996
REVENUES. Revenues increased $3.7 million (38.4%) from $9.5 million to
$13.2 million. The increase in revenues reflects increased billed retail
customer minutes, particularly in the South African and Middle Eastern markets.
In addition, the Company earned $1.0 million of wholesale revenue in the current
period, with no comparable prior period revenues.
COST OF REVENUES. Cost of revenues increased by $3.2 million (57.2%) from
$5.6 million in 1996 to $8.8 million in 1997. The increase in cost of revenues
primarily reflects an increase in sales volume based on number of minutes sold.
Costs of revenues as a percentage of sales increased from 58.4% to 66.4%,
because selling prices per minute decreased faster than costs per minute. This
increase in the Company's costs as a percentage of revenues primarily reflects
declining retail prices, the growth of the less profitable wholesale business,
and increasing incremental non-billable access costs associated with the
Company's call reorigination business. As discussed in "Costs of Goods Sold and
Gross Margin," above, retail price reductions tend to reduce gross revenues
before the benefits of the negotiated volume-based rate reductions by carriers
can be realized. The Company's margins in the first half of 1997 reflected this
trend.
GROSS PROFITS. Gross profit increased $0.4 million (12.0%) from $4 million
in 1996 to $4.4 million in 1997. As a percentage of revenue gross profit was
41.6% in 1996 and 33.6% in 1997. Gross profit margin decreased because of 1)
sales price per minute decreased faster than cost price per minute and 2) the
Company began its wholesale carrier business which operates on much lower gross
profit margins. The reduction in prices reflects price competition from
deregulation as well as the Company's strategic decision to gain market share
and increase revenue by more competitive pricing. By increasing total minutes
purchased not only through this aggressive retail expansion, but also through
the expansion of its wholesale business, the Company eventually expects to
reduce the rates it pays for switched minutes through volume discounts and other
mechanisms. However, the benefits of such cost reductions are slower to mature
than the immediate revenue reductions from price discounting.
OPERATING EXPENSES. Operating expenses increased $0.6 million from $3.1
million in 1996 to $3.7 million in 1997. The increase was due to an increase in
commission expense of $0.4 million (reflecting increased gross revenues in spite
of a 1.1% decrease in the agents' total commission pay-out percentage) and
increases in salaries and wages of $0.2 million. Operating expenses as a
percentage of revenues decreased by 4.5%, primarily because additional selling,
general and administrative expenses were more than offset by increased revenues
in the period, and the Company's overhead expenses were absorbed by a larger
base of revenues.
Depreciation and amortization expense increased approximately $30,000 from
approximately $60,000 in 1996 to approximately $90,000 in 1997 as a result of
switch upgrades, the purchase of additional computer equipment and software, and
leasehold improvements.
INTEREST EXPENSE. Interest was approximately $20,000 in 1996 and $15,000 in
1997, reflecting a reduction in the Company's outstanding long-term debt.
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OPERATING INCOME. Operating income decreased $0.1 million from $0.9 million
in 1996 to $0.8 million in 1997 primarily as a result of decreased gross margin
rates due to the increase in cost of sales from 58.4% to 66.4% of revenues, this
despite the fact that SG&A as a percentage of revenues decreased by 1.9%. Other
operating expenses did not change significantly.
NET INCOME. As a result of all of the foregoing factors, and in particular
because of the Company's strategic decision to increase its gross revenues by
price reductions, the Company's net income remained unchanged at $0.5 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements consist of capital expenditures in
connection with the acquisition and maintenance of switching capacity and
working capital requirements. Historically, the Company's capital requirements
have been funded primarily by funds provided by operations, term loans funded or
guaranteed by its majority shareholder, and capital leases. The Company's
existing financing is a term loan from Citibank-Zurich, with a $70,000
outstanding balance. This loan is secured by deposits pledged by the Company's
majority stockholder. The note bears interest at a rate tied to the interest
paid on the pledged deposits (the average rate paid was 8.75%p.a. over the six
months ended September 30, 1997). The note matures on August 31, 1998; however,
the Company plans to repay this debt in full by March 1998 and does not intend
to draw additional funds under this facility. On January 21, 1998, the Company
agreed to buy a switch for $303,132. The purchase agreement provides for vendor
financing requiring a $60,000 down payment, six (6) monthly installments
beginning February 5, 1998 at 9.5% interest per annum and a final balloon
payment of $153,133 on August 25, 1998. Following the completion of this
Offering, the Company may seek to obtain a stand-by credit facility for working
capital needs, capital leasing requirements and/or other unanticipated financing
needs. See "Use of Proceeds" and "Certain Relationships and Related Party
Transactions."
Net cash provided by operating activities was $0.2 million in 1995, $0.7
million in 1996 and $0.9 million in 1997. The net cash provided by operating
activities in 1996 and 1997 mainly reflects net earnings offset by an increase
in accounts receivable relative to accounts payable to carriers. For the six
months ended September 30, 1997 compared to the same period at September 30,
1996, net cash provided by operating activities decreased by approximately $0.2
million reflecting net earnings being offset by an increase in accounts
receivable resulting primarily from longer payment cycles from the Company's
agents, relative to the Company's accounts payable to carriers. Increased
prepaid expenses for that period represented additional prepaid bonuses and
insurance payments, in addition to an income tax receivable which represented an
overestimation of actual tax payments.
Net cash used in investing activities was $0.2 million in 1995, $0.2 million
in 1996, and $0.4 million in 1997. The net cash used in investing activities in
1995, 1996, and 1997 principally reflects an increase in equipment purchases.
Net cash used in investing activities for the six months ended September 30,
1997 was $0.3 million principally reflecting an increase in equipment purchases
and a deposit towards the purchase of an equity stake in the South African
agency.
Net cash used in financing activities was approximately $40,000 in 1995,
$150,000 in 1996, and $155,000 in 1997. The activities consisted of debt
repayment, primarily to the Company's bank for long term financing obtained in
1993 and 1994. Net cash used in financing activities for the six months ended
September 30, 1997 was $258,635 reflecting debt repayment and deferred costs
related to the Company's planned Offering.
The Company expects that the net proceeds from the Offering, together with
internally generated funds will provide sufficient funds for the Company to
expand its business as planned and to fund anticipated growth for the next 18
months. However, the amount of the Company's future capital requirements will
depend upon many factors, including the performance of the Company's business,
the rate and manner in which it expands, staffing levels and customer growth, as
well as other factors that are
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not within the Company's control, including competitive conditions and
regulatory or other government actions. In the event that the Company's plans or
assumptions change or prove to be inaccurate or the net proceeds of the
Offering, together with internally generated funds or other financing, prove to
be insufficient to fund the Company's growth and operations, then some or all of
the Company's development and expansion plans could be delayed or abandoned, or
the Company may be required to seek additional funds earlier than anticipated.
Other future sources of capital for the Company could include public and private
debt and equity financing. There can be no assurance that any such sources of
financing would be available to the Company in the future or, if available, that
they could be obtained on terms acceptable to the Company.
FOREIGN CURRENCY
Under the terms of the Company's agreements with its independent agents, all
of the Company's transactions since inception have been settled in U.S. Dollars.
Accordingly, the effect, if any, from currency fluctuations is borne by the
Company's independent agents under their contracts. However, this contractual
provision may have an adverse impact on the relationship between the independent
agents and the Company, and the Company has on an appropriate occasion shared
some of these losses. In the year ended March 31, 1997, the Company issued a
$83,161 credit to assist its South African agency with such a loss. See "Risk
Factors--Foreign Exchange Rate Risks".
EFFECTS OF INFLATION
Inflation has not had a material effect on the Company's business operations
to date. However, there can be no assurance that inflation will not materially
adversely affect the Company's business or operations in the future,
particularly considering the Company's business in emerging markets which are
more susceptible to inflationary pressures.
SEASONAL FLUCTUATIONS
The Company has historically experienced, and expects to continue to
experience, a decrease in the use of its services in the months of August and
December due to the closing of many businesses for holiday in Europe and the
United States during those months.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer program
that has time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a systems failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. However, all of the Company's material
computer systems and software are year 2000 compliant, and therefore the effect
of the Year 2000 Issue on the Company's operations should be minimal. The
Company is seeking to determine whether any effect of the Year 2000 Issue on its
vendors or suppliers may affect the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During fiscal 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets." SFAS 121 requires impairment losses to be recorded on
long-lived assets when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company, based on current circumstances, does not believe
that any long-lived assets are impaired at September 30, 1997.
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In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" which revises the calculation and presentation
provisions of Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the Company's fiscal year
ending March 31, 1998. Retroactive application will be required. The Company
believes the adoption of Statement No. 128 will not have a significant effect on
its reported earnings per share.
In June 1997, the FASB issued Statement No. 130, "Comprehensive Income:
Financial Statement Presentation" which requires that all items that are
required to be recognized under the accounting standards as components of
comprehensive income be reported in a financial statement that is displayed as
prominently as other financial statements. Statement No.130 is effective for the
Company's fiscal year ending March 31, 1999. The adoption of Statement No. 130
is not expected to materially affect the Company's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments
of an Enterprise and Related Information" which requires a company to disclose
segment profit or loss and segment assets. Statement No. 131 is effective for
the Company's fiscal year ending March 31, 1999. The adoption of Statement No.
131 will require the Company to upgrade its accounting systems in order to
accumulate segment information.
CERTAIN OTHER ACCOUNTING PRONOUNCEMENTS
SFAS NO. 123
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans. Those plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. Examples are
stock purchase plans, stock options, restricted stock awards, and stock
appreciation rights. This statement also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. Those transactions must be accounted for, or at least disclosed
in the case of stock options, based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable. The accounting requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995, or
for an earlier fiscal year for which SFAS No. 123 is initially adopted for
recognizing compensation cost. The statement permits a company to choose either
a new fair value-based method or the current Accounting Principles Board ("APB")
Opinion 25 intrinsic value-based method of accounting for its stock-based
compensation arrangements. The statement requires pro forma disclosures of net
earnings and earnings per share computed as if the fair value-based method had
been applied in financial statements of companies that continue to follow
current practice in accounting for such arrangements under APB Opinion 25. The
Company will apply APB Opinion 25 and related interpretations in accounting for
its employee stock-based transactions and will comply with the disclosure
requirements of SFAS No. 123.
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THE INTERNATIONAL TELECOMMUNICATIONS INDUSTRY
THE MARKET AND TRENDS
The international telecommunications industry provides voice and data
transmission from one national telephone network to another. The industry has
experienced dramatic changes during the past decade that have resulted in
significant growth in the use of services and in enhancements to technology. The
industry is expecting similar growth in revenue and traffic volume in the
foreseeable future. According to the International Telecommunications Union
("ITU"), the international telecommunications industry accounted for $61.3
billion in revenues and 70 billion minutes of use in 1996, increasing from $23.9
billion in revenues and 19.1 billion minutes of use in 1987, which represents
compound annual growth rates of 11% and 15.5%, respectively. The ITU projects
that revenues will approach $82.2 billion by the year 2000 with the volume of
traffic expanding to 114 billion minutes of use, representing compound annual
growth rates of 7.6% and 13%, respectively, from 1996. The market for
telecommunications services is highly concentrated, with Europe and the United
States accounting for approximately 41.4% and 32.3%, respectively, of the
industry's worldwide international minutes of use in 1996, while Asia
represented 17%, Latin America 5.1% and Africa 1.9%. AT&T, Deutsche Telecom,
MCI, France Telecom and BT originated approximately 37.4% of the aggregate
international long distance traffic minutes in 1996.
The industry is being shaped by the following trends: (a) deregulation and
privatization of telecommunications markets worldwide; (b) diversification of
services through technological innovation; (c) globalization of major carriers
though market expansion, consolidation and strategic alliances; (d) greater
consumer demand; (e) increases in international business travel; (e)
privatization of ITOs; (f) growth of computerized transmission of voice and data
information; and (g) the introduction of (IP) Internet based telephony. These
trends have sharply increased the use of, and reliance upon, telecommunications
services throughout the world. The Company believes that despite these trends, a
high percentage of the world's businesses and residential consumers continue to
be subject to high prices with poor quality of service which have been
characteristic of many ITOs. Demand for improved service and lower prices have
spurred deregulation and created opportunities for private industry to compete
in previously closed or restricted sectors of the international market.
Increased competition, in turn, has spurred a broadening of products and
services, and new technologies have contributed to improved quality and
increased transmission capacity and speed.
Significant legislation and agreements that have been adopted since the
beginning of 1996 that are expected to lead to the liberalization of the
majority of the world's telecommunication markets, include:
- THE U.S. TELECOMMUNICATIONS ACT, signed in February 1996, establishes
parameters for the implementation of full competition in the U.S. national
long distance market.
- THE EU FULL COMPETITION DIRECTIVE, adopted in March 1996, abolishes
exclusive rights for the provision of Voice Telephony services throughout
the EU and the PSTNs of any member country of the EU by January 1, 1998,
subject to extension by an EU member country.
- THE WORLD TRADE ORGANIZATION AGREEMENT, signed in February 1997 (the "WTO
Agreement"), creates a framework under which 69 countries including the
United States have committed to liberalize their telecommunications laws
in order to permit increased competition and, in most cases, foreign
ownership in their telecommunications markets, beginning in 1998. The WTO
Agreement could provide the Company with significant opportunities to
compete in markets that were not previously accessible. In some countries,
for example, the Company would be allowed under the agreement to own
facilities or to interconnect to the public switched network on reasonable
and non-discriminatory terms. There can be no assurance, however, that the
pro-competitive effects of the WTO Agreement will not have a material
adverse effect on the Company's business, financial condition and results
of operations or that members of the WTO will implement the terms of the
WTO Agreement.
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By eroding the traditional monopolies held by ITOs, many of which are wholly
or partially government owned, deregulation is providing the U.S.-based
providers opportunities to negotiate more favorable agreements with both the
traditional ITOs and alternative emerging foreign providers. In addition,
deregulation in certain foreign countries is enabling U.S.-based providers to
establish local switching and transmission facilities in order to terminate
their own traffic and begin to carry international long distance traffic
originated in those countries.
In order to be successful in the changing telecommunications market, small-
and medium-sized carriers (including the Company) must offer their customers a
full range of services. However, most carriers do not have the critical mass of
customers to receive large volume discounts on international traffic from the
larger facilities-based carriers such at AT&T, MCI World Com and Sprint. In
addition, small- and medium-sized carriers have only a limited ability to invest
in international facilities. Alternative international carriers such as the
Company are capitalizing on this demand for less expensive international
transmission facilities by taking advantage of larger traffic volumes to obtain
volume discounts on international routes (resale traffic) and/or potentially
invest in facilities when volume on particular routes justify such investments.
ACCESS TO CARRIER SERVICES.
International switched long distance services are provided through switching
and transmission facilities that automatically route calls to circuits based
upon a predetermined set of routing criteria. In the U.S., an international long
distance call typically originates on a LEC's network and is switched to a
caller's domestic long distance carrier. The domestic long distance provider
then carries the call to its own or another carrier's international gateway
switch. From there it is carried to a corresponding gateway switch operated in
the country of destination by the ITO of that country and then is routed to the
party being called though that country's domestic telephone network.
International long distance providers can generally be categorized by the
extent, if any, of their ownership and use of their own switches and
transmission facilities. The largest U.S. carriers, AT&T, Sprint, and MCI
WorldCom, primarily utilize owned transmission facilities and generally use
other long distance providers to carry their overflow traffic. Only the largest
U.S. carriers have operating agreements and own transmission facilities that
carry traffic to almost any country. A significantly larger group of
international long distance providers own and operate their own switches but
either rely solely on resale agreements with other long distance carriers to
terminate their traffic or use a combination of resale agreements and leased or
owned facilities in order to terminate their traffic, as discussed below.
SWITCHED RESALE ARRANGEMENTS. A switched resale arrangement typically
involves the wholesale purchase of termination services by one long distance
provider from another on a variable, per minute basis. Such resale, which
was first permitted with the deregulation of the U.S. market, enabled
alternative international providers to rely at least in part on transmission
services acquired on a wholesale basis from other long distance providers. A
single international call may pass through the facilities of multiple long
distance resellers before it reaches the foreign facilities-based carrier
that ultimately terminates the call. Resale arrangements set per minute
prices for different routes, which may be guaranteed for a set time period
or subject to fluctuation following notice. The resale market for
international transmission is constantly changing, as new long distance
resellers emerge and existing providers respond to fluctuating costs and
competitive pressures. In order to manage costs effectively when utilizing
resale arrangements, long distance providers need timely access to changing
market data and must quickly react to changes in costs through pricing
adjustments or routing decisions.
TRANSIT ARRANGEMENTS. In addition to utilizing an operating agreement to
terminate traffic delivered from one country directly to another, an
international long distance provider may enter into
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transit arrangements pursuant to which a long distance provider in an
intermediate country carries the traffic to the country of destination.
ALTERNATIVE TRANSIT/TERMINATION ARRANGEMENTS. As the international long
distance market began to deregulate, long distance providers developed
alternative transit/termination arrangements in an effort to decrease their
costs of terminating international traffic. Some of the more significant of
these arrangements include refiling, ISR and ownership of switching
facilities in foreign countries. Refiling of traffic, which takes advantage
of disparities in settlement rates between different countries, allows
traffic to a destination country to be treated as if it originated in
another country that enjoys lower settlement rates with the destination
country, thereby resulting in a lower overall termination costs. The
difference between transit and refiling is that, with respect to transit,
the long distance provider in the destination country has a direct
relationship with the originating long distance provider and is aware of the
arrangement, while with refiling, it is likely that the long distance
provider in the destination country is not aware of the country in which the
traffic originated or of the identity of the originating carrier.
With ISR, a long distance provider completely bypasses the accounting
rates system by connecting an international leased private line to the PSTN
of a foreign country or directly to premises of a customer or foreign
partner. While applicable regulatory authorities currently only sanction ISR
on a limited number of routes, it is increasing in use and is expected to
expand significantly as deregulation of the international telecommunications
market continues. In addition, deregulation has made it possible for U.S.
based long distance providers to establish their own switching facilities in
certain foreign countries, enabling them to directly terminate traffic.
OPERATING AGREEMENTS. Under traditional operating agreements,
international long distance traffic is exchanged under bilateral agreements
between international long distance providers that have rights in facilities
in different countries. Operating agreements provide for the termination of
traffic in, and return traffic from, the international long distance
providers' respective countries at a negotiated "accounting rate." Under a
traditional operating agreement, the international long distance provider
that originates more traffic compensates the long distance provider in the
other country by paying an amount determined by multiplying the net traffic
imbalance by the latter's share of the accounting rate.
By aggressively negotiating resale agreements with carriers who have
entered into operating agreements, the Company can take advantage of such
carrier's economic incentive to increase outgoing traffic to a particular
country. The resold call volume increases the market share for that carrier
to a particular country, thereby increasing such carrier's proportionate
return traffic from the correspondent under the accounting rate process.
Under a typical operating agreement each carrier has a right in its
portion of the transmission facilities between two countries. A carrier
gains ownership rights in a digital fiber-optic cable by purchasing direct
ownership in a particular cable (usually prior to the time the cable is
placed in service), by acquiring an "Indefeasible Right of Use" ("IRU") in a
previously installed cable, or by leasing or obtaining capacity from another
long distance provider that either has direct ownership or IRU rights in the
cable. In situations where a long distance provider has sufficiently high
traffic volume, routing calls across leased or IRU cable capacity is
generally more cost-effective on a per call basis than the use or resale
arrangements with other long distance providers. However, leased capacity
and acquisition of IRU rights require a company to make a substantial
initial investment of its capital based on the amount of the capacity being
acquired.
In deregulated countries such as the United States and most EU member
states, carriers can establish switching facilities, own or lease fiber-optic
cable, enter into operating agreements with foreign carriers and, accordingly,
provide direct access or call-through service. In markets that have not
deregulated or are slow in implementing deregulation, such as most emerging
markets countries, international long distance
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carriers have used advances in technology to develop innovative alternative
access methods, such as call reorigination. As countries deregulate, the demand
for alternative access methods typically decreases as carriers are permitted to
offer a wider range of services.
COMPETITION
The international telecommunications industry is highly competitive. The
Company's success depends upon its ability to compete with a variety of other
telecommunications providers in each of its markets, including the respective
ITOs in each country in which the Company operates and the global alliances
partnerships among some of the world's largest telecommunications carriers.
Other potential competitors include cable television companies, wireless
telephone companies, electric and other utilities with rights of way, railways,
microwave carriers and large end users, which have private networks. The
intensity of such competition has recently increased and the Company believes
that such competition will continue to intensify as the number of new entrants
increases. Many of the Company's current or potential competitors have
substantially greater financial, marketing and other resources than the Company.
If the Company's competitors devote significant additional resources to the
provision of international or national long distance telecommunications services
to the Company's target customer base of small and medium-sized businesses, such
action could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be able to compete successfully against new or existing competitors.
Competition for customers in the telecommunications industry is primarily
based on price and, to a lesser extent, on the type and quality of services
offered. The Company prices its services primarily by offering discounts to the
prices charged by the local ITOs. The Company has no control over the prices set
by the local ITOs or by its competitors, and some of the Company's competitors
may be able to use their financial resources and/or market position to cause
severe price competition in the countries in which the Company operates.
Although the Company does not believe that there is an economic incentive for
its competitors to pursue such a pricing strategy or that its competitors are
likely to engage in such a course of action, there can be no assurance that
severe price competition will not occur. Any such price competition would have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, intensified competition in certain of the
Company's markets will force the Company to continue to reduce its prices. For
example, the Company on a number of occasions reduced certain rates which it
charges to non-wholesale customers in response to pricing reductions enacted by
certain ITOs. Such price reductions may reduce the Company's revenue and
margins. The Company has experienced, and expects to continue to experience,
declining revenue per billable minute in a number of its markets, in part as a
result of increasing worldwide competition within the telecommunications
industry.
The Company believes that the ITOs generally have certain competitive
advantages due to their control over local connectivity and apparent close ties
with national regulatory authorities. The Company also believes that, in certain
instances, some regulators have shown a reluctance to adopt policies and grant
regulatory approvals that would result in increased competition for the local
ITO. The Company believes that, at least in the short-term, the ITOs will not
concentrate on marketing their services to the Company's small and medium-sized
business customer base. The Company could, however, be denied regulatory
approval in certain jurisdictions in which its services would otherwise be
permitted, thereby requiring the Company to seek judicial or other legal
enforcement of its right to provide services. Any delay in obtaining approval,
or failure to obtain approval, could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
believes that it has encountered anti-competitive behavior on the part of
certain ITOs and foreign regulatory bodies. If the Company encounters
anti-competitive behavior in countries in which it operates or if the ITO in any
country in which the Company operates uses its competitive advantages to the
fullest extent, the Company's business, financial condition and results of
operations could be materially adversely affected.
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In response to deregulation, additional competitors of various sizes are
beginning to emerge, particularly in the European Union. The Company's services
are currently marketed to small and medium-sized businesses and thus the Company
generally does not directly compete with mega-carrier alliances, which generally
target larger multinational corporate customers. In addition, many smaller
carriers have emerged, most of which specialize in offering intercontinental
telephone services utilizing dial up access methods. The Company believes that
competition will continue to intensify as the number of new service providers
increases due to the overall growth in the industry and the global trend toward
deregulation. In February 1997, the WTO announced that 69 countries, including
the United States, South Africa and all of the member states of the EU, entered
into the WTO Agreement, which is expected to result in greater competition from
new market entrants and existing telecommunications service providers in such
markets. See "Business--Government Regulation".
The Company's principal competitors are the local ITOs and a number of other
alternative reorigination or direct access providers such as IDT, Viatel, Access
Authority, Justice, Telegroup, USA Global Link, USFI, Inc., Kallback and RSL
Communications.
BUSINESS
Ursus Telecom Corporation is a growing and profitable international
telecommunications company that exploits favorable market niches through the
timely provision of competitive and technologically advanced telecommunications
services. The Company focuses on small and medium sized businesses located in
emerging or deregulating markets, including South Africa, Latin America, the
Middle East (primarily Lebanon and Egypt), Russia and France, which it serves
through a network of independent exclusive agencies. The Company believes that
it derives a significant competitive advantage from its exclusive agency
network. Each agency provides marketing, customer support, billing and
collections, in local language and time, utilizing a proprietary turn-key Agency
Support System developed and provided by the Company. Each agency is supplied
near real time data for customer management, usage analysis, and billing from
the Company's local and wide area network. Through its agency network, the
Company develops and maintains close relationships with vendors of telephone
systems such as Siemens, Plessey, AT&T, Northern Telecom and Alcatel in key
markets in order to promote the Ursus line of telecommunications services,
thereby allowing the Company to offer competitively priced and value added
services that compare favorably to the pricing and service offerings of the
local incumbent telecommunication operators ("ITOs").
Ursus Telecom has traditionally entered a particular market using call
reorigination techniques or other methods that provide a U.S. dial tone to its
foreign customers. The Company derives approximately 80% of its revenues from
call reorigination, which essentially is a system that provides the Company's
overseas customers the opportunity to access a U.S. based switching center by
means of a manual or transparent automated dialing procedure. Call reorigination
provides a customer with all the convenience and rate economies provided by a
U.S. dial tone, as opposed to locally imposed international rates, which may be
substantially higher. In order, however, to remain price competitive and to
mitigate the high proportion of variable costs per minute associated with call
reorigination, the Company plans to expand its direct access services by
locating switching platforms at network centers of major telecommunications
providers, such as WorldCom, Cable and Wireless and France Telecom, and
deploying smaller network access nodes in less populated service areas that are
connected via traditional circuit or IP Telephony based facilities. This network
topology, which the Company will first use in France, provides subscribers with
direct access service for voice and fax. Ultimately, where regulatory conditions
are favorable and calling volumes are adequate to cover the associated fixed
costs, the Company intends to migrate some of its customers from call
reorigination to direct access service.
Ursus Telecom has adopted and plans to implement a policy of rapid expansion
through internal growth, through sale of wholesale services to other carriers,
and by applying a portion of the Offering proceeds to acquire smaller
competitors and expand the business generated by its existing agencies. The
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Company believes that its proprietary enterprise software system provides an
efficient infrastructure for back room processing, thereby giving it a strategic
advantage over its competitors. The Company's computerized back office systems
handle traditionally labor intensive processing tasks such as call rating,
customer registration, billing, and network management with a high degree of
efficiency and short turn-around time, which will facilitate the rapid and
economical consolidation of acquired competitors.
The Company operates a digital, switch based telecommunications network (the
"Network") from its technical facilities in Sunrise, Florida, and plans to use a
portion of the Offering proceeds to expand its primary digital switching
platform and secondary network access nodes utilizing a hybrid network of
Internet, Intranet and circuit based facilities, thereby expanding its services
in a reliable, flexible and cost effective manner. The Company also plans to
exploit its market penetration and technological sophistication through the
application of the Internet Protocol (IP) telephony technology, particularly for
fax transmissions. Faxing represents a large portion of the overall
international telecommunications business, and IP faxing offers significant cost
savings and favorable regulatory treatment. In effect, IP telephony creates the
opportunity to bypass the switched telephone network by using cost-effective
packet switched networks such as private Intranets and/or the public Internet
for the delivery of fax and voice communications. Therefore, the Company plans
to use a portion of the Offering proceeds to establish a hybrid network for IP
fax and voice services, with the objective of solidifying opportunities and
realizing the potential cost savings provided by IP telephony technology. The
Company believes that this could increase the gross margins of its existing and
future retail business and allow it to accelerate its aggressive growth
strategy.
The Company expects that call reorigination will still continue to serve as
a low cost and profitable method of opening new markets and expects to continue
this method of business development in certain regulated markets in Africa, the
Middle East, Europe and Asia. Reoriginating a U.S. dialtone requires little
investment in equipment and a limited capital deployment in a foreign territory,
and allows the Company to develop a viable customer base by effectively
exploiting the difference between the local International Direct Dial ("IDD")
rate and the generally more favorable rates the Company enjoys in the U.S. The
Company and some of its competitors have successfully used this strategy to
develop foreign markets and have thereby created a revenue stream with little
more than marketing and incremental call costs. In addition, using IP Telephony
concurrently with call reorigination could significantly improve the
profitability of this business segment, without requiring the substantial
investments in switches of a direct access network. Accordingly, the Company's
strategy is to deploy IP technology where feasible in order to create a hybrid
network capable of carrying significant amounts of profitable customer traffic
on a low cost platform with a modest initial capital investment. This strategy
mitigates the risk that the Company will not attain, in some of its markets, the
critical mass of business required to amortize the fixed costs of a direct
access network, and affords the Company the opportunity to develop a market with
a relatively small financial risk.
In summary, the Company intends to become a significant provider of
international telecommunications services within the emerging and deregulating
markets. The Company intends to maximize its profit potential by leveraging its
existing infrastructure, success and profitability, market penetration,
expanding customer base and growing U.S. wholesale business. Furthermore, by
using its independent agent network, efficient back office systems, and
favorable vendor relationships with some of the major U.S. telecommunications
carriers, the Company believes it can gain strategic advantages while
capitalizing on the opportunities presented by deregulation and technological
advances in the global telecommunications industry.
Ursus provides an array of basic and value added services to its customers,
which include:
- long distance international telephone services
- direct dial access for corporate customers
- dedicated access for high volume users
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- calling cards
- abbreviated dialing
- international fax store and forward
- switched Internet services
- itemized and multicurrency billing
- follow me calling
- enhanced call management and reporting services
The Company's strategy of profitable growth has driven revenues from
approximately $13.2 million to $20.8 million, respectively, in the fiscal years
ended March 31, 1996 and March 31, 1997; and to $13.2 million in the six months
ended September 30, 1997. The Company's pretax profits have grown from $1.3
million in the year ended March 31, 1996 to $2 million in the year ended March
31, 1997, and to $0.8 million in the six months ended September 30, 1997. Of the
Company's telecommunications revenues for the six months ended September 30,
1997, approximately 46% was generated in Africa and the Middle East, 26% in
Latin America, 15% in Europe and Russia, and the remainder derived from the rest
of the world and U.S. wholesale reselling activities.
THE COMPANY'S SERVICES
The Company's principal services include:
- Ursus ComNet - enables virtual private network calling to members of a
closed user group subject only to regulatory limitations.
- Ursus ComPlus Gold - provides dedicated access via a leased line from the
customer to the Ursus Telecom Network, permitting calling without dialing
access or location codes.
- Ursus ComPlus - provides a paid (local) access or toll free number
programmed to dial an existing phone number or system, generally in
another country, without the need for special circuits or modifications.
This service also provides "anywhere to anywhere" international call
reorigination access through manual, automatic, X.25 or data network call
reorigination. These services are also offered with ITFS access, subject
to pricing considerations.
- Ursus FaxNet - this service allows subscribers to send faxes to a local
fax server which then uses the Internet and other proprietary data
networks to route the fax to the most economical corresponding fax server
for delivery. This technology promises to become a significant part of the
overall Ursus Network and will be deployed in strategic cities throughout
selected markets when trials are completed in the quarter ending March 31,
1998. The Company is currently deploying a network of Internet Fax Servers
in several countries including Lebanon, Ecuador, Argentina, and South
Africa. Further deployments are expected by mid to end of fiscal year 1998
in certain other countries in Latin America, Africa, the Middle East and
Europe, and the Company plans to expand its network of Internet based
telephony to more than 20 locations by March 31, 1999.
- Ursus ComPlus Travel - provides calling card access from over 56 countries
utilizing the Company's ITFS numbers. In addition, the Company utilizes
the USA DIRECT Home Country Direct numbers of AT&T from over 136 countries
to provide a premium calling card service. By arrangement with AT&T, AT&T
connects its USA DIRECT numbers via a code to the Ursus switch in Sunrise,
Florida where the customer may dial over the Ursus Telecom network while
traveling.
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THE NETWORK
The Network uses a high capacity, programmable switching platform designed
to deploy network-based intelligent services quickly and cost effectively. The
switches are modular and scaleable and incorporate advanced technologies such as
hierarchical call control and network management software. This type of switches
can also provide a bridge between various protocols and standards. As the
Network continues to evolve, the installed base of switches could be upgraded
easily to create a cost effective, scaleable switching point in a software
intelligence based network. The Network's "intelligent switches" incorporate
proprietary software to achieve least cost routing (LCR), the process by which
the Company optimizes the routing of calls over the Network to every directly
dialable country in the world. LCR allows calls that are not routed over the
Network to be routed directly from the Company's switch through the
infrastructure of contracting carriers to their destinations at the lowest
available rates. These switching capabilities also enable the Company to
efficiently perform billing functions and account activation and to provide
value-added services. The Company relies upon SONET (Symmetrical Optical
Network) fiber optic facilities to multiple carriers to provide redundancy in
the event of technical difficulties at any point in the Network. The Company
maintains redundant switching facilities in Sunrise, Florida to provide
protection for its switching operations. The Company's strategy is to monitor
its anticipated traffic volume on a regular basis and to increase carrier
trunking capacity before the capacity limitations of such circuits are reached.
The Company's customers access its services either through "dial up access"
or "direct access." Dial up access is obtained via: (i) paid access, which
requires the customer to pay the local PTO for the cost of a local call, (where
appropriate), in order to access the Company's services (at September 30, 1997,
approximately 9.3%); (ii) call reorigination or call reorigination, which
enables the customer to receive a return call providing a dial tone originated
from the Company's Sunrise, Florida switching center by ITFS (at September 30,
1997, approximately 80%); (iii) Home Country Direct, which accesses the Sunrise,
Florida switching center by direct dial (at September 30, 1997, approximately
6%); or (iv) NTFS, which accesses a local switch in the North American Network
(at September 30, 1997, approximately 4.7%). Direct access allows accessing a
network by using a permanent point-to-point circuit typically leased from a
facilities based carrier. The advantages of direct access include simplified
premises-to-anywhere calling, faster call set-up times and potentially lower
access and transmission costs, provided there is an adequate level of traffic
over the circuit to generate economies of scale. Paid access accounted for
approximately 61% of the Company's French and Russian revenue for the 6-month
period ended September 30, 1997 and approximately 9.3% of the Company's overall
revenues for this period. Call reorigination accounted for the remaining 39% of
revenue in France and Russia and 80% of overall Company revenues for this
period.
To reduce the variable telecommunication costs and improve usage, the
Company is, where regulations permit such an activity, in the process of
changing its customer base from call reorigination and ITFS access to paid
access, and, ultimately to direct access. Until regulatory considerations
permit, all customers outside of the Europe/Russia area are expected to continue
to access the Company's services through call reorigination or ITFS numbers. The
exception to this rule is the Bahamas, where the Company's subscriber base
utilizes a Home Country Direct number provided by BATELCO, the local Bahamian
PTO, under a bilateral correspondent agreement. See "Risk Factors--Government
Regulation."
Currently, the Company's Network is primarily used to originate and
terminate international long distance traffic for its own subscribed customer
base. The Company plans in the future to further leverage its Network and
foreign presence to take advantage of anticipated settlement agreement
obsolescence by offering other carriers and ITOs an alternative to the
traditional settlement process for origination and termination of long distance
traffic. This process is known as refiling. The FCC issued directives in
December 1996 encouraging the circumvention of settlements in the historic sense
where possible. This is likely to create new opportunities with ITO partners in
the emerging markets. See "--Government Regulation" and "--Access to Carrier
Services."
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The economic benefits to the Company of potentially owning and operating its
own direct access Network arise primarily from reduced variable transmission
costs. Calls that are not routed through the Network generate significantly
higher variable costs because they are connected using relatively expensive ITFS
numbers or call reorigination. In contrast, because the Network has significant
fixed costs associated with its operations, consisting primarily of leased line
rental charges, local connectivity and facility/network management costs, calls
routed through the Network have lower variable costs than off-network traffic.
However, for the foreseeable future, Ursus will for economic reasons
piggyback on the networks of the major global operators. Consequently, it will
only install its own fixed facilities when existing traffic on a carrier route
is adequate to offset the cost of installation.
The Company plans, however, to deploy a network of Internet Fax Servers in
selected countries by the end of 1998. The Company plans to develop a hybrid
network of IP based telephony technology to avoid the high fixed costs of a
switched telephone network in favor of cost-effective packet switched networks
(intranet) and/or the Internet for the delivery of fax and eventually voice
transmissions.
TECHNOLOGY
The deregulation of telecommunications markets throughout the world has
coincided with substantial technological innovation. The proliferation of
digital fiber-optic cable in and between major markets has significantly
increased transmission capacity, speed and flexibility. Improvements in computer
software and processing technology have enabled telecommunications providers to
offer a broad range of enhanced voice and data services. Advances in technology
also have created multiple ways for telecommunications carriers to provide
customer access to their networks and services. These include customer-paid
local access, international and national toll-free access, direct digital access
through a dedicated line, equal access through automated routing from the PSTN,
Internet telephony and call reorigination. The type of access offered depends on
the proximity of switching facilities to the customer, the needs of the
customer, and the regulatory environment in which the carrier competes. Overall,
these changes have resulted in a trend towards bypassing traditional
international long distance operating agreements as international long distance
companies seek to operate more efficiently. As countries deregulate, the demand
for alternative access methods typically decreases as carriers are permitted to
offer a wider range of facilities-based services on a transparent basis. The
most common form of traditional alternative international access, call
reorigination, avoids the high international rates offered by the ITO in a
particular regulated country by providing a dial tone from a deregulated
country, typically the United States. Technical innovations, ranging from
inexpensive dialers to sophisticated in-country switching platforms, have
enabled telecommunications carriers such as the Company to offer a "transparent"
form of call reorigination, thereby avoiding complicated end-customer usage
procedures. To place a call using traditional call reorigination, a user dials a
unique phone number to an international carrier's switching center and then
hangs up after it rings or alternatively, if using a transparent processing
method, a dialer automatically performs these dialing functions. The user then
receives an automated call reorigination providing a dial tone from the U.S.,
which enables the user to complete the call. For the six months ended September
30, 1997, the Company derived approximately 80% of its revenue and operating
income from international call reorigination services.
The Company's research and development efforts have been nominal and have
focused almost exclusively upon the refinement and upgrading of its back office
computer systems. The Company has neither the resources nor the expertise to
derive any significant advantages from research or development into
telecommunications equipment, and prefers to use the equipment developed by
others, as it becomes available in the market. However, by devoting its
resources to its computer systems and back office procedures, the Company
believes that it has developed an efficient and flexible operating system,
minimized its payroll, and maximized the efficiency of its back office
operations. See "--Management Information Systems," below.
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MANAGEMENT INFORMATION SYSTEMS
The Company has made significant investments to develop and implement
sophisticated information systems which enable the Company to: (i) monitor and
respond to customer needs by developing new and customized services; (ii) manage
LCR; (iii) provide customized billing information; (iv) provide high quality
customer service; (v) detect and minimize fraud; (vi) verify payables to
suppliers; and (vii) rapidly integrate new customers. The Company believes that
its network intelligence, billing and financial reporting systems enhances its
ability to competitively meet the increasingly complex and demanding
requirements of the international long distance markets. The Company
continuously provides enhancements and ongoing development to maintain the state
of the art of its switching, billing and information service platforms.
The Company currently has a turnaround time of approximately 24 hours for
new account entry. The Company's billing system provides multi-currency billing,
itemized call detail, city level detail for destination reporting and electronic
output for select accounts. Customers are provided with several payment options,
including automated credit card processing and automated direct debiting.
The Company has developed proprietary software to provide telecommunications
services and render customer support. In contrast to most traditional
telecommunications companies, the software used to support the Company's
enterprise resides outside of the switches and "canned" closed systems and,
therefore, does not currently rely on third party manufacturers for upgrades.
The Company believes its software configuration facilitates the rapid
development and deployment of new services and provides the Company with a
competitive advantage. The Company's Sunrise, Florida Central switch has a call
detail recording function which enables the Company to: (i) achieve accurate and
rapid collection of call records; (ii) detect fraud and unauthorized usage; and
(iii) permit rapid call detail record analysis and rating.
The Company also uses its proprietary software to assist it in analyzing
traffic patterns and determining network usage, busy hour percentage,
originating traffic by switching center, terminating traffic by supplier and
originating traffic by customer. This data is utilized to optimize LCR, which
may result in call traffic being transmitted over the Company's transmission
facilities, other carriers' transmission facilities or a combination of such
facilities. If traffic cannot be handled over the least cost route due to
overflow, the LCR system is designed to transmit the traffic over the next
available least cost route.
The Company develops its software in house utilizing its own staff of
programmers. All proprietary software code is fully documented and is written in
viable proven languages and utilizes viable commercial relational database
engines and operating systems.
INTERNET PROTOCOL (IP) TELEPHONY
Virtually all of today's voice and fax traffic is carried over the Public
Switched Telephone Network (PSTN). Phone switches either owned by the ITOs or
other enterprise common carriers and resellers allow ordinary telephones and fax
machines to reach one another anywhere in the world. The advent of IP Telephony
has created the opportunity to bypass today's switched telephone network and use
cost-effective packet switched networks (Intranet) and/or the public Internet
for the delivery of voice and fax communications. Prior to 1995, the market for
Internet Telephony products was virtually nonexistent. A few public domain
programs created by researchers did exist, but were not widely used. These early
programs offered very few features with poor sound quality. It was a common
belief at that time that quality voice communications across the
Internet/Intranet was impossible. This situation dramatically changed with the
introduction of a new class of products, which significantly enhanced voice
transmissions over the Internet/ Intranet. As a class of products, this is
referred to as IP (Internet Protocol) Telephony. As companies realized that
quality IP Telephony communication was possible, they quickly joined the race to
capitalize on the opportunity. Desktop software offering computer-to computer
communication flourished due in part to the explosive growth of the Internet.
The current generation of IP Telephony applications allows
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users to make calls using a standard telephone and a centralized
Internet/Intranet substituting for the Public Switched Telephone Network (PSTN).
This centralized IP connection is accomplished via IP Telephony gateway servers.
The principle behind such a system is similar to Internet Telephony desktop
applications, but rather than using the microphone and speakers connected to
multimedia PCs, users speak into a standard telephone connected to a PBX. To
place a call, the caller would dial the number of the party they are calling,
just like making a call-through the PSTN. The PBX would then route the call-
through the IP Telephony gateway via a programmed trunk interface and the
gateway contacts another gateway at the called site. Several companies have
developed and are currently using this technology. Furthermore, developments in
hardware, software and networks are expected to continue to improve the quality
and viability of Internet telephony. In time, packet-switched networks may
become less expensive to operate than circuit-switched networks, primarily
because carriers can compress voice traffic and thereby can place more calls on
a single line.
Voice transmissions of near toll quality utilizing packetized information
require consistent transmission speed and bandwidth because the product, a human
voice, is realized and perceived in real time by the human ear. Fax, on the
other hand, is inherently data which is generated by scanning a picture into a
digital file and transmitting it to a complementary receiver which reassembles
it into a picture, and is therefore not subject to the perception of delays
caused by network latency. Therefore, fax traffic is more likely to be managed
successfully on the public Internet, especially where store and forward and
relay techniques are employed. Sending faxes to long distance numbers across the
Internet/Intranet is a feature that could save businesses, especially
international businesses, a great deal of money. Using IP Telephony technology,
a fax device would be attached to the PBX and fax calls routed to the Internet
gateway server, where they would be captured and packetized as data. These
digitized faxes would then be routed over the Internet to the destination
gateway server and regenerated as a local fax call. Considering the fact that
industry experts estimate that faxes constitute up to 50 percent of all
international calls, the Company plans to actively apply the IP telephony
technology in the field by deploying a network of Internet Fax Servers in
selected countries by the end of 1998.
CUSTOMER BASE
The Company's target customers are small and medium-sized businesses with
significant international telephone usage (i.e., generally in excess of $500 in
international phone calls per month). The Company also provides its services to
a growing base of individual retail customers. The corporate market includes
manufacturers, distributors, trading companies, financial institutions, and
import-export companies, for which long distance telecommunications service
represents a significant business expense, and such customers are therefore
focused on value and quality. It is estimated that small and medium-sized
businesses account for the majority of all businesses, and the Company believes
that in most markets they account for a significant percentage of the
international long distance traffic originated in those markets. For example,
the EU estimates that in 1996 there were 15 million small and medium-sized
businesses in the EU and that businesses that employ fewer than 100 workers
accounted for more than one half of all EU employment in 1996, almost half of
all business revenue and potentially about $30 billion per year in total
telecommunications revenue.
The Company believes that small- and medium-sized businesses have generally
been under-served by the major global telecommunications carriers and the ITOs,
which have focused on offering their lowest rates and best services primarily to
higher volume multinational business customers. The Company offers these small-
and medium-sized companies significantly discounted international calling rates
as compared to the standard rates charged by the major carriers and ITOs.
The Company also plans to offer international termination services to other
carriers, including resellers, on a wholesale basis, as a "carriers' carrier."
The Company's carrier customers as a group currently provide the Company with a
relatively stable customer base and thereby assist the Company in projecting
potential utilization of its network facilities. In addition, the potentially
significant levels of
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traffic volume that could be generated by such carrier customers enable the
Company to leverage itself in obtaining larger usage discounts based on
potential volume commitments. The Company believes that revenues from its
carrier customers will continue to represent a growing portion of the Company's
overall revenues in the future.
The Company also targets residential customers with high international
calling patterns such as ethnic communities and plans to increase the marketing
of prepaid calling cards.
Currently, no end retail customer of the Company individually accounts for
more than 1% of the Company's revenue.
The largest wholesale customer accounted for approximately 4.8% of the
Company's revenue as of September 30, 1997.
TRADEMARKS
The Company has traditionally relied upon the common law protection of its
trade name afforded under various local laws, including the United States.
However, the Company has recently determined to file for trademark protection of
its Ursus name in the United States and in certain foreign jurisdictions. It is
possible that prior registration and/or uses of the mark or a confusingly
similar mark may exist in one or more of such countries, in which case the
Company might be precluded from registering and/or using the Ursus mark and/or
logo in such countries.
PRINCIPAL MARKETS FOR THE COMPANY'S SERVICES
The worldwide international long distance public switched telecommunications
market generated an estimated $61.3 billion in revenue and 70 billion minutes in
traffic in 1996 with minutes of use projected to grow at a rate of 13% per annum
through the year 2000. The Company currently has significantly less than a 0.03%
share of this global market.
GEOGRAPHIC ORIGIN OF REVENUES
The geographic origin of the Company's revenues is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER
YEAR ENDED MARCH 31, 30,
------------------------------------------ ---------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
------------ ------------- ------------- ------------ -------------
Africa.............................. $ 369,087 $ 1,403,094 $ 3,899,701 $ 1,492,006 $ 3,989,068
Europe.............................. 316,903 1,988,030 4,252,104 2,233,553 2,043,914
Latin America....................... 4,387,351 6,337,284 7,265,473 3,447,061 3,465,699
Middle East......................... 413,796 2,101,864 3,741,890 1,749,399 2,094,143
Other............................... 803,375 1,397,802 1,363,852 624,146 983,212
United States....................... -- -- 315,407 -- 638,415
------------ ------------- ------------- ------------ -------------
$ 6,290,512 $ 13,228,074 $ 20,838,427 $ 9,546,165 $ 13,214,451
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
</TABLE>
GEOGRAPHIC MARKETS
LATIN AMERICA. Historically, the Company derived significant portions of
its telecommunications revenue from Latin America, principally from Argentina
and Peru. Since most Latin American countries currently restrict competition to
a limited number of specific services, the Company has developed a two-stage
market penetration strategy to capitalize on the current and future
opportunities in Latin America. The first step is to take advantage of current
market conditions and within the parameters of the Company's product line, i.e.
using the reorigination access method, to provide the fullest range of services
permissible under the local regulations. The Company seeks to build a customer
base within its target
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segments prior to a partial or full market liberalization so that when the
market opens to competition, the Company will have an established base in its
target areas. During the fiscal year ended March 31, 1997, Argentina with sales
of $3.7 million represented 51% of the total Company's Latin American business
followed by Peru with a 23% share. For the first six months of fiscal year
1997-98, Argentina represented 49% of the total Company's Latin American
business with Peru representing 23%. Overall, the Company enjoys a top 10 market
share among call reorigination companies operating in Argentina and Peru.
MIDDLE EAST AND AFRICA. The Company is currently a significant operator in
certain emerging markets in the Middle East and Africa. The Company is a market
leader for alternative access call reorigination in both Lebanon and South
Africa. It is anticipated that African revenues will more than double over the
next twelve months, not including the high growth markets of Lebanon and Egypt
which together produce up to $20,000 of revenue per day. Lebanon grew from $1.4
million in sales in fiscal year 1995-96 to $3.2 million in fiscal year 1996-97
and posted $1.8 million in sales for the first six months of fiscal year
1997-98.
A case in point is the South African territory, which grew from sales of
$1.5 million for the first six (6) months of fiscal year 1996-97 to sales of
$3.9 million for the first six (6) months of fiscal year 1997-98. From its base
in Johannesburg, South Africa, Ursus has spread to Cape Town and Durban, and
other South African urban centers. This territory is currently generating
between $30,000 and $35,000 per day in revenues alone. The South African agency
currently manufactures its own proprietary network interface dialer in South
Africa. In places such as South Africa, the Company and its independent agencies
maintain close relationships with vendors of internal phone equipment ("PBX")
such as Siemens, Plessey and Alcatel. These vendors are integrating and
configuring their customer's PBX equipment to utilize Ursus as a possible
alternative international telecommunications carrier, and the Company maintains
a close relationship with the vendors for both pre-sale and retrofit
applications.
On August 12, 1997, the Company entered into an agreement with its
independent agent in South Africa, to acquire an equity interest in the agency.
See "Certain Relationships and Related Party Transactions."
The Company's overall strategy is to expand its market share in these
emerging markets in anticipation of the future liberalization of the local
telecommunications regulations. As these markets liberalize and/or deregulate,
the Company hopes to migrate its customer base to a direct access/call-through
method, thereby leveraging its existing market share derived from reorigination.
EU AND RUSSIA. The EU and Russian markets will be a major focus as the
Company pursues its strategy of locating switches at the network center of major
switched-based suppliers in Europe.
FRANCE. The Company's current customers in France (centered in the Paris
region) include small and medium-sized businesses and retail individuals. Upon
installation of the Paris switch scheduled for March 1998, the Company will seek
to migrate its customers in France from the call reorigination access method
being used now to international long distance services utilizing direct access
over leased lines and restricted dial-in for customers in closed-user groups.
The Company will provide direct access service via a leased line connection
between the customer's phone system and the Company's planned switch in Paris.
Following deregulation, the Company may offer long distance services, which are
presently restricted to closed user groups, with prefix dialing and value-added
services. The services currently provided by the Company in France do not
require a license. In accordance with the Telecommunications Laws passed in
France in July 1996, the process of liberalizing the telecommunications market
is regulated by a new government authority, and the telecommunications market in
France was liberalized on January 1, 1998 along with the markets of most other
EU member states. In accordance with the standard terms and conditions and price
lists for interconnection with France Telecom, duly approved by the French
Telecommunications Authority on April 9, 1997, new operators can interconnect
with France Telecom's PSTN starting on January 1, 1998.
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On January 6, 1998, the Company entered into a joint venture agreement with
Central Call and Mondial Telecom (the Company's agencies in France) to form
Ursus Telecom France, a limited liability company. The Company holds 50% plus 2
shares of the French entity. The remaining shares are held equally by Central
Call and Mondial Telecom. The primary objective of the joint venture is to
provide switch based direct access services in France, primarily out of the
Paris-Metropolitan area. See "Certain Relationships and Related Party
Transactions."
RUSSIA. The Company has been active in the Russian market (centered in the
Moscow region) for over 24 months, with direct dial up access having replaced
call reorigination for approximately 18 months. Traffic has grown to
approximately $8,000 to $9,000 per business day with the majority of calling
derived from the direct dial up access lines from Moscow. Overall, Russia
generated sales for the Company of $2.5 million in fiscal year 1996-97 from
$700,000 in fiscal year 1995-96 and posted sales of $1.2 million for the first
six months of fiscal year 1997-98. The Company is contemplating expanding its
marketing activities into St. Petersburg and is negotiating for capacity to
interconnect that strategic market with its Moscow based facilities.
Minutes of total outgoing international traffic in Russia have dramatically
increased from 287 million minutes in 1995 to 851 million minutes in 1996.
Historically, about 50% of all international traffic and about 40% of long
distance traffic within the Russian Federation originated in Moscow and some 30%
of international traffic and about 25% of long distance traffic originated in
St. Petersburg. Penetration levels for aggregate telecommunications services in
these two cities equal about 46% for Moscow and about 36% for St. Petersburg.
Other Russian urban areas with low penetration are less likely in the near
future to generate any large international traffic, because there is a much
lower business demand and a smaller number of wealthy individuals supporting a
market. The overall growth in long-distance and international traffic over the
past several years in the Russian Federation did not, however, significantly
change the network usage level, which in fact means that Russia still generates
one of the lowest levels of per-line international and long distance traffic in
the world. This is in large part due to the fact that international and long
distance tariffs in Russia have been increasing very rapidly in real terms.
Despite the recent changes in the Russian telecommunications industry, and
recent significant investments in local telecommunications infrastructure, the
level of telecommunications service generally available from most public
operators in Moscow remains significantly below that available in cities of
Western Europe and the United States. Outside Moscow (and, to a lesser extent
St. Petersburg), most standard Russian telecommunications equipment is obsolete.
For example, many of the telephone exchanges are electromechanical and most
telephones still use pulse dialing. In large measure, the relative lack of
economic development in the regions accounts for the lack of improvement in
local telecommunications infrastructure. Although the regions still generally
rely on an outdated infrastructure, they are slowly starting to resort to
sophisticated sources of finance, such as municipal bond offerings, in order to
upgrade it.
The telecommunications market in Russia currently includes a number of
operators that compete in different offering segments--local, inner-city,
international data and cellular services. Growth in the Russian
telecommunications industry has been principally driven by businesses in Moscow
requiring international and domestic long distance voice and data services and
by consumers using mobile telephony. This growth has been most significant as
multinational corporations have established a presence in Moscow and Russian
businesses have begun to expand. The service sector, which includes operations
in distribution, financial services and professional services and tends to be
the most telecommunications intensive sector of the economy, is growing rapidly
particularly in Moscow. Since moving to a more market-oriented economy, the
economic conditions in the outlying regions in Russia have also generally
improved. The telecommunications industry in the outlying regions has also
experienced recent growth, principally as a result of growth in the industrial
sector as well as the establishment of satellite offices in the regions by
multinational corporations and growing Russian businesses. The extent of overall
market growth will
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depend in part on the rate at which the Russian economy expands, although recent
revenue growth in the telecommunications sector has been significant in spite of
a declining general economy in certain regions.
The Company hopes to expand its Russian business by capitalizing upon the
technologically advanced services it offers which compare favorably to the
relatively undeveloped services offered by the Russian ITO. For the first half
year of fiscal year 1997-98, approximately 15.5% of the Company's
telecommunication revenue originated from Europe, with approximately 61% of that
revenue attributable to calls originating via call through access from Russia
and the remainder produced so far utilizing reorigination, primarily in France.
EXPANSION PLANS
Pursuant to its formation of a joint venture with its French agencies, the
Company plans to install a switch in Paris in the fourth quarter of fiscal year
1997/98 with inter-connectivity to all the major carriers operating in the Paris
market place. See "Certian Relationships and Related Party Transactions." In the
second to fourth quarter of fiscal year 1998/99, the Company plans to install
additional switches in Europe, upgrade its switch in Sunrise, Florida and open
POPs in up to 3-5 cities in Western Europe in order to expand its accessibility
outside of the switch locations. Expanding the Network in Europe to include
additional major European business centers should ultimately reduce transmission
costs and increase the addressable market of the European portion of the
Network. See "Use of Proceeds."
Expansion plans in Russia include the planned installation of a switch to
service larger corporate customers that require direct connections to the Ursus
Telecom Network via digital dedicated subscriber facilities. The switch will be
integrated with the Company's existing facilities that currently back-haul all
traffic originated on direct dial up access from Moscow to Sunrise, Florida. The
Company is looking into negotiating an expanded agreement with a Russian
correspondent, and is potentially looking into expanding capacity in various
cable systems to facilitate such an arrangement.
The Company expects to use a significant portion of the Offering proceeds to
expand and proliferate the Ursus Network and its services on a more rapid basis
by deploying additional switches and POPs and installing fixed facilities to
interconnect POPs and nodes, in addition to deploying its IP based fax and voice
services. See "Use of Proceeds."
The Company intends to enter additional markets and expand its operations
through acquisitions, joint ventures, strategic alliances and the establishment
of new operations. It will seek out acquisitions of certain competitors which
have a high quality customer base and would upon consolidation with the
Company's operations become profitable, in addition to acquiring equity in its
existing representative agencies and pursuing partnership arrangements in
emerging and maturing markets with existing sales organizations and other
non-defined telecommunications entities. See "Use of Proceeds" and "Certain
Relationships and Related Party Transactions."
GOVERNMENT REGULATION
OVERVIEW
The Company's provision of international and national long distance
telecommunications services is heavily regulated. Also, local laws and
regulations differ significantly among the jurisdictions in which the Company
operates, and, within such jurisdictions, the interpretation and enforcement of
such laws and regulations can be unpredictable. Many of the countries in which
the Company provides, or intends to provide, services prohibit, limit or
otherwise regulate the services which the Company can provide, or intends to
provide, and the transmission methods by which it can provide such services.
The Company provides a substantial portion of its customers with access to
its services through the use of call reorigination. Revenues attributable to
call reorigination represented 80% of the Company's revenues during the six
months ended September 30, 1997 and are expected to continue to represent a
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substantial but decreasing portion of the Company's revenues in the medium term
to long term. A substantial number of countries have prohibited certain forms of
call reorigination as a mechanism to access telecommunications services. This
has caused the Company to cease providing call reorigination services in the
Bahamas and may require it to do so in other jurisdictions in the future. As of
November 20, 1997, reports had been filed with the FCC and/or the ITU that the
laws of 79 countries prohibit call reorigination. While the Company provides
call reorigination services in some of those countries, the only country in that
list that accounts for a material share of the Company's total revenues is South
Africa which accounts for about 29% of the Company's revenues for the six months
ended September 1997. There can be no assurance that certain of the Company's
services and transmission methods will not continue to be or will not become
prohibited in certain jurisdictions, and, depending on the jurisdictions,
services and transmission methods affected, there could be a material adverse
effect on the Company's business, financial condition and results of operations.
To the extent that a country that has expressly prohibited call reorigination
using uncompleted call signaling is unable to enforce its laws against call
reorigination using uncompleted call signaling, it can request that the FCC
enforce such laws in the United States, by e.g., requiring the Company to cease
providing call reorigination services to such country or, in extreme
circumstances, by revoking the Company's authorizations.
Additionally, there can be no assurance that future United States or foreign
regulatory, judicial or legislative changes will not have a material adverse
effect on the Company or that regulators or third parties will not raise
material issues with regard to the Company's compliance with applicable laws or
regulations. If the Company is unable to provide the services it is presently
providing or intends to provide or to use its existing or contemplated
transmission methods due to its inability to receive or retain formal or
informal approvals for such services or transmission methods, or for any other
reason related to regulatory compliance or the lack thereof, such events could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors--Government Regulation."
The Company has pursued and expects to continue to pursue a strategy of
providing its services to the maximum extent it believes to be permissible under
applicable laws and regulations. To the extent that the interpretation or
enforcement of applicable laws and regulations is uncertain or unclear, the
Company's aggressive strategy may result in the Company's (i) providing services
or using transmission methods that are found to violate local laws or
regulations or (ii) failing to obtain approvals subsequently found to be
required under such laws or regulations. Where the Company is found to be or
otherwise discovers that it is in violation of local laws and regulations and
believes that it is subject to enforcement actions by the FCC or the local
authority, it typically seeks to modify its operations or discontinue operation
so as to comply with such laws and regulations. There can be no assurance,
however, that the Company will not be subject to fines, penalties or other
sanctions as a result of violations even though such violations are corrected.
If the Company's interpretation of applicable laws and regulations proves
incorrect, it could lose, or be unable to obtain, regulatory approvals necessary
to provide certain of its services or to use certain of its transmission
methods. The Company also could have substantial monetary fines and penalties
imposed against it. See "Government Regulation--Overview."
A SUMMARY DISCUSSION OF THE REGULATORY FRAMEWORKS IN CERTAIN GEOGRAPHIC
REGIONS IN WHICH THE COMPANY OPERATES OR HAS TARGETED FOR PENETRATION IS SET
FORTH BELOW. THIS DISCUSSION IS INTENDED TO PROVIDE A GENERAL OUTLINE OF THE
MORE RELEVANT REGULATIONS AND CURRENT REGULATORY POSTURE OF THE VARIOUS
JURISDICTIONS AND IS NOT INTENDED AS A COMPREHENSIVE DISCUSSION OF SUCH
REGULATIONS OR REGULATORY POSTURE.
UNITED STATES
The Company's provision of international service to, from, and through the
United States is subject to regulation by the FCC. Section 214 of the
Communications Act requires a company to obtain authorization from, the FCC to
resell international telecommunications services of other US carriers or to own
or lease and operate international telecommunicating facilities. The FCC has
authorized the Company
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pursuant to the Section 214 to provide international telecommunications
services, to resell public switched international telecommunications services of
other U.S. carriers and to own or lease international facilities to provide
international communications from the United States to other countries. The
Section 214 authorization requires, among other things, that services be
provided in a manner that is consistent with the laws of countries in which the
Company operates. As described above, the Company's aggressive regulatory
strategy could result in the Company's providing services that ultimately may be
considered to be provided in a manner that is inconsistent with local law. If
the FCC finds that the Company has violated the terms of its Section 214
authorization, it could impose a variety of sanctions on the Company, including
fines, additional conditions on the Section 214 authorization, cease and desist
or show cause orders, or, in extreme circumstances, the revocation of the
Section 214 authorization, the latter of which is usually imposed only in the
case of serious violations. Depending upon the sanction imposed, such sanction
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors--Government Regulation."
In particular, if it is demonstrated that the law of a foreign jurisdiction
expressly prohibits call reorigination, i.e. call re-origination, using
uncompleted call signaling, and that the foreign government attempted but failed
to enforce its laws against U.S. service providers, the FCC may require U.S.
carriers to cease providing call reorigination services using uncompleted call
signaling. To date, the FCC has only ordered carriers to cease providing call
reorigination using uncompleted call signaling only to customers in the
Philippines, although it is expected that the FCC will take this action with
respect to carriers providing call reorigination using uncompleted call
signaling to customers in Saudi Arabia. Prior to taking such action, the FCC
permits countries to submit information to the FCC regarding the legal status of
call reorigination services in their respective countries. According to FCC
records, 30 countries thus far have submitted such information to the FCC,
including the Bahamas, Egypt, Lebanon and South Africa. Submission of this
information does not imply that the FCC believes that the country's laws
expressly prohibit call reorigination using uncompleted call signaling.
The Company is required to file with the FCC a tariff containing the rates,
terms and conditions applicable to its international telecommunications
services. The Company is also required to file with the FCC any agreements with
customers containing rates, terms, and conditions for international
telecommunications services, if those rates, terms, or conditions are different
than those contained in the Company's tariff. If the Company charges rates other
than those set forth in, or otherwise violates, its tariff or a customer
agreement filed with the FCC, the FCC or a third party could bring an action
against the Company, which could result in a fine, a judgment or other penalties
against the Company. Such action could have a material adverse effect on the
Company's business, financial condition and results of operations.
EUROPE
In Europe, the regulation of the telecommunications industry is governed at
a supra-national level by the EU (consisting of the following member states:
Austria, Belgium Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom),
which is responsible for creating pan-European policies and, through
legislation, has developed a regulatory framework to establish an open,
competitive telecommunications market. The EU was established by the Treaty of
Rome and subsequent conventions and is authorized by such treaties to issue EU
"directives." EU member states are required to implement these directives
through national legislation. If an EU member state fails to adopt such
directives, the European Commission may take action, including referral to the
European Court of Justice, to enforce the directives.
In 1990, the EU issued the Services Directive requiring each EU member state
to abolish existing monopolies in telecommunications services, with the
exception of Voice Telephony. The intended effect of the Services Directive was
to permit the competitive provision of all services other than Voice Telephony,
including value-added services and voice services to CUGs. However, local
implementation of the Services
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Directive through the adoption of national legislation has resulted in differing
interpretations of the definition of prohibited Voice Telephony and permitted
value-added and CUG services. Voice services accessed by customers through
leased lines are permissible in all EU member states. The European Commission
has generally taken a narrow view of the services classified as Voice Telephony,
declaring that voice services may not be reserved to the ITOs if (i) dedicated
customer access is used to provide the service (ii) the service confers new
value-added benefits on users (such as alternative billing methods) or (iii)
calling is limited by a service provider to a group having legal, economic or
professional ties.
In March 1996, the EU adopted the Full Competition Directive containing two
key provisions which required EU member states to allow the creation of
alternative telecommunications infrastructures by July 1, 1996, and which
reaffirmed the obligation of EU member states to abolish the ITOs monopolies in
Voice Telephony by 1998 and to institute mechanisms to prevent the ITOs from
acting anti-competitively toward new market entrants. To date, Sweden, Finland,
Denmark, the Netherlands and the United Kingdom have liberalized
facilities-based services to all routes. Certain EU countries may delay the
abolition of the Voice Telephony monopoly based on exemptions established in the
Full Competition Directive. These countries include Spain (December 1998),
Portugal and Ireland (January 1, 2000) and Greece (2003).
The Company may be incorrect in its assumptions that (i) EU member states
will abolish on a timely basis the respective ITOs monopoly to provide Voice
Telephony to customers within and between such member states and to implement
pro-competitive safeguards, as required by the Services Directive and the Full
Competition Directive, (ii) deregulation will continue to occur and (iii) it
will be allowed to continue to provide and to expand its services. The Company's
provision of services in Western Europe may also be affected if any EU member
state imposes greater restrictions on the provision of international service
between that country and a non-EU member state than on the provision of service
within the member state. There can be no assurance that EU member states will
not adopt laws or regulatory requirements that will adversely affect the
Company.
FRANCE
The Company currently provides call reorigination services to customers in
France. The Company is permitted to provide call reorigination in France without
a license. Although it does not currently provide such services, under current
law, the Company may lease circuits and provide switched voice services to CUGs
in France without a license. The Company anticipates that it will migrate its
customers to forms of call-through other than call reorigination after March 1,
1998 and has recently entered into a joint venture agreement with Central Call
and Mondial Telecom to provide switch based direct access services in France.
The Company anticipates providing a range of enhanced telecommunications
services and switched voice services to business users by routing traffic via
the international switched networks of competitors to the ITO.
A new telecommunications law, passed in 1996 to implement the Full
Compensation Directive, establishes a licensing regime and an independent
regulator and imposes various interconnection and other requirements designed to
facilitate competition. The Company intends to expand its services to include,
for example, direct access and facilities-based services in France. If it
decides to provide switched voice services to the public, including direct
access and/or call-through services, or to own facilities, the Company will have
to apply for a license from the Minister of Telecommunications. There can be no
guarantee, however, that the Company will be able to obtain necessary licenses,
permits, or interconnection arrangements to fully take advantage of such
liberalization. The lack of timely liberalization or the Company's inability to
take advantage of such liberalization could have a material adverse impact on
the Company's ability to expand its services as planned.
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GERMANY
The regulation of the telecommunications industry in Germany is governed by
the Telekommunikations-Gesetz, the Telecommunications Act of 1996 ("TKG"),
which, with respect to most of its provisions, became effective in August 1996.
Under the TKG, a license ("TKG License") is generally required by any person
that (i) operates transmission facilities for the provision of
telecommunications services to the public; or (ii) offers Voice Telephony
services to the public through telecommunications networks operated by such
provider. While TKG represents the final phase of the reform of the German
telecommunications industry, the law protected the monopoly rights of Deutsche
Telecom over the provision of the Voice Telephony until January 1, 1998. The
Company currently does not provide services to customers in Germany, but is
actively contemplating opportunities in entering this market, which after the
U.S. makes up for the largest single international telecommunication market in
the world.
LATIN AMERICA
The Company currently provides call reorigination to customers in certain
Latin American countries, including Argentina, Peru, Ecuador, Uruguay and
Colombia. The Company is subject to a different regulatory regime in each
country in Latin America in which it conducts business. Local regulations
determine whether the Company can obtain authorization to offer the transmission
of voice and voice band data directly or through call reorigination, or for the
provision of value-added services, such as voicemail and data transmission.
Regulations governing the latter are generally more permissible than those
covering Voice Telephony.
Some countries in Latin America oppose the provision of call reorigination.
In Brazil, call reorigination is currently permissible. In Colombia, the
Ministry of Communications has stated that call reorigination access is
prohibited and has so notified the FCC. The Company does not believe that the
Ministry of Communications has the requisite authority to regulate in this area,
which authority is the subject of litigation brought by a third party in the
Colombian courts. At present, regulations appear to permit call reorigination
access in Argentina. However, the regulatory agency in Argentina has changed its
position regarding call reorigination access on several occasions in the past,
and this issue is the subject of an ongoing legal dispute.
Various countries in Latin America have taken initial steps towards
deregulation in the telecommunications market during the last few years. In
addition, various Latin American countries have completely or partially
privatized their national carriers, including Argentina, Chile, Mexico, Peru and
Venezuela. Certain countries have competitive local and/or long distance
sectors, most notably Chile, which has competitive operators in all sectors.
Columbia is scheduled to grant several new concessions for national and
international long distance service providers in addition to its ITO by the end
of 1998. Venezuela has also legalized value-added services such as voicemail and
data transmission and has targeted January 1, 2000 as the date for full
deregulation. Brazil is in the process of opening its telecommunications market
to competition and privatizing its ITO, pursuant to its new law adopted in July
1997. Brazil established an independent regulator in October 1997, and
value-added and private network services, are already open to competition. In
Mexico, the former ITO has been privatized, its exclusive long distance
concession expired in August 1996 and it has been obligated to interconnect with
the networks of competitors since January 1997. Competition in Mexico has been
initiated and an independent regulator has been established. Three countries in
the region, Chile, Mexico and the Dominican Republic, have opened their long
distance telecommunications markets to competition.
SOUTH AFRICA
The telecommunications industry in South Africa is regulated under the Post
Office Act of 1958 (the "SA Post Office Act") and the Telecommunications Act of
1996 (the "SA Telecommunications Act"). Telkom SA Limited ("Telkom"), the
state-owned ITO, has a statutory monopoly on the construction,
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maintenance and use of any telecommunications lines, as well as on the provision
of public switched telecommunications services. The government of South Africa
has indicated that this monopoly will be phased out over five to six years.
Notwithstanding this monopoly, the SA Telecommunications Act permits a party to
provide a range of services other than public switched services under, and in
accordance with, a telecommunications license can be issued to that party in
accordance with the SA Telecommunications Act.
The SA Telecommunications Act established a new telecommunications
regulatory authority called the South Africa Regulatory Authority ("SATRA").
SATRA's functions include the granting of telecommunications licenses,
applications for which are solicited by the South African Minister of
Telecommunications pursuant to the SA Telecommunications Act. As an independent
regulatory authority, SATRA is subject to common law provisions and provisions
in the SA Telecommunications Act that limit its ability to act outside of its
granted authority and without affording parties due process. SATRA's members are
appointed by the President on the advice of Parliament's standing committees on
communications. Although the SA Telecommunications Act states that SATRA should
be independent and impartial in the performance of its functions, it must act in
accordance with policy directions issued by the South African Minister of
Telecommunications.
The Company seeks to take advantage of gradual deregulation of the South
African telecommunications industry by offering permitted services to customers
in South Africa. Currently, the Company provides call reorigination services to
customers in South Africa and may, in the future, seek any necessary licenses to
provide liberalized services such as value added services. In August 1997, SATRA
issued a ruling that call reorigination operations are an offense under the SA
Telecommunications Act. Several entities filed a lawsuit to stay and reverse
SATRA's ruling on the basis that SATRA lacks the authority to issue such a
ruling and that the SA Telecommunications Act does not prohibit the provision of
call reorigination services. SATRA has agreed not to prosecute any person in the
call reorigination industry unless the South African courts rule that it may. It
is anticipated that final adjudication of this lawsuit could take up to two
years to occur. Although the Company believes that South African law does not
prohibit the Company from providing its call reorigination services to customers
in South Africa without a license, if the Company is determined to be providing
a telecommunications service without a license, it could be subject to fines, to
the termination of its call reorigination service to customers in South Africa
and, potentially, to the denial of license applications to provide liberalized
services. There can be no guarantee that the courts in South Africa will not
rule that call reorigination is illegal, that they will do so within two years,
or that the South African legislature will not promulgate an explicit
prohibition on call reorigination. Any such action could have a material adverse
effect on the Company's business, financial condition and results of operation.
RUSSIA
The provision of telecommunications services in the Russian Federation falls
within federal jurisdiction. The principal legal act regulating
telecommunications in the Russian Federation is the Federal Law on
Communications, enacted on February 16, 1995, which establishes the legal basis
for all activities in the telecommunications sector and provides, among other
things, for licensing to provide communications services, the requirement to
obtain a radio frequency allocation, certification of equipment, and fair
competition and freedom of pricing.
The MOC (Ministry of Communications) and the Federal Agency of Governmental
Communications and Information under the President of the Russian Federation are
the federal organizations which have executive power over the telecommunications
industry. The MOC is responsible for allocating federal budget resources in the
telecommunications industry and has supervisory responsibility for the technical
condition and development of all types of communications.
The Communications Law requires that any person providing telecommunications
services must in theory obtain a license prior to commencing such services.
Licenses to provide telecommunications
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services are issued by the MOC. Under the Licensing Regulations, licenses for
rendering telecommunications services may be issued and renewed for periods
ranging from 3 to 10 years and several licenses may be issued to one person.
Licenses may be revoked or suspended by the MOC for failure to comply with terms
and conditions of the license.
The Communications Law requires the federal regulatory agencies to encourage
and promote fair competition in the provision of communication services and
prohibits abuse of a dominant position to hinder, limit or distort competition.
The Communications Law also provides that tariffs for communication services may
be established on a contractual basis between the provider and the user of
telecommunications services.
Russian telecommunications companies are subject to the same system of
taxation as Russian companies in general, including profit tax and VAT on
services.
Current Russian legislation governing foreign investment activities does not
prohibit or restrict foreign investment in the telecommunications industry.
However, on February 28, 1997, the State Duma, the lower house of parliament
approved on the first reading draft foreign investment legislation which would
restrict any significant future foreign investment in numerous sectors of the
Russian economy, including telephone and radio communications. It is unlikely
that such restrictive legislation will be enacted, unless the political climate
changes dramatically. More likely is the emergence of limited restrictions on
foreign investment in strategic industries, which could result in foreign
ownership limitations in industries such as telecommunications, which
limitations are not uncommon in many countries. The draft legislation has been
referred to the Russian government for commitment. For such draft legislation to
become Federal Law, it must be passed by a majority vote of the State Duma at
another two readings, approved by a majority of the Federation Council, the
upper house of parliament, and signed by the President of the Russian
Federation. Rejection of such legislation by the Federation Council could be
overridden by a two-thirds majority of the State Duma. Rejection of such
legislation by the President could be overridden by a two-thirds majority of
each of the Federation Council and the State Duma.
In addition, a lack of consensus exists over the manner and scope of
government control over the telecommunications industry. Because the
telecommunications industry is widely viewed as strategically important to
Russia, there can be no assurance that recent government policy liberalizing
control over the telecommunications industry will continue. Russia is not a
member of the WTO, but, if it seeks to become a member, it may be required to
take further steps to liberalize the telecommunications market as a condition of
accession.
MIDDLE EAST
The Company's ability to provide services in the Middle East depends on the
regulatory environment in each particular country. In Lebanon, for example, the
telecommunications industry is regulated by the Ministry of Posts and
Telecommunications ("MPT"), which also operates the ITO--the General Directorate
of Telecommunications (the "GDT"). The GDT currently has a monopoly on the
provision of wireline telecommunications services in Lebanon. In Egypt, the
Ministry of Transport, Communications and Civil Aviation regulates the
telecommunications industry and Telecom Egypt, formerly known as the Arab
Republic of Egypt National Telecommunications Organization ("ARENTO"), is the
ITO. Although Telecom Egypt currently has a monopoly on the provision of voice
services, several U.S. carriers are permitted to sell pre-paid phone cards and
calling card services. Egypt has announced that it will permit limited
competition to Telecom Egypt in the near future.
INTERNET TELEPHONY
The introduction of Internet telephony is a recent market development. To
the Company's knowledge, there currently are no domestic and few foreign laws or
regulations that prohibit voice communications over the Internet. The FCC is
currently considering whether or not to impose surcharges or additional
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regulation upon providers of Internet telephony. In addition, several efforts
have been made to enact U.S. federal legislation that would either regulate or
exempt from regulation services provided over the Internet. State public utility
commissions also may retain intrastate jurisdiction and could initiate
proceedings to regulate the intrastate aspects of Internet telephony. A number
of countries that currently prohibit competition to the ITOs in the provision of
voice telephony also have prohibited Internet telephony. Several other countries
permit but regulate Internet telephony. If foreign governments, Congress, the
FCC, or state utility commissions prohibit or regulate Internet telephony, there
can be no assurances that any such regulations will not materially affect the
Company's business, financial condition or results of operation.
VAT
The EU imposes value-added taxes ("VAT") upon the sale of goods and services
within the EU. The rate of VAT varies among EU members, but ranges from 15% to
25% of the sales of goods and services. Under VAT rules, businesses are required
to collect VAT from their customers upon the sale to such customers of goods and
services and remit such amounts to the VAT authorities. In this regard it is
expected that non-EU based telecommunications providers will be required to
appoint a VAT agent and register for VAT in every EU member state in which it
has individual customers.
France and Germany have adopted rules that, as of January 1, 1997, deem
telecommunications services provided by non-EU based companies to be provided
where the customer is located, thereby subjecting the telecommunications
services provided to customers in the EU by non-EU based companies to VAT. The
German and French rules impose VAT on both the residential and business
customers of non-EU based telecommunications companies. In the case of sales to
non-VAT registered customers, German and French rules require that the non-EU
based telecommunications carrier collect and remit the VAT. In the case of sales
by such providers to German VAT-registered customers, the German rules generally
require that such customers collect and remit the VAT. Under the so-called
"Nullregelung" doctrine, however, certain business customers that are required
to charge VAT on goods and services provided to their customers (generally,
companies other than banks and insurance companies) are entitled to an exemption
from VAT on telecommunications services. In the case of sales by such providers
to French VAT-registered customers, the French rules require that such business
customers collect and remit the VAT.
The EU has adopted a proposed amendment to the Sixth Directive that, if
adopted in present form, would require all EU members to adopt legislation to
impose VAT on non-EU based telecommunications services provided to customers in
the EU by non-EU based companies, beginning as early as December 31, 1998. Under
the proposed amendment, non-EU based telecommunications companies would be
required to collect and remit VAT on telecommunications services provided to EU
businesses as well as to individuals.
The Company's independent agents historically have collected, and will
continue to collect, VAT on services where it is offered in a VAT country. The
Company believes that whatever potential negative impact the Derogation and the
Amendment will have on its operations as a result of the imposition of VAT on
traditional call reorigination, such impact will be partially mitigated by the
customer migration towards and the higher gross margins associated with direct
access services.
EMPLOYEES
As of September 30, 1997, the Company had 19 full-time employees. None of
the Company's employees are covered by a collective bargaining agreement.
Management believes that the Company's relationship with its employees is
satisfactory. The Company anticipates that its number of employees will increase
in the future as it invests the proceeds of this Offering by acquiring
complementary businesses and increases its own internally generated revenues.
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AGREEMENTS WITH INDEPENDENT AGENTS
From its inception in 1993 to the present, the Company's sales and marketing
efforts have been conducted by the appointment of an exclusive independent sales
representative in each of its markets. Each of these independent agents operate
in accordance with a model of practices and procedures developed by the Company,
and settle all customer invoices (net of the agency's commission share) directly
with the Company within a prescribed period, generally less than 40 days. Upon
consummation of the Offering, the Company may reduce its reliance upon
independent agents by strategic acquisitions, and may make equity investments in
certain independent agents. See "Use of Proceeds", and "Certain Relationships
and Related Party Transactions."
Each prospective agency is required to submit a business plan and
demonstrate the financial resources and commitment required to carry out its
marketing and customer service plan approved by the Company prior to its
appointment. Each Agency is licensed by and required to do business in the name
of the Company, and execute Subscriber Agreements with end users on behalf of
and for the benefit of the Company.
The Company knows of no competitor that operates in this manner and
attributes this program with its successful market penetration, high degree of
customer satisfaction, and rapid collections cycle.
Most of the costs of marketing, sales and customer service are paid from the
commissions retained by each of the agencies, and the Company's agencies are
generally successful enterprises in their own right and by their own merit.
The Company's agreements with its independent exclusive agents typically
provide for a five-year term with an option of renewing the Agreements for two
additional terms of three years, in addition to a two-year non-compete clause
effective upon termination of the agreement, and further require the agents to
offer the Company's services at rates prescribed by the Company and to abide by
the Company's marketing and sales policies and rules. Agent compensation is paid
directly by the Company and is based exclusively upon payment for the Company's
services by customer funds the agents obtain for the Company. The commission
paid to agents ranges between fifteen to nineteen percent of revenues received
by the Company and varies depending on individual contracts, the exclusivity of
the agent and the type of service sold. Commissions are paid each month based on
payments received during the prior month from customers collected by the agent.
For the six months ended September 30, 1997, approximately 66% of the Company's
revenues were attributable to the most significant four (4) independent
agencies. Agents settle their accounts with the Company in U.S. Dollars and
therefore bear the risk of fluctuations in the exchange rates between the local
currency and the U.S. Dollar. Agents are held accountable for customer
collections and are responsible for bad debt attributable to customers they
enroll. The Company may record additional bad debt expense, however, based on
increases in wholesale business, consummation of acquisitions, and equity
investments in the agency companies.
For the six months ended September 30, 1997, the Company derived
approximately 92% of its revenues from customers enrolled by agents who are
contractually prohibited from offering competitive telecommunications services
to their customers during the term of their contract. In the past, certain
independent agents have elected to terminate their relationships with the
Company in lieu of entering into new independent agent agreements. In the event
that independent agents terminate their agency agreements and transfer a
significant number of customers to other service providers or that a significant
number of agents decline to renew their contracts under the new terms and move
their customers to another carrier, such events would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors--Dependence on Independent Exclusive Agents."
In mid 1997 the Company initiated discussions with certain of its exclusive
agents with regard to the acquisition of an equity interest in their agencies.
The Company believes that it would be beneficial to have an ownership interest
in its key marketing and customer service organizations while maintaining the
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benefits derived from the local expertise of the exclusive agent, as well as the
productivity derived from local ownership and profit making. From these
discussions the Company has determined that equity in the exclusive agencies can
be obtained by: (i) direct purchase for cash; (ii) the offering of options or
stock to acquire small equity interest in the agencies in the event of the
Company's public stock offering; (iii) the issuance of the Company's securities
in a private placement, prior to any public offering; or (iv) a combination of
the aforementioned. The Company believes that this strategy will provide the
Company with the benefits derived from direct ownership of the local sales
organization while retaining the benefits of the existing entrepreneurial
structure. Other than with respect to pending agreements in France and South
Africa described in "Certain Relationships and Related Party Transactions", the
Company has no agreement to purchase an interest in any of its agencies.
PROPERTIES
The Company currently occupies approximately 8,087 square feet of office
space in Sunrise, Florida, which serves as the Company's principal executive
office. The lease has an annual rental obligation of approximately $158,000 and
expires on April 30, 2003. The Company believes that such offices are adequate
for its current purposes.
LEGAL PROCEEDINGS
Although the Company is party to litigation in the ordinary course of
business, there are no legal proceedings pending or to the knowledge of the
Company, threatened, that, if determined adversely to the Company, would have a
material adverse effect on the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the current
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Luca M. Giussani................................... 42 President, Chief Executive Officer and Director
Jeffrey R. Chaskin................................. 44 Executive Vice President, Chief Operating Officer
and Director
Johannes S. Seefried............................... 39 Chief Financial and Chief Accounting Officer and
Director
Gregory J. Koutoulas............................... 48 Vice President, Controller and Secretary
Richard C. McEwan.................................. 43 Vice President
William Newport.................................... 63 Director, Chairman of the Board of Directors
</TABLE>
Luca M. Giussani, a co-founder of the Company, has served as President,
Chief Executive Officer and Director of the Company since March of 1993. Prior
to co-founding Ursus Telecom Corporation with Mr. Chaskin, Mr. Giussani served
as an advisor to a number of developing countries for the restructuring of their
foreign debt, as well as a consultant to several public sector Italian
contractors specialized in the construction of power plants. Prior to 1993, Mr.
Giussani was an officer of Orient & China S.P.A., a trading company specialized
on transactions with China, and in the following concerns that provided
consulting services to Italian contractors: Intraco P.E.F, Balzar Trading Ltd.
and Ursus Finance Ltd.
Jeffrey R. Chaskin is a co-founder of the Company and has been its Chief
Operating Officer and a Director since its inception in March of 1993. Mr.
Chaskin has had a key role in the development of various telecommunications
companies, and has consulted to the industry since 1981 including consulting
regarding call center and switched network operations for CIL, Federal Express,
CBN, ASCI and others. Mr. Chaskin's duties include running the day to day
operations of the Company, carrier relations, and business development and
strategy.
Johannes S. Seefried has been Chief Financial Officer of the Company since
February 1997, and its Chief Accounting Officer and a Director since February
1998. Prior to joining the Company in 1996, Mr. Seefried held executive
positions in corporate finance and securities sales with commercial and
investment banking organizations at The Chase Manhattan Bank (1984-86), Drexel
Burnham Lambert and Mabon Nugent (1986-89), Inverbroker, U.S.A. (1989-90), Grupo
Banco Santander (1990-93), both in the United States and Europe. Mr. Seefried's
primary responsibilities at the Santander Group included serving as a Vice
President of corporate business development, including mergers & acquisitions,
and sharing responsibility for establishing a broker/dealer for the Santander
Group in the U.S.A. From 1994 to 1996, Mr. Seefried served as Managing Partner
of Seefried Forstverwaltung, a diversified privately-owned forestry and property
management company. Mr. Seefried is a graduate of the Stanford Graduate School
of Business, 1994 and the School of Foreign Service at Georgetown University,
1983.
Gregory J. Koutoulas has been Vice President of Finance and Secretary of the
Company since April 1995 and Controller since November 1994. From 1990 to 1994
Mr. Koutoulas served as Controller of F.A.S.T., INC., a wholesale distributor of
health and beauty aids. Prior to his position with F.A.S.T., INC., from 1987 to
1989, Mr. Koutoulas was employed by Bertram Yacht, a manufacturer of luxury
yachts, as Manager of Financial Analysis and Cost Accounting. Mr. Koutoulas
received a B.S. in Economics with a concentration in Accounting from Purdue
University in 1971 and is a licensed Certified Public Accountant.
Richard C. McEwan has been Vice President of Agency Relations since
September 1, 1997. Prior to joining the Company on a full-time basis, Mr. McEwan
was a consultant to the Company since its inception
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in 1993 after leaving Gateway USA as its Director of International Development
since 1990. From 1988 to 1990 Mr. McEwan was co-founder and Executive Vice
President of Gateway Asia-Taiwan, the first overseas agency of Gateway USA
providing call reorigination services. Mr. McEwan also provides consulting
services to one of the Company's agencies. See "Employment Agreements." Mr.
McEwan received a B.A. from Brigham Young University in 1980 and a Masters of
International Management from the American Graduate School of International
Management (Thunderbird) in 1982.
Following consummation of the Offering, the Company expects to name one
additional outside directors to its Board of Directors, so that the outside
members of the Board will consist of William M. Newport and another outside
director to be designated.
William M. Newport became a Director and Chairman of the Board of Directors
of the Company in February 1998. Mr. Newport was Chief Executive Officer of
AT&T's cellular business from 1981 to 1983. In 1983, Mr. Newport joined the Bell
Atlantic Corporation when it was formed as a result of the AT&T divestiture and
retired in December 1992 from the Bell Atlantic Group as a Vice President for
Strategic Planning, after a 36 year long career in the telecommunications
industry. Mr. Newport served as a director at Integrated Micro Products a
manufacturer of fault tolerant computers for telecommunications equipment
vendors from 1994 to 1996, and currently serves as a director of the Corporation
for National Research Initiatives, a non profit information technology research
and development company, Authentix Networks, Inc., a wireless roaming fraud
prevention and detection service provider, Ovum Holdings plc., a
telecommunications consulting firm, and Condor Technology Solutions. Condor
Technology Solutions is a publicly traded company that provides information
technology services, such as information systems development, networking, desk
top computing systems and design installations. Mr. Newport holds degrees in
Electrical Engineering from Purdue University and in Management from the Sloan
School of Management at M.I.T.
Effective immediately before this Offering, the directors will be divided
into three classes, denominated Class I, Class II and Class III, with the terms
of office expiring at the 1999, 2000 and 2001 annual meeting of shareholders,
respectively. At each annual meeting following such initial classification and
election, directors elected to succeed those directors whose terms expire will
be elected for a term to expire at the third succeeding annual meeting of
shareholders after their election. All officers are appointed by and serve,
subject to the terms of their employment agreements, if any, at the discretion
of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established, or will establish prior to the
Offering, three standing committees: the Executive Committee, the Compensation
Committee and the Audit Committee. Luca Giussani, Jeffrey Chaskin, and Johannes
S. Seefried serve on the Executive Committee which is authorized to exercise the
powers of the Board of Directors between meetings. However, the Executive
Committee may not (i) amend the Articles of Incorporation or the Bylaws of the
Company, (ii) adopt an agreement of merger or consolidation, (iii) recommend to
the shareholders the sale, lease, or exchange of all or substantially all of the
Company's property and assets, (iv) recommend to the shareholders a dissolution
of the Company or revoke a dissolution, (v) elect a director, or (vi) declare a
dividend or authorize the issuance of stock. William Newport and the other
outside director will serve on the Compensation Committee. The Compensation
Committee is responsible for recommending to the Board of Directors the
Company's executive compensation policies for senior officers and administering
the 1998 Stock Incentive Plan (the "Stock Incentive Plan"). See "--Stock
Incentive Plan." Johannes S. Seefried and the outside directors will serve on
the Audit Committee. The Audit Committee is responsible for recommending
independent auditors, reviewing the audit plan, the adequacy of internal
controls, the audit report and the management letter, and performing such other
duties as the Board of Directors may from time to time prescribe.
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COMPENSATION OF DIRECTORS
Following completion of the Offering, the Company intends to pay each
non-employee director compensation of $2,000 for each meeting of the Board of
Directors that he attends and $500 for a conference telephone meeting with
members of the Board. Outside members of the Board will also be granted between
5,000 and 15,000 non-qualified options under the Stock Incentive Plan as
described below, for each year of service on the Board. Mr. Newport will receive
15,000 non-qualified options at the initial public offering price. The Company
will reimburse each director for ordinary and necessary travel expenses related
to such director's attendance at Board of Directors and committee meetings.
EXECUTIVE COMPENSATION
The Summary Compensation Table below provides certain summary information
concerning compensation paid or accrued during the fiscal year ended March 31,
1997, 1996 and 1995 by the Company to or on behalf of the Chief Executive
Officer and the three other executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------
<S> <C> <C> <C> <C>
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------------------------ --------- ---------- ---------- -------------
Luca M. Giussani.................................................. 1997 $ 170,000 $ 251,405 $ 8,200(1)
President and Chief Executive 1996 $ 170,000 $ 164,326 $ 4,704(1)
Officer 1995 $ 128,804 $ 12,300 $ 16,805(3)
Jeffrey R. Chaskin (2)............................................ 1997 $ 170,000 $ 251,405 $ 4,583(1)
Executive Vice President and 1996 $ 170,000 $ 164,326 $ 3,057(1)
Chief Operating Officer 1995 $ 170,000 $ 12,300 --
Johannes S. Seefried (4).......................................... 1997 $ 61,981 -- --
Chief Financial and Accounting
Officer
Richard McEwan (5)................................................ 1997 -- -- $ 50,000 (6)
Vice President of Agency 1996 $ 50,000 (7)
Relations 1995 $ 67,885 (7)
</TABLE>
- ------------------------
(1) Consists of use of a Company automobile.
(2) Not included in the table is compensation paid to Mr. Chaskin's wife, Joanne
M. Canter, who is an employee of the Company. Ms. Canter's salary for 1995,
1996 and 1997 was $18,692, $18,000 and $16,615, respectively.
(3) Consists of moving expenses.
(4) Mr. Seefried joined the Company on July 8, 1996. His base salary at
September 30, 1997 was $125,000.
(5) Mr. McEwan joined the Company on September 1, 1997. His base salary at
December 31, 1997, was $130,000.
(6) Consulting fees paid from April 1, 1997 to August 30, 1997.
(7) Consulting fees.
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EMPLOYMENT AGREEMENTS
Effective as of the date of the Offering, the Company will have entered into
employment agreements with each of Luca Giussani, Jeffrey Chaskin, Johannes S.
Seefried and Richard McEwan for terms ranging from two to five years.
The Company has entered into 5-year Employment Agreements, effective on
January 1, 1998, with each of Messrs. Giussani and Chaskin, respectively, the
Company's Chief Executive and Chief Operating Officers, providing for each to
receive:
(i) base annual salary of $225,000 in 1998, $250,000 in 1999, $275,000 in
2000, $300,000 in 2001 and $325,000 in 2002;
(ii) minimum bonuses payable at the beginning of every calendar year for the
term of the employment contract, commencing in January 1998, will be
$45,000; in addition, each executive will receive additional bonuses,
depending upon the Company's operating results, of $45,000 for each $1
million of earnings before interest, taxes, depreciation, amortization
and such bonuses ("EBITDAB") up and including to an "EBITDAB" of $4
million, as generated by the Company during any fiscal year beginning on
April 1, 1998 (such bonuses to be prorated for EBITDAB of a fraction of
$1 million and paid monthly, subject to continuing adjustment for each
quarterly and fiscal year's EBITDAB);
(iii) bonuses commencing with the Company's fiscal year beginning on April
1, 1998, determined as a percentage of the executive's base annual pay
depending upon the Company's EBITDAB, these bonuses begin to be payable
at 20% of base annual pay for EBITDAB of at least $4 million, and
increase in increments of 5% of base annual pay for each $1 million of
additional EBITDAB above an EBITDAB of $4 million (such bonuses to be
prorated for EBITDAB of a fraction of $1 million and paid quarterly
subject to continuing adjustment for each fiscal year's EBITDAB) provided
that aggregate bonuses as described in (ii), above and this section (iii)
shall not exceed 200% of the annual base pay.
(iv) in the event of a termination without cause, or termination by the
executive for good reason, compensation for the balance of the remaining
term of the Employment Agreement, but for not less than one year; or in
the event of termination of the executive following a change in control,
a payment of three years' base includible compensation, equal to the
maximum tax deduction that the Company can receive under the applicable
"golden parachute" regulations;
(v) confidentiality provisions and a non-compete agreement within the State
of Florida for one year after any termination of employment, and
(vi) 10-year options to purchase 150,000 shares of Common Stock at the
Offering price, 75,000 of which vest upon consummation of this Offering
and the balance in January, 1999 or upon a change in control of the
Company. Mr. Giussani's options will be non-qualified. Options to
purchase $200,000 worth of Common Stock issued to Mr. Chaskin will be
tax-qualified and remainder will be non-qualified.
The Agreements provide that the bonuses already paid to Messrs. Giussani and
Chaskin through December 1997 comprise the entire bonus to which each is
entitled in respect of the fiscal year ending March 31, 1998. They also waive
any other claims for compensation from the Company accruing prior to January 1,
1998.
The Company has entered into an employment agreement with Johannes Seefried,
its Chief Financial and Accounting Officer, providing for terms similar to those
in the Employment Agreements with Messrs. Giussani and Chaskin, as described
above, except that:
(i) the term of the Agreement is for two years from January 1, 1998;
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(ii) the base annual salary is $170,000 in 1998 and $200,000 in 1999;
(iii) a guaranteed bonus of $50,000 is payable at the commencement of the
Agreement, and of $75,000 is payable upon consummation of this Offering,
in addition to bonuses payable as a percentage of base annual pay
depending on the EBITDAB of $4 million or more that the Company realizes
in any fiscal year beginning on or after April 1, 1998 and during the
term of the Agreement; all in accordance with the formula set forth in
paragraph (iii), above with respect to Messrs. Giussani and Chaskin; and
(iv) 10-year options to purchase 100,000 share of Common Stock at the
Offering price, 50,000 of which vest upon consummation of this Offering
and the balance in January, 1999 or upon a change in control of the
Company. Options to purchase $200,000 worth of Common Stock will be
tax-qualified, the remaining options will be non-qualified.
On September 1, 1997, the Company entered into an employment agreement with
Richard McEwan, its Vice President of Agent Relations, for a period of two
years. The Agreement replaces the consulting agreement previously in effect. The
Agreement automatically renews for successive one-year terms unless either party
provides written notice of non-renewal. By the terms of the Agreement, Mr.
McEwan was paid a starting bonus of $40,000 upon joining the Company and
receives a base annual salary of $130,000. Mr. McEwan is also eligible to
receive bonuses each December at the discretion of the Board of Directors. Upon
adoption by the Company of a stock incentive plan, Mr. McEwan is entitled to
receive incentive stock options to purchase a number of shares equal to two
percent of the Company's common stock outstanding as of the date of the
Agreement, at an option price and subject to a vesting schedule to be determined
by the Company and its Board of Directors at their sole discretion. The
Agreement permits Mr. McEwan to continue to perform services for one of the
Company's independent agents, provided that doing so does not create a conflict
of interest or unreasonably interferes with the performance of his duties under
the Agreement. This provision refers to an existing and continuing consulting
arrangement providing for Mr. McEwan to provide consulting services to the
Company's agency in the Bahamas. Pursuant to that arrangement, Mr. McEwan
provides "back office" support services to that agency in return for consulting
fees equal to approximately 30% of the amount of agency fees that the Bahamas
agency collects from the Company. These fees, which amounted to approximately
$30,000 in 1996 and $50,000 in 1997 are paid directly to a trust of which Mr.
McEwan is a Trustee, and from which he received a $1,000 monthly trustee's fee
through September, 1997, after which that fee ceased being paid. The
beneficiaries of the Trust include various charitable endeavors, but also
include the children of Mr. McEwan. The Agreement contains confidentiality
provisions and a non-compete agreement within the State of Florida for one year
after any termination of employment.
STOCK INCENTIVE PLAN
The Company's Board of Directors and Shareholders adopted the "1998 Stock
Incentive Plan" (the "Stock Incentive Plan" or the "Plan") in February 1998. The
Compensation Committee will administer the Plan, except that prior to the
Offering the Plan will be administered by the Board of Directors. All employees
and directors of and consultants to the Company, as may be determined from time
to time by the Compensation Committee, are eligible to receive "Incentive
Awards" under the Stock Incentive Plan. The Stock Incentive Plan allows the
Company to issue Incentive Awards of stock options (including incentive stock
options and non-qualified stock options), restricted stock and stock
appreciation rights.
A total of 1,000,000 shares of Common Stock will be authorized for issuance
under the Stock Incentive Plan. Not more than 200,000 shares of Common Stock may
be the subject of incentives granted to any individual during any calendar year
under the Stock Incentive Plan. On the effective date of their respective
Employment Agreements, the Company has granted to its Chief Executive, Chief
Operating and Chief Financial Officers 10-year stock options exercisable at the
public offering price covering 150,000, 150,000 and 100,000 shares of Common
Stock, respectively. Half of these options vest upon issuance, and
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<PAGE>
the balance vest on January 1, 1999 or upon a change in control of the Company.
These options will not be exercisable unless this Offering is consummated.
$200,000 worth of the options granted to each of Messrs. Chaskin and Seefried
are tax-qualified, the remaining options granted to Messrs. Chaskin and Seefried
and all options granted to Mr. Giussani are non-qualified.
In addition, immediately prior to the commencement of the Offering, options
will be granted at or above the initial public offering price to certain
employees of the Company, including Mr. McEwan as will be determined by the
Compensation Committee.
The exercise price of an incentive stock option and a non-qualified stock
option is fixed by the Compensation Committee at the date of grant; however, the
exercise price under an incentive stock option must be at least equal to the
fair market value of the Common Stock at the date of grant, and 110% of the fair
market value of the Common Stock at the date of grant for any incentive stock
option granted to an optionee that owns more than 10% of the Common Stock of the
Company.
Stock options are exercisable for duration determined by the Compensation
Committee, but in no event more than ten years after the date of grant. The
Compensation Committee may fix the vesting schedule and duration of options on
the date of grant (in the case of qualified options, the term cannot exceed ten
years from the date of grant or five years for options granted to an optionee
that owns more than 10% of the Common Stock of the Company). The aggregate fair
market value (determined at the time the option is granted) of the Common Stock
with respect to which incentive stock options are exercisable for the first time
by a participant during any calendar year (under all stock option plans of the
Company) shall not exceed $100,000; to the extent this limitation is exceeded,
such excess options shall be treated as non-qualified stock options for purposes
of the Stock Incentive Plan and the Code.
At the time a stock option is granted, the Compensation Committee may, in
its sole discretion, designate whether the stock option is to be considered an
incentive stock option or non-qualified stock option. Stock options with no such
designation shall be deemed non-qualified stock options.
Payment of the purchase price for shares acquired upon the exercise of
options may be made by any one or more of the following methods: in cash, by
check, by delivery to the Company of shares of Common Stock already owned by the
option holder, or by such other method as the Compensation Committee may permit
from time to time. However, a holder may not use previously owned shares of
Common Stock to pay the purchase price under an option, unless the holder has
beneficially owned such shares for at least six months.
Stock options become immediately vested and exercisable in full upon the
occurrence of such special circumstances as in the opinion of the Board of
Directors merit special consideration.
Stock options terminate at the end of the 90th day following the holder's
termination of employment or service. This period is extended to one year in the
case of the disability or death of the holder and, in the case of death, the
stock option is exercisable by the holder's estate. The Board of Directors may
extend the post-termination exercise period for any individual, but not beyond
the expiration of the original term of the option.
An option grant may, in the discretion of the Compensation Committee,
include a reload option right that entitles the holder, upon exercise of the
original option and payment of an exercise price for the option in shares, to
purchase at the fair market value per share at the time of exercise the number
of shares used to pay the option exercise price. A reload option may, in the
Compensation Committee's discretion, permit the holder upon exercise of the
option to purchase the number of shares equal to the number of shares issued
upon exercise of the original option. Any reload option will be subject to the
same expiration date and exercisable at the same time as the original option
with respect to which it is granted.
The Compensation Committee may grant stock appreciation rights, either
independently or in connection with the grant of a stock option. Stock
appreciation rights granted in connection with an option
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may fall into one of two categories: "Conjunctive Rights" or "Alternative
Rights." Conjunctive Rights will, upon exercise of the related stock option,
entitle the holder to receive payment of an amount equal to the product obtained
by multiplying (a) the spread between the fair market value per share at the
time of exercise and the per share option exercise price, and (b) the number of
shares in respect of which the related option is exercised. Alternative Rights
will, upon surrender of the related option with respect to the number of shares
as to which such rights are then exercised, entitle the holder to receive
payment of an amount equal to the product obtained by multiplying (i) the spread
between the fair market value per share at the time of exercise and the per
share option exercise price, and (ii) the number of shares in respect of which
the rights are exercised. The duration of stock appreciation rights granted in
connection with a stock option will be coterminous with the duration of the
stock option.
Stock appreciation rights granted independently will, upon their exercise,
entitle the holder to receive payment of an amount equal to the product obtained
by multiplying (a) the excess of the fair market value per share on the date of
exercise of the stock appreciation rights over the fair market value per share
on the date of grant of the stock appreciation rights, and (b) the number of
shares in respect of which the stock appreciation rights are exercised. Stock
appreciation rights granted independently of any stock option will be
exercisable for a duration determined by the Compensation Committee, but in no
event more than ten years from the date of grant.
The Compensation Committee may also grant restricted stock awards under the
Plan. Restricted stock awards will not be transferable until the restrictions
are satisfied, removed or expire, and will bear a legend to that effect. The
Compensation Committee may impose such other conditions as it deems advisable on
any restricted shares granted to or purchased pursuant to a restricted stock
award made under the Plan.
Awards granted under the Plan contain anti-dilution provisions which will
automatically adjust the number of shares subject to the award in the event of a
stock dividend, split-up, conversion, exchange, reclassification or
substitution. In the event of any other change in the corporate structure or
outstanding shares of Common Stock, the Compensation Committee may make such
equitable adjustments to the number of shares and the class of shares available
under the Stock Incentive Plan or to any outstanding award as it shall deem
appropriate to prevent dilution or enlargement of rights.
The Company shall obtain such consideration for granting options under the
Stock Incentive Plan as the Compensation Committee in its discretion may
request.
Each award may be subject to provisions to assure that any exercise or
disposition of Common Stock will not violate federal and state securities laws.
No award may be granted under the Stock Incentive Plan after the day
preceding the tenth anniversary of the adoption of the Stock Incentive Plan.
The Board of Directors or the Compensation Committee may at any time
withdraw or amend the Stock Incentive Plan and may, with the consent of the
affected holder of an outstanding award, at any time withdraw or amend the terms
and conditions of outstanding awards. Any amendment which would increase the
number of shares issuable pursuant to the Stock Incentive Plan or to any
individual thereunder or change the class of individuals to whom options may be
granted shall be subject to the approval of the shareholders of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, the Company has not had a compensation committee or
any other committee of the Board of Directors performing similar functions.
Prior to the Offering, decisions concerning executive compensation were made by
the Board of Directors, including Messrs. Giussani, Chaskin and Seefried, all of
whom were and continue to be executive officers of the Company and participated
in deliberations of the Board of Directors regarding executive officer
compensation. The Board of Directors of the Company
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will establish a Compensation Committee upon consummation of this Offering. See
"--Committees of the Board of Directors."
None of the executive officers of the Company currently serve on the
compensation committee of another entity or any other committee of the board of
directors of another entity performing similar functions. For other related
party transactions, see "Certain Relationships and Related Party Transactions."
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
LOANS AND ADVANCES TO EXECUTIVE OFFICERS
Between December 26, 1995 and July 15, 1997, the Company loaned an aggregate
of $127,000 to Luca Giussani, its Chief Executive Officer. The loans were
evidenced by unsecured notes bearing interest at 7.65% per annum. In addition,
the Company made cash advances totaling $4,749 on behalf of Mr. Giussani during
this period. Mr. Giussani repaid the Company all outstanding amounts on December
23, 1997.
During fiscal 1995, 416.67 Class C shares were issued to Jeffrey Chaskin,
the Company's Chief Operating Officer, in exchange for a $18,750 promissory note
bearing interest at 7.65%, due March 1, 1997. Mr. Chaskin's 541.67 total Class C
shares were pledged as security for the note. On February 21, 1997, this loan
was converted to an unsecured note bearing interest at 7.65% per annum, payable
by February 21, 1998. Mr. Chaskin repaid the loan in full on December 19, 1997.
BONUSES PAID IN ADVANCE
At September 30, 1997, the Company had paid bonuses of $32,808 in advance to
both Mr. Giussani and Mr. Chaskin. The total balance of $65,616 is included in
prepaid expenses.
Pursuant to the employment agreements effective January 1, 1998 (See
"Management--Employment Agreements."), all bonuses, including any advance
payments, paid to Messrs. Giussani and Chaskin through December 1997 comprise
the entire bonus to which each is entitled in respect of the fiscal year ending
March 31, 1998. They also waive any other claims for compensation from the
Company accruing prior to January 1, 1998. Messrs. Giussani and Chaskin each
received $225,779 in bonuses under these agreements for the nine months ended
December 31, 1997.
TERM LOANS AND GUARANTEE BY CHIEF EXECUTIVE OFFICER
During 1993, the Company entered into two term loan agreements with
Citibank-Zurich providing for an aggregate loan amount of $730,000. The due
dates of the two loans were May 20, 1996 and November 11, 1996, respectively.
During 1995 and through April 1996, the Company repaid a total of $250,000 on
the term loans. In June of 1996, the Company replaced the two existing term
loans with a new term loan with the same lender in the amount of $500,000 and
due August 31, 1998. From June 1996 to January 21, 1998 the Company has repaid
an additional $430,000. The term loan balance is $70,000 as of January 21, 1998.
Luca Giussani, the Company's Chief Executive Officer provided security for
these term loans by pledging money-market accounts equal to 100% of the
outstanding loan balances. The amount currently pledged as security by Mr.
Giussani is $70,000.
The note provides for selection of LIBOR interest periods of one, two,
three, six, nine or twelve months at the option of the Company. The Company has
elected to pay interest monthly and is charged at a rate of 1.25% over the
bank's cost of funds, but not in excess of a 1.75% over the rate earned on the
money-market account pledged to secure the loan.
The Company intends to repay the current outstanding balance of $70,000 by
March 31, 1998.
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<PAGE>
PURCHASE OF EQUITY INTEREST IN SOUTH AFRICAN AGENCY
On August 12, 1997, the Company entered into an agreement with its largest
independent agent, located in South Africa, to acquire an equity interest in the
agency. The agreement provides for the Company to make deposits on the purchase
price in an amount equal to 9% of the revenues that this agency generates for
the Company for the period from August 1, 1997 through January 31, 1998. The
percentage of the agency that the Company will acquire will be based on a
formula that values the agency at approximately six times its average monthly
revenues for the months of October, November and December 1997. At September 30,
1997, deposits of $127,382 have been made under this Agreement and are included
in other assets. Based on this valuation formula, the agency has been valued at
$4,316,080. Based on the revenues generated for the Company by the independent
agent for the period from August 1, 1997 through January 31, 1998, the Company
will purchase an equity interest of 8.64% in the agency for $372,949.
FORMATION OF FRENCH SUBSIDIARY
On November 20, 1997, the Company entered into a letter of intent with
respect to a proposed joint venture with Central Call and Mondial Telecom, its
French agencies. Pursuant to the letter of intent, as amended, the Company
organized Ursus Telecom France, a limited liability company, capitalized at
FF50,000 or approximately $8,300. The Company will hold 50% plus 2 shares of the
Ursus Telecom France. The remaining shares are held equally by Central Call and
Mondial Telecom.
The letter of intent calls for the Company to pay within six (6) months
after the completion of an initial public offering, a cash sum that equals three
and one-half (3.5) times the average monthly traffic revenues contributed into
the venture by Central Call and Mondial Telecom over the three months of
February, March and April of 1998. This payment is considered as an advance
towards the share purchase program as qualified below. The letter of intent
requires that Ursus Telecom France commence operations by January 31, 1998. As
of February 12, Ursus Telecom France had not yet commenced operations and the
Company is seeking to extend this provision.
Central Call and Mondial Telecom shall have the right to require that the
Company purchase the shares held in the joint venture (enterprise) by Central
Call and Mondial Telecom in any one of the following three manners: (a) in three
(3) installments of 33.3% each on the first, second and third anniversary of the
Company's Initial Public Offering ("IPO"), (b) or in two (2) installments, the
first of 66.66% on the second anniversary of the Company's IPO and the remaining
33.33% on the third anniversary of the Company's IPO, (c) or in one (1)
installment on the third anniversary of the Company's IPO.
The valuation for these subsequent share purchases will depend on whether
the Company pays in cash or issues its stock as payment. The cash purchase price
would value the joint venture at 5.5 times average monthly revenues; the stock
price would be based on an enterprise value of 8 times average monthly revenues.
These enterprise values would be multiplied by the percentage interest being
acquired to determine the purchase price. The Company reserves the option to
choose among one of the two available payment and valuation methods after
consultation with Central Call and Mondial Telecom.
As of January 27, 1998, the Company has contributed to Ursus Telecom France
a telecommunications switch at its cost of $112,128 and has made capital
contributions and cash advances of approximately $47,000.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its
executive officers. See "Management--Employment Agreements."
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CONSULTING AGREEMENT
On November 1, 1995, the Company entered into a one year consulting
agreement with Ben Rispoli, a minority shareholder of the Company. The agreement
automatically renews for successive one year terms unless either party provides
written notice of non-renewal. The agreement provides for Mr. Rispoli to provide
consulting services to assist the Company's marketing efforts, and for a monthly
retainer of $11,250 plus reimbursement of reasonable travel expenses.
On January 20, 1998, Messrs. Giussani, Rispoli and the Company entered into
an agreement (the "January Agreement"). The January Agreement resolved the
matter of Mr. Rispoli's beneficial interest in the Company's securities held in
a fiduciary capacity by Fincogest, S.A. ("Fincogest"). Fincogest in a nominee
Swiss entity that holds record title for the Company's securities owned by Mr.
Giussani as well as Mr. Rispoli. Mr. Rispoli had a beneficial interest in the
securities held by Fincogest since the inception of the Company in 1993. The
January Agreement resolves that Mr. Rispoli beneficially owns 8.3% of the Common
Stock held by Fincogest, and that Mr. Giussani beneficially owns the remaining
91.7% of the Common Stock and all of the Series A Preferred Stock that is held
of record by Fincogest. The January Agreement also extends Mr. Rispoli's
consulting agreement to December 31, 1998 and provides that the consulting
agreement cannot be terminated except for "cause" and modifies the agreement to
include an additional payment of $15,000 upon consummation of an initial public
offering of the Company's securities during the term of the consulting
agreement.
LOANS TO CONSULTANT
Between December 21, 1995 and June 26, 1996, the Company loaned $65,000 in
the aggregate to Ben Rispoli, a minority shareholder and consultant to the
Company. The notes are unsecured and bear interest at the rate of 7.65% per
annum. Beginning in September of 1997, the consultant's monthly retainer is
being offset by the Company against the consultant's outstanding loan balance
and accrued interest. At December 31, 1997 the outstanding loan balance and
accrued interest was $28,894. The Company expects to continue offsetting the
consultant's monthly retainer until March of 1998, when all outstanding amounts
will be due.
PRINCIPAL AND REGISTERING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus, and as adjusted
to reflect the sale of the shares of Common Stock in the Offering, of (i) each
person known by the Company to own beneficially five percent or more of the
outstanding Common Stock immediately prior to the Offering; (ii) the Registering
Shareholders; (iii) each of the Company's directors; (iv) each of the executive
officers named in the Summary Compensation Table;
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<PAGE>
and (v) all directors and executive officers of the Company as a group. The
address of each person listed below is 440 Sawgrass Corporate Parkway, Suite
112, Sunrise, Florida 33325, unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES SHARES BENEFICIALLY
OWNED TO BE OWNED AFTER THE
BEFORE THE OFFERING(1) SOLD IN OFFERING(1)
----------------------- THE -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERING(2) NUMBER PERCENT
- --------------------------------------------- ---------- ----------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Luca M. Giussani (2)(3)(4)(5)(6)............. 4,200,000(7) 82.8% -- 4,200,000(7) 63.9%
Ben Christian Rispoli (3).................... 375,000 7.5% -- 375,000 5.8%
Jeffrey R. Chaskin (2)(5)(6)................. 575,000(7) 11.3% -- 575,000(7) 8.8%
Johannes S. Seefried (5)(6).................. 50,000(8) (10) -- 50,000(8) (10)
Gregory J. Koutoulas (5)..................... -- -- -- -- --
Richard McEwan (5)........................... --
William Newport (6).......................... 7,500(9) (10) -- 7,500(9) (10)
All Executive Officers
and Directors as a Group (7 Persons)....... 5,207,500 (9) 100.0% -- 5,207,500 (9) 78%
</TABLE>
- ------------------------
(1) Based on 5,000,000 shares of Common Stock outstanding prior to the Offering
and, assuming no exercise of the Underwriters' Over-Allotment Option, the
Representative's Warrants or any employee stock options, 6,500,000 shares of
Common Stock outstanding immediately after the Offering, and gives effect to
the shares of Common Stock issuable within 60 days of February 12, 1998 upon
the exercise of all options beneficially owned by the Shareholders
indicated. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Subject to applicable community
property laws, each person named in the table has sole voting and investment
power with respect to all shares of Common Stock beneficially owned.
(2) The shares of Common Stock owned by the Registering Shareholders and
registered in this Offering are subject to a holdback agreement with the
Representative and may not be sold without the Representative's consent
until 365 days after the date of the Prospectus.
(3) Held by Fincogest S.A., a Swiss nominee entity whose holdings of Common
Stock are beneficially owned by Mr. Giussani (91.7%) and Ben Christian
Rispoli (8.3%). Each of Mr. Giussani and Mr. Rispoli has sole voting and
investment power with respect to such shares of Common Stock that are
beneficially owned by each.
(4) Fincogest, S.A. also owns 100% of the outstanding shares of Series A
Preferred Stock of the Company; all of which are beneficially owned by Mr.
Giussani, who holds sole voting and investment power with respect to the
Series A Preferred Stock. See "Description of Capital Stock-Preferred
Stock."
(5) Executive Officer. Excludes options to purchase 100,000 shares of Common
Stock to be granted to Mr. McEwan pursuant to this Employment Agreement
after consummation of the Offering, at an exercise price and under a vesting
schedule to be determined by the Compensation Committee.
(6) Director.
(7) Includes 10-year options to purchase 75,000 share of Common Stock that vest
at the time of the Offering. Does not include options to purchase 75,000
shares of Common Stock that vest in January 1999. Such options are
exercisable at the Offering Price.
(8) Consists of 10-year options to purchase 50,000 shares of Common Stock that
vest at the time of the Offering. Does not include option to purchase 50,000
shares of Common Stock that vest in January 1999. Such options are
exercisable at the Offering Price.
(9) Consists of 10-year options to purchase 7,500 shares of Common Stock that
vest at the time of the Offering. Does not include options to purchase 7,500
share of Common Stock that vest in January 1999. Such options are
exercisable at the Offering Price.
(10) Less than 1%.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is subject to
the Florida Business Corporation Act ("FBCA") and to provisions contained in the
Company's Articles of Incorporation and Bylaws, copies of which have been filed
as exhibits to the Registration Statement of which this Prospectus forms a part.
Reference is made to such exhibits for a detailed description of the provisions
thereof summarized below.
The authorized capital stock of the Company consists of 1,000,000 shares of
Preferred Stock, $.01 par value per share (the "Preferred Stock"), 1,000 shares
of Series A Preferred Stock of which are presently issued and outstanding, and
20,000,000 shares of Common Stock, $.01 par value per share, 5,000,000 shares of
which are presently issued and outstanding.
COMMON STOCK
Subject to prior rights of any Preferred Stock then outstanding and to
contractual limitations, if any, the holders of outstanding shares of Common
Stock are entitled to receive dividends out of assets legally available
therefor, as declared by the Board of Directors and paid by the Company.
In the event of any liquidation, dissolution or winding-up of the Company,
holders of Common Stock will be entitled to share equally and ratably in all
assets available for distribution after payment of creditors, holders of any
series of Preferred Stock outstanding at the time, and any other debts,
liabilities and preferences. Since the Company's Board of Directors has the
authority to fix the rights and preferences of, and to issue, the Company's
authorized but unissued Preferred Stock without approval of the holders of its
Common Stock, the rights of such holders may be materially limited or qualified
by the issuance of the Preferred Stock. See "Preferred Stock," below, for a
discussion of the rights and preferences of the Company's Preferred Stock,
including the Series A Preferred Stock that is presently issued and outstanding.
Common stock votes cumulatively for the election of members of the Board of
Directors that are subject to election by the holders of such stock.
The Common Stock presently outstanding is, and the Common Stock offered and
sold hereby will be, fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors is empowered to issue Preferred Stock from time to
time in one or more series, without shareholder approval, and with respect to
each series to determine (subject to limitations prescribed by law) (1) the
number of shares constituting such series, (2) the dividend rate on the shares
of each series, whether such dividends shall be cumulative and the relation of
such dividends to the dividends payable on any other class of stock, (3) whether
the shares of each series shall be redeemable and the terms of any redemption
thereof, (4) whether the shares shall be convertible into Common Stock or other
securities and the terms of any conversion privileges, (5) the amount per share
payable on each series or other rights of holders of such shares on liquidation
or dissolution of the Company, (6) the voting rights, if any, for shares of each
series, (7) the provision of a sinking fund, if any, for each series, and (8)
generally any other rights and privileges not in conflict with the Articles of
Incorporation for each series and any qualifications, limitations or
restrictions thereof.
SERIES A PREFERRED STOCK
The Company has presently authorized one class of Series A Preferred Stock,
consisting of 1,000 shares, all of which are issued and outstanding and owned by
the Company's principal shareholder. The Series A Preferred Stock has the
exclusive right to elect one less than a majority of the members of the Board of
Directors, and is entitled to a $1.00 per share liquidation preference over the
Common Stock.
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<PAGE>
Other than with respect to payment of this liquidation preference, the Series A
Preferred Stock does not share in liquidation payments. The Series A Preferred
Stock does not participate in dividends and it is not redeemable or convertible
into Common Stock. The holders of 66 2/3 of the outstanding Series A Preferred
Stock must consent to the creation or issuance of any class or series of
Preferred Stock that has greater or equal voting rights with respect to election
of Directors as the Series A Preferred Stock.
OPTIONS
As of the date of this Prospectus, the Company has granted options to
purchase up to 415,000 shares of Common Stock, at exercise prices equal to the
initial public offering price, pursuant to the provisions of the Company's Stock
Incentive Plan. See "Management--Stock Incentive Plan." The Compensation
Committee of the Board of Directors will issue additional options under the
Stock Incentive Plan after consummation of this Offering. The Company intends to
file a registration statement on Form S-8 under the Securities Act to register
these shares. See "Shares Eligible for Future Sale."
REPRESENTATIVE'S WARRANTS
At the closing of this Offering, the Company will sell and deliver to the
Representative for an aggregate purchase price of $150, the Representative's
Warrants to purchase 150,000 shares of Common Stock at a price equal to 120% of
the initial public offering price.
The Representative's Warrants will contain anti-dilution provisions for
stock splits, stock dividends, recombinations and reorganizations, a one-time
demand registration provision (at the Company's expense) and piggyback
registration rights (which registration rights will expire five (5) years from
the date of this Prospectus). See "Underwriting."
VOTING RIGHTS
Shareholders are entitled to one vote for each share of Common Stock held of
record. Common Stock votes cumulatively for the election of Directors. The
holders of Series A Preferred Stock, voting as a separate class, are entitled to
elect two (2) of the five (5) members of the Board of Directors, and one less
than a numerical majority of any expanded Board of Directors.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS AND
CERTAIN STATUTORY PROVISIONS
Certain provisions in the Articles of Incorporation, the Bylaws and the FBCA
that will come into effect immediately prior to the Offering could have the
effect of delaying, deferring or preventing changes in control of the Company.
The Company's Articles of Incorporation will contain certain provisions that
could discourage potential takeover attempts and impede attempts by shareholders
to change management. Effective as of the next meeting of shareholders for the
election of directors, the Articles of Incorporation provide for a classified
Board of Directors consisting of three classes as nearly equal in size as
practicable. Each class will hold office until the third annual meeting for
election of directors following the election of such class; provided, however,
that the initial terms of the directors in the first, second and third classes
of the Board of Directors will expire in 1998, 1999 and 2000, respectively. The
Company's Articles of Incorporation provide that no director may be removed
except for cause and by the vote of not less than 66 2/3% of the total
outstanding voting power of the securities of the Company which are then
entitled to vote in the election of directors. The Articles of Incorporation
permit the Board of Directors to create new directorships, and the Company's
Bylaws permit the Board of Directors to elect new directors to serve the full
term of the class of directors in which the new directorship was created. The
Bylaws also provide that the Board of Directors (or its remaining members, even
if less than a quorum) is empowered to fill vacancies on the Board of Directors
occurring for any reason for the remainder of the term of the class of directors
in which
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<PAGE>
the vacancy occurred. A vote of not less than 66 2/3% of the total outstanding
voting power of the securities of the Company which are then entitled to vote in
the election of directors is required to amend the foregoing provisions of the
Articles of Incorporation.
The Company is subject to Sections 607.0901 and 607.0902 of the Florida
Business Corporation Act. In general, Section 607.0901 restricts the ability of
a greater than 10% shareholder of a company to engage in a wide range of
specified transactions (including mergers, asset sales, and other affiliated
transactions) between such company and such shareholder or a person or entity
controlled by or controlling such shareholder. The statute provides that such a
transaction must be approved by the affirmative vote of the holders of
two-thirds of such company's voting shares, unless it is approved by a majority
of the disinterested directors. Section 607.0902 restricts the ability of a
third party to effect an unsolicited change in control of a company. In general,
the statute provides that shares acquired in a transaction which effects a
certain threshold change in the ownership of a company's voting shares (a
"control share acquisition") have the same voting rights as shares held by the
acquiring person prior to the acquisition only to the extent granted by a
resolution adopted by shareholders in a prescribed manner. These statutory
provisions may have an anti-takeover effect by deterring unsolicited offers or
delaying changes in control or management of the Company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article NINTH of the Company's Articles of Incorporation provides that, to
the full extent permitted by the FBCA, directors shall not be personally liable
to the Company or its shareholders for damages for breach of any duty owed to
the Company or its shareholders.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
the FBCA.
The Company maintains directors' and officers' liability insurance which is
intended to provide the Company's Directors and officers protection from
personal liability in addition to the protection provided by the Company's
Articles of Incorporation and Bylaws as described above.
TRANSFER AGENT
The transfer agent for the Common Stock is Continental Stock Transfer &
Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
DESCRIPTION
Upon completion of the Offering, the Company will have outstanding 6,500,000
shares of Common Stock (assuming no exercise of the Over-Allotment Option and
the Representative's Warrants). The 1,500,000 shares of Common Stock to be sold
in the Offering, and any of the 225,000 shares that may be sold upon exercise of
the Underwriters' Over-Allotment Option, will be freely tradable by persons
other than "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act, without restriction or registration under the
Securities Act. The remaining 5,000,000 shares outstanding (all such shares
being referred to herein as the "Existing Shareholders Shares") will be held by
the Company's Existing Shareholders. The Existing Shareholders' Shares may not
be sold unless they are registered under the Securities Act or sold pursuant to
an applicable exemption from registration, including an exemption pursuant to
Rule 144 under the Securities Act. The Existing Shareholders are registering
200,000 of the Existing Shareholders' Shares (120,000 shares beneficially owned
by Mr. Giussani and 80,000 shares owned by Mr. Chaskin) in the registration
statement of which this prospectus forms a part, but such shares are subject to
a hold back agreement with the Representative and may not be sold without the
Representative's consent until after 365 days after the date of the Prospectus.
As currently in effect, Rule 144 generally permits the public sale in
ordinary trading transactions of "restricted securities" and of securities owned
by "affiliates" beginning 90 days after the date of this Prospectus if the other
restrictions enumerated in Rule 144 are met. Restricted securities are
securities acquired directly or indirectly from an issuer or an affiliate of the
issuer in a transaction not involving a public offering. In general, under Rule
144, if a period of at least one year has elapsed since the date the restricted
securities were acquired from the Company or an affiliate of the Company, as
applicable, then the holder of such restricted securities (including an
affiliate) is entitled, subject to certain conditions, to sell in broker's
transactions or to market makers within any three-month period a number of
shares which does not exceed the greater of (i) 1% of the Company's then
outstanding shares of Common Stock or (ii) the share's average weekly trading
volume during the four calendar weeks preceding the date the Notice of Sale is
filed with the Commission. Sales under Rule 144 are also subject to certain
manner-of-sale provisions and requirements as to notice and the availability of
current public information about the Company. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing limitations
and requirements but without regard to the one-year period. However, a person
who is not and has not been an affiliate of the Company at any time during the
90 days preceding the sale of the shares, and who has beneficially owned
restricted securities for at least two years, is entitled to sell such shares
without regard to the volume limitation and other conditions of Rule 144. The
Existing Shareholders who hold in the aggregate 5,000,000 shares have agreed
during the 365 day-period immediately following the date of this Prospectus not
to sell or otherwise dispose of any securities (other than a transfer among
Existing Shareholders) of the Company without the consent of the Representative.
The Company has reserved 1,000,000 shares of its Common Stock for issuance
under the Stock Incentive Plan. All of the shares issued as the result of any
grants under the foregoing plans shall also be restricted securities unless the
Company files a registration statement under the Securities Act relating to the
issuance of the shares. The Company currently intends to register the shares of
Common Stock reserved under such employee benefit plans. Subject to compliance
with Rule 144 by affiliates of the Company, any shares issued upon exercise of
options granted under such employee benefit plans will become freely tradable at
the effective date of the registration statement for the shares reserved under
such plans. However, such shares will not be transferable without the consent of
the Representative for 365 days after the date of this Prospectus.
Prior to the Offering, there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that sales of shares or
the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of Common Stock in
the public market could adversely affect prevailing market prices.
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<PAGE>
SALES BY REGISTERING SHAREHOLDERS
The Company has been advised by the Registering Shareholders that such
holders of the Company's Common Stock may, from time to time, sell some or all
of the shares registered for such shareholders, following the expiration of the
holdback period to which their shares are subject pursuant to an agreement with
the Representative. This holdback period expires 365 days after the date of this
Prospectus. See "Principal and Registering Shareholders". The Company is not
aware of any current intention or agreement, written or oral, on the part of the
Registering Shareholders to sell any of their shares of Common Stock through
underwriters, brokers, dealers or agents.
The Registering Shareholders (after expiration of the holdback period), may
sell the shares of Common Stock to one or more underwriters for public offering
and sale by them, or to investors directly or through agents that solicit or
receive offers on behalf of Registering Shareholders, or through dealers or
through a combination of any such method of sale.
The shares of Common Stock may be distributed in one or more transactions
from time to time at a fixed price or prices (which may be changed from time to
time) in market prices prevailing at the time of sale, at prices based upon such
prevailing market prices or at negotiated prices. The Registering Shareholders
also may, from time to time, authorize agents to act on a best efforts or other
basis to solicit or receive offers to purchase shares of Common Stock.
Any underwriting commission paid by the Company or Registering Shareholders
to underwriters or agents in connection with the offering of the shares of
Common Stock, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in a Prospectus.
Underwriters, dealers and agents participating in the distribution of shares of
Common Stock (including agents only soliciting or receiving offers to purchase
shares on behalf of the Company) may be deemed to be underwriters, and any
discounts or commissions received by them and any profit realized by them on
resale of the shares may be deemed to be underwriting discounts and commissions
under the Securities Act.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to the Underwriters named below, for whom Joseph
Charles & Associates, Inc. is acting as Representative, and the Underwriters
have agreed, severally, to purchase from the Company the number of shares of
Common Stock set forth opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS TO BE PURCHASED
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Joseph Charles & Associates, Inc. ..........................................
----------------
Total.......................................................................
----------------
</TABLE>
The shares of Common Stock are being sold on a firm commitment basis. The
Underwriting Agreement provides, however, that the obligations of the
Underwriters are subject to certain conditions precedent. The Underwriters are
committed to purchase all of the shares offered hereby if any are purchased. The
Representative has informed the Company that it does not expect sales of any
shares to be made to any account over which the Underwriters have discretionary
authority.
The Representative has advised the Company that the Underwriters propose to
offer the shares of Common Stock directly to the public at the initial public
offering price set forth on the cover page of this Prospectus, and to selected
dealers at that price, less a concession of not more than $ per share.
The Underwriters may allow a discount of not more than $ per share on
sales to certain other dealers. After the public offering, the price to the
public of the shares may be changed.
The Company has granted the Representative an option, exercisable during the
45-day period following the date of this Prospectus, to purchase up to 225,000
additional shares of Common Stock at the
79
<PAGE>
initial public offering price, less the underwriting discount. The
Representative may exercise such option only for the purpose of covering any
over allotments in the sale of the shares offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act, or to contribute payments that the Underwriters may be required to make in
respect thereof.
The Company has agreed to pay the Representative a non-accountable expense
allowance of 3% of the gross proceeds from the sale of the shares of Common
Stock by the Company, against which $50,000 has heretofore been paid. In
addition to the Underwriter's discount and the non-accountable expense
allowance, the Company is required to pay the costs of qualifying the shares of
Common Stock under federal and state securities laws, together with legal and
accounting fees, printing, road show and other costs in connection with the
Offering.
The Company has agreed to retain the Representative as a financial
consultant for a period of two years from the date of this Prospectus for a fee
of $3,000 per month which shall be paid in full at closing of the Offering.
The Company has also agreed, for a period of two (2) years from the date of
this Prospectus, at the option of the Representative, to nominate a designee of
the Representative as a non-voting advisor to the Company's Board of Directors,
this designee will be entitled to 10-year Options to purchase 4,000 shares of
Common Stock at its fair market value at the time of grant for each year of
service in such capacity, and to compensation of $2,000 per meeting attended in
person, $500 per meeting attended by conference call and to reimbursements of
expenses for attendance at Board Meetings. The Representative has not yet
exercised its right to designate such a person.
At the closing of this Offering, the Company will sell and deliver to the
Representative for an aggregate purchase price of $150, the Representative's
Warrants to purchase 150,000 shares of Common Stock at a price equal to 120% of
the initial public offering price.
The Representative's Warrants will contain anti-dilution provisions for
stock splits, stock dividends, recombinations and reorganizations, a one-time
demand registration provision (at the Company's expense) and piggyback
registration rights (which registration rights will expire five (5) years from
the date of this Prospectus). The Representative's Warrants will be exercisable
during the four (4) year period commencing one (1) year after the date of this
Prospectus. To the extent that the Representative's Warrants are exercised,
dilution of the interests of the Company's shareholders will occur. Further, the
terms on which the Company will be able to obtain additional equity capital may
be adversely affected, since the holders of the Representative's Warrants can be
expected to exercise them at any time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the Representative's Warrants. Any profit realized by the
Representative on the sale of the Representative's Warrants or the underlying
shares of Common Stock may be deemed additional underwriting compensation.
Except in connection with acquisitions or the adoption of a stock option
plan to purchase up to 1,000,000 shares of Common Stock, and for the issuance of
any number of additional securities in acquisition transactions, the Company has
agreed, for a period of twelve (12) months from the closing of this Offering,
that it will not issue, sell or purchase any shares of Common Stock or issue
warrants or options or other equity securities of the Company without the prior
written consent of the Representative. In addition, the officers, directors and
principal shareholders of the Company have agreed that they will not offer, sell
or otherwise dispose of any shares of Common Stock of the Company owned by them
for a period of at least twelve months from the closing of this Offering without
the prior written consent of the Representative. The Representative may, in its
discretion, and without notice to the public, waive such restrictions and permit
holders otherwise agreeing to restrict their shares to sell any or all of their
shares. (See "Shares Eligible for Future Sale.")
80
<PAGE>
Prior to this Offering there has been no public trading market for the
Company's shares of Common Stock. Consequently, the initial public offering
price of the shares of Common Stock has been determined by negotiation between
the Company and the Representative. Among the factors considered in determining
the offering price of the shares of Common Stock were the Company's financial
condition and prospects, market prices of similar securities of comparable
publicly traded companies, certain financial and operating information of
companies engaged in activities similar to those of the Company and the general
condition of the securities market.
Certain persons participating in the Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchases, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the
Representatives to reclaim a selling concession from a syndicate member in
connection with the offering when Common Stock sold by the syndicate member are
purchased in syndicate covering transactions. Such transactions may be effected
on the Nasdaq Stock Market, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
LEGAL MATTERS
Stroock & Stroock & Lavan LLP, Miami, Florida, will pass upon the validity
of the issuance of the shares of the Common Stock offered hereby for the
Company. De Martino Finkelstein Rosen & Virga, Washington, D.C. will pass upon
certain legal matters in connection with the Offering for the Representative.
EXPERTS
The financial statements of Ursus Telecom Corporation at March 31, 1997 and
1996 and for each of the three years in the period ended March 31, 1997,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent certified public accountants, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended. The Company has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-1 under the Securities Act (the "Registration Statement"), of which
this Prospectus forms a part, with respect to the Common Stock offered hereby.
This Prospectus omits certain information contained in the Registration
Statement, and reference is made to the Registration Statement for further
information with respect to the Company and the Common Stock offered hereby.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents and when any such document is an exhibit
to the Registration Statement, each such statement is qualified in its entirety
by reference to the copy of such document filed with the Commission.
REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and a report thereon by independent
certified public accountants and with quarterly reports for the first three
quarters of each year containing unaudited summary financial information.
81
<PAGE>
GLOSSARY OF TERMS
ACCOUNTING OR SETTLEMENT RATE--The per minute rate negotiated between
carriers in different countries for termination of international long distance
traffic in, and return traffic to, the carriers' respective countries.
CALL REORIGINATION (ALSO KNOWN AS "CALLBACK")-- A form of dial up access
that allows a user to access a telecommunications company's network by placing a
telephone call, hanging up, and waiting for an automated call reorigination. The
call reorigination then provides the user with a dial tone which enables the
user to initiate and complete a call.
TRANSPARENT CALL REORIGINATION--Technical innovations have enabled
telecommunications carriers to offer a "transparent" form of call reorigination
without the usual "hang up" and "callback" whereby the call is automatically and
swiftly processed by a programmed switch.
CAGR--Compound Annual Growth Rate.
CALL-THROUGH--The provision of international long distance service through
conventional long distance or "transparent" call reorigination.
CLEC--Competitive Local Exchange Carrier.
CUG (CLOSED USER GROUP)--A group of specified users, such as employees of a
company, permitted by applicable regulations to access a private voice or data
network, which access would otherwise be denied to them as individuals.
DIRECT ACCESS--A means of accessing a network through the use of a permanent
point-to-point circuit typically leased from a facilities-based carrier. The
advantages of direct access include simplified premises-to-anywhere calling,
faster call set-up times and potentially lower access and transmission costs
(provided there is sufficient traffic over the circuit to generate economies of
scale).
DIAL-UP ACCESS--A Form of service whereby access to a network is obtained by
dialing an international toll-free number or a local access number.
EUROPEAN UNION OR EU--Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and
the United Kingdom.
FACILITIES-BASED CARRIER--A carrier which transmits a significant portion of
its traffic over owned transmission facilities.
FIBER-OPTIC--A transmission medium consisting of high-grade glass fiber
through which light beams are transmitted carrying a high volume of
telecommunications traffic.
IPLC (INTERNATIONAL PRIVATE LINE CIRCUITS)--Point-to-point permanent
connections which can carry voice and data. IPLCs are owned and maintained by
ITOs or third party resellers.
INTERNET PROTOCOL (IP)--class of product that uses data and/or voice
transmission over the Internet/ Intranet.
ISDN (INTEGRATED SERVICE DIGITAL NETWORK)--A hybrid digital network capable
of providing transmission speeds of up to 128 kilobits per second for both voice
and data.
ISP--International Settlements Policy. The ISP establishes the permissible
arrangements between facilities-based carriers based in the U.S. and their
foreign counterparts for terminating each other's traffic over their respective
networks.
ISR (INTERNATIONAL SIMPLE RESALE)--The use of international leased lines for
the resale of switched telephony services to the public, by passing the current
system of accounting rates.
ITO (INCUMBENT TELECOMMUNICATIONS OPERATOR)--The dominant carrier or
carriers in each country, often, but not always, government-owned or protected
(alternatively referred to as the Postal, Telephone and Telegraph Company, or
PTT).
82
<PAGE>
ITU--International Telecommunications Union--International
Telecommunications Association headquartered in Geneva, Switzerland.
LEC (LOCAL EXCHANGE CARRIER)--Companies from which the Company and other
long distance providers must purchase "access services" to originate and
terminate calls in the U.S.
LOCAL CONNECTIVITY--Physical circuits connecting the switching facilities of
a telecommunications services provider to the interexchange and transmission
facilities of a facilities-based carrier.
LOCAL EXCHANGE--A geographic area determined by the appropriate regulatory
authority in which calls generally are transmitted without toll charges to the
calling or called party.
NODE--A specially configured multiplexer which provides the interface
between the local PSTN where the node is located and a switch. A node collects
and concentrates call traffic from its local area and transfers it to a switch
via private line for call processing. Nodes permit a carrier to extend its
network into new geographic locations by accessing the local PSTN without
requiring the deployment of a switch.
OPERATING AGREEMENTS--An agreement that provides for the exchange of
international long distance traffic between correspondent international long
distance providers that own facilities in different countries. These agreements
provide for the termination of traffic in, and return traffic from, the
international long distance providers' respective countries at a negotiated
"accounting rate." Under a traditional operating agreement, the international
long distance provider that originates more traffic compensates the
corresponding long distance provider in the other country by paying an amount
determined by multiplying the net traffic imbalance by the latter's share of the
accounting rate.
PBX (PUBLIC BRANCH EXCHANGE)--Switching equipment that allows connection of
a private extension telephone to the PSTN or to a Private Line.
POPS--Points of Presence. An interlinked group of modems, routers and other
computer equipment, located in a particular city or metropolitan area, that
allows a nearby subscriber to access the Network through a local telephone call.
PRIVATE LINE--A dedicated telecommunications connection between end user
locations.
PSTN (PUBLIC SWITCHED TELEPHONE NETWORK)--A telephone network which is
accessible by the public through private lines, wireless systems and pay phones.
REFILE--Traffic originating from one country (original country) and destined
to another country (receiving country) is routed through a third country without
the knowledge of the receiving country. The receiving country has only
identified the third country and assumes the traffic originated from the third
country only.
RESALE--Resale by a provider of telecommunications services of services sold
to it by other providers or carriers on a wholesale basis.
SWITCHING FACILITY--A device that opens or closes circuits or selects the
paths or circuits to be used for transmission of information. Switching is a
process of interconnecting circuits to form a transmission path between users.
TRANSIT--Traffic originating from one country and destined to another
country is routed through a third country with the full knowledge and consent of
all countries and carriers concerned.
VALUE-ADDED TAX (VAT)--A consumption tax levied on end-consumers of goods
and services in applicable jurisdictions.
VOICE TELEPHONY--A term used by the EU, defined as the commercial provision
for the public of the direct transport and switching of speech in real-time
between public switched network termination points, enabling any user to use
equipment connected to such a network termination point in order to communicate
with another termination points.
WTO--World Trade Organization (based in Geneva, Switzerland).
83
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Income....................................................................................... F-4
Statements of Shareholders' Equity (Capital Deficiency).................................................... F-5
Statements of Cash Flows................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Ursus Telecom Corporation
We have audited the accompanying balance sheets of Ursus Telecom Corporation
as of March 31, 1996 and 1997, and the related statements of income,
shareholders' equity (capital deficiency) and cash flows for each of the three
years in the period ended March 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ursus Telecom Corporation at
March 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 1997 in conformity
with generally accepted accounting principles.
<TABLE>
<S> <C> <C>
By: /s/ ERNST & YOUNG LLP
-----------------------------------------
Ernst & Young LLP
</TABLE>
Miami, Florida
August 15, 1997
F-2
<PAGE>
URSUS TELECOM CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
EQUITY AT
MARCH 31 SEPTEMBER 30,
-------------------- SEPTEMBER 30 1997
1996 1997 1997 (NOTE 2)
--------- --------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 476,916 $ 740,765 $ 351,675
Accounts receivable, net.................................. 1,735,437 3,378,886 4,087,179
Advances and notes receivable--related parties............ 147,668 185,694 189,759
Prepaid expenses.......................................... 18,415 51,570 124,244
Other current assets...................................... -- 38,716 --
Income taxes receivable................................... -- 161,430 217,456
Deferred income taxes..................................... 9,652 9,076 25,076
--------- --------- -------------
Total current assets........................................ 2,363,088 4,566,137 4,995,389
Equipment, net.............................................. 360,733 587,368 711,189
Deferred taxes.............................................. 33,328 17,373 11,145
Deposit on acquisition...................................... -- -- 127,382
Deferred costs of public offering........................... -- -- 83,635
Other assets, net........................................... 39,734 72,508 83,460
--------- --------- -------------
Total assets................................................ $2,796,883 $5,243,386 $ 6,012,200
--------- --------- -------------
--------- --------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $1,446,194 $2,714,789 $ 3,162,240
Accrued expenses.......................................... 22,783 38,660 55,750
Current portion of long term debt......................... -- -- 250,000
Income taxes payable...................................... 26,278 74,146 --
Commissions payable....................................... 28,654 85,516 74,758
Deferred revenue.......................................... 9,314 7,006 48,507
Deferred promotional discounts............................ 18,567 -- --
--------- --------- -------------
--------- --------- -------------
Total current liabilities................................... 1,551,790 2,920,117 3,591,255
Deferred income taxes....................................... 56,164 36,834 66,183
Long-term debt.............................................. 580,000 425,000 --
Shareholders' equity:
Preferred stock $.01 par value, 1,000,000 shares
authorized; 1,000 shares issued and outstanding on a pro
forma basis............................................. -- -- -- $ 10
Common Stock, $.01 par value; 20,000,000 shares
authorized; 5,000,000 issued and outstanding on a pro
forma basis............................................. -- -- -- 50,000
Common stock--Class A: $50 par value;
500 shares authorized, issued and outstanding........... 25,000 25,000 25,000 --
Common stock--Class B: $50 par value;
15,500 shares authorized, 3,500 shares issued and
outstanding............................................. 175,000 175,000 175,000 --
Common stock--Class C: $50 par value;
4,000 shares authorized, 1,416.67 shares issued and
outstanding, net of discount of $2,084.................. 68,750 68,750 68,750 --
Stock subscription receivable............................. (18,750) (18,750) (18,750) (18,750)
Additional paid-in capital................................ -- -- -- 218,740
Retained earnings......................................... 358,929 1,611,435 2,104,762 2,104,762
--------- --------- ------------- -------------
Total shareholders' equity.................................. 608,929 1,861,435 2,354,762 $ 2,354,762
--------- --------- -------------
Total liabilities and shareholders' equity.................. $2,796,883 $5,243,386 $ 6,012,200
--------- --------- -------------
--------- --------- -------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
URSUS TELECOM CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED MARCH 31, ENDED SEPTEMBER 30,
--------------------------------- ------------------------
1995 1996 1997 1996 1997
--------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues:
Retail........................................ $6,290,512 $13,228,074 $20,523,019 $9,546,165 1$2,239,253
Wholesale..................................... -- -- 315,408 -- 975,198
--------- ---------- ---------- ----------- -----------
Total revenues.................................. 6,290,512 13,228,074 20,838,427 9,546,165 13,214,451
Cost of revenues................................ 3,746,542 7,675,370 12,195,672 5,578,179 8,769,764
--------- ---------- ---------- ----------- -----------
Gross profit.................................... 2,543,970 5,552,704 8,642,755 3,967,986 4,444,687
Operating expenses:
Commissions................................... 1,224,975 2,429,830 3,766,235 1,766,344 2,124,886
Selling, general and administrative
expenses.................................... 1,088,184 1,659,591 2,746,379 1,254,839 1,445,668
Depreciation and amortization................. 72,285 94,415 126,292 56,919 86,603
--------- ---------- ---------- ----------- -----------
Total operating expenses........................ 2,385,444 4,183,836 6,638,906 3,078,102 3,657,157
--------- ---------- ---------- ----------- -----------
Operating income................................ 158,526 1,368,868 2,003,849 889,884 787,530
Other income (expense):
Interest expense.............................. (61,221) (59,353) (39,363) (20,425) (14,846)
Interest income............................... 1,099 5,089 16,271 3,201 7,701
Gain (loss) on sale of equipment.............. -- -- 9,644 (1,922) 10,583
--------- ---------- ---------- ----------- -----------
(60,122) (54,264) (13,448) (19,146) 3,438
--------- ---------- ---------- ----------- -----------
Income before provision (benefit) for income
taxes......................................... 98,404 1,314,604 1,990,401 870,738 790,968
Provision (benefit) for income taxes............ (283,631) 524,553 737,895 324,143 297,641
--------- ---------- ---------- ----------- -----------
Net income...................................... $ 382,035 $ 790,051 $1,252,506 $ 546,595 $ 493,327
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
Pro forma net income per share.................. $ .08 $ .16 $ .25 $ .11 $ .10
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
Pro forma weighted average shares outstanding... 4,869,335 5,000,000 5,000,000 5,000,000 5,000,000
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
URSUS TELECOM CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK STOCK EARNINGS
------------------------------------ SUBSCRIPTION (ACCUMULATED
CLASS A CLASS B CLASS C RECEIVABLE DEFICIT) TOTAL
--------- -------------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1994.................. $ 25,000 $ 175,000 $ 50,000 $ -- $ (813,157) $ (563,157)
Issuance of common stock................ -- -- 18,750 (18,750) -- --
Net income.............................. -- -- -- -- 382,035 382,035
--------- -------------- --------- ------------ ------------ ------------
Balance at March 31, 1995................. 25,000 175,000 68,750 (18,750) (431,122) (181,122)
Net income.............................. -- -- -- -- 790,051 790,051
--------- -------------- --------- ------------ ------------ ------------
Balance at March 31, 1996................. 25,000 175,000 68,750 (18,750) 358,929 608,929
Net income.............................. -- -- -- -- 1,252,506 1,252,506
--------- -------------- --------- ------------ ------------ ------------
Balance at March 31, 1997................. 25,000 175,000 68,750 (18,750) 1,611,435 1,861,435
Net income (unaudited).................. -- -- -- -- 493,327 493,327
--------- -------------- --------- ------------ ------------ ------------
Balance at September 30, 1997
(unaudited)............................. $ 25,000 $ 175,000 $ 68,750 $ (18,750) $2,104,762 $ 2,354,762
--------- -------------- --------- ------------ ------------ ------------
--------- -------------- --------- ------------ ------------ ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
URSUS TELECOM CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
--------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
--------- ---------- ---------- ----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................... $ 382,035 $ 790,051 $1,252,506 $ 546,595 $ 493,327
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 72,285 94,415 126,292 56,919 86,603
(Gain) loss on sale of equipment............... -- (9,644) 1,922 (10,583)
Deferred income taxes.......................... (283,631) 296,815 (2,799) (2,491) 19,577
Changes in operating assets and liabilities:
Accounts receivable.......................... (586,134) (933,681) (1,643,449) (966,269) (708,293)
Income taxes receivable...................... -- -- (161,430) -- (56,026)
Prepaid expenses............................. (8,859) (4,499) (33,155) (21,721) (72,674)
Other current assets......................... -- -- (38,716) -- 38,716
Accounts payable............................. 666,554 482,538 1,268,595 615,071 447,449
Accrued expenses............................. (34,565) (20,473) 15,877 15,195 17,090
Income taxes payable......................... 18,053 8,225 47,868 89,935 (74,146)
Commissions payable.......................... 22,156 (2,435) 56,862 50,565 (10,758)
Deferred revenue............................. -- 9,314 (2,308) -- 41,501
Deferred discounts........................... (18,635) (47,798) (18,567) 20,717 --
--------- ---------- ---------- ----------- -----------
Net cash provided by operating activities.......... 229,259 672,472 857,932 406,438 211,783
INVESTING ACTIVITIES
Deposit on acquisition............................. -- -- -- -- (127,382)
Purchase of equipment.............................. (143,389) (93,646) (352,081) (164,189) (199,239)
Sale of equipment.................................. -- -- 10,000 10,000 --
Advances to related parties........................ -- (122,668) (63,026) (51,234) (4,065)
Increase in other assets........................... (29,125) (6,152) (33,976) (40,894) (11,552)
--------- ---------- ---------- ----------- -----------
Net cash used in investing activities.............. (172,514) (222,466) (439,083) (246,317) (342,238)
FINANCING ACTIVITIES
Deferred costs of public offering.................. -- -- -- -- (83,635)
Increase in long-term debt......................... 21,000 -- -- -- --
Repayments of long-term debt....................... (20,000) (150,000) (155,000) (130,000) (175,000)
Advances repaid to officer......................... (40,832) -- -- -- --
--------- ---------- ---------- ----------- -----------
Net cash used in financing activities.............. (39,832) (150,000) (155,000) (130,000) (258,635)
--------- ---------- ---------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents...................................... 16,913 300,006 263,849 30,121 (389,090)
Cash and cash equivalents at beginning of year..... 159,997 176,910 476,916 476,916 740,765
--------- ---------- ---------- ----------- -----------
Cash and cash equivalents at end of year........... $ 176,910 $ 476,916 $ 740,765 $ 507,037 $ 351,675
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
SUPPLEMENTAL CASH FLOW AND NON-CASH FLOW
INFORMATION
Cash paid for interest....................... $ 64,582 $ 58,670 $ 38,838 $ 18,934 $ 17,367
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
Cash paid for income taxes................... $ -- $ 201,460 $ 854,256 $ 236,700 $ 408,236
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
Trade-in allowance for used equipment........ $ -- $ -- $ 60,000 $ -- $ 67,500
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
Stock issued for note receivable............. $ 18,750 $ -- $ -- $ -- $ --
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
URSUS TELECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. NATURE OF OPERATIONS
Ursus Telecom Corporation (the Company) was incorporated in Florida on March
23, 1993. The Company is a provider of international telecommunications
services. The Company's revenues are derived from the sale of telecommunication
services to retail customers, who are typically small to medium sized businesses
and travelers; and to wholesale customers, who are typically telecommunication
carriers. The Company's retail customers are principally located in South
Africa, Latin America, the Middle East (primarily Lebanon and Egypt), Russia,
France, while the wholesale customers are located in the United States. In both
the retail and wholesale aspects of its business, the Company extends credit to
its customers on an unsecured basis with the risk of loss limited to outstanding
amounts.
The Company markets its services through a worldwide network of independent
agents. The Company extends credit to its sales agents on an unsecured basis
with the risk of loss limited to outstanding amounts, less commissions payable
to its agents. The Company has entered into exclusive agency agreements with all
of its current agents. The initial term of the agreements has generally been for
a period of five years. Provided that agents are not in default, agents
generally have the option of renewing their agreements for two additional terms
of three years each by notifying the Company at least six months prior to the
agreement's expiration date.
The Company has historically experienced and expects to continue to
experience, a decrease in the use of its services in the months of August and
December due to the closing of many businesses for holiday in Europe and the
United States during those months.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements as of September 30,
1997 and for each of the six month periods ended September 30, 1996 and 1996
include all adjustments which, in the opinion of management, are necessary for a
fair presentation of the company's financial position and results of operations
and cash flows for the periods presented. All such adjustments are of a normal
recurring nature. The results of the company's operations for the six months
ended September 30, 1996 and 1997 are not necessarily indicative of the results
of operations for a full fiscal year.
PRO FORMA BALANCE SHEET INFORMATION
Pro forma shareholders' equity reflects the stock split and recapitalization
which has been approved by the Company's Board of Directors and will be
effective upon the filing of an amendment to the Company's articles of
incorporation with the appropriate state agency. The filing is expected to occur
on or before the effective date of the proposed initial public offering of the
Company's common stock. See Note 13.
PRO FORMA NET INCOME PER SHARE
Upon the effectiveness of the stock split and recapitalization described
above, the Company will have a single class of common stock with 5 million
shares outstanding and a single class of preferred stock with 1,000 shares
outstanding. The preferred shares are not convertible into shares of Common
Stock and do not provide for dividends.
F-7
<PAGE>
URSUS TELECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pro forma net income per share included on the accompanying statements of
income, reflects pro forma weighted average common shares outstanding for all
periods presented assuming the stock split and recapitalization occurred at the
beginning of the earliest year presented.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (SFAS No. 128), "Earnings Per Share" which revises the calculation and
presentation provisions of Accounting Principles Board Opinion 15 and related
interpretations. SFAS No. 128 is effective for the Company's fiscal year ending
March 31, 1998. Pro forma net income per share calculated pursuant to SFAS No.
128 and related interpretations, including the underwriters warrants and 515,000
stock options to be issued pursuant to employment agreements, as if they were
outstanding for all periods presented, is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 31,
---------------------------------- ----------------------
1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income
Per share...................................... $ .07 $ .14 $ .22 $ .10 $ .09
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average shares outstanding............ 5,564,335 5,695,000 5,695,000 5,695,000 5,695,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
Historical net income per share and weighted average shares are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------------- --------------------
1995 1996 1997 1996 1997
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income per share................... $ 72.42 $ 145.86 $ 231.23 $ 100.91 $ 91.08
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Weighted average shares outstanding.... 5,275 5,416.67 5,416.67 5,416.67 5,416.67
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
</TABLE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
EQUIPMENT
Equipment is stated at cost. Depreciation is computed using the
straight-line method for financial reporting purposes over useful lives ranging
from three to seven years. Amortization of leasehold improvements is provided
using the straight-line method over the shorter of the estimated useful lives of
the assets or the lease term.
SOFTWARE DEVELOPMENT COSTS
The internal costs incurred to develop or improve software used in the
company's telecommunication switching activities and selling and administrative
activities is expensed as incurred. Purchased software is included in equipment
and is depreciated using the straight line method.
F-8
<PAGE>
URSUS TELECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ORGANIZATION COSTS
Organization costs have been capitalized and are being amortized on a
straight-line basis over a five year period.
REVENUE RECOGNITION
Revenues from retail telecommunication services are recognized when customer
calls are completed. Revenues from wholesale telecommunication services are
recognized when the wholesale carrier's customers' calls are completed. Unbilled
revenue represents calls that are completed but not invoiced at the balance
sheet date. Revenue from the sale of calling cards is deferred and recognized
when calling card calls are completed or when the cards expire.
COST OF REVENUES
Cost of revenues is based on the direct costs of fixed facilities and the
variable cost of transmitting and terminating traffic on other carrier's'
facilities.
COMMISSIONS
Commissions paid to sales agents are based on the traffic generated in their
respective territories and are expensed in the period when associated call
revenues are recognized.
DEFERRED PROMOTIONAL DISCOUNTS
The Company amortizes the benefits of lump sum promotional incentives
received, on a straight-line basis, over the periods of the associated
contracts. When a contract's annual minimum commitment is reached prior to the
end of the contract year, the remainder of the annual discount is recognized.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
During fiscal 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS. SFAS 121 requires impairment losses to be recorded on
long-lived assets when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company, based on current circumstances, does not believe
that any long-lived assets are impaired at September 30, 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and long term debt approximate fair value due
to the short maturity of these instruments.
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 certain
F-9
<PAGE>
URSUS TELECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assets and liabilities at the date of the financial statements and the reported
amounts of certain revenue and expenses during the reporting period.
Accordingly, actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, EARNINGS PER SHARE, which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined. SFAS No. 128 will be effective for the Company's quarter
ending December 31, 1997, and upon adoption, all prior-period earnings per share
presented shall be restated to conform with the provisions of the new
pronouncement.
Application earlier than the Company's quarter ending December 31, 1997 is
not permitted. The restated basic and diluted earnings or loss per share to be
reported upon adoption of SFAS No. 128 will not materially differ from amounts
reported under the existing rules for all periods reported by the Company
through September 30, 1997.
COMPREHENSIVE INCOME: FINANCIAL STATEMENT PRESENTATION
In June 1997 the Financial Accounting Standards Board issued statement No.
130, COMPREHENSIVE INCOME: FINANCIAL STATEMENT PRESENTATION which requires that
all items that are required to be recognized under the accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed as prominently as other financial statements. Statement No. 130 is
effective for the Company's fiscal year ending March 31, 1999. The adoption of
State No. 130 is not expected to have a material effect on the Company's
financial statements.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In June 1997 the Financial Accounting Standards Board issued Statement No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION which
requires a Company to disclose segment profit or loss and segment assets.
Statement No. 131 is effective for the Company's fiscal year ending March 31,
1998. The adoption of Statement No. 131 will require the Company to upgrade its
accounting system in order to accumulate additional segment information.
F-10
<PAGE>
URSUS TELECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------- SEPTEMBER 30,
1996 1997 1997
------------ ------------ -------------
<S> <C> <C> <C>
Billed Services........................................................ $ 985,221 $ 2,281,835 $ 2,774,081
Unbilled Services...................................................... 761,597 1,112,051 1,353,098
Allowance for doubtful accounts........................................ (11,381) (15,000) (40,000)
------------ ------------ -------------
$ 1,735,437 $ 3,378,886 $ 4,087,179
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
4. EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED MARCH 31,
USEFUL ------------------------ SEPTEMBER 30,
LIVES 1996 1997 1997
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Switch equipment........................................... 7 years $ 380,631 $ 459,607 $ 504,645
Furniture and fixtures..................................... 5 years 55,198 65,519 65,519
Computer equipment......................................... 3 years 82,879 187,581 299,406
Computer software.......................................... 3 years 37,211 66,260 80,074
Office equipment........................................... 5 years 11,070 20,862 20,862
Leasehold improvements..................................... 7 years -- 61,478 63,515
----------- ----------- -------------
566,989 861,307 1,034,021
Less accumulated depreciation and amortization............. (206,256) (273,939) (322,832)
----------- ----------- -------------
$ 360,733 $ 587,368 $ 711,189
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------- SEPTEMBER 30,
1996 1997 1997
---------- ---------- -------------
<S> <C> <C> <C>
Term loan, originally payable May 20, 1996................................ $ 330,000 $ -- $ --
Term loan, originally payable November 11, 1996........................... 250,000 -- --
Term loan, payable August 31, 1998........................................ -- 425,000 250,000
---------- ---------- -------------
$ 580,000 $ 425,000 $ 250,000
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
During 1993, the Company entered into two term loan agreements with its bank
aggregating $730,000. The due dates of the loans were May 20, 1996 and November
11, 1996, respectively. Subsequent to March 31, 1996, the Company repaid $80,000
on the term loan which was originally due on May 20, 1996 and, at the same time,
replaced the two existing term loans with a new term loan with the same lender
in the amount of $500,000. As a result, the two original term loans have been
shown as long-term debt in the
F-11
<PAGE>
URSUS TELECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
accompanying balance sheet at March 31, 1996. The due date of the full amount of
the new loan, $425,000 at March 31, 1997, is currently August 31, 1998. The loan
is secured by money-market accounts pledged by an officer. The note provides for
selection of interest periods of one, two, three, six, nine or twelve months at
the option of the Company. The Company has elected to pay interest monthly and
is charged at a rate of 1.25% over the bank's cost of funds subject to a cap of
a 1.75% spread between the loan rate and the rate earned on the money-market
account pledged against the loan. The rate in effect at September 30, 1997 was
8.75% (8.437% and 8.3125% at March 31, 1997 and 1996, respectively).
6. SHAREHOLDERS' EQUITY
The Company has been authorized to issue three classes of common shares at a
par value of $50. All Class A, Class B, and Class C shares have the same
dividend and liquidation rights. Class A shares carry the sole right to elect
the first three directors of the Company, Class B shares are identical to Class
A shares except for the right to elect the first three directors, and Class C
shares are nonvoting for all purposes. See Note 13.
On October 30, 1996, by unanimous written consent of the Board of Directors,
distribution of the Company's retained earnings was restricted through April 1,
1997.
7. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, ACCOUNTING FOR
INCOME TAXES. Deferred income tax assets and liabilities are determined based
upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED MARCH 31, ENDED SEPTEMBER 30,
----------------------------------- ----------------------
1995 1996 1997 1996 1997
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Current............................................. $ -- $ 227,738 $ 740,694 $ 326,634 $ 297,641
Deferred............................................ (283,631) 296,815 (2,799) (2,491) --
----------- ---------- ---------- ---------- ----------
Total............................................... $ (283,631) $ 524,553 $ 737,895 $ 324,143 $ 297,641
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
</TABLE>
F-12
<PAGE>
URSUS TELECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
7. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred income taxes are as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------- SEPTEMBER 30,
1996 1997 1997
---------- ---------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for bad debts.................................................... $ 4,552 $ -- $ 16,000
Accrued expenses........................................................... 5,100 9,076 9,076
Amortization............................................................... 33,328 17,373 11,145
---------- ---------- -------------
Total deferred tax assets.................................................. 42,980 26,449 36,221
Deferred tax liabilities:
Depreciation............................................................... (56,164) (36,834) (66,183)
---------- ---------- -------------
Total deferred tax liabilities............................................. (56,164) (36,834) (66,183)
---------- ---------- -------------
Total net deferred tax liabilities......................................... $ (13,184) $ (10,385) $ (29,962)
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
The reconciliation of the effective income tax expense (benefit) to federal
statutory rates is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED MARCH 31, ENDED SEPTEMBER 30,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Tax at federal statutory rate...................... 34.00% 34.00% 34.00% 34.00% 34.00%
State taxes, net of federal benefit................ 3.81 5.65 3.66 3.57 3.66
Nondeductible items................................ 1.65 .27 .24 .15 .01
Change in valuation allowance...................... (330.13) -- -- -- --
Other.............................................. 2.44 (.02) (.83) (.49) (.04)
--------- --------- --------- --------- ---------
(288.23)% 39.90% 37.07% 37.23% 37.63%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SFAS No. 109, ACCOUNTING FOR INCOME TAXES, requires a valuation allowance to
reduce the deferred tax assets reported if, based on the weight of available
evidence, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. During 1995, the Company's deferred tax asset
valuation allowance was reduced by $324,859 and thereby eliminated.
F-13
<PAGE>
URSUS TELECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
8. RELATED PARTY TRANSACTIONS
Advances and notes receivable--related parties consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------- SEPTEMBER 30,
1996 1997 1997
---------- ---------- -------------
<S> <C> <C> <C>
Note receivable--officer, unsecured, due on demand, bearing interest at
7.65% per annum (see Note 14)........................................... $ 60,000 $ 117,000 $ 127,000
Notes receivable--minority shareholder.................................... 65,000 65,000 53,750
Cash advances--officer.................................................... -- -- 5,315
Advances receivable--affiliate, unsecured, non interest bearing........... 22,668 3,694 3,694
---------- ---------- -------------
$ 147,668 $ 185,694 $ 189,759
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
During fiscal 1995, 416.67 shares of Class C shares were issued to an
officer in exchange for a $18,750 promissory note bearing interest at 7.65%, due
March 1, 1997, and accordingly, this stock subscription receivable is reflected
as a deduction from shareholders' equity at March 31, 1996 and 1997. See Note
13.
Included in prepaid expenses at September 30, 1997 are $65,616 of bonuses
paid in advance, related to the fiscal year ending March 31, 1998. Bonuses
payable of $24,601 were included in accrued expenses at March 31, 1995.
Between December 21, 1995 and June 26, 1996 the Company loaned $65,000 in
the aggregate to a minority shareholder. The Notes are unsecured and bear
interest at the rate of 7.65% per annum. See Note 13.
9. COMMITMENTS
In addition to its facility, the Company leases equipment and vehicles. The
approximate annual minimum lease payments under the non-cancelable operating
leases, including the facility lease, existing as of September 30, 1997 are:
<TABLE>
<S> <C>
1998............................................................ $ 200,024
1999............................................................ 197,000
2000............................................................ 191,019
2001............................................................ 176,131
2002............................................................ 173,327
Thereafter...................................................... 102,361
---------
$1,039,862
---------
---------
</TABLE>
The Company has entered into various contracts which require it to purchase
telecommunications services. The approximate minimum purchase commitments under
these contracts as of September 30, 1997 is $1,433,700 (approximately $946,700
in fiscal 1998 and $487,000 in fiscal 1999).
On March 1, 1993, the Company entered into a ten year employment agreement
with a minority shareholder/chief operating officer that provides for an annual
base salary of $170,000 plus a bonus equal to 10% of the Company's pre-tax
profits. On July 1, 1994, the Company entered into a ten year
F-14
<PAGE>
URSUS TELECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
9. COMMITMENTS (CONTINUED)
employment agreement with its chief executive officer that provides for an
annual base salary of $170,000 plus a bonus equal to 10% of the Company's
pre-tax profits.
For the six months ended September 30, 1997 bonuses of $197,742, ($217,685
- -six months ended September 30, 1996, $501,350--year ended March 31, 1997,
$328,651--year ended March 31, 1996, and $24,042--year ended March 31, 1995)
were paid under the employment agreements. See Note 13.
On November 1, 1995, the Company entered into a one year consulting
agreement with a minority shareholder of the Company. The agreement
automatically renews for successive one year terms unless either party provided
written notice of nonrenewal. The agreement provides for a monthly retainer of
$11,250 plus reimbursement of reasonable travel expenses. See Note 13.
10. SIGNIFICANT CUSTOMERS
The Company has had a number of significant customers. Net revenues from the
significant customers were in the following percentages of total net revenues:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER 30,
YEAR ENDED MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
Customer 1.............................. 19% N/S N/S N/S N/S
Customer 2.............................. 21% 12% N/S N/S N/S
Customer 3.............................. 12% 16% 11% 18% 13%
Customer 4.............................. 11% N/S N/S N/S N/S
Customer 5.............................. N/S 11% 15% 15% 14%
Customer 6.............................. N/S 11% 19% 16% 29%
Customer 7.............................. N/S N/S 12% 13% 10%
</TABLE>
Accounts receivable from the significant customers with a significant
percentage of the balance in total accounts receivable at the date of the
balance sheet were as follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1995 1996 1997 1997
--------- ------------- --------- ---------------
<S> <C> <C> <C> <C>
Customer 1................................. N/S N/S N/S N/S
Customer 2................................. N/S 8% N/S N/S
Customer 3................................. N/S 8% 9% N/S
Customer 4................................. N/S N/S N/S N/S
Customer 5................................. N/S 15% 21% 23%
Customer 6................................. N/S 23% 28% 28%
Customer 7................................. N/S N/S 10% 12%
</TABLE>
N/S--NOT SIGNIFICANT.
F-15
<PAGE>
URSUS TELECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
11. CONCENTRATIONS OF CREDIT RISK
The Company purchases all of its telecommunication services from a small
number of vendors. Approximately $3,092,000 was owed to these companies at
September 30, 1997 ($2,590,000--March 31, 1997 and $1,433,000--March 31, 1996).
At September 30, 1997, the Company had $235,713 ($632,508--March 31, 1997,
$334,060--March 31, 1996 and $475,658--March 31, 1995) in cash and cash
equivalents that were not federally insured.
A majority of the Company's transmission and switching facilities are
provided by two telecommunications carriers. Under the terms of the supplier
agreements, the Company purchases long distance service at certain per-minute
rates, which vary based on the time, distance and type of call. Although
management believes that alternative carriers could be found in a timely manner,
disruption of these services for more than a brief period of time would have a
negative effect on the Company's operating results.
12. BUSINESS SEGMENT
The Company operates in a single industry segment. For the six months ended
September 30, 1996 and 1997 and for the years ended March 31, 1995, 1996 and
1997, substantially all of the Company's revenues were derived from traffic
transmitted through switch facilities located in Sunrise, Florida. The
geographic origin of the traffic is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED MARCH 31, ENDED SEPTEMBER 30,
------------------------------------------ ---------------------------
1995 1996 1997 1996 1997
------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Africa................................. $ 369,087 $ 1,403,094 $ 3,899,701 $ 1,492,006 $ 3,989,068
Europe................................. 316,903 1,988,030 4,252,104 2,233,553 2,043,914
Latin America.......................... 4,387,351 6,337,284 7,265,473 3,447,061 3,465,699
Middle East............................ 413,796 2,101,864 3,741,890 1,749,399 2,094,143
Other.................................. 803,375 1,397,802 1,363,852 624,146 983,212
United States.......................... -- -- 315,407 -- 638,415
------------ ------------- ------------- ------------ -------------
Total Revenues......................... $ 6,290,512 $ 13,228,074 $ 20,838,427 $ 9,546,165 $ 13,214,451
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
</TABLE>
13. SUBSEQUENT EVENTS (UNAUDITED)
In November 1997, the Company signed a letter of intent with an underwriter
for an initial public offering of the Company's common stock. Pursuant to the
letter of intent, upon a successful offering, and for a nominal amount, the
underwriter will receive 150,000 warrants to purchase common stock of the
Company at an exercise price of 120% of the ultimate public offering price.
On February 6, 1998 the Board of Directors and Shareholders approved (i) the
filing of a restated Certificate of Incorporation that would provide for, among
other things, the authorization of 20,000,000 shares of Common Stock and
1,000,000 shares of Preferred Stock, (ii) a 932.08 for 1 stock split of the
issued and outstanding Class C Common Stock, (iii) the reclassification and
split of every four shares of outstanding Class A and Class B stock into
3,692.32 shares of Common Stock and 1 share of Preferred Stock, (iv) an option
plan reserving for issuance up to 1,000,000 shares of Common Stock options and
other stock awards, and (v) the granting of 150,000 warrants for the purchase of
Common Stock to the Company's underwriters. The stock split and recapitalization
will become effective upon the filing of the Company's amended articles of
incorporation with the applicable state agency. The issuance of the
F-16
<PAGE>
URSUS TELECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
13. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
warrants and grants under the stock option plan will become effective upon the
consummation of the Company's proposed initial public offering. Pursuant to
existing employment agreements, the Company anticipates granting 515,000 of such
options upon a successful initial public offering at an exercise price equal to
or exceeding the public offering price.
On August 12, 1997, the Company entered into an agreement with its largest
independent agent (in South Africa) to acquire an approximate 9% interest in the
agency for approximately $373,000. At September 30, 1997, $127,382 has been paid
and is included in other assets.
On September 1, 1997, the Company entered into an employment agreement with
its Vice President of Agency Relations for a two year period providing a base
annual salary of $130,000 and a $40,000 one time sign up bonus. The Agreement
provides for stock options for the number of shares equal to 2% of the
outstanding Common Stock of the Company. The exercise price will be equal to or
exceed the fair market value of the Common Stock at the date granted.
On October 27, 1997, the Company amended the terms of its office lease to
extend it through April 30, 2003 at an aggregate monthly base rent, estimated
common area charges and sales of tax of $13,292 per month, subject to a 3% base
rent adjustment each year.
On December 19, 1997, an officer/minority shareholder repaid a loan of
$18,750.
On December 23, 1997, the Company's Chief Executive Officer repaid the
Company $138,608. The amount repaid consisted of a note for $127,000 plus
accrued interest and cash advances totaling $11,608.
On January 1, 1998, with an additional amendment on February 9, 1998, the
Company entered into employment agreements with its Chief Executive Officer and
Chief Operating Officer whereby for a term of five calendar years they will each
receive a base salary of $225,000 with increases of $25,000 in each of years 2
to 5 of the agreement and a guaranteed bonus of $45,000 per calendar year,
additionally, the agreement provides for additional bonuses at a rate of 4.5% of
earnings before interest, taxes, amortization and bonuses ("EBITAB") greater
than $1 million, as defined up to $4 million. The agreement provides for
additional bonuses of 20% of base salary for achievement of $4 million EBITAB
and up to 5% of base for each $1 million of EBITAB in excess of $4 million on a
pro rata basis.
On January 1, 1998 with an additional amendment on February 9, 1998, the
Company entered into a two year employment agreement with its Chief Financial
and Accounting Officer providing for a base salary of $170,000 in calendar year
1998 and $200,000 in calendar year 1999. The Company paid a $50,000 bonus upon
the signing of the agreement and will pay a $75,000 bonus upon the successful
completion of an initial public offering of the Company's Common Stock. The
agreement further provides for additional bonuses based upon the Company's
operating results, as defined.
On November 20, 1997 the Company entered into a letter of intent to form a
joint venture. The Company has formed Ursus Telecom France, a limited liability
company incorporated in France. Under the terms of the letter of intent, the
Company will contribute a switch at historical net book value of $112,000 and
the joint venture partners may contribute certain telecommunications traffic
into the venture. Under the terms of the letter of intent, the Company may be
required to repurchase the outstanding partnership interest at the earliest one
year after the closing date of the initial public offering, based upon
F-17
<PAGE>
URSUS TELECOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
13. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
a multiple of average monthly revenues of Ursus Telecom France as defined. The
letter of intent expired on January 31, 1998, and the Company is seeking to
extend it.
On January 20, 1998, the Company entered into an agreement with, a minority
shareholder of the Company, extending his consulting agreement (see Note 9) to
December 31, 1998 and modifying the agreement to include an additional payment
$15,000 upon consummation of an initial public offering of the Company's
securities during the term of the consulting agreement.
On January 21, 1998, the Company entered into an agreement to purchase a
switch for $303,132. The purchase agreement provides a financing arrangement
with a $60,000 initial down payment and six (6) monthly installments beginning
on February 25, 1998 at 9.5% interest per annum and a final balloon payment of
$153,133 on August 25, 1998.
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................
Summary Financial Data....................................................
Risk Factors..............................................................
Use of Proceeds...........................................................
Capitalization............................................................
Dividend Policy...........................................................
Dilution..................................................................
Selected Financial Data...................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations..............................................................
The International Telecommunications Industry.............................
Business..................................................................
Management................................................................
Certain Relationships and Related Party Transactions......................
Principal and Registering Shareholders....................................
Description of Capital Stock..............................................
Shares Eligible for Future Sale...........................................
Underwriting..............................................................
Legal Matters.............................................................
Experts...................................................................
Additional Information....................................................
Reports to Shareholders...................................................
Glossary of Terms.........................................................
Index to Financial Statements.............................................
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,500,000 SHARES OF COMMON STOCK
[URSUS LOGO]
URSUS TELECOM CORPORATION
---------------------
PROSPECTUS
---------------------
JOSEPH CHARLES &
ASSOCIATES, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by it in connection with the
offering described in this Registration Statement (other than the underwriting
discount and commissions) will be approximately as follows:
<TABLE>
<S> <C> <C>
SEC registration fee........................................... $ 6,831
Legal fees and expenses........................................ *
Accounting fees and expenses................................... *
Printing and engraving......................................... 50,000
Nasdaq listing application fee................................. 66,875
Blue sky qualification fees and expenses....................... *
NASD Fee....................................................... 2,815.52
Transfer Agent's Fees.......................................... 500
Miscellaneous.................................................. *
Total.......................................................... $ 127,021.52
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation indemnifies, to the fullest
extent permitted by the Law of the State of Florida, the directors of the
Registrant.
Every person (and the heirs, executors and administrators of such person)
who is or was a director, officer, employee or agent of the Corporation or of
any other company, including another corporation, partnership, joint venture,
trust or other enterprise on which such person serves or served at the request
of the Corporation shall be indemnified by the Corporation against all
judgments, payments in settlement (whether or not approved by court), fines,
penalties and other reasonable costs and expenses (including attorneys' fees and
costs) imposed upon or incurred by such person in connection with or resulting
from any action, suit, proceeding, investigation or claim, civil, criminal,
administrative, legislative or other (including any criminal action, suit or
proceeding in which such person enters a plea of guilty or NOLO CONTENDERE or
its equivalent), or any appeal relating thereto which is brought or threatened
either by or in the right of the Corporation or such other company (herein
called a "Derivative Action") or by any other person, governmental authority or
instrumentality (herein called a "Third-Party Action") and in which such person
is made a party or is otherwise involved by reason of his being or having been
such director, officer, employee or agent or by reason of any action or omission
or alleged action or omission by such person in his capacity as such director,
officer, employee or agent if either (i) such person is wholly successful, on
the merits or otherwise, in defending such derivative or third-party action or
(ii) in the judgment of a court of competent jurisdiction or, in the absence of
such a determination, in the judgment of a majority of a quorum of the Board of
Directors (which quorum shall not include any director who is a party to or is
otherwise involved in such action), or, in the absence of such a disinterested
quorum, in the opinion of independent legal counsel (iii) in the case of a
Derivative Action, such person acted without negligence or misconduct in the
performance of his duty to the Corporation or such other company or (iv) in the
case of a Third-Party Action, such person acted in good faith in what he
reasonably believed to be the best interests of the Corporation or such other
company, and in addition, in any criminal action, had no reasonable cause to
believe that his action was unlawful; provided that, in the case of a Derivative
Action, such indemnification shall not be made in respect of any payment to the
Corporation or such other
II-1
<PAGE>
company or any shareholder thereof in satisfaction of judgment or in settlement
unless either (x) a court of competent jurisdiction has approved such
settlement, if any, and the reimbursement of such payment or (y) if the court in
which such action has been instituted lacks jurisdiction to grant such approval
or such action is settled before the institution of judicial proceedings, in the
opinion of independent legal counsel the applicable standard of conduct
specified hereinbefore has been met, such action was without substantial merit,
such settlement was in the best interests of the Corporation or such other
company and the reimbursement of such payment is permissible under applicable
law. In case such person is successful on the merits or otherwise in defending
part of such action, or in the judgment of such a court or such quorum of the
Board of Directors or in the opinion of such counsel has met the applicable
standard of conduct specified in the preceding sentence with respect to part of
such action, he(she) shall be indemnified by the Corporation against the
judgments, settlements, payments, fines, penalties, and other costs and expenses
attributable to such part of such action.
The foregoing rights of indemnification shall be in addition to any rights
which any such director, officer, employee or agent may otherwise be entitled
any agreement or vote of shareholders or at law or in equity or otherwise.
In any case in which, in the judgment of a majority of such a disinterested
quorum of the Board of Directors, any such director, officer or employee will be
entitled to indemnification under the foregoing provisions of this Article, such
amounts as they deem necessary to cover the reasonable costs and expenses
incurred by such person in connection with the action, suit, proceeding,
investigation or claim prior to final disposition thereof may be advanced to
such person upon receipt of an undertaking by or on behalf of such person to
repay such amounts if it is ultimately determined that he(she) is not so
entitled to indemnification.
The amendment or repeal of, or adoption of any provision inconsistent with,
this Article SIXTH will require the affirmative vote of the holders of at least
66 2/3% of the Common Stock and all series of voting Preferred Stock, voting
together as a single class. Any amendment or repeal of, or adoption of any
provision inconsistent with, this Article SIXTH will not adversely affect any
right or protection existing hereunder prior to such amendment, repeal, or
adoption.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
There have been no recent sales of unregistered securities of the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(") Exhibits:
<TABLE>
<C> <C> <S>
1.1** -- Form of Underwriting Agreement
1.2** -- Form of Agreement Among Underwriters
1.3** -- Form of Selected Dealers Agreement
3.1* -- Articles of Incorporation of the Registrant
3.2* -- Bylaws of the Registrant
4.1** -- Specimen of Certificate for Common Stock
4.2** -- Specimen of Preferred Stock Certificate
5.1** -- Opinion of Stroock & Stroock & Lavan LLP
10.1* -- Employment Agreement between the Registrant and Luca M. Giussani
10.2* -- Amendment to Employment Agreement with Luca M. Giussani
10.3* -- Employment Agreement between the Registrant and Jeffrey R. Chaskin
10.4* -- Amendment to Employment Agreement with Jeffrey R. Chaskin
10.5* -- Employment Agreement between the Registrant and Johannes S. Seefried
10.6* -- Amendment to Employment Agreement with Johannes S. Seefried
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <C> <S>
10.7* -- Employment Agreement between the Registrant and Richard C. McEwan
10.8* -- Lease Agreement
10.9* -- Form of 1998 Stock Incentive Plan
10.10** -- Form of Financial Consulting Agreement
10.11* -- Form of Agency Agreement
10.12* -- Agreement regarding formation of Ursus Telecom France
10.13* -- Agreement regarding purchase of interest in South African Agency
10.14* Agreement dated January 20, 1998 among Messrs. Giussani, Rispoli and the
-- Company
23.1* -- Consent of Ernst & Young LLP
23.2** -- Consent of Stroock & Stroock & Lavan LLP (contained in 5.1)
24.1* Power of Attorney (included on the signature page of this Registration
-- Statement)
27* -- Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offer or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission
II-3
<PAGE>
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sunrise,
State of Florida, on the th day of February, 1998.
URSUS TELECOM CORPORATION
BY:
-----------------------------------------
Luca M. Giussani
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Known all men by these presents, that each person whose signature appears
below hereby constitutes and appoints Luca M. Giussani, Jeffrey R. Chaskin and
Johannes Seefried together or acting singly, as their true and lawful
attorneys-in-fact, with full power of substitution, and for him name, place and
stead, in any and all capacities, to sign this and any amendments or
post-effective amendments to this Registration Statement, and any registration
statement relating to any offering made in connection with the offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he ought or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following person in the capacities
and on the dates indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------ --------------------------- -------------------
Chief Executive Officer and
- ------------------------------ Director , 1998
Luca M. Giussani
Principal Executive Officer
- ------------------------------ and Director , 1998
Jeffrey R. Chaskin
Principal Financial and
- ------------------------------ Accounting Officer and , 1998
Johannes S. Seefried Director
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- --------- -------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C>
1.1** -- Form of Underwriting Agreement
1.2** -- Form of Agreement Among Underwriters
1.3** -- Form of Selected Dealers Agreement
3.1* -- Articles of Incorporation of the Registrant
3.2* -- Bylaws of the Registrant
4.1** -- Specimen of Certificate for Common Stock
4.2** -- Specimen of Preferred Stock Certificate
5.1** -- Opinion of Stroock & Stroock & Lavan LLP
10.1* -- Employment Agreement between the Registrant and Luca M. Giussani
10.2* -- Amendment to Employment Agreement with Luca M. Giussani
10.3* -- Employment Agreement between the Registrant and Jeffrey R. Chaskin
10.4* -- Amendment to Employment Agreement with Jeffrey R. Chaskin
10.5* -- Employment Agreement between the Registrant and Johannes S. Seefried
10.6* -- Amendment to Employment Agreement with Johannes S. Seefried
10.7* -- Employment Agreement between the Registrant and Richard C. McEwan
10.8* -- Lease Agreement
10.9* -- Form of 1998 Stock Incentive Plan
10.10** -- Form of Financial Consulting Agreement
10.11* -- Form of Agency Agreement
10.12* -- Agreement regarding formation of Ursus Telecom France
10.13* -- Agreement regarding purchase of interest in South African Agency
10.14* -- Agreement dated January 20, 1998 among Messrs. Giussani, Rispoli and the Company
23.1* -- Consent of Ernst & Young LLP
23.2** -- Consent of Stroock & Stroock & Lavan LLP (contained in 5.1)
24.1* -- Power of Attorney (included on the signature page of this Registration Statement)
24.2* -- Financial Data Schedule
27 -- Financial Data Schedule...............................................................
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
EXHIBIT 3.1
FILED
1993 MAR 23 PM 2:01
SECRETARY OF STATE
TALLAHASSEE, FLORIDA
ARTICLES OF INCORPORATION
OF
URSUS TELECOM CORPORATION
The undersigned does hereby act as incorporator in adopting the
following Articles of Incorporation for the purpose of organizing a business
corporation pursuant to the provisions of the Florida Business Corporation Act.
FIRST: The name of the corporation (hereinafter called the
"Corporation") is Ursus Telecom Corporation.
SECOND: The principal office of the Corporation has not been
determined. The mailing address of the Corporation is c/o Stroock & Stroock &
Lavan, 200 S. Biscayne Boulevard, 33rd Floor, Miami, Florida 33131.
THIRD: The Corporation shall have authority to issue three classes
of common shares, all such shares in each class to be of a par value of $50.00
each, as described below. All Class "A" shares, Class "B" shares and Class "C"
shares shall have the same dividend, liquidation and voting rights, except as
described below.
1. Class "A" Common Shares: The aggregate number of shares
designated as Class "A" shares which the Corporation shall have the authority to
issue is 500. The holders of the issued and outstanding Class "A" shares shall
have the exclusive right to elect all the directors of the Board of Directors if
the total number of the directors of the Corporation is three or fewer. If the
total number of directors of the Corporation is greater than three, then the
Class "A" shares shall have the exclusive right to elect three of such
directors. In addition, the Class "A" shares shall be voting shares, and the
holders thereof shall be entitled to vote on all matters as may come before the
shareholders of the Corporation, including, but not limited to, the election of
any directors not designated by the holder of such Class "A" shares as set forth
above.
2. Class "B" Common Shares: The aggregate number of shares
designated as Class "B" shares which the Corporation shall have the authority to
issue is 15,500, all of which shall be voting shares, except that such Class "B"
shares shall have no right to vote in the election of up to three directors the
right to elect whom is the exclusive right of the holders of the Class "A"
shares, all as provided in paragraph 1 above.
<PAGE>
3. Class "C" Common Shares: The aggregate number of shares
designated as Class "C" shares which the Corporation shall have the authority to
issue is 4,000, all of which shall, for all purposes be non-voting shares.
FOURTH: No holder of any of the shares of any class of the
Corporation shall be entitled as of right to subscribe for, purchase, or
otherwise acquire any shares of any class of the Corporation which the
Corporation proposes to issue or any rights or options which the Corporation
proposes to grant for the purchase of shares of any class of the Corporation or
for the purchase of any shares, bonds, securities, or obligations of the
Corporation which are convertible into or exchangeable for, or which carry any
rights, to subscribe for, purchase or otherwise acquire shares of any class of
the Corporation; and any and all of such shares, bonds, securities or
obligations of the Corporation, whether now or hereafter authorized or created,
may be issued, or may be reissued or transferred if the same have been
reacquired and have treasury status, and any and all of such rights and options
may be granted by the Board of Directors to such persons, firms, corporations
and associations, and for such lawful consideration, and on such terms, as the
Board of Directors in its discretion may determine, without first offering the
same, or any thereof, to any said holder.
FIFTH: The address of the initial registered agent of the
Corporation in the State of Florida is 200 South Biscayne Boulevard, 33rd Floor,
Miami, Florida 33131-2385, and the name of the initial registered agent of the
Corporation at such address is Arnold D. Shevin, Esq.
SIXTH: The name and address of the incorporator is Arnold D. Shevin,
Esq., 200 South Biscayne Boulevard, 33rd Floor, Miami, Florida 33131-2385.
SEVENTH: The Corporation shall, to the fullest extent permitted by
the provisions of the Florida Business Corporation Act, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said provisions from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said provisions, and
the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors, or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a
-2-
<PAGE>
person who has ceased to be in a capacity entitling such person to be
indemnified, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
/s/ Arnold D. Shevin
--------------------------------
Signed on March 19, 1993. Arnold D. Shevin, Esq.
Incorporator
Acceptance of Appointment by Registered Agent
Pursuant to the provisions of the Florida Business Corporation Act,
the undersigned does hereby accept his appointment as registered agent on whom
process may be served within the State of Florida for the proposed domestic
corporation named in the foregoing Articles of Incorporation.
/s/ Arnold D. Shevin
--------------------------------
Arnold D. Shevin, Esq.
FILED
1993 MAR 23 PM 2:01
SECRETARY OF STATE
TALLAHASSEE, FLORIDA
-3-
<PAGE>
EXHIBIT 3.2
BY-LAWS OF
URSUS TELECOM CORPORATION
A FLORIDA CORPORATION
ARTICLE I - OFFICES
The principal office of the corporation shall be established and
maintained at 440 Sawgrass Corporate Parkway, Suite 112, in the City of Sunrise,
County of Broward, State of Florida, or such other place as may be determined by
the board of directors from time to time. The corporation may also have offices
at such places within or without the State of Florida as the board of directors
("board") may from time to time establish.
ARTICLE II - SHAREHOLDERS
1. PLACE OF MEETINGS
Meetings of shareholders shall be held at the principal office of
the corporation or at such place within or without the State of Florida as the
board shall authorize.
2. ANNUAL MEETING
The annual meeting of shareholders shall be held each year on the
first Wednesday in APRIL at a time as set by the board by resolution, or on such
other date and at such other time as the board shall determine, to elect a board
and transact such other business as may properly come before the meeting.
3. SPECIAL MEETINGS
Special meetings of the shareholders may be called by the board or
by the chief executive officer or president or at the written request of
shareholders owning 50% of the stock entitled to vote at such meeting. A meeting
requested by shareholders shall be called for a date not less than ten nor more
than thirty days after the request is made. The secretary shall issue the call
for the meeting unless the president, the board or the shareholders requesting
the meeting shall designate another to make said call.
4. NOTICE OF MEETINGS
Written notice of each meeting of shareholders shall state the
purpose of the meeting and the time and place of the
<PAGE>
meeting. Notice shall be mailed to each shareholder entitled to vote at such
meeting at his last address as it appears on the records of the corporation, not
less than ten nor more than thirty days before the date set for such meeting.
Such notice shall be sufficient for the meeting and any adjournment thereof. If
any shareholder shall transfer his stock after such notice has been given, it
shall not be necessary to notify the transferee. Any shareholder may waive
notice of any meeting either before, during or after the meeting.
5. RECORD DATE
The board may fix a record date not more than thirty days prior to
the date set for a meeting of shareholders as the date as of which the
shareholders of record who are entitled to notice of and to vote at such
meeting and any adjournment thereof shall be determined.
6. VOTING
Every shareholder of Class "A" common shares and Class "B" common
shares of the corporation shall be entitled, at each shareholder's meeting and
upon each proposal presented at each meeting, to one vote for each share of such
stock recorded in his name on the books of the corporation on the record date as
fixed by the board, and if no record date was fixed, on the date of the meeting;
provided, however, that if the number of directors of the corporation is three
or fewer, then only holders of Class "A" common shares shall be entitled to vote
for the election of directors and holders of Class "B" common shares shall not
be entitled to vote for the election of directors; and provided further that if
the number of directors of the Corporation is greater than three, then holders
of the Class "A" common shares shall have the exclusive right to elect, and
holders of the Class "B" common shares shall not be entitled to vote for, three
of such directors. No shareholder of Class "C" common shares of the corporation
shall be entitled to vote on any proposal that may come before any shareholder's
meeting, said shares being non-voting shares for all purposes. The record of
shareholders shall be produced at the meeting, upon the request of any
shareholder. Upon the demand of any shareholder, the vote for directors and the
vote upon any question before the meeting shall be by ballot. All elections for
directors shall be decided by plurality vote; all other questions shall be
decided by a majority of the votes cast.
7. QUORUM
The presence, in person or by proxy, of shareholders holding a
majority of the stock of the corporation entitled to vote shall constitute a
quorum at all meetings of the
-2-
<PAGE>
shareholders. In case a quorum shall not be present at any meeting, a majority
in interest of the shareholders entitled to vote thereat, present in person or
by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until the requisite amount of
stock entitled to vote shall be present. At any such adjourned meeting at which
the requisite amount of stock entitled to vote shall be represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed; but only those shareholders entitled to vote at the meeting
as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof. When a quorum is once present to organize a meeting, it is
not broken by the subsequent withdrawal of any shareholders.
8. PROXIES
At any shareholders' meeting or any adjournment thereof, any
shareholder of record entitled to vote thereat may be represented and vote by
proxy appointed in a written instrument. No such proxy shall be voted after
three years from the date of the instrument unless the instrument provides for a
longer period. In the event that any such instrument provides for two or more
persons to act as proxies, a majority of such persons present at the meeting, or
if only one be present, that one, shall have all the powers conferred by the
instrument upon all the persons so designated unless the instrument shall
otherwise provide. In the event that any such instrument provides for an even
number of persons to act as proxies, or if the number of persons designated to
act as proxies by such an instrument present at any meeting is even, and if said
persons disagree on their proposed vote, and are equally divided, no vote
pursuant to said instrument shall be cast unless the instrument provides a
mechanism to break the deadlock. Unless the instrument provides otherwise, any
proxy is revocable by either (i) attendance by the giver of the proxy at the
meeting for which the proxy was given and the exercise thereat of the privilege
of voting by the giver of the proxy; or (ii) delivery to the secretary of an
instrument revoking the proxy, which revocation shall be effective upon
delivery.
ARTICLE III - DIRECTORS
1. BOARD OF DIRECTORS
The business of the corporation shall be managed and its corporate
powers exercised by a board consisting of at least one director, but not more
than seven directors, such number to be determined by the shareholders. Each
director shall be of full age. It shall not be necessary for directors to be
shareholders. Notwithstanding the foregoing, the initial board shall consist of
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two persons until such number is changed by action of the shareholders. Upon any
increase in the number of directors, the additional directors may be elected by
the shareholders, but if the shareholders do not do so, then such additional
directors shall be elected by the board, each to serve until the next annual
meeting of the shareholders of the corporation and until his successor is
elected and has qualified.
2. ELECTION AND TERM OF DIRECTORS
Directors shall be elected at the annual meeting of shareholders and
each director elected shall hold office until the next annual meeting of
shareholders and until his successor has been duly elected and qualified, or
until his prior resignation or removal.
3. VACANCIES
If the office of any director, member of a committee or other
officer becomes vacant, the remaining directors in office, by a majority vote,
may appoint any qualified person to fill such vacancy, who shall hold office for
the unexpired term and until his successor shall have been duly elected and
qualified. If the vacancy arises with respect to a director elected by the
shareholders of the Class "A" common shares, said vacancy will be filled by the
majority of the shareholders holding such shares within fifteen days thereafter.
4. REMOVAL OF DIRECTORS
Any or all of the directors may be removed, with or without cause,
by vote of a majority of all the stock outstanding and entitled to vote at a
special meeting of shareholders called for that purpose; provided however, that
any directors elected by the shareholders holding Class "A" common shares may
only be removed by a vote of a majority of all the Claws "A" common shares
outstanding and entitled to vote at such special meeting.
5. RESIGNATION
A director may resign at any time by giving written notice to the
board, the president or the secretary of the corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt thereof
by the board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
6. QUORUM OF DIRECTORS
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A majority of the directors in office shall constitute a quorum for
the transaction of business. If at any meeting of the board there shall be less
than a quorum present, a majority of those present may adjourn the meeting from
time to time until a quorum is obtained, and no further notice thereof need be
given other than by announcement at the meeting which shall be so adjourned.
7. PLACE AND TIME OF BOARD MEETINGS
The board may hold its meetings at the office of the corporation or
at such other places, either within or without the State of Florida, as it may
from time to time determine.
8. REGULAR ANNUAL MEETING
A regular annual meeting of the board shall be held immediately
following the annual meeting of shareholders at the place of such annual meeting
of shareholders.
9. NOTICE OF MEETING OF THE BOARD
Regular meetings of the board may be held without notice at such
time and place as it shall from time to time determine. Special meetings of the
board shall be held upon notice to the directors and may be called by the
president upon notice to each director by mailing such notice at least five days
prior to the meeting, or orally, or by personal service, or by telegram, or by
telecopier at least two days prior to the meeting; special meetings shall be
called by the president or by the secretary in a like manner on written request
of one director. Notice of a meeting need not be given to any director who
submits a waiver of notice whether before or after the meeting or who attends
the meeting without protesting the lack of notice to him prior thereto or at its
commencement. The notice of any board meeting need not specify the purpose of
the meeting.
10. EXECUTIVE AND OTHER COMMITTEES
The board, by resolution, may designate two or more of their number
to one or more committees, which, to the extent provided in said resolution or
these By-laws, may exercise the powers of the board in the management of the
business of the corporation to the extent permitted by the Florida Business
Corporation Act.
11. COMPENSATION
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The board may fix a rate of compensation to be paid to directors for
their services to the corporation in that capacity.
12. CONFERENCE TELEPHONE
Any one or more members of the board or any committee thereof may
participate in a meeting of such board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Such participation shall
constitute presence in person at such meeting.
ARTICLE IV - OFFICERS
1. ELECTION AND TERM
a) The board may elect or appoint a chairman of the board, a chief
executive officer, a president, vice presidents, a secretary and a treasurer,
and such other officers as it may determine, who shall have such duties and
powers as hereinafter provided.
b) Unless otherwise provided in the resolution of election or
appointment, each officer shall hold office until the regular annual meeting of
the board to be held immediately following the annual meeting of the
shareholders and until his successor has been duly elected and qualified, or
until his prior resignation or removal.
2. REMOVAL, RESIGNATION, SALARY, ETC.
a) Any officer elected or appointed by the board may be
removed by the board with or without cause.
b) In the event of the death, resignation or removal of an
officer, the board in its discretion may elect or appoint a
successor to fill the unexpired term.
c) Any two or more offices may be held by the same person.
d) The salaries of all officers shall be fixed by the board.
3. CHAIRMAN
The chairman of the board, if one be elected, shall preside at all
meetings of the board and he shall have and perform
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such other duties as from time to time may be assigned to him by the board or
the executive committee.
4. PRESIDENT AND CHIEF EXECUTIVE OFFICER
The president and chief executive officer shall have the general
powers and duties from time to time assigned to him by the board or executive
committee. He shall preside at all meetings of the shareholders if present
thereat, and if the chairman of the board is absent or there is no chairman of
the board, at all meetings of the board, and shall have general supervision,
direction and control of the business of the corporation.
4. EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
The executive vice president and chief operating officer shall be
the chief operating officer of the corporation and shall have the general powers
and duties of supervision and management usually vested in the office of the
chief operating officer of a corporation. During the absence or disability of
the president and chief executive officer, the executive vice president and
chief operating officer shall have all the powers and functions of the
president.
5. VICE-PRESIDENT
During the absence or disability of the executive vice president and
chief operating officer, the vice president, or if there are more than one, the
first vice president, shall have all the powers and functions of the executive
vice president and chief operating officer. Each vice president shall perform
such other duties as the board shall prescribe.
6. SECRETARY
The secretary shall attend all meetings of the board and of the
shareholders, record all votes and minutes of all proceedings in a book to be
kept for that purpose, give or cause to be given notice of meetings of
shareholders and of special meetings of the board, keep in safe custody the seal
of the corporation and affix it to any instrument when authorized by the board,
when required prepare or cause to be prepared and available at each meeting of
shareholders a certified list in alphabetical order of the names of shareholders
entitled to a vote thereat, indicating the number of shares of each respective
class held by each, keep all the documents and records of the corporation as
required by law or otherwise in a proper and safe manner, and perform such other
duties as may be prescribed by the board, or assigned to him by the chief
executive officer or one president.
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7. ASSISTANT SECRETARY
During the absence or disability of the secretary, the assistant
secretary, or if there are more than one, the one so designated by the secretary
or by the board, shall have all the powers and functions of the secretary.
9. TREASURER
The treasurer shall have the custody of the corporate funds and
securities, keep full and accurate accounts of receipts and disbursements in the
corporate books, deposit all money and other valuables in the name and to the
credit of the corporation in much depositories as may be designated by the
board, disburse the funds of the corporation as may be ordered or authorized by
the board and preserve proper vouchers for such disbursements, render to the
chief executive officer, the president and board at the regular meetings of the
board, or whenever they require it, an account of all his transactions as
treasurer and of the financial condition of the corporation, render a full
financial report at the annual meeting of the shareholders if so requested, and
perform such other duties as are given to him by these By-laws or as from time
to time are assigned to him by the board, the chief executive officer or the
president.
9. ASSISTANT TREASURER
During the absence or disability of the treasurer, the assistant
treasurer, or if there are more than one, the one so designated by the secretary
or by the board, shall have all the powers and functions of the treasurer.
10. SURETIES AND BONDS
In case the board shall so require, any officer or agent of the
corporation shall execute to the corporation a bond in such sum and with such
surety or sureties as the board may direct, conditioned upon the faithful
performance of his duties to the corporation and including responsibility for
negligence and for the accounting for all property, funds or securities of the
corporation which may come into his hands.
ARTICLE V - CERTIFICATES FOR SHARES
1. CERTIFICATES
The shares of the corporation shall be represented by certificates,
which certificates shall state the class of common shares represented thereby
and shall be numbered and entered in
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the books of the corporation as they are issued. They shall exhibit the holder's
name and the class of shares represented thereby and shall be signed by the
chief executive officer, the president or a vice president and by the treasurer
or the secretary and shall bear the corporate seal. When such certificates are
signed by a transfer agent or an assistant transfer agent or by a transfer clerk
acting on behalf of the corporation and a registrar, the signatures of such
officers may be facsimiles.
2. LOST OR DESTROYED CERTIFICATES
The board may direct a new certificate or certificates to be issued
in place of any certificate or certificates theretofore issued by the
corporation, alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate or certificates, the
board may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representatives, to advertise the same in such manner
as it shall require and/or give the corporation a bond in such sum and with such
surety or sureties as it may direct so as to indemnify the corporation against
any claim that may be made against it with respect to the certificate alleged to
have been lost or destroyed.
3. TRANSFERS OF SHARES
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, and upon payment of
any applicable transfer taxes, the corporation shall issue a new certificate to
the person entitled thereto, and cancel the old certificate; every such
transfer shall be entered on the transfer books of the corporation.
4. CLOSING TRANSFER BOOKS
The board shall have the power to close the share transfer books of
the corporation for a period of not more than ten days during the thirty day
period immediately preceding (a) any shareholders' meeting, or (b) any date upon
which stock holders shall be called upon to or have a right to take action
without a meeting, or (c) any date fixed for the payment of a dividend or any
other form of distribution, and only those shareholders of record at the time
when the transfer books are closed, shall be recognized as such for the purpose
of (a) receiving notice of or voting at such meeting, or (b) allowing
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them to take such action without a meeting, or (c) entitling them to receive
such dividend or other form of distribution.
ARTICLE VI - DIVIDENDS
The board may out of funds legally therefor at any regular or
special meeting, declare dividends upon the capital stock of the corporation as
and when it deems expedient. Before declaring any dividend there may be set
apart out of the funds of the corporation available for dividends, such sum or
sums as the board from time to time in their discretion deem proper for working
capital or as a reserve fund to meet contingencies or for equalizing dividends
or for such other purposes as the board shall deem conducive to the interests of
the corporation.
ARTICLE VII - CORPORATE SEAL
The seal of the corporation shall be circular in form and bear the
name of the corporation, the year of its organization and the words "CORPORATE
SEAL, FLORIDA". The seal may be used by causing it to be impressed directly on
the instrument or writing to be sealed, or upon adhesive substance affixed
thereto. The seal on the certificates for shares or on any corporate obligation
for the payment of money may be facsimile, engraved or printed.
ARTICLE VIII - EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be signed or
countersigned, executed, verified or acknowledged by such officer or officers or
other person or persons as the board may from time to time designate.
All checks, drafts or other orders for payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officers, agent or agents of the corporation, and in such manner
as shall be determined from time to time by resolution of the board.
ARTICLE IX - FISCAL YEAR
The fiscal year shall end on December 31st of each year.
ARTICLE X - NOTICE AND WAIVER OF NOTICE
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Whenever any notice is required by these By-laws to be given,
personal notice is not meant unless expressly so stated, and any notice so
required shall be deemed to be sufficient if given by depositing the same in a
post office box in a sealed post-paid wrapper, addressed to the person entitled
thereto at his last known post office address, and such notice shall be deemed
to have been given on the day of such mailing. Shareholders not entitled to vote
shall not be entitled to receive notice of any meetings except as otherwise
provided by statute.
Whenever any notice is required to be given under the provisions of
any law, or under the provisions of the Articles of Incorporation of the
corporation or these By-laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE XI - CONSTRUCTION
Whenever a conflict arises between the language of these By-laws and
the Articles of Incorporation, the Articles of Incorporation shall govern.
ARTICLE XII - ACTION WITHOUT MEETINGS
Any action of the directors or any committee of the board may be
taken without a meeting if consent in writing, setting forth the action so
taken, shall be signed by all persons who would be entitled to vote on such
action at a meeting, and filed with the secretary of the corporation as part of
the proceedings of the directors or such committee, as the case may be.
ARTICLE XIII - INDEMNITY
Every person (and the heirs, executors and administrators of such
person) who is or was a director, officer, employee or agent of the corporation
or of any other company, including another corporation, partnership, joint
venture, trust or other enterprise which such person serves or served as such at
the request of the corporation shall be entitled to be indemnified in connection
with proceedings and other matters by the corporation to the fullest extent
permitted by the Florida Business Corporation Act, as the same may be amended
from time to time; provided however, that to the extent permitted by law, no
such amendment shall lessen the scope of the indemnity provided by Florida law
as of the date of the adoption of these By-laws.
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ARTICLE XIV - AMENDMENT
These By-laws may be altered, amended or repealed and new By-laws
may be adopted by either the board or the shareholders, but the board may not
alter, amend or repeal any By-law (i) relating to the voting rights of the
various classes of common shares of the corporation without the unanimous
consent of all shareholders holding the class of common shares affected by such
action, or (ii) adopted by the shareholders if the shareholders specifically
prescribe in such By-law that it shall not be altered, amended or repealed by
the board.
I, JEFFREY CHASKIN, the corporate secretary of URSUS TELECOM
CORPORATION do hereby declare and certify that this is a true and accurate copy
of the by-laws of the aforesaid corporation.
URSUS TELECOM CORPORATION
By: /s/ Jeffrey Chaskin
--------------------------------
Jeffrey Chaskin, Corporate Secretary
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or other enterprise which such person serves or served as such at the request of
the corporation shall be entitled to be indemnified in connection with
proceedings and other matters by the corporation to the fullest extent permitted
by the Florida Business Corporation Act, as the same may be amended from time to
time; provided however, that to the extent permitted by law, no such amendment
shall lessen the scope of the indemnity provided by Florida law as of the date
of the adoption of these By-laws.
ARTICLE XIV - AMENDMENT
These By-laws may be altered, amended or repealed and new By-laws
may be adopted by either the board or the shareholders, but the board may not
alter, amend or repeal any By-law (i) relating to the voting rights of the
various classes of common shares of the corporation without the unanimous
consent of all shareholders holding the class of common shares affected by such
action, or (ii) adopted by the shareholders if the shareholders specifically
prescribe in such By-law that it shall not be altered, amended or repealed by
the board.
I, JEFFREY CHASKIN, the Secretary of URSUS TEL.NET CORPORATION, do
hereby declare and certify that the foregoing By-laws are a true and accurate
copy of the By-laws of the corporation.
/s/ Jeffrey Chaskin
-----------------------------
Jeffrey Chaskin, Secretary
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EXHIBIT 10.1
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of January 1,
1998, by and between URSUS TELECOM CORPORATION, a Florida corporation (the
"Company"), and LUCA GIUSSANI ("Giussani").
In consideration of the mutual covenants contained herein, the
parties hereto agree as follow:
1. Term. The Company hereby employs Giussani as the Chief Executive
Officer of the Company, and Giussani agrees to serve the Company as such, upon
the terms and conditions hereof for the period commencing on the date hereof
and, unless Giussani's employment under the Agreement is otherwise terminated in
accordance with the provisions hereof, ending on December 31, 2002.
2. Duties. (a) Giussani shall serve as the Company's Chief Executive
Officer, with such duties and authority as are generally incident to such
position. Giussani will hold such senior offices and/or such directorships in
the Company and/or any subsidiaries or affiliates of the Company to which, from
time to time, he may be elected or appointed; provided that the offices to which
Giussani may be so elected or appointed shall not be inconsistent with his
duties and authority as aforesaid.
(b) Giussani agrees that he will devote substantially all of
his time and attention to the affairs of the Company and use his best
efforts to promote the business and interests of the Company and that he
will not engage, directly or indirectly, in any other business or
occupation during the term of employment hereunder. It is understood,
however, that the foregoing will not prohibit Giussani from engaging in
personal investment activities for himself and his family which do not
detrimentally interfere with the performance of his duties hereunder.
3. Compensation. The Company will pay Giussani an annual salary
("Base Salary") at the rate of $450,000 per year, payable in equal, bi-weekly
installments in accordance with customary payroll practices for senior
executives of the Company for all services to be rendered hereunder, including,
without limitation, all services to be rendered by him as an officer and/or
director of the Company and its subsidiaries and affiliates.
Commencing with its fiscal year beginning on April 1, 1998, the
Company shall pay Giussani a bonus ("Annual Bonus") dependent upon the Company's
annual earnings before interest, taxes, depreciation, amortization and bonuses
or similar cash compensation paid to Giussani and the other officers or key
employees of the Company that receive bonus
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compensation based on this or a similar formula ("EBITDAB"), on a consolidated
basis as reflected on the Company's annual financial statements as certified by
the Company's independent public accountants and filed with the Securities and
Exchange Commission on the Company's Annual Report on Form 10-K. For each fiscal
year during the term of this Agreement in which EBITDAB equals or exceeds $5
million, the Annual Bonus payable to Giussani shall equal ten percent (10%) of
Base Salary, and shall be increased by an additional five percent (5%) of Base
Salary for each $1 million of EBITDAB in excess of the first $5 million;
provided, however, that the maximum Annual Bonus for any fiscal year shall be
100% of Base Salary for EBITDAB of $23 million or more. Any Annual Bonus shall
be paid to Giussani in equal quarterly installments based on EBITDAB for the
current fiscal year through the end of such quarter, based on the Company's
unaudited financial statements as reported on Form 10-Q, subject to continuing
adjustment for each fiscal year's EBITDAB. To the extent any Annual Bonus is
payable for any period in which Giussani was not employed for the full fiscal
year, the Annual Bonus shall be prorated based on the actual number of months,
or portions thereof, during the fiscal year Giussani was employed by the
Company.
Nothing contained herein shall prohibit the Board of Directors of
the Company, in its sole discretion, from increasing the compensation payable to
Giussani pursuant to this Agreement by way of increased Base Salary, Annual
Bonus, or otherwise and/or making available to Giussani other benefits in
addition to those to which he is entitled hereunder.
Giussani and the Company agree that the bonuses paid to Giussani
through December 31, 1997 comprise the entire bonus to which he is entitled in
respect of the fiscal year ended March 31, 1998, and Giussani hereby waives any
other claims for compensation from the Company accruing prior to January 1,
1998.
The Company shall grant Giussani 150,000 options on its Common Stock
at the public offering price and subject to the consummation of the initial
public offering of the Company, half vesting at issuance and the remaining
vesting on January 1, 1999.
4. Expenses. Giussani shall be entitled to reimbursement by the
Company, in accordance with the Company's policies then applicable to senior
executives, against appropriate vouchers or other receipts for travel,
entertainment and other business expenses reasonably incurred by him in the
performance of his duties hereunder.
5. Executive Benefits. Giussani shall be entitled to a paid vacation
of four (4) weeks. Such vacation shall be taken at such time or times during the
applicable year as may be determined by Giussani subject to the Company's
reasonable business needs. Giussani shall be entitled to participate in, and
receive benefits under, any pension, profit sharing, insurance, hospitalization,
medical, disability, stock purchase, stock option, stock ownership or other
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employee benefit plan, program or policy of the Company which may be in effect
at any time during the course of his employment by the Company and which shall
be generally available to senior executives of the Company occupying positions
of comparable status or responsibility, subject to the terms of such plans,
programs or policies. Notwithstanding the foregoing, the Company may, in its
discretion, at any time and from time to time, change or revoke any of its
employee benefits plans, programs or policies in accordance with the terms
thereof, and Giussani shall not be deemed, solely by virtue of this Agreement,
to have any vested interest in the continuation of any such plans, programs or
policies; provided, however, that nothing in this Agreement shall affect or
impair any vested rights of Giussani under the terms of any such plan, program
or policy. The Company shall provide Giussani, at the expense of the Company,
with an automobile reasonably appropriate to Giussani's position, as determined
by the Company, for use by Giussani in connection with the performance of his
duties hereunder.
6. Withholding. All payments required to be made by the Company
hereunder to Giussani shall be subject to the withholding of such amounts
relating to taxes and other governmental assessments as the Company may
reasonably determine it should withhold pursuant to any applicable law, rule or
regulation.
7. Death; Permanent Disability. In the event of the death of
Giussani during the term of this Agreement, this Agreement shall terminate. If
during the term of this Agreement Giussani fails because of illness or other
incapacity to perform the services required to be performed by him hereunder for
any consecutive period of more than 120 days, or for shorter periods aggregating
more than 180 days in any consecutive twelve-month period (any such illness or
incapacity being hereinafter referred to as a "permanent disability"), then the
Company, in its discretion, may at any time thereafter terminate this Agreement
upon not less than 10 days' written notice thereof to Giussani, and this
Agreement shall terminate and come to an end upon the date set forth in said
notice as if said date were the termination date of this Agreement; provided,
however, that no such termination shall be effective if prior to the date when
such notice is given, Giussani's illness or incapacity shall have terminated and
he shall be physically and mentally able to perform the services required
hereunder and shall have taken up and be performing such duties.
If Giussani's employment shall be terminated by reason of his death
or permanent disability, Giussani or his estate, as the case may be, shall be
entitled to receive (i) any earned and unpaid salary accrued through the date of
termination, (ii) a pro rata portion of any annual bonus which Giussani would
otherwise have been entitled to receive pursuant to any bonus plan or
arrangement for senior executives of the Company and (iii) subject to the terms
thereof, any benefits which may be due to Giussani on the date of termination
under the provisions of any employee benefit plan, program or policy.
8. Termination for Cause. The Company may at any time during the
term of
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this Agreement, by written notice, terminate the employment of Giussani for
cause, the cause to be specified in the notice. For purposes of this Agreement,
"cause" shall mean (i) any willful misconduct of Giussani in connection with the
performance of any of his duties hereunder, including without limitation
misappropriation of funds or property of the Company, securing or attempting to
secure personally any profit in connection with any transaction entered into on
behalf of the Company or any willful and intentional act having the effect of
injuring the reputation, business or business relationships of the Company; (ii)
willful failure, neglect or refusal to perform Giussani's material duties
hereunder that is not cured within 20 days after the Company notifies Giussani
thereof; (iii) breach of any material covenants contained in this Agreement that
is not cured within 20 days after the Company notifies Giussani thereof; and
(iv) conviction (or nolo contendere plea) in connection with a felony relating
in any way to the business or affairs of the Company, or which would be required
to be disclosed in any filing or report with the U.S. Securities and Exchange
Commission. The determination of whether "cause" exists shall only be made at a
meeting of the Board of Directors of which Giussani receives notice and an
opportunity to address the Board on such matter. Termination for cause shall be
effective upon the giving of such notice and Giussani shall be entitled to
receive (i) any earned and unpaid salary accrued through the date of termination
and (ii) subject to the terms thereof, any benefits which may be due to Giussani
on such date under the provisions of any employee benefit plan, program or
policy. Giussani hereby disclaims any right to receive a pro rata portion of any
annual bonus with respect to the fiscal year in which such termination for
"Cause" occurs.
9. Resignation for Good Reason. Giussani may at any time during the
term of this Agreement, by written notice, terminate his employment for good
reason, the reason to be specified in the notice. For purposes of this
Agreement, "good reason" shall exist if (i) the Company materially fails to
comply with any of the provisions of this Agreement, other than isolated,
insubstantial or inadvertent failures not occurring in bad faith and which are
remedied by the Company promptly after receipt of notice thereof given by
Giussani, or (ii) the Company shall diminish Giussani's title, duties, base
salary or benefits.
10. Payments Upon Termination. If during the term of this Agreement,
Giussani's employment is terminated (i) by the Company without "cause" or (ii)
by Giussani for any "good reason," the Company shall pay to Giussani the Base
Salary at the rate in effect at the time notice of termination is given,
together with any applicable Annual Bonuses payable under the terms of this
Agreement and other rights and benefits Giussani may have under employee
benefits plans and programs of the Company in existence as of the date of such
termination, all for the greater of (x) the balance of the term of this
Agreement or (y) the twelve month period following the date of such termination.
11. Payments Upon Change of Control. During the term of this
Agreement, if there is a Change of Control (as hereinafter defined) and the
Company takes any action which
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would entitle Giussani to terminate his employment for "good reason," as such
term is defined in Section 9 hereof (a "Triggering Event"), then Giussani may at
his election, at any time within one year after any such Triggering Event,
terminate this Agreement (a "Voluntary Termination"), and Giussani shall be
entitled to the following compensation, in addition to the other compensation
and bonuses provided for herein:
(a) in lieu of any further salary payments to Giussani for
periods subsequent to the date of Voluntary Termination, the Company shall
pay as severance payment to Giussani, no later than the fifth day
following the date of Voluntary Termination, a lump-sum severance payment
of three years' base includible compensation, equal to the maximum tax
deduction that the Company is eligible to receive under the applicable
"golden parachute" regulations; and
(b) the Company shall provide Giussani with all employee
benefits and programs of the Company which Giussani was entitled to
receive or participate in immediately prior to the effective date of the
Voluntary Termination for the thirty six (36) month period following the
date of such Voluntary Termination.
For the purposes of this Agreement, "Change of Control" shall mean
the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used
under Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
Amended (the "Exchange Act"), whether or not such Sections are applicable)
is or becomes, whether by means of any issuance or direct or indirect
transfer of securities, merger, consolidation, liquidation, dissolution or
otherwise, the "beneficial owner" (as that term is used under Rules 13d-3
and 13d-5 under the Exchange Act, whether or not such rules are
applicable, except that a "person" or "group" shall be deemed to have
"beneficial ownership" of all shares that he or it has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time or otherwise), directly or indirectly through one or more
intermediaries, of 35% or more of the total voting power represented by
all of the voting stock of the Company; or
(ii) directly or indirectly, a transfer, sale, lease or
other disposition of all or substantially all of the assets of the Company
and its subsidiaries taken as a whole to any "person" or "group" (as such
terms are used un Sections 13(d) and 14(d) of the Exchange Act, whether or
not such sections are applicable), excluding any disposition to or among
the Company and/or one or more of its subsidiaries; or
(iii) any "person" or "group" (as such terms are used
under Sections 13(d) and 14(d) of the Exchange Act, whether or not such
sections are
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applicable) otherwise obtains the right or power (through any arrangement,
contract, proxy or other means) to elect or designate a majority of the
members of the Board of Directors of the Company then in office, without
regard to whether such right or power is exercised or invoked and without
taking into account the necessity of a special or annual stockholders
meeting or the taking of other procedural actions to exercise or invoke
such right or power.
12. Insurance. Giussani agrees that the Company may (at the sole
cost of the Company) procure insurance on the life of Giussani, in such amounts
as the Company may in its discretion determine, and with the Company named as
the beneficiary under the policy or policies. Giussani agrees that upon request
from the Company he will submit to a physical examination and will execute such
applications and other documents as may be required for the procurement of such
insurance.
13. Non-Competition; Solicitation. (a) Giussani agrees that during
his employment with the Company and for a period of one year after Giussani
leaves the Company's employ for any reason, he shall not, without the written
consent of the Company, directly or indirectly, either individually or as an
employee, agent, partner, shareholder, consultant, option holder, lender of
money, guarantor or in any other capacity, participate in, engage in or have a
financial interest or management position or other interest in any business,
firm, corporation or other entity within the State of Florida if it competes
directly with any business operation conducted by the Company or its
subsidiaries or affiliates or any successor or assign thereof, nor will he
solicit any other person to engage in any of the foregoing activities.
Participation in the management of any business operation other than in
connection with the management of a business operation which is in direct
competition with the Company or its subsidiaries or affiliates or any successor
or assign thereof shall not be deemed to be a breach of this Section 10(a). The
foregoing provisions of this Section 13(a) shall not prohibit the ownership by
Giussani (as the result of open market purchase) of 5% or less of any class of
capital stock of a corporation which is regularly traded on a national
securities exchange or over-the-counter on the NASDAQ System.
(b) Giussani will not, without the written consent of the
Company, at any time during his employment with the Company and for a
period of one year after Giussani leaves the Company's employ for any
reason, solicit (or assist or encourage the solicitation of) any employee
of the Company or any of its subsidiaries or affiliates to work for
Giussani or for any business, firm, corporation or other entity in which
Giussani, directly or indirectly, in any capacity described in Section
13(a) hereof, participates or engages (or expects to participate or
engage) or has (or expects to have) a financial interest or management
position, except that this provision shall not affect Giussani's right,
after the termination of his employment for any reason, to solicit those
employees of the Company or its subsidiaries or affiliates with whom
Giussani has had a business or
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personal association prior to the original commencement of Giussani's
employment by the Company, to become associated with or work for an entity
with which Giussani is then associated or working with, in compliance with
the non-compete provisions of Section 13 (a) (e.g., for an employer not
within the State of Florida).
(c) If any of the covenants contained in this Section 13 or
any part thereof is held by a court of competent jurisdiction to be
unenforceable because of the duration of such provision, the activity
limited by or the subject of such provision and/or the area covered
thereby, then the court making such determination shall construe such
restriction so as to thereafter be limited or reduced to be enforceable to
the greatest extent permissible by applicable law.
14. Inventions, Etc. Giussani agrees that any and all systems,
work-in-progress, inventions, discoveries, improvements, compounds, formulae,
patents, copyrights and trademarks, made or developed by him, solely or jointly
with others, or otherwise, during the term of his employment by the Company, and
which may be useful in or relate to any business of the Company and/or any
subsidiary or affiliate of the Company shall be fully disclosed by Giussani to
the Chief Operating Officer of the Company, and shall be the sole and absolute
property of the Company, and the Company will be the sole and absolute owner
thereof. Giussani agrees that at all times, both during his employment and after
the termination of his employment, he will keep all of the same secret from
everyone except the Company and its duly authorized employees and will disclose
the same to no one except as required in good faith in the course of his
employment with the Company, or by law, or unless otherwise authorized in
writing by the Chief Operating Officer of the Company.
15. Patents. Giussani agrees, at the request of the Company, to make
application in due form for United States Letters Patent and foreign Letters
Patent on any of such systems, inventions, discoveries, improvements, compounds
and formulae referred to in Section 14 hereof, and to assign to the Company all
of his right, title and interest in and to said inventions, discoveries,
improvements, compounds, formulae and patent applications therefor or patents
thereon, and to execute at any and all times any and all instruments, and to do
any and all acts necessary, or which the Company may deem desirable, in
connection with such applications for Letters Patent, in order to establish and
perfect in the Company the entire right, title and interest in and to said
systems, inventions, discoveries, improvements, compounds, formulae and patent
applications therefor, or in the conduct of any proceedings or litigation in
regard thereto. It is understood and agreed that all costs and expenses,
including but not limited to reasonable attorneys' fees, incurred at the request
of the Company in connection with any action taken by an Giussani pursuant to
this Section 15, shall be borne by the Company.
16. Trade Secrets, Etc. Giussani agrees that he shall not, during or
after the
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termination of this Agreement, divulge, furnish or make accessible to any
person, firm, corporation or other business entity, any confidential
information, trade secrets, technical data or know-how relating to the business,
business practices, methods, products, processes, equipment, clients' prices or
other confidential or secret aspect of the business of the Company and/or any
subsidiary or affiliate, except as may be required in good faith in the course
of his employment with the Company or by law, without the prior written consent
of the Company, unless such information shall become public knowledge (other
than by reason of Giussani's breach of the provisions hereof).
17. Acceptance . Each of the Company and Giussani accepts all of the
terms and provisions of this Agreement and agrees to perform all of the
covenants on its or his part to be performed hereunder.
18. Equitable Remedies. Giussani acknowledges that he has been
employed for his unique talents and that his leaving the employ of the Company
would seriously hamper the business of the Company and that the Company will
suffer irreparable damage if any provisions of Sections 13, 14, 15 or 16 hereof
are not performed strictly in accordance with their terms or are otherwise
breached. Giussani hereby expressly agrees that the Company shall be entitled as
a matter of right to injunctive or other equitable relief, in addition to all
other remedies permitted by law, to prevent a breach or violation by Giussani
and to secure enforcement of the provisions of Sections 13, 14, 15 or 16 hereof.
Resort to such equitable relief, however, shall not constitute a waiver or any
other rights or remedies which the Company may have.
19. Indemnification. Giussani shall be entitled to the fullest
extent permitted by law to the benefit of indemnification of the assertion
against Giussani of any liability, damages, losses or expenses, including
reasonable attorneys' fees and costs, sustained by Giussani arising out of his
performance of duties as an employee of the Company. This provision shall
survive termination of this Agreement. The Company shall add Giussani as a
covered officer under any insurance policy (including Directors' and Officers'
insurance policies) that may be maintained by the Company covering the directors
and officers of the Company acting in their capacity as such. The Company will
use its reasonable efforts to maintain such coverage for a period of at least
two years after the termination of this Agreement.
20. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and there are no other terms other than
those contained herein. No variation hereof shall be deemed valid unless in
writing and signed by the parties hereto and no discharge of the terms hereof
shall be deemed valid unless by full performance of the parties hereto or by a
writing signed by the parties hereto. No waiver by the Company or Giussani of
any breach by the other party of any provision or condition of this Agreement
shall be deemed a waiver of a breach of a similar or dissimilar provision or
condition at the same time or any prior or subsequent time. This Agreement
supersedes and controls over all previous agreements
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between the Company and Giussani regarding his employment by the Company.
21. Severability. In case any provision in this Agreement shall be
declared invalid, illegal or unenforceable by any court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
22. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given at the time when mailed in the United States enclosed in a registered
or certified post-paid envelope, return receipt requested, and addressed to the
addresses of the respective parties stated below or to such changed addresses as
such parties may fix by notice:
If to the Company:
Ursus Telecom Corporation
440 Sawgrass Corporate Parkway
Suite 112
Sunrise, Florida 33325
with a copy to:
Stroock & Stroock & Lavan LLP
200 South Biscayne Blvd.
33rd Floor
Miami, Florida 33131
Attn: Daniel Lampert, Esq.
If to Giussani:
_____________________________
_____________________________
_____________________________
provided, however, that any notice of change of address shall be effective only
upon receipt.
23. Successors and Assigns. This Agreement is personal in its nature
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder (except
for an assignment or transfer by the Company to a successor as contemplated by
the following proviso); provided, however, that the provisions hereof shall
inure to the benefit of, and be binding upon, any successor of the Company,
whether by merger, consolidation, transfer of all or substantially all of the
assets of the
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Company, or otherwise, and upon Giussani, his heirs, executors, administrators
and legal representatives.
24. Governing Law. This Agreement and its validity, construction and
performance shall be governed in all respects by the internal laws of the State
of Florida without giving effect to any principles of conflict of laws. In any
suit, action or proceeding arising out of or in connection with this Agreement,
the prevailing party shall be entitled, as a part of the judgment therein, to an
award of the reasonable attorneys' and other professionals' fees and costs
incurred in connection therewith.
25. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
URSUS TELECOM CORPORATION
By:
-------------------------------
Name:
Title:
-----------------------------------
Luca Giussani
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EXHIBIT 10.2
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement is made and entered into on
this __ day of February, 1998, between URSUS TELECOM CORPORATION (the "Company")
and Luca Giussani (the "Executive").
PRELIMINARY STATEMENT
The parties have previously entered into an Employment Agreement dated as
of January 1, 1998 (the "Agreement") and have agreed to amend certain provisions
of the Agreement as set forth below.
NOW, THEREFORE, in consideration of the agreements contained herein, and other
good and valuable consideration, the receipt and adequacy of which are hereby
conclusively acknowledged, the parties, intending to be legally bound, agree as
follows:
1. The provisions of this First Amendment shall govern and control over any
conflicting or inconsistent provisions in the Agreement, but except as modified
hereby, all provisions of the Agreement remain unmodified and in full force and
effect and are hereby reaffirmed by each of the parties hereto. Unless
otherwise defined herein, all capitalized terms shall have the same meanings as
provided therefor in the Agreement.
2. Section 3 of the Agreement is amended as follows:
(a) To provide that Base Salary shall be $225,000 for the year beginning
January 1, 1998, and that Base Salary shall increase by $25,000 each year
thereafter during the Term (I.E., Base Salary of $250,000 in 1999, $275,000
in 2000, $300,000 in 2001 and $325,000 in 2002).
(b) To provide that Executive shall receive an annual fixed bonus (the
"Fixed Bonus") of $45,000, payable at the time of the first normal pay
period of each new calendar year during the Term, commencing in January
1998. The Fixed Bonus shall be payable in addition to and exclusive of the
Base Salary, the Second Bonus, the Annual Bonus and any and all other
bonuses and compensation that may be paid to Executive during any fiscal
year.
(c) To provide that Executive shall be entitled to a second bonus (the
"Second Bonus") of $45,000 for each $1 million of EBITDAB that the Company
realizes during each fiscal year during the Term (starting with the fiscal
year commencing April 1, 1998), calculated on a pro rata dollar-for-dollar
basis (I.E., an increase in the Second Bonus of $0.045 for each $1 of
EBITDAB). If any Second Bonus, as so determined, is an amount that includes
a fraction of a cent, it shall be rounded up to the nearest whole cent.
<PAGE>
The maximum Second Bonus payable in respect of any single fiscal year
shall be $180,000 (for EBITDAB of over $4 million, the Executive shall
receive the Annual Bonus, determined in the manner set forth in (d) below,
in addition to the Second Bonus).
The Second Bonus shall be payable in addition to and exclusive of the
Base Salary, the Fixed Bonus, the Annual Bonus and any and all other
bonuses and compensation that may be paid to Executive during any fiscal
year.
(d) To amend the second and third sentences in the second paragraph of
Section 3 by deleting the same in their entirety, and substituting
therefor:
"For each fiscal year during the term of this Agreement in which EBITDAB
exceeds $4 million, the Annual Bonus payable to Executive shall equal
twenty percent (20%) of Base Salary, plus an amount that equals an
additional five percent (5%) of Base Salary for each $1 million of EBITDAB
in excess of the first $4 million. The Annual Bonus shall be computed on a
pro rata dollar-for-dollar basis with EBITDAB in excess of $4 million
(I.E., an increase in the Annual Bonus of 0.000005% of Base Salary for
each $1 increase in EBITDAB). If any Annual Bonus, as so determined, is an
amount that includes a fraction of a cent, it shall be rounded up to the
nearest whole cent. If the Company shall have at least $4 million in
EBITDAB in any fiscal year during the Term, then the Annual Bonus shall be
payable in respect of such fiscal year in addition to and exclusive of the
Base Salary, the Fixed Bonus, the Second Bonus and any and all other
bonuses and compensation that may be paid to Executive during such year."
(e) To provide that the aggregate amount of Fixed Bonus, Second Bonus and
Annual Bonus that the Executive may receive in respect of any single fiscal
year shall not exceed 200% of the Executive's Base Salary as in effect at
the end of such fiscal year.
(f) To provide that the Second Bonus shall be payable monthly, based on
the EBITDAB reflected on the Company's unaudited financial statements for
the current fiscal year through the end of such month, and subject to
adjustment to reflect cumulative EBITDAB for subsequent months in the
fiscal year and to reconcile the same to the EBITDAB reflected on the
Company's financial statements as filed on Forms 10-Q and 10-K (and any
successor such Forms). To the extent any Second Bonus is payable for any
month in which Executive was not employed for the full month, the Second
Bonus payable for such month shall be prorated based on the actual number
of days during the month that Executive was employed by the Company.
(g) To provide that for purposes of paying periodic installments of the
Second Bonus and Annual Bonus, the EBITDAB for the respective period for
which it being paid shall be annualized. For example, if the Company
records EBITDAB of $250,000 for the first month of a fiscal year, and
$150,000 in the second month of such fiscal year then the Second Bonus for
the first such month would be $11,250, and for the second such month would
be $3,750. The calculation for the first month would be to annualize
$250,000 of one months' EBITDAB to equal $3,000,000 of annual EBITDAB,
corresponding to a
<PAGE>
$135,000 annual Second Bonus and a payment of 1/12 such amount ($11,250)
since only one month had expired. For the second month, the cumulative
$400,000 of two months' EBITDAB would annualize to $2,400,000, producing a
$90,000 annual Second Bonus, of which $15,000 would accrue for the two
months, and less the $11,250 paid for the first month would leave $3,750 to
be paid.
(h) To provide that if the Agreement shall terminate at any time prior to
the Company's fiscal year end due to expiration of the Term without
renewal, then the Fixed Bonus, Second Bonus and Annual Bonus shall be
payable on the same terms and conditions as would have applied if, and
shall be calculated in the same manner as if, Executive had remained
employed by the Company under the Agreement through the end of such fiscal
year. If the Agreement shall terminate at any time prior to the
Company's fiscal year end by reason of termination by the Company without
"cause" or termination by Executive for "good reason", then the provisions
of section 10 of the Agreement, amended as provided in 4 and 5 below, shall
apply with respect to the payment of bonuses.
(i) Notwithstanding any conflicting provisions hereof, the Executive shall
not be required to refund any advance payments of the Second Bonus or
Annual Bonus as a result of any interim reconciliation based on unaudited
EBITDAB; but only based upon the EBITDAB reflected in the Company's annual
audited financial statements.
3. The last sentence of Section 8 of the Agreement is deleted and amended in
its entirety to read as follows: "Giussani hereby disclaims any right to
receive a pro rata portion of any bonus that has not yet been paid to him with
respect to the fiscal year in which such termination occurs."
4. Section 10 is amended to provide that if the last day of the balance of the
term of the Agreement, or if the last day of the twelve month period following
termination (whichever is applicable), is prior to the end of a fiscal year of
the Company, then the Annual Bonus and Second Bonus payable for such year shall
be calculated and paid with respect to the full fiscal year.
5. For purposes of Sections 8 and 10 of the Agreement, the Second Bonus shall
be treated as if it were part of the Annual Bonus (i.e., any portion of it that
has not yet been paid shall not be paid in the event of termination of the Term
for "cause", but shall be paid in the event of termination of the Term by the
Company without "cause" or by the Executive for "good reason.")
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered in the manner
prescribed by law on the date first written above.
URSUS TELECOM CORPORATION
By: _________________________ ______________________________
Authorized Signatory Luca Giussani
<PAGE>
EXHIBIT 10.3
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of January 1,
1998, by and between URSUS TELECOM CORPORATION, a Florida corporation (the
"Company"), and JEFFREY CHASKIN ("Chaskin").
In consideration of the mutual covenants contained herein, the
parties hereto agree as follow:
1. Term. The Company hereby employs Chaskin as the Chief Operating
Officer of the Company, and Chaskin agrees to serve the Company as such, upon
the terms and conditions hereof for the period commencing on the date hereof
and, unless Chaskin's employment under the Agreement is otherwise terminated in
accordance with the provisions hereof, ending on December 31, 2002.
2. Duties. (a) Chaskin shall serve as the Company's Chief Operating
Officer, with such duties and authority as are generally incident to such
position. Chaskin will hold such senior offices and/or such directorships in the
Company and/or any subsidiaries or affiliates of the Company to which, from time
to time, he may be elected or appointed; provided that the offices to which
Chaskin may be so elected or appointed shall not be inconsistent with his duties
and authority as aforesaid.
(b) Chaskin agrees that he will devote substantially all of
his time and attention to the affairs of the Company and use his best
efforts to promote the business and interests of the Company and that he
will not engage, directly or indirectly, in any other business or
occupation during the term of employment hereunder. It is understood,
however, that the foregoing will not prohibit Chaskin from engaging in
personal investment activities for himself and his family which do not
interfere with the performance of his duties hereunder.
3. Compensation. The Company will pay Chaskin an annual salary
("Base Salary") at the rate of $450,000 per year, payable in equal, bi-weekly
installments in accordance with customary payroll practices for senior
executives of the Company for all services to be rendered hereunder, including,
without limitation, all services to be rendered by him as an officer and/or
director of the Company and its subsidiaries and affiliates.
Commencing with its fiscal year beginning on April 1, 1998, the
Company shall pay Chaskin a bonus ("Annual Bonus") dependent upon the Company's
annual earnings before interest, taxes, depreciation, amortization and bonuses
paid to Chaskin and the other officers or key employees of the Company that
receive bonus compensation based on this or a similar
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formula ("EBITDAB"), on a consolidated basis as reflected on the Company's
annual financial statements as certified by the Company's independent public
accountants and filed with the Securities and Exchange Commission on the
Company's Annual Report on Form 10-K. For each fiscal year during the term of
this Agreement in which EBITDAB equals or exceeds $5 million, the Annual Bonus
payable to Chaskin shall equal ten percent (10%) of Base Salary, and shall be
increased by an additional five percent (5%) of Base Salary for each $1 million
of EBITDAB in excess of the first $5 million; provided, however, that the
maximum Annual Bonus for any fiscal year shall be 100% of Base Salary for
EBITDAB of $23 million or more. Any Annual Bonus shall be paid to Chaskin in
equal quarterly installments based on EBITDAB for the current fiscal year
through the end of such quarter, based on the Company's unaudited financial
statements as reported on Form 10-Q, subject to continuing adjustment for each
fiscal year's EBITDAB. To the extent any Annual Bonus is payable for any period
in which Chaskin was not employed for the full fiscal year, the Annual Bonus
shall be prorated based on the actual number of months, or portions thereof,
during the fiscal year Chaskin was employed by the Company.
Nothing contained herein shall prohibit the Board of Directors of
the Company, in its sole discretion, from increasing the compensation payable to
Chaskin pursuant to this Agreement by way of increased Base Salary, Annual
Bonus, or otherwise and/or making available to Chaskin other benefits in
addition to those to which he is entitled hereunder.
Chaskin and the Company agree that the bonuses paid to Chaskin
through December 31, 1997 comprise the entire bonus to which he is entitled in
respect of the fiscal year ended March 31, 1998, and Chaskin hereby waives any
other claims for compensation from the Company accruing prior to January 1,
1998.
The Company shall grant Chaskin 150,000 options on its Common Stock
at the public offering price and subject to the consummation of the initial
public offering of the Company's Common Stock, half vesting at issuance and the
remaining vesting on January 1, 1999.
4. Expenses. Chaskin shall be entitled to reimbursement by the
Company, in accordance with the Company's policies then applicable to senior
executives, against appropriate vouchers or other receipts for travel,
entertainment and other business expenses reasonably incurred by him in the
performance of his duties hereunder.
5. Executive Benefits. Chaskin shall be entitled to a paid vacation
of four (4) weeks. Such vacation shall be taken at such time or times during the
applicable year as may be determined by Chaskin subject to the Company's
reasonable business needs. Chaskin shall be entitled to participate in, and
receive benefits under, any pension, profit sharing, insurance, hospitalization,
medical, disability, stock purchase, stock option, stock ownership or other
employee benefit plan, program or policy of the Company which may be in effect
at any time
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during the course of his employment by the Company and which shall be generally
available to senior executives of the Company occupying positions of comparable
status or responsibility, subject to the terms of such plans, programs or
policies. Notwithstanding the foregoing, the Company may, in its discretion, at
any time and from time to time, change or revoke any of its employee benefits
plans, programs or policies and Chaskin shall not be deemed, solely by virtue of
this Agreement, to have any vested interest in the continuation of any such
plans, programs or policies; provided, however, that nothing in this Agreement
shall affect or impair any vested rights of Chaskin under the terms of any such
plan, program or policy. The Company shall provide Chaskin, at the expense of
the Company, with an automobile reasonably appropriate to Chaskin's position, as
determined by the Company, for use by Chaskin in connection with the performance
of his duties hereunder.
6. Withholding. All payments required to be made by the Company
hereunder to Chaskin shall be subject to the withholding of such amounts
relating to taxes and other governmental assessments as the Company may
reasonably determine it should withhold pursuant to any applicable law, rule or
regulation.
7. Death; Permanent Disability. In the event of the death of Chaskin
during the term of this Agreement, this Agreement shall terminate. If during the
term of this Agreement Chaskin fails because of illness or other incapacity to
perform the services required to be performed by him hereunder for any
consecutive period of more than 120 days, or for shorter periods aggregating
more than 180 days in any consecutive twelve-month period (any such illness or
incapacity being hereinafter referred to as a "permanent disability"), then the
Company, in its discretion, may at any time thereafter terminate this Agreement
upon not less than 10 days' written notice thereof to Chaskin, and this
Agreement shall terminate and come to an end upon the date set forth in said
notice as if said date were the termination date of this Agreement; provided,
however, that no such termination shall be effective if prior to the date when
such notice is given, Chaskin's illness or incapacity shall have terminated and
he shall be physically and mentally able to perform the services required
hereunder and shall have taken up and be performing such duties.
If Chaskin's employment shall be terminated by reason of his death
or permanent disability, Chaskin or his estate, as the case may be, shall be
entitled to receive (i) any earned and unpaid salary accrued through the date of
termination, (ii) a pro rata portion of any annual bonus which Chaskin would
otherwise have been entitled to receive pursuant to any bonus plan or
arrangement for senior executives of the Company and (iii) subject to the terms
thereof, any benefits which may be due to Chaskin on the date of termination
under the provisions of any employee benefit plan, program or policy.
8. Termination for Cause. The Company may at any time during the
term of this Agreement, by written notice, terminate the employment of Chaskin
for cause, the cause to
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be specified in the notice. For purposes of this Agreement, "cause" shall mean
(i) any willful misconduct of Chaskin in connection with the performance of any
of his duties hereunder, including without limitation misappropriation of funds
or property of the Company, securing or attempting to secure personally any
profit in connection with any transaction entered into on behalf of the Company
or any willful and intentional act having the effect of injuring the reputation,
business or business relationships of the Company; (ii) willful failure, neglect
or refusal to perform Chaskin's material duties hereunder that is not cured
within 20 days after the Company notifies Chaskin thereof; (iii) breach of any
material covenants contained in this Agreement that is not cured within 20 days
after the Company notifies Chaskin thereof; and (iv) conviction (or nolo
contendere plea) in connection with a felony relating in any way to the business
or affairs of the Company, or which would be required to be disclosed in any
filing or report with the U.S. Securities and Exchange Commission. The
determination of whether "cause" exists shall only be made at a meeting of the
Board of Directors of which Chaskin receives notice and an opportunity to
address the Board on such matter. Termination for cause shall be effective upon
the giving of such notice and Chaskin shall be entitled to receive (i) any
earned and unpaid salary accrued through the date of termination and (ii)
subject to the terms thereof, any benefits which may be due to Chaskin on such
date under the provisions of any employee benefit plan, program or policy.
Chaskin hereby disclaims any right to receive a pro rata portion of any annual
bonus with respect to the fiscal year in which such termination occurs.
9. Resignation for Good Reason. Chaskin may at any time during the
term of this Agreement, by written notice, terminate his employment for good
reason, the reason to be specified in the notice. For purposes of this
Agreement, "good reason" shall exist if (i) the Company materially fails to
comply with any of the provisions of this Agreement, other than isolated,
insubstantial or inadvertent failures not occurring in bad faith and which are
remedied by the Company promptly after receipt of notice thereof given by
Chaskin, or (ii) the Company shall diminish Chaskin's title, duties, base salary
or benefits.
10. Payments Upon Termination. If during the term of this Agreement,
Chaskin's employment is terminated (i) by the Company without "cause" or (ii) by
Chaskin for any "good reason," the Company shall pay to Chaskin the Base Salary
at the rate in effect at the time notice of termination is given, together with
any applicable Annual Bonuses payable under the terms of this Agreement and
other rights and benefits Chaskin may have under employee benefits plans and
programs of the Company in existence as of the date of such termination, all for
the greater of (x) the balance of the term of this Agreement or (y) the twelve
month period following the date of such termination.
11. Payments Upon Change of Control. During the term of this
Agreement, if there is a Change of Control (as hereinafter defined) and the
Company takes any action which would entitle Chaskin to terminate his employment
for "good reason," as such term is defined in Section 9 hereof (a "Triggering
Event"), then Chaskin may at his election, at any time within one
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year after any such Triggering Event, terminate this Agreement (a "Voluntary
Termination"), and Chaskin shall be entitled to the following compensation, in
addition to the other compensation and bonuses provided for herein:
(a) in lieu of any further salary payments to Chaskin for
periods subsequent to the date of Voluntary Termination, the Company shall
pay as severance payment to Chaskin, no later than the fifth day following
the date of Voluntary Termination, a lump-sum severance payment of three
years' base includible compensation, equal to the maximum tax deduction
that the Company is eligible to receive under the applicable "golden
parachute" regulations; and
(b) the Company shall provide Chaskin with all employee
benefits and programs of the Company which Chaskin was entitled to receive
or participate in immediately prior to the effective date of the Voluntary
Termination for the thirty six (36) month period following the date of
such Voluntary Termination.
For the purposes of this Agreement, "Change of Control" shall mean
the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used
under Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
Amended (the "Exchange Act"), whether or not such Sections are applicable)
is or becomes, whether by means of any issuance or direct or indirect
transfer of securities, merger, consolidation, liquidation, dissolution or
otherwise, the "beneficial owner" (as that term is used under Rules 13d-3
and 13d-5 under the Exchange Act, whether or not such rules are
applicable, except that a "person" or "group" shall be deemed to have
"beneficial ownership" of all shares that he or it has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time or otherwise), directly or indirectly through one or more
intermediaries, of 35% or more of the total voting power represented by
all of the voting stock of the Company; or
(ii) directly or indirectly, a transfer, sale, lease or
other disposition of all or substantially all of the assets of the Company
and its subsidiaries taken as a whole to any "person" or "group" (as such
terms are used un Sections 13(d) and 14(d) of the Exchange Act, whether or
not such sections are applicable), excluding any disposition to or among
the Company and/or one or more of its subsidiaries; or
(iii) any "person" or "group" (as such terms are used
under Sections 13(d) and 14(d) of the Exchange Act, whether or not such
sections are applicable) otherwise obtains the right or power (through any
arrangement, contract, proxy or other means) to elect or designate a
majority of the members of the Board of
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Directors of the Company then in office, without regard to whether such
right or power is exercised or invoked and without taking into account the
necessity of a special or annual stockholders meeting or the taking of
other procedural actions to exercise or invoke such right or power.
12. Insurance. Chaskin agrees that the Company may, at its sole
expense procure insurance on the life of Chaskin, in such amounts as the Company
may in its discretion determine, and with the Company named as the beneficiary
under the policy or policies. Chaskin agrees that upon request from the Company
he will submit to a physical examination and will execute such applications and
other documents as may be required for the procurement of such insurance.
13. Non-Competition; Solicitation. (a) Chaskin agrees that during
his employment with the Company and for a period of one year after Chaskin
leaves the Company's employ for any reason, he shall not, without the written
consent of the Company, directly or indirectly, either individually or as an
employee, agent, partner, shareholder, consultant, option holder, lender of
money, guarantor or in any other capacity, participate in, engage in or have a
financial interest or management position or other interest in any business,
firm, corporation or other entity within the State of Florida if it competes
directly with any business operation conducted by the Company or its
subsidiaries or affiliates or any successor or assign thereof, nor will he
solicit any other person to engage in any of the foregoing activities.
Participation in the management of any business operation other than in
connection with the management of a business operation which is in direct
competition with the Company or its subsidiaries or affiliates or any successor
or assign thereof shall not be deemed to be a breach of this Section 10(a). The
foregoing provisions of this Section 13(a) shall not prohibit the ownership by
Chaskin (as the result of open market purchase) of 5% or less of any class of
capital stock of a corporation which is regularly traded on a national
securities exchange or over-the-counter on the NASDAQ System.
(b) Chaskin will not, without the Company's written consent,
at any time during his employment with the Company and for a period of one
year after Chaskin leaves the Company's employ for any reason, solicit (or
assist or encourage the solicitation of) any employee of the Company or
any of its subsidiaries or affiliates to work for Chaskin or for any
business, firm, corporation or other entity in which Chaskin, directly or
indirectly, in any capacity described in Section 13(a) hereof,
participates or engages (or expects to participate or engage) or has (or
expects to have) a financial interest or management position, except that
this provision shall not affect Chaskin's right, after the termination of
his employment for any reason, to solicit those employees of the Company
or its subsidiaries or affiliates with whom Chaskin has had a business or
personal association prior to the original commencement of Chaskin's
employment by the Company, to become associated with or work for an entity
with which Chaskin is then
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associated or working with, in compliance with the non-compete provisions
of Section 13 (a) (e.g., for an employer not within the State of Florida).
(c) If any of the covenants contained in this Section 13 or
any part thereof is held by a court of competent jurisdiction to be
unenforceable because of the duration of such provision, the activity
limited by or the subject of such provision and/or the area covered
thereby, then the court making such determination shall construe such
restriction so as to thereafter be limited or reduced to be enforceable to
the greatest extent permissible by applicable law.
14. Inventions, Etc. Chaskin agrees that any and all systems,
work-in-progress, inventions, discoveries, improvements, compounds, formulae,
patents, copyrights and trademarks, made or developed by him, solely or jointly
with others, or otherwise, during the term of his employment by the Company, and
which may be useful in or relate to any business of the Company and/or any
subsidiary or affiliate of the Company shall be fully disclosed by Chaskin to
the Chief Executive Officer of the Company, and shall be the sole and absolute
property of the Company, and the Company will be the sole and absolute owner
thereof. Chaskin agrees that at all times, both during his employment and after
the termination of his employment, he will keep all of the same secret from
everyone except the Company and its duly authorized employees and will disclose
the same to no one except as required in good faith in the course of his
employment with the Company, or by law, or unless otherwise authorized in
writing by the Chief Executive Officer of the Company.
15. Patents. Chaskin agrees, at the request of the Company, to make
application in due form for United States Letters Patent and foreign Letters
Patent on any of such systems, inventions, discoveries, improvements, compounds
and formulae referred to in Section 14 hereof, and to assign to the Company all
of his right, title and interest in and to said inventions, discoveries,
improvements, compounds, formulae and patent applications therefor or patents
thereon, and to execute at any and all times any and all instruments, and to do
any and all acts necessary, or which the Company may reasonably deem
appropriate, in connection with such applications for Letters Patent, in order
to establish and perfect in the Company the entire right, title and interest in
and to said systems, inventions, discoveries, improvements, compounds, formulae
and patent applications therefor, or in the conduct of any proceedings or
litigation in regard thereto. It is understood and agreed that all costs and
expenses, including but not limited to reasonable attorneys' fees, incurred at
the request of the Company in connection with any action taken by an Chaskin
pursuant to this Section 15, shall be borne by the Company.
16. Trade Secrets, Etc. Chaskin agrees that he shall not, during or
after the
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termination of this Agreement, divulge, furnish or make accessible to any
person, firm, corporation or other business entity, any confidential
information, trade secrets, technical data or know-how relating to the business,
business practices, methods, products, processes, equipment, clients' prices or
other confidential or secret aspect of the business of the Company and/or any
subsidiary or affiliate, except as may be required in good faith in the course
of his employment with the Company or by law, without the prior written consent
of the Company, unless such information shall become public knowledge (other
than by reason of Chaskin's breach of the provisions hereof).
17. Acceptance. Each of the Company and Chaskin accepts all of the
terms and provisions of this Agreement and agrees to perform all of the
covenants on his part to be performed hereunder.
18. Equitable Remedies. Chaskin acknowledges that he has been
employed for his unique talents and that his leaving the employ of the Company
would seriously hamper the business of the Company and that the Company will
suffer irreparable damage if any provisions of Sections 13, 14, 15 or 16 hereof
are not performed strictly in accordance with their terms or are otherwise
breached. Chaskin hereby expressly agrees that the Company shall be entitled as
a matter of right to injunctive or other equitable relief, in addition to all
other remedies permitted by law, to prevent a breach or violation by Chaskin and
to secure enforcement of the provisions of Sections 13, 14, 15 or 16 hereof.
Resort to such equitable relief, however, shall not constitute a waiver or any
other rights or remedies which the Company may have.
19. Indemnification. Chaskin shall be entitled to the fullest extent
permitted by law to the benefit of indemnification of the assertion against
Chaskin of any liability, damages, losses or expenses, including reasonable
attorneys' fees and costs, sustained by Chaskin arising out of his performance
of duties as an employee of the Company. This provision shall survive
termination of this Agreement. The Company shall add Chaskin as a covered
officer under any insurance policy (including Directors' and Officers' insurance
policies) that may be maintained by the Company covering the directors and
officers of the Company acting in their capacity as such. The Company will use
its reasonable efforts to maintain such coverage for a period of at least two
years after the termination of this Agreement.
20. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and there are no other terms other than
those contained herein. No variation hereof shall be deemed valid unless in
writing and signed by the parties hereto and no discharge of the terms hereof
shall be deemed valid unless by full performance of the parties hereto or by a
writing signed by the parties hereto. No waiver by the Company or Chaskin of any
breach by the other party of any provision or condition of this Agreement by him
to be performed shall be deemed a waiver of a breach of a similar or dissimilar
provision or condition at the same time or any prior or subsequent time. This
Agreement supersedes and controls over
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all previous agreements between the Company and Chaskin regarding his employment
by the Company.
21. Severability. In case any provision in this Agreement shall be
declared invalid, illegal or unenforceable by any court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
22. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given at the time when mailed in the United States enclosed in a registered
or certified post-paid envelope, return receipt requested, and addressed to the
addresses of the respective parties stated below or to such changed addresses as
such parties may fix by notice:
If to the Company:
Ursus Telecom Corporation
440 Sawgrass Corporate Parkway
Suite 112
Sunrise, Florida 33325
with a copy to:
Stroock & Stroock & Lavan LLP
200 South Biscayne Blvd.
33rd Floor
Miami, Florida 33131
Attn: Daniel Lampert, Esq.
If to Chaskin:
_____________________________
_____________________________
_____________________________
provided, however, that any notice of change of address shall be effective only
upon receipt.
23. Successors and Assigns. This Agreement is personal in its nature
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder (except
for an assignment or transfer by the Company to a successor as contemplated by
the following proviso); provided, however, that the provisions hereof shall
inure to the benefit of, and be binding upon, any successor of the
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Company, whether by merger, consolidation, transfer of all or substantially all
of the assets of the Company, or otherwise, and upon Chaskin, his heirs,
executors, administrators and legal representatives.
24. Governing Law. This Agreement and its validity, construction and
performance shall be governed in all respects by the internal laws of the State
of Florida without giving effect to any principles of conflict of laws. In any
suit, action or proceeding arising out of or in connection with this Agreement,
the prevailing party shall be entitled, as a part of the judgment therein, to an
award of the reasonable attorneys' and other professionals' fees and costs
incurred in connection therewith.
25. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
URSUS TELECOM CORPORATION
By:
----------------------------
Name:
Title:
-------------------------------
Jeffrey Chaskin
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EXHIBIT 10.4
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement is made and entered into on
this __ day of February, 1998, between URSUS TELECOM CORPORATION (the "Company")
and Jeffrey Chaskin (the "Executive").
PRELIMINARY STATEMENT
The parties have previously entered into an Employment Agreement dated as
of January 1, 1998 (the "Agreement") and have agreed to amend certain provisions
of the Agreement as set forth below.
NOW, THEREFORE, in consideration of the agreements contained herein, and other
good and valuable consideration, the receipt and adequacy of which are hereby
conclusively acknowledged, the parties, intending to be legally bound, agree as
follows:
1. The provisions of this First Amendment shall govern and control over any
conflicting or inconsistent provisions in the Agreement, but except as modified
hereby, all provisions of the Agreement remain unmodified and in full force and
effect and are hereby reaffirmed by each of the parties hereto. Unless
otherwise defined herein, all capitalized terms shall have the same meanings as
provided therefor in the Agreement.
2. Section 3 of the Agreement is amended as follows:
(a) To provide that Base Salary shall be $225,000 for the year beginning
January 1, 1998, and that Base Salary shall increase by $25,000 each year
thereafter during the Term (I.E., Base Salary of $250,000 in 1999, $275,000
in 2000, $300,000 in 2001 and $325,000 in 2002).
(b) To provide that Executive shall receive an annual fixed bonus (the
"Fixed Bonus") of $45,000, payable at the time of the first normal pay
period of each new calendar year during the Term, commencing in January
1998. The Fixed Bonus shall be payable in addition to and exclusive of the
Base Salary, the Second Bonus, the Annual Bonus and any and all other
bonuses and compensation that may be paid to Executive during any fiscal
year.
(c) To provide that Executive shall be entitled to a second bonus (the
"Second Bonus") of $45,000 for each $1 million of EBITDAB that the Company
realizes during each fiscal year during the Term (starting with the fiscal
year commencing April 1, 1998), calculated on a pro rata dollar-for-dollar
basis (I.E., an increase in the Second Bonus of $0.045 for each $1 of
EBITDAB). If any Second Bonus, as so determined, is an amount that includes
a fraction of a cent, it shall be rounded up to the nearest whole cent.
<PAGE>
The maximum Second Bonus payable in respect of any single fiscal year
shall be $180,000 (for EBITDAB of over $4 million, the Executive shall
receive the Annual Bonus, determined in the manner set forth in (d) below,
in addition to the Second Bonus).
The Second Bonus shall be payable in addition to and exclusive of the
Base Salary, the Fixed Bonus, the Annual Bonus and any and all other
bonuses and compensation that may be paid to Executive during any fiscal
year.
(d) To amend the second and third sentences in the second paragraph of
Section 3 by deleting the same in their entirety, and substituting
therefor:
"For each fiscal year during the term of this Agreement in which
EBITDAB exceeds $4 million, the Annual Bonus payable to Executive shall
equal twenty percent (20%) of Base Salary, plus an amount that equals an
additional five percent (5%) of Base Salary for each $1 million of EBITDAB
in excess of the first $4 million. The Annual Bonus shall be computed on a
pro rata dollar-for-dollar basis with EBITDAB in excess of $4 million
(I.E., an increase in the Annual Bonus of 0.000005% of Base Salary for
each $1 increase in EBITDAB). If any Annual Bonus, as so determined, is an
amount that includes a fraction of a cent, it shall be rounded up to the
nearest whole cent. If the Company shall have at least $4 million in
EBITDAB in any fiscal year during the Term, then the Annual Bonus shall be
payable in respect of such fiscal year in addition to and exclusive of the
Base Salary, the Fixed Bonus, the Second Bonus and any and all other
bonuses and compensation that may be paid to Executive during such year."
(e) To provide that the aggregate amount of Fixed Bonus, Second Bonus and
Annual Bonus that the Executive may receive in respect of any single fiscal
year shall not exceed 200% of the Executive's Base Salary as in effect at
the end of such fiscal year.
(f) To provide that the Second Bonus shall be payable monthly, based on
the EBITDAB reflected on the Company's unaudited financial statements for
the current fiscal year through the end of such month, and subject to
adjustment to reflect cumulative EBITDAB for subsequent months in the
fiscal year and to reconcile the same to the EBITDAB reflected on the
Company's financial statements as filed on Forms 10-Q and 10-K (and any
successor such Forms). To the extent any Second Bonus is payable for any
month in which Executive was not employed for the full month, the Second
Bonus payable for such month shall be prorated based on the actual number
of days during the month that Executive was employed by the Company.
(g) To provide that for purposes of paying periodic installments of the
Second Bonus and Annual Bonus, the EBITDAB for the respective period for
which it being paid shall be annualized. For example, if the Company
records EBITDAB of $250,000 for the first month of a fiscal year, and
$150,000 in the second month of such fiscal year then the Second Bonus for
the first such month would be $11,250, and for the second such month would
be $3,750. The calculation for the first month would be to annualize
$250,000 of one months' EBITDAB to equal $3,000,000 of annual EBITDAB,
corresponding to a
<PAGE>
$135,000 annual Second Bonus and a payment of 1/12 such amount ($11,250)
since only one month had expired. For the second month, the cumulative
$400,000 of two months' EBITDAB would annualize to $2,400,000, producing a
$90,000 annual Second Bonus, of which $15,000 would accrue for the two
months, and less the $11,250 paid for the first month would leave $3,750 to
be paid.
(h) To provide that if the Agreement shall terminate at any time prior to
the Company's fiscal year end due to expiration of the Term without
renewal, then the Fixed Bonus, Second Bonus and Annual Bonus shall be
payable on the same terms and conditions as would have applied if, and
shall be calculated in the same manner as if, Executive had remained
employed by the Company under the Agreement through the end of such fiscal
year. If the Agreement shall terminate at any time prior to the
Company's fiscal year end by reason of termination by the Company without
"cause" or termination by Executive for "good reason", then the provisions
of section 10 of the Agreement, amended as provided in 4 and 5 below, shall
apply with respect to the payment of bonuses.
(i) Notwithstanding any conflicting provisions hereof, the Executive shall
not be required to refund any advance payments of the Second Bonus or
Annual Bonus as a result of any interim reconciliation based on unaudited
EBITDAB; but only based upon the EBITDAB reflected in the Company's annual
audited financial statements.
3. The last sentence of Section 8 of the Agreement is deleted and amended in
its entirety to read as follows: "Chaskin hereby disclaims any right to receive
a pro rata portion of any bonus that has not yet been paid to him with respect
to the fiscal year in which such termination occurs."
4. Section 10 is amended to provide that if the last day of the balance of the
term of the Agreement, or if the last day of the twelve month period following
termination (whichever is applicable), is prior to the end of a fiscal year of
the Company, then the Annual Bonus and Second Bonus payable for such year shall
be calculated and paid with respect to the full fiscal year.
5. For purposes of Sections 8 and 10 of the Agreement, the Second Bonus shall
be treated as if it were part of the Annual Bonus (i.e., any portion of it that
has not yet been paid shall not be paid in the event of termination of the Term
for "cause", but shall be paid in the event of termination of the Term by the
Company without "cause" or by the Executive for "good reason.")
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered in the
manner prescribed by law on the date first written above.
URSUS TELECOM CORPORATION
By: ______________________ ______________________________
Authorized Signatory Jeffrey Chaskin
<PAGE>
EXHIBIT 10.5
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of January 1,
1998, by and between URSUS TELECOM CORPORATION, a Florida corporation (the
"Company"), and JOHANNES SEEFRIED ("Seefried").
In consideration of the mutual covenants contained herein, the
parties hereto agree as follow:
1. Term. The Company hereby employs Seefried as the Chief Financial
Officer of the Company, and Seefried agrees to serve the Company as such, upon
the terms and conditions hereof for the period commencing on the date hereof
and, unless Seefried's employment under the Agreement is otherwise terminated in
accordance with the provisions hereof, ending on December 31, 1999.
2. Duties. (a) Seefried shall serve as the Company's Chief Financial
Officer, with such duties and authority as are generally incident to such
position. Seefried will hold such senior offices and/or such directorships in
the Company and/or any subsidiaries or affiliates of the Company to which, from
time to time, he may be elected or appointed; provided that the offices to which
Seefried may be so elected or appointed shall not be inconsistent with his
duties and authority as aforesaid.
(b) Seefried agrees that he will devote substantially all of
his time and attention to the affairs of the Company and use his best
efforts to promote the business and interests of the Company and that he
will not engage, directly or indirectly, in any other business or
occupation during the term of employment hereunder. It is understood,
however, that the foregoing will not prohibit Seefried from engaging in
personal investment activities for himself and his family which do not
detrimentally interfere with the performance of his duties hereunder.
3. Compensation. The Company will pay Seefried an annual salary
("Base Salary") at an annual rate of $170,000 for the calendar year 1998 and
$200,000 for the calendar year 1999, payable in equal, bi-weekly installments in
accordance with customary payroll practices for senior executives of the Company
for all services to be rendered hereunder, including, without limitation, all
services to be rendered by him as an officer and/or director of the Company and
its subsidiaries and affiliates.
In addition to the Annual Bonus described below, the Company will
pay Seefried an initial bonus of $50,000 upon commencement of his employment
under this Agreement, and an additional bonus of $75,000 payable no later than
30 days after the closing (during the term of
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this Agreement) of the Company's initial public offering of shares of Common
Stock registered under the Securities Act of 1933, as amended ("IPO").
Commencing with its fiscal year beginning on April 1, 1998, the
Company shall pay Seefried a bonus ("Annual Bonus") dependent upon the Company's
annual earnings before interest, taxes, depreciation, amortization and bonuses
paid to Seefried and the other officers or key employees of the Company that
receive bonus compensation based on this or a similar formula ("EBITDAB"), on a
consolidated basis as reflected on the Company's annual financial statements as
certified by the Company's independent public accountants and filed with the
Securities and Exchange Commission on the Company's Annual Report on Form 10-K.
For each fiscal year during the term of this Agreement in which EBITDAB equals
or exceeds $5 million, the Annual Bonus payable to Seefried shall equal ten
percent (10%) of Base Salary, and shall be increased by an additional five
percent (5%) of Base Salary for each $1 million of EBITDAB in excess of the
first $5 million; provided, however, that the maximum Annual Bonus for any
fiscal year shall be 100% of Base Salary for EBITDAB of $23 million or more. Any
Annual Bonus shall be paid to Seefried in equal quarterly installments based on
EBITDAB for the current fiscal year through the end of such quarter, based on
the Company's unaudited financial statements as reported on Form 10-Q, subject
to continuing adjustment for each fiscal year's EBITDAB. To the extent any
Annual Bonus is payable for any period in which Seefried was not employed for
the full fiscal year, the Annual Bonus shall be prorated based on the actual
number of months, or portions thereof, during the fiscal year Seefried was
employed by the Company.
Nothing contained herein shall prohibit the Board of Directors of
the Company, in its sole discretion, from increasing the compensation payable to
Seefried pursuant to this Agreement, by way of increased Base Salary, Annual
Bonus, or otherwise and/or making available to Seefried other benefits in
addition to those to which he is entitled hereunder.
Seefried and the Company agree that the compensation paid to
Seefried through December 31, 1997 comprise the entire compensation to which he
is entitled, and Seefried hereby waives any other claims for compensation from
the Company accruing prior to January 1, 1998
The Company shall grant Seefried 100,000 options on its Common Stock
at the public offering price and subject to the consummation of the IPO, half
vesting at issuance and the remaining vesting on January 1, 1999.
4. Expenses. Seefried shall be entitled to reimbursement by the
Company, in accordance with the Company's policies then applicable to senior
executives, against appropriate vouchers or other receipts for travel,
entertainment and other business expenses reasonably incurred by him in the
performance of his duties hereunder.
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5. Executive Benefits. Seefried shall be entitled to a paid vacation
of 4 weeks. Such vacation shall be taken at such time or times during the
applicable year as may be determined by Seefried subject to the Company's
reasonable business needs. Seefried shall be entitled to participate in, and
receive benefits under, any pension, profit sharing, insurance, hospitalization,
medical, disability, stock purchase, stock option, stock ownership or other
employee benefit plan, program or policy of the Company which may be in effect
at any time during the course of his employment by the Company and which shall
be generally available to senior executives of the Company occupying positions
of comparable status or responsibility, subject to the terms of such plans,
programs or policies. Notwithstanding the foregoing, the Company may, in its
discretion, at any time and from time to time, change or revoke any of its
employee benefits plans, programs or policies and Seefried shall not be deemed,
solely by virtue of this Agreement, to have any vested interest in the
continuation of any such plans, programs or policies; provided, however, that
nothing in this Agreement shall affect or impair any vested rights of Seefried
under the terms of any such plan, program or policy.
6. Withholding. All payments required to be made by the Company
hereunder to Seefried shall be subject to the withholding of such amounts
relating to taxes and other governmental assessments as the Company may
reasonably determine it should withhold pursuant to any applicable law, rule or
regulation.
7. Death; Permanent Disability. In the event of the death of
Seefried during the term of this Agreement, this Agreement shall terminate. If
during the term of this Agreement Seefried fails because of illness or other
incapacity to perform the services required to be performed by him hereunder for
any consecutive period of more than 120 days, or for shorter periods aggregating
more than 180 days in any consecutive twelve-month period (any such illness or
incapacity being hereinafter referred to as a "permanent disability"), then the
Company, in its discretion, may at any time thereafter terminate this Agreement
upon not less than 10 days' written notice thereof to Seefried, and this
Agreement shall terminate and come to an end upon the date set forth in said
notice as if said date were the termination date of this Agreement; provided,
however, that no such termination shall be effective if prior to the date when
such notice is given, Seefried's illness or incapacity shall have terminated and
he shall be physically and mentally able to perform the services required
hereunder and shall have taken up and be performing such duties.
If Seefried's employment shall be terminated by reason of his death
or permanent disability, Seefried or his estate, as the case may be, shall be
entitled to receive (i) any earned and unpaid salary accrued through the date of
termination, (ii) a pro rata portion of any annual bonus which Seefried would
otherwise have been entitled to receive pursuant to any bonus plan or
arrangement for senior executives of the Company and (iii) subject to the terms
thereof, any benefits which may be due to Seefried on the date of termination
under the provisions of any employee benefit plan, program or policy.
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8. Termination for Cause. The Company may at any time during the
term of this Agreement, by written notice, terminate the employment of Seefried
for cause, the cause to be specified in the notice. For purposes of this
Agreement, "cause" shall mean (i) any willful misconduct of Seefried in
connection with the performance of any of his duties hereunder, including
without limitation misappropriation of funds or property of the Company,
securing or attempting to secure personally any profit in connection with any
transaction entered into on behalf of the Company or any willful and intentional
act having the effect of injuring the reputation, business or business
relationships of the Company; (ii) willful failure, neglect or refusal to
perform Seefried's material duties hereunder that is not cured within 20 days
after the Company notifies Seefried thereof; (iii) breach of any material
covenants contained in this Agreement that is not cured within 20 days after the
Company notifies Seefried thereof; and (iv) conviction (or nolo contendere plea)
in connection with a felony relating in any way to the business or affairs of
the Company, or which would be required to be disclosed in any filing or report
with the U.S. Securities and Exchange Commission. The determination of whether
"cause" exists shall only be made at a meeting of the Board of Directors of
which Seefried receives notice and an opportunity to address the Board on such
matter. Termination for cause shall be effective upon the giving of such notice
and Seefried shall be entitled to receive (i) any earned and unpaid salary
accrued through the date of termination and (ii) subject to the terms thereof,
any benefits which may be due to Seefried on such date under the provisions of
any employee benefit plan, program or policy. Seefried hereby disclaims any
right to receive a pro rata portion of any annual bonus with respect to the
fiscal year in which such termination occurs.
9. Resignation for Good Reason. Seefried may at any time during the
term of this Agreement, by written notice, terminate his employment for good
reason, the reason to be specified in the notice. For purposes of this
Agreement, "good reason" shall exist if (i) the Company materially fails to
comply with any of the provisions of this Agreement, other than isolated,
insubstantial or inadvertent failures not occurring in bad faith and which are
remedied by the Company promptly after receipt of notice thereof given by
Seefried, or (ii) the Company shall diminish Seefried's title, duties, base
salary or benefits.
10. Payments Upon Termination. If during the term of this Agreement,
Seefried's employment is terminated (i) by the Company without "cause" or (ii)
by Seefried for any "good reason," the Company shall pay to Seefried the Base
Salary at the rate in effect at the time notice of termination is given,
together with any applicable Annual Bonuses payable under the terms of this
Agreement and other rights and benefits Seefried may have under employee
benefits plans and programs of the Company in existence as of the date of such
termination, all for the greater of (x) the balance of the term of this
Agreement or (y) the twelve month period following the date of such termination.
11. Payments Upon Change of Control. During the term of this
Agreement, if
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there is a Change of Control (as hereinafter defined) and the Company takes any
action which would entitle Seefried to terminate his employment for "good
reason," as such term is defined in Section 9 hereof (a "Triggering Event"),
then Seefried may at his election, at any time within one year after any such
Triggering Event, terminate this Agreement (a "Voluntary Termination"), and
Seefried shall be entitled to the following compensation, in addition to the
other compensation and bonuses provided for herein:
(a) in lieu of any further salary payments to Seefried for
periods subsequent to the date of Voluntary Termination, the Company shall
pay as severance payment to Seefried, no later than the fifth day
following the date of Voluntary Termination, a lump-sum severance payment
of three years' base includible compensation, equal to the maximum tax
deduction that the Company is eligible to receive under the applicable
"golden parachute" regulations; and
(b) the Company shall provide Seefried with all employee
benefits and programs of the Company which Seefried was entitled to
receive or participate in immediately prior to the effective date of the
Voluntary Termination for the thirty six (36) month period following the
date of such Voluntary Termination.
For the purposes of this Agreement, "Change of Control" shall mean
the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used
under Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
Amended (the "Exchange Act"), whether or not such Sections are applicable)
is or becomes, whether by means of any issuance or direct or indirect
transfer of securities, merger, consolidation, liquidation, dissolution or
otherwise, the "beneficial owner" (as that term is used under Rules 13d-3
and 13d-5 under the Exchange Act, whether or not such rules are
applicable, except that a "person" or "group" shall be deemed to have
"beneficial ownership" of all shares that he or it has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time or otherwise), directly or indirectly through one or more
intermediaries, of 35% or more of the total voting power represented by
all of the voting stock of the Company; or
(ii) directly or indirectly, a transfer, sale, lease or
other disposition of all or substantially all of the assets of the Company
and its subsidiaries taken as a whole to any "person" or "group" (as such
terms are used un Sections 13(d) and 14(d) of the Exchange Act, whether or
not such sections are applicable), excluding any disposition to or among
the Company and/or one or more of its subsidiaries; or
(iii) any "person" or "group" (as such terms are used
under
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Sections 13(d) and 14(d) of the Exchange Act, whether or not such sections
are applicable) otherwise obtains the right or power (through any
arrangement, contract, proxy or other means) to elect or designate a
majority of the members of the Board of Directors of the Company then in
office, without regard to whether such right or power is exercised or
invoked and without taking into account the necessity of a special or
annual stockholders meeting or the taking of other procedural actions to
exercise or invoke such right or power.
12. Insurance. Seefried agrees that the Company, at its sole
expense, may procure insurance on the life of Seefried, in such amounts as the
Company may in its discretion determine, and with the Company named as the
beneficiary under the policy or policies. Seefried agrees that upon request from
the Company he will submit to a physical examination and will execute such
applications and other documents as may be required for the procurement of such
insurance.
13. Non-Competition; Solicitation. (a) Seefried agrees that during
his employment with the Company and for a period of one year after Seefried
leaves the Company's employ for any reason, he shall not, without the written
consent of the Company, directly or indirectly, either individually or as an
employee, agent, partner, shareholder, consultant, option holder, lender of
money, guarantor or in any other capacity, participate in, engage in or have a
financial interest or management position or other interest in any business,
firm, corporation or other entity within the State of Florida if it competes
directly with any business operation conducted by the Company or its
subsidiaries or affiliates or any successor or assign thereof, nor will he
solicit any other person to engage in any of the foregoing activities.
Participation in the management of any business operation other than in
connection with the management of a business operation which is in direct
competition with the Company or its subsidiaries or affiliates or any successor
or assign thereof shall not be deemed to be a breach of this Section 13(a). The
foregoing provisions of this Section 13(a) shall not prohibit the ownership by
Seefried (as the result of open market purchase) of 5% or less of any class of
capital stock of a corporation which is regularly traded on a national
securities exchange or over-the-counter on the NASDAQ System.
(b) Seefried will not, without the written consent of the
Company, at any time during his employment with the Company and for a
period of one year after Seefried leaves the Company's employ for any
reason, solicit (or assist or encourage the solicitation of) any employee
of the Company or any of its subsidiaries or affiliates to work for
Seefried or for any business, firm, corporation or other entity in which
Seefried, directly or indirectly, in any capacity described in Section
13(a) hereof, participates or engages (or expects to participate or
engage) or has (or expects to have) a financial interest or management
position, except that this provision shall not affect Seefried's right,
after the termination of his employment for any reason, to solicit those
employees
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of the Company or its subsidiaries or affiliates with whom Seefried has
had a business or personal association prior to the original commencement
of Seefried's employment by the Company, to become associated with or work
for an entity with which Seefried is then associated or working with, in
compliance with the non-compete provisions of Section 13 (a) (e.g., for an
employer not within the State of Florida).
(c) If any of the covenants contained in this Section 13 or
any part thereof is held by a court of competent jurisdiction to be
unenforceable because of the duration of such provision, the activity
limited by or the subject of such provision and/or the area covered
thereby, then the court making such determination shall construe such
restriction so as to thereafter be limited or reduced to be enforceable to
the greatest extent permissible by applicable law.
14. Inventions, Etc. Seefried agrees that any and all systems,
work-in-progress, inventions, discoveries, improvements, compounds, formulae,
patents, copyrights and trademarks, made or developed by him, solely or jointly
with others, or otherwise, during the term of his employment by the Company, and
which may be useful in or relate to any business of the Company and/or any
subsidiary or affiliate of the Company shall be fully disclosed by Seefried to
the Chief Executive Officer of the Company, and shall be the sole and absolute
property of the Company, and the Company will be the sole and absolute owner
thereof. Seefried agrees that at all times, both during his employment and after
the termination of his employment, he will keep all of the same secret from
everyone except the Company and its duly authorized employees and will disclose
the same to no one except as required in good faith in the course of his
employment with the Company, or by law, or unless otherwise authorized in
writing by the Chief Executive Officer of the Company.
15. Patents. Seefried agrees, at the request of the Company, to make
application in due form for United States Letters Patent and foreign Letters
Patent on any of such systems, inventions, discoveries, improvements, compounds
and formulae referred to in Section 14 hereof, and to assign to the Company all
of his right, title and interest in and to said inventions, discoveries,
improvements, compounds, formulae and patent applications therefor or patents
thereon, and to execute at any and all times any and all instruments, and to do
any and all acts necessary, or which the Company may reasonably deem
appropriate, in connection with such applications for Letters Patent, in order
to establish and perfect in the Company the entire right, title and interest in
and to said systems, inventions, discoveries, improvements, compounds, formulae
and patent applications therefor, or in the conduct of any proceedings or
litigation in regard thereto. It is understood and agreed that all costs and
expenses, including but not limited to reasonable attorneys' fees, incurred at
the request of the Company in connection with any action taken by an Seefried
pursuant to this Section 15, shall be borne by the Company.
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16. Trade Secrets, Etc. Seefried agrees that he shall not, during or
after the termination of this Agreement, divulge, furnish or make accessible to
any person, firm, corporation or other business entity, any confidential
information, trade secrets, technical data or know-how relating to the business,
business practices, methods, products, equipment, clients' prices or other
confidential or secret aspect of the business of the Company and/or any
subsidiary or affiliate, except as may be required in good faith in the course
of his employment with the Company or by law, without the prior written consent
of the Company, unless such information shall become public knowledge (other
than by reason of Seefried's breach of the provisions hereof).
17. Acceptance. Each of the Company and Seefried accepts all of the
terms and provisions of this Agreement and agrees to perform all of the
covenants to be performed hereunder.
18. Equitable Remedies. Seefried acknowledges that he has been
employed for his unique talents and that his leaving the employ of the Company
would seriously hamper the business of the Company and that the Company will
suffer irreparable damage if any provisions of Sections 13, 14, 15 or 16 hereof
are not performed strictly in accordance with their terms or are otherwise
breached. Seefried hereby expressly agrees that the Company shall be entitled as
a matter of right to injunctive or other equitable relief, in addition to all
other remedies permitted by law, to prevent a breach or violation by Seefried
and to secure enforcement of the provisions of Sections 13, 14, 15 or 16 hereof.
Resort to such equitable relief, however, shall not constitute a waiver or any
other rights or remedies which the Company may have.
19. Indemnification. Seefried shall be entitled to the fullest
extent permitted by law to the benefit of indemnification of the assertion
against Seefried of any liability, damages, losses or expenses, including
reasonable attorneys' fees and costs, sustained by Seefried arising out of his
performance of duties as an employee of the Company. This provision shall
survive termination of this Agreement. The Company shall add Seefried as a
covered officer under any insurance policy (including Directors' and Officers'
insurance policies) that may be maintained by the Company covering the directors
and officers of the Company acting in their capacity as such. The Company will
use its reasonable efforts to maintain such coverage for a period of at least
two years after the termination of this Agreement.
20. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and there are no other terms other than
those contained herein. No variation hereof shall be deemed valid unless in
writing and signed by the parties hereto and no discharge of the terms hereof
shall be deemed valid unless by full performance of the parties hereto or by a
writing signed by the parties hereto. No waiver by the Company or Seefried of
any breach by the other party of any provision or condition of this Agreement
shall be deemed a
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waiver of a breach of a similar or dissimilar provision or condition at the same
time or any prior or subsequent time.. This Agreement supersedes and controls
over all previous agreements between the Company and Seefried regarding his
employment by the Company.
21. Severability. In case any provision in this Agreement shall be
declared invalid, illegal or unenforceable by any court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
22. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given at the time when mailed in the United States enclosed in a registered
or certified post-paid envelope, return receipt requested, and addressed to the
addresses of the respective parties stated below or to such changed addresses as
such parties may fix by notice:
If to the Company:
Ursus Telecom Corporation
440 Sawgrass Corporate Parkway
Suite 112
Sunrise, Florida 33325
with a copy to:
Stroock & Stroock & Lavan LLP
200 South Biscayne Blvd.
33rd Floor
Miami, Florida 33131
Attn: Daniel Lampert, Esq.
If to Seefried:
_____________________________
_____________________________
_____________________________
provided, however, that any notice of change of address shall be effective only
upon receipt.
23. Successors and Assigns. This Agreement is personal in its nature
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder (except
for an assignment or transfer by the Company to a successor as contemplated by
the following proviso); provided, however, that the
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provisions hereof shall inure to the benefit of, and be binding upon, any
successor of the Company, whether by merger, consolidation, transfer of all or
substantially all of the assets of the Company, or otherwise, and upon Seefried,
his heirs, executors, administrators and legal representatives.
24. Governing Law. This Agreement and its validity, construction and
performance shall be governed in all respects by the internal laws of the State
of Florida without giving effect to any principles of conflict of laws. In any
suit, action or proceeding arising out of or in connection with this Agreement,
the prevailing party shall be entitled, as a part of the judgment therein, to an
award of the reasonable attorneys' and other professionals' fees and costs
incurred in connection therewith.
25. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
URSUS TELECOM CORPORATION
By:
----------------------------
Name:
Title:
-------------------------------
Johannes Seefried
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EXHIBIT 10.6
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement is made and entered into on
this __ day of February, 1998, between URSUS TELECOM CORPORATION (the "Company")
and Johannes Seefried ("Seefried").
PRELIMINARY STATEMENT
The parties have previously entered into an Employment Agreement dated as
of January 1, 1998 (the "Agreement") and have agreed to amend certain provisions
of the Agreement as set forth below.
NOW, THEREFORE, in consideration of the agreements contained herein, and other
good and valuable consideration, the receipt and adequacy of which are hereby
conclusively acknowledged, the parties, intending to be legally bound, agree as
follows:
1. The provisions of this First Amendment shall govern and control over any
conflicting or inconsistent provisions in the Agreement, but except as modified
hereby, all provisions of the Agreement remain unmodified and in full force and
effect and are hereby reaffirmed by each of the parties hereto. Unless
otherwise defined herein, all capitalized terms shall have the same meanings as
provided therefor in the Agreement.
2. Sections 1 and 2(a) of the Agreement are modified to reflect that Seefried
shall serve as a member of the Company's Board of Directors and as the Company's
Chief Accounting Officer, as well as its Chief Financial Officer.
3. Section 3 of the Agreement is amended as follows:
(a) To amend the second sentence in the third paragraph of Section 3 by
deleting the same in its entirety, and substituting therefor:
"For each fiscal year during the term of this Agreement in which
EBITDAB equals or exceeds $4 million, the Annual Bonus payable to
Seefried shall equal twenty percent (20%) of Base Salary, and shall be
increased by an additional five percent (5%) of Base Salary for each
$1 million of EBITDAB in excess of the first $4 million. The Annual
Bonus shall be computed on a pro rata dollar-for-dollar basis with
EBITDAB in excess of $4 million (I.E., an increase in the Annual Bonus
of 0.000005% of Base Salary for each $1 increase in EBITDAB). If any
Annual Bonus, as so determined, is an amount that includes a fraction
of a cent, it shall be rounded up to the nearest whole cent."
<PAGE>
(b) To provide that if the Term of the Agreement shall terminate at any
time prior to the Company's fiscal year end due to expiration of the Term
without renewal, then the Annual Bonus shall be payable on the same terms
and conditions as would have applied if, and shall be calculated in the
same manner as if, Seefried had remained employed by the Company under the
Agreement through the end of such fiscal year. If the Agreement shall
terminate at any time prior to the Company's fiscal year end by reason of
termination by the Company without "cause" or termination by Seefried for
"good reason", then the provisions of section 10 of the Agreement, amended
as provided in 4 and 5 below, shall apply with respect to the payment of
the Annual Bonus for such fiscal year.
(c) To provide that the aggregate amount of Annual Bonus and all other
bonuses that Seefried may receive in respect of any single fiscal year
shall not exceed 200% of Seefried's Base Salary as in effect at the end of
such fiscal year.
(d) Notwithstanding any conflicting provisions hereof, Seefried shall not
be required to refund any advance payments of Annual Bonus as a result of
any interim reconciliation based on unaudited EBITDAB; but only based upon
the EBITDAB reflected in the Company's annual audited financial statements.
3. The last sentence of Section 8 of the Agreement is deleted and amended in
its entirety to read as follows: "Seefried hereby disclaims any right to
receive a pro rata portion of any bonus that has not yet been paid to him with
respect to the fiscal year in which such termination occurs."
4. Section 10 is amended to provide that if the last day of the Term of the
Agreement, or if the last day of the twelve month period following termination
of the Term (whichever is applicable), is prior to the end of a fiscal year of
the Company, then the Annual Bonus payable for such year shall be calculated and
paid with respect to the full fiscal year.
5. For purposes of Sections 8 and 10 of the Agreement, any portion of the
Annual Bonus that has not yet been paid shall not be paid in the event of
termination of the Term for "cause", but shall be paid in the event of
termination of the Term by the Company without "cause" or by Seefried for "good
reason."
IN WITNESS WHEREOF, this Agreement has been executed and delivered in the
manner prescribed by law on the date first written above.
URSUS TELECOM CORPORATION
By: _________________________ ______________________________
Authorized Signatory Johannes Seefried
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered as of this 1st day
of September, 1997 by and between Ursus Telecom Corporation, a Florida
corporation ("Employer"), and Richard McEwan ("Employee").
W I T N E S S E T H:
WHEREAS, the Employer is engaged in the operation of a telecommunications
business (the "Business") and desires to employ the Employee in the capacity
described herein; and
WHEREAS, the Employee desires to accept such employment under the terms
and conditions provided herein,
NOW, THEREFORE, in consideration of the premises, and mutual promises
hereinafter set forth, and other good and valuable consideration in hand and
received, the parties hereto hereby agree as follows:
1. Employment. Upon and subject to the terms, conditions and other
provisions of this Agreement, the Employer hereby employs the Employee and the
Employee hereby accepts employment and agrees to exercise and perform faithfully
and to the best of his ability on behalf of the Employer, those duties described
on the "Job Description Memorandum" attached hereto and made a part hereof as
Exhibit A. Employee shall likewise perform such other duties for Employer, or
any subsidiary, affiliate, or division of the Employer as the Employer may
reasonably request.
2. Employee's Services and Duties. During the term of this Agreement, the
Employee shall observe and conform to the policies and directions promulgated
from time to time by the Employer and devote his full business time, energy,
ability, attention and skill to his employment hereunder; provided, however, the
Employer expressly acknowledges and agrees that the Employee may continue to
perform services for VCSI provided that doing so does not create a conflict of
interest or unreasonably interfere with the Employee's performance of his duties
hereunder. The services to be performed by the Employee hereunder may be
changed, expanded or adjusted from time to time at the reasonable request of the
Employer, provided that such services shall at all times be consistent with
those described in Section 1 hereof. The Employee shall perform the services
contemplated under this Agreement at such location or locations as the Employer
may from time to time reasonably direct, but Employee shall primarily be based
in Florida. Employee shall, however, travel to other locations at such time as
may be appropriate for the performance of his duties and as reasonably directed
by Employer. Employee acknowledges that the performance of his duties shall
include extensive foreign travel; provided, however, that in the event that
Employee is required to travel for a period of greater than 28 consecutive
calendar days, then during the next 21 consecutive calendar days he will not be
required to travel for more than 10 calendar days (whether or not consecutive)
unless upon the last day of such travel Employee then works in Florida for the
next 21 consecutive calendar days.
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3. Term. Unless sooner terminated as provided in this Agreement, the term
of the Employee's employment by the Employer pursuant to this Agreement shall
commence on September 1, 1997 and shall continue until August 31, 1999;
provided, however, such term shall automatically be extended for additional
one-year periods (i.e., September 1 through the next August 31) unless either
the Employee or the Employer gives the other written notice of his or its
respective desire not to extend such term on or before June 30, 1999 and/or each
respective June 30th thereafter.
4. Compensation and Other Matters. As compensation in full for the
services to be rendered by the Employee hereunder, the Employer shall pay, and
the Employee shall accept, the compensation set forth on the Job Description
Memorandum, which compensation shall be subject to all applicable federal, state
and local withholding taxes and paid in accordance with the Employer's payroll
policy. Employee will not accept any rebates, "kickbacks" or other third party
payments unless all such amounts are immediately remitted in full to Employer
upon receipt by Employee. The Employee also shall receive such additional
compensation and benefits as set forth in Exhibit A and as the Employer may
provide to its employees in the Employer's Employee Manual, which currently
provides, without limitation, (i) family medical and dental coverage, (ii) life
insurance in the amount of $100,000, (iii) short and long term disability
insurance, (iv) accidental death and dismemberment insurance, (v) vacation, (vi)
holidays and (vii) sick leave; provided, however, the Employee expressly
acknowledges and agrees that the Employer may, in its sole and absolute
discretion, add to, delete from or otherwise change such Employee Manual and/or
compensation and benefits at any time. The Employee is also eligible for a
discretionary bonus in December 1997 and any respective December thereafter as
Employer may determine in its sole and absolute discretion, but Employer shall
not be obligated to provide any such bonus to Employee during the term hereof.
5. Certain Business Expenses. The Employer shall reimburse the Employee
for all ordinary, necessary and reasonable expenses incurred by Employee in the
course of performing his duties and obligations hereunder and paid by the
Employee on behalf of the Employer, to the extent reasonable and necessary in
the good faith judgment of Employer. Such reimbursement shall be made upon the
prompt presentation by the Employee of an itemized written request for
reimbursement thereof. The itemized request shall be supported by documentation
and be submitted on forms approved by Employer.
6. Covenant of Non-Disclosure. The Employee acknowledges that, because of
his employment hereunder, he will be in a confidential relationship with the
Employer and will have access to confidential information and trade secrets of
Employer concerning the Business. The parties recognize and acknowledge that the
Business is very sophisticated and technical, and that Employer has developed,
and over the course of time, will develop, substantial goodwill, valuable
relationships with customers, trade secrets and particular means or methods of
conducting the Business, all of which are worthy of protection. Employee
recognizes and acknowledges that during the term of his employment with the
Employer he may acquire knowledge of valuable trade secrets, confidential
matters, and proprietary information concerning the Business and its existing
and potential customers (collectively, the "Confidential Information"). Such
Confidential Information includes, without limitation, lists of the Employer's
customers and potential customers, lists of the Employer's suppliers and
potential suppliers, lists of the Employer's agents and potential agents,
information contained within the Employer's books and records, the Employer's
customer management software program, the methods of operating the Business,
information concerning the telecommunications industry as same relates to the
Employer, the names of other business contacts of the Employer, the
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Employer's pricing practices and information concerning prices at which the
Employer purchases supplies and services. The Employee hereby agrees to maintain
the confidentiality of all Confidential Information to which Employee is exposed
while employed by the Employer and at all times thereafter, and agrees that he
will not, directly or indirectly, at any time
(a) disclose such Confidential Information to any natural or legal person
(collectively, "Persons"), other than authorized employees or agents of the
Employer, for any reason or purpose whatsoever, or
(b) under any circumstances make use of any Confidential Information for his own
purposes or for the benefit of any Person other than the Employer or its
affiliates. To this effect, Employee agrees that none of the Employer's written
Confidential Information, including, but not limited to any printed material,
material in process and customer lists or records, may be copied or removed from
the Employer's premises by Employee or any other Person at the direction of or
with the permission of the Employee, unless authorized by the Chief Executive
Officer of the Employer.
7. Covenant of Employer's Proprietary Interest in Property.
7.1 Any patents, inventions, discoveries, applications or processes,
software and computer programs devised, planned, applied, created, discovered,
or invented by the Employee in the course of his employment under this Agreement
or which pertain to any aspect of the Business, or its subsidiaries, affiliates
or customers, shall be the sole and absolute property of the Employer, and the
Employee shall make a prompt report thereof to the Employer and promptly execute
any and all documents reasonably requested to assure the Employer the full and
complete ownership thereof.
7.2. All records, files, lists, drawings, software, such as the Employer's
customer management software program, documents, equipment and similar items
relating to the Business which Employee shall prepare for, or receive from the
Employer, shall remain the Employer's sole and exclusive property. Upon
termination of employment under this Agreement the Employee shall return
promptly to the Employer all property of the Employer in the Employee's
possession, and the Employee represents that he will not copy, or cause to be
copied, printed, summarized or compiled any software, documents or other
materials owned by the Employer.
8. Covenant of Non-Competition.
8.1 During the term of this Agreement and for a period of one (1) year
thereafter, Employee shall not directly or indirectly, including, without
limitation, through entities he controls, solely or jointly with others,
(i) carry on or engage or participate in any business the same as or
substantially similar to or in competition with the Business,
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(ii) render any services to or, directly or indirectly, have any interest (other
than an interest of 5% or less of a publicly traded company) as a shareholder,
owner, partner (general or limited), agent, consultant, lender or guarantor or
any other interest, in any entity or business engaged in the rendering of
services which are similar to those rendered by Employer in its operation of the
Business, or
(iii) otherwise engage in competition with the Business.
8.2 The parties hereto acknowledge that the Business is currently proposed
to be conducted, and will be conducted by the Employer in the locations
specified in Exhibit B hereto (the "Territory"). The covenants and other
provisions contained in this Section 8 shall cover the activities of Employee in
every part of the Territory. In the view of the foregoing, the parties hereto
agree that the Territory is reasonable in scope.
8.3 It is the intent of the parties hereto that this Section 8 be enforced
to the fullest extent permissible under the laws of Florida or any other
applicable jurisdiction. Each of the parties hereto recognizes that the duration
of the covenants and territorial restrictions contained in this Section 8 are
properly required for the adequate protection of the Business being established
by Employer and Employer's conduct of the Business thereafter. Accordingly, to
the extent that any covenant in this Section 8 or a portion thereof or other
provision contained in this Section 8 shall be deemed to be illegal,
unenforceable, or unreasonable with respect to any part of the Territory or the
duration of any covenant, such covenant shall be reformed such that the
restrictions imposed upon Employee is equal to the maximum restriction that
would be permissible under applicable law. Moreover, each provision of this
Section 8 is intended to be severable, and in the event that any one or more of
the provisions contained in this Section 8 shall for any reason be adjudicated
to be illegal, invalid, or unenforceable, the same shall not affect the
legality, validity, or enforceability of any other provision of this Section 8,
but this Section 8 shall be construed as if such illegal, invalid or
unenforceable provision had not been contained therein. The provisions of this
Section 8 shall be interpreted in a reasonable manner to effect the intentions
of the parties and this Section 8.
9. Enforcement of Covenants.
The parties hereto acknowledge that
(i) the covenants and the restrictions contained in Section 6, 7 and 8 are
necessary, fundamental, and required for the protection of the Business;
(ii) such covenants relate to matters which are of a special, unique, and
extraordinary character that gives each of such covenants a special, unique and
extraordinary value; and
(iii) a breach of any such covenants or any other provisions of said Sections 6,
7 or 8 will result in loss of goodwill, other irreparable harm and damages to
the Employer which cannot be adequately compensated by a monetary award.
Accordingly, it is expressly agreed that in addition to all other remedies
available at law or in equity, Employer shall be entitled to the immediate
remedy of a temporary restraining order, preliminary injunction, or such other
form of injunctive or equitable relief as may be used by any court of competent
jurisdiction to restrain or enjoin any of the parties hereto from a breach or
threatened breach of any such covenants or provisions or to specifically enforce
the provisions of Sections 6, 7 and 8. Said remedies may be obtained without
proof of the actual damages that have been or will be caused to the Employer by
such breach.
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Furthermore, nothing contained in Sections 6, 7 or 8, or in this Section 9 shall
be construed to limit in any way the remedies of Employer whether hereunder or
under applicable law.
10. Employee and Employer Representation and Warranty. The Employee
warrants and represents to the Employer, and covenants with the Employer that
the execution, delivery and performance of this Agreement by the Employee does
not conflict with or violate nay provision of, or constitute a default under,
any agreement, judgment, award or decree to which the Employee is a party or by
which the Employee is bound. The Employer agrees to use its best efforts to have
its Board of Directors ratify an IRS qualified incentive stock option plan as
reflected in Exhibit A. Subject to the terms of the Employer's then existing
directors and officers liability insurance (which currently is in the amount of
$3 million dollars but which Employee acknowledges Employer may add to, delete
from or otherwise change at any time at Employee's sole and absolute
discretion). Employee will be covered by same in accordance with its terms.
Subject to the terms of the Employer's then existing by laws and in accordance
with applicable law, Employee will be indemnified for good faith actions engaged
in by him in the performance of his duties hereunder. To address Employee's
concern that in his foreign travel he might be kidnapped or wrongfully
imprisoned or detained, the Employer will inquire about the availability of
commercial insurance to cover salary and benefit continuation if such events
occur. In the event that Employer, its sole and absolute discretion, decides to
obtain such insurance for its employees, then, subject to the terms of such
insurance, the Employee will be covered by same.
11. Termination for Cause. The Employee's employment hereunder may be
terminated immediately upon written notice, by the Employer for "cause", as set
forth below. The Employee shall have no right to receive compensation for any
period commencing after the date of termination for cause. For purposes of this
agreement, the term "cause" shall mean (i) the Employee's conviction of a felony
or acts of fraud, misappropriation, embezzlement or willful damage of, or to,
any property of the Employer, or its direct or indirect subsidiaries or
affiliates, (ii) the Employee's breach of any of the terms or conditions of this
Agreement, (iii) conduct by the Employee which intentionally and adversely
affects the Business or financial condition of the Employer, or its affiliates
or (iv) the Employee is disabled and unable to perform substantially his duties
hereunder for a period of 120 consecutive calendar days or 180 non-consecutive
calendar days during any 12 month period.
12. Death During Employment. If the Employee dies during the term of his
employment under this Agreement, Employer shall pay to the estate of the
Employee the compensation which would otherwise be payable to the Employee up to
the date of death, and the Employer shall have no further obligation under this
Agreement.
13. Notices. All notices, requests, demands, communications, statements or
other documents which one party shall be required or shall desire to give to
another hereunder shall be in writing and shall be given by the parties by
personal delivery by nationally recognized overnight courier, or by certified
mail, return receipt requested, with all postage or other charges prepaid. Each
such notice, demand, communication, statement, or other document shall be
conclusively deemed to have been given when personally delivered by hand or by
courier, or seventy-two (72) hours after the date of mailing, as the case may
be. The addresses of the parties shall be the following until such time as
written notice of any change is provided to either party as aforesaid.
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<PAGE>
If to the Employer:
Ursus Telecom Corporation
440 Sawgrass Corporate Parkway
Suite 112
Sunrise, Florida 33325
Attention: Luca Giussani
If to the Employee:
Richard McEwan
205 W. [illegible] Ave.
Arcadia, CA 91007
14. Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions hereof.
15. Entire Understanding. This Agreement constitutes the entire agreement
and understanding between the parties with respect to the employment of the
Employee by the Employer, and supersedes all prior agreements, representations
and understandings, both written and oral, between the parties hereto with
respect to the subject matter hereof. Both parties acknowledge, agree and assume
equal responsibility for the drafting of this Agreement.
16. Amendments. This Agreement may not be modified or changed except by a
written instrument signed by all of the parties hereto.
17. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Florida.
18. Assignment. This Agreement shall not be assigned or assignable by
operation of law or otherwise, without the prior written consent of the party,
except that, without such consent from Employee, Employer may assign this
Agreement or any interest therein, by operation of law or otherwise, to any
successor to all or substantially all of its stock or assets, or any direct or
indirect subsidiary.
19. Severability. If any provision of this Agreement shall be deemed
invalid, unenforceable or illegal, then notwithstanding such invalidity,
unenforceability or illegality the remainder of this Agreement shall continue in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
EMPLOYEE:
/s/ Richard McEwan
- -------------------------------
EMPLOYER:
URSUS TELECOM CORPORATION
By: /s/ Luca Giussani SEPT. 1st, 1997
- -------------------------------
Luca Giussani
Chief Executive Officer
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<PAGE>
EXHIBIT A - JOB DESCRIPTION MEMORANDUM
The position of Vice President of Agency Relations shall include the oversight
of all of the Company's foreign Agency and Representative operations both in the
United States and overseas, Agency interface, data processing and management
systems relative to Agency and Representative processing, and other systems and
relationships as is deemed appropriate by the Company's Chief Operating Officer
and its Board of Directors. The Employee will be proposed to the Employer's
Board of Directors for consideration and election as an Officer of the Employer.
For any period for which Employee is elected to be an Officer of the Employer
during the term of Employee's Employment Agreement, he agrees to serve in such
capacity without receiving any additional compensation or benefits.
Compensation shall be One Hundred and Thirty Thousand Dollars per year
($130,000.00) paid in 26 equal installments paid every other Friday or pursuant
to the Company's payroll policy. Additionally, you will be provided with family
health coverage at the expense of the Company under the Employers Group HMO
Plan, as well as certain other benefits which are afforded to others in your
employment classification.
Starting Bonus: $40,000 when you arrive in Sunrise as an incentive bonus.
Relocation: the Company will pay the reasonable hard costs of relocating your
household to the Sunrise Florida area. This will include moving of your
household goods via truck based on the lowest of three (3) estimates, shipment
or "hiking" of up to two "2" vehicles based on the lowest of three (3)
estimates, airfare at the lowest available cost for you and your immediate
family, and up to two (2) weeks of temporary housing in the Sunrise Florida
area.
Stock Options: At the time of execution of the Employment Agreement, the Company
has no stock option plan. However, it is contemplated that the Company will
adopt and its Board of Directors will ratify an IRS qualified incentive stock
option plan ("Plan"). If a Plan is ratified you will be issued IRS qualified
incentive stock purchase options for shares equal to two percent (2%) of the
Company's outstanding common stock at the time of the execution of this
Agreement, at an option price and subject to a vesting schedule to be determined
at the sole discretion of the Company and its Board of Directors, subject to the
limitations of any appropriate law, statute or rule, subject to any dilution
resulting from the issuance of shares to anyone subsequent to the execution date
of the Employment Agreement but prior to the option issuance and exercise, and
in compliance with and subject to any limitations set forth and agreed to
between the Company and any interested underwriter or investment banking
organization in association with a public or private offering of the Company's
securities.
Reporting: You shall report to the Company's Chief Operating officer unless
otherwise notified in writing of a change in the reporting structure by the
Company's Chief Executive Officer or the Company's Board of Directors.
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EXHIBIT B - TERRITORY
The State of Florida
<PAGE>
EXHIBIT 10.8
LEASE AGREEMENT
between
STILES WEST ASSOCIATES, LTD.
a Florida limited partnership
and
URSUS TELECOM CORPORATION,
a Florida corporation
Dated: April 19th, 1993
Suite: 112
Sawgrass Office Campus, Bldg. B
440 Sawgrass Parkway
Sunrise, Florida 33325
<PAGE>
SUMMARY OF LEASE
THIS DOCUMENT IS MERELY A SUMMARY AND ANY PROVISIONS OF THE LEASE AND OTHER
AGREEMENTS BETWEEN LANDLORD AND TENANT SHALL PREVAIL OVER CONFLICTING PROVISIONS
CONTAINED HEREIN.
(A) LANDLORD'S MAILING ADDRESS: 6400 North Andrews Avenue
Fort Lauderdale, Florida 33309
(B) TENANT'S NAME: Ursus Telecom Corporation
MAILING ADDRESS: 440 Sawgrass Parkway, Suite 112
Sunrise, Florida 33325
(C) DEMISED PREMISES: Suite 112 of Sawgrass
Office Campus, Bldg. B
440 Sawgrass Parkway
Sunrise, Florida 33325
RENTABLE SQUARE FOOTAGE: 2,158
(D) TERM: Five (5) years
(E) COMMENCEMENT DATE: May 1, 1993
OCCUPANCY DATE: same as above
EXPIRATION DATE: 60 months thereafter
(F) BASE RENT: $11.00 Per Square Foot (Year 1)
LEASE TERM ANNUAL RENT MONTHLY INSTALLMENT
(Year 1) (Year 1)
5 years $23,738.00 Base Rent $1,978.16
Additional Rent $ 960.31
Sales Tax $ 176.30
---------
TOTAL $3,114.77
(G) INTERIM OPERATING EXPENSES: $5.34 Per Square Foot
(1993 estimate)
(H) SECURITY/DAMAGE DEPOSIT: None
(I) PERMITTED USE: General Business Offices
(J) EXHIBITS: The following exhibits attached to this Lease are
hereby incorporated herein and made a part hereof.
EXHIBIT "A" - Floor Plan
EXHIBIT "B" - Legal Description
EXHIBIT "C" - Site Plan
EXHIBIT "D" - Estoppel Certificate
EXHIBIT "E" - Tenant Rules and Regulations
EXHIBIT "F" - Electrical Service Agreement
EXHIBIT "G" - Expansion Space
Please make all checks payable to: Stiles West Associates, Ltd.
c/o Stiles Property Management
Property Management
6400 North Andrews Avenue
Ft. Lauderdale, Florida 33309
PLEASE INCLUDE STILES WEST ASSOCIATES, LTD. AS AN ADDITIONAL INSURED ON ALL
INSURANCE POLICIES.
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter referred to as the "Lease") is made and
entered into the 19th day of April, 1993, by and between STILES WEST ASSOCIATES,
LTD. a Florida limited partnership (hereinafter referred to as "Landlord") and
URSUS TELECOM CORPORATION, a Florida corporation (hereinafter referred to as
"Tenant").
W I T N E S S E T H:
THAT LANDLORD, in consideration of the rents and agreements hereafter
promised and agreed by Tenant to be paid and performed, does hereby lease to
Tenant, and Tenant does hereby lease from Landlord, the real property described
herein, subject to the following terms.
ARTICLE I
DESCRIPTION OF PROPERTY; TERM
Section 1.1 Description of Property. Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord the following space: approximately 2,158
rentable square feet (hereinafter called the "Demised Premises" or "Premises")
approximately as shown on Exhibit "A" and made a part of this Lease, in the
building known as Sawgrass Office Campus, Building B, located at 440 Sawgrass
Parkway, Sunrise, Florida 33325 (hereinafter called the "Building"), as
described in Exhibit "B" and depicted on the site plan attached hereto as
Exhibit "C", together with the right to use in common with other tenants of the
Building, their invitees, customers and employees, all common facilities
contained inside or outside the Building and parking areas. All of the land and
real property underlying the Building or adjacent thereto, with all improvements
thereto including the Building, and used in connection with the operation of the
Building shall be referred to herein as the "Property".
Section 1.2 Term. Tenant shall have and hold the Premises for a term of
five (5) years (hereinafter referred to as the "Term" or "Lease Term"),
commencing on May 1, 1993 (the "Commencement Date") and expiring 60 months
thereafter (the "Expiration Date"). Such Commencement Date is predicated upon
the execution by Tenant of this Lease not later than April 5, 1993. For each day
after April 5, 1993 that the Lease is not executed by Tenant, there shall be a
corresponding one-day delay in the Commencement Date hereof. If the Term of this
Lease commences on any day of the month other than the first day, Rent from such
date to the end of such month shall be prorated according to the number of days
in such month and paid on a per diem basis, in advance, on or before the
Commencement Date. Tenant agrees that it will execute, prior to occupancy, an
Estoppel Certificate in the form attached hereto as Exhibit "D", certifying said
dates. Tenant's failure or refusal to execute said Estoppel Certificate shall
constitute a default hereunder.
ARTICLE II
BASE RENT
Section 2.2. Base Rent; Late Charge; Sales Tax. Commencing upon the
Commencement Date hereof as defined in Section 1.2 above, Tenant agrees to pay
Landlord an aggregate base rent for the first year of the Lease Term in the
amount of $23,738.00 (the "Base Rent"), payable in twelve (12) equal monthly
installments of $1,978.16 in advance of the first day of each and every month
during the first year of the Lease Term. The first six (6) month's Rent (as
defined below) and sales tax thereon shall be paid simultaneously with the
execution of this Lease. In addition, Tenant shall be responsible for the
payment of Additional Rent as provided in Article III below (the Base Rent and
Additional Rent shall sometimes be collectively referred to as the "Rent"). In
the event any monthly Rent payment is
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not paid within five (5) days after it is due, Tenant agrees to pay a late
charge of five (5%) percent of the amount of the payment due. Tenant further
agrees that the late charge imposed is fair and reasonable, complies with all
laws, regulations and statutes, and constitutes an agreement between Landlord
and Tenant as to the estimated compensation for costs and administrative
expenses incurred by Landlord due to the late payment of Rent to Landlord by
Tenant. Tenant further agrees that the late charge assessed pursuant to this
Lease is not interest, and the late charge assessed does not constitute a lender
or borrower/creditor relationship between Landlord and Tenant, and may be
treated by Landlord as Additional Rent owed by Tenant. Tenant shall pay to
Landlord all sales or use taxes pertaining to the Rent (currently 6%) which
shall be remitted by Landlord to the Florida Department of Revenue.
Section 2.2 Rental Adjustment. Commencing on the first (1st) anniversary
of the Lease, and each and every anniversary thereafter, the Base Rent shall
increase by three (3%) percent over the previous year's Base Rent.
Section 2.3 Payment Without Notice or Demand. Except as otherwise
specifically set forth in this Lease, the Rent called for in this Lease shall be
paid to Landlord without notice or demand, and without counterclaim, offset,
deduction, abatement, suspension, deferment, diminution or reduction. Tenant
hereby waives all rights now or hereafter conferred by statute or otherwise to
quit, terminate or surrender this Lease or the Premises or any part thereof, or
to any abatement, suspensions, deferment, diminution or reduction of the Rent on
account of any such circumstances or occurrence.
Section 2.4 Place of Payment. All payments of Rent shall be made and paid
by Tenant to Stiles West Associates, Ltd., c/o Stiles Property Management, 6400
North Andrews Avenue, Fort Lauderdale, Florida 33309, or at such other place as
Landlord may, from time to time, designate in writing to Tenant. All Rent shall
be payable in current legal tender of the United States, as the same is then by
law constituted. Any extension, indulgence, or waiver granted or permitted by
Landlord in the time, manner or mode of payment of Rent, upon any one (1)
occasion, shall not be construed as a continuing extension, indulgence or
waiver, and shall not preclude Landlord from demanding strict compliance
herewith.
ARTICLE III
ADDITIONAL RENT
Section 3.1 Additional Rent. In addition to the Base Rent, Tenant shall
pay as "Additional Rent" its proportionate share ("Tenant's Proportionate
Share") of the Operating Expenses (as herein defined) of the Building and the
Property. Additional Rent shall be paid to Landlord in accordance with the
following provisions:
1. Landlord shall furnish to Tenant prior to thirty (30) days after the
beginning of each calendar year, including the first calendar year, a budget
setting forth Landlord's estimate of Operating Expenses for the upcoming year.
The Operating Expenses shall be determined as though the Building were occupied
at the actual occupancy rate or at an occupancy rate of ninety five (95%)
percent, whichever is higher. Tenant shall pay to Landlord, on the first day of
each month as Additional Rent, an amount equal to one-twelfth (1/12th) of
Tenant's Proportionate Share of Landlord's estimate of the Operating Expenses
for that calendar year. If there shall be any increase or decrease in the
Operating Expenses for any year, whether during or after such year, Landlord
shall furnish to Tenant a revised budget and the Operating Expenses shall be
adjusted and paid or credited, as the case may be. If a calendar year ends after
the expiration or termination of this Lease, the Additional Rent payable
hereunder shall be prorated to correspond to that portion of the calendar year
occurring within the Term of this Lease.
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<PAGE>
2. Within 120 days after the end of each calendar year, Landlord shall
furnish to Tenant an operating statement showing the actual Operating Expenses
incurred for the preceding calendar year. Tenant shall either receive a refund
or be assessed an additional sum based upon the difference between Tenant's
Proportionate Share of the actual Operating Expenses and the Additional Rent
payments made by Tenant during said year. Any additional sum owed by Tenant to
Landlord shall be paid within ten (10) days of receipt of assessment. Any refund
owed by Landlord to Tenant shall be credited toward Tenant's next month's rental
payment. Each operating statement given by Landlord shall be conclusive and
binding upon Tenant unless, within thirty (30) days after Tenant's receipt
thereof, Tenant shall notify Landlord that it disputes the accuracy of said
operating statement, in which event Landlord shall cooperate with Tenant in
providing accounting records to substantiate such operating statement. Failure
of Landlord to submit the written statement referred to herein shall not waive
any rights of Landlord, unless such statement is not submitted within one year
from the end of the prior calendar year.
3. Landlord's "Operating Expenses", as calculated pursuant to Section
3.1.1 above, shall mean expenses relating to the operation and maintenance of
the Building and the Property, and all amenities and appurtenances relating
thereto, including, without limitation, the following:
(a) reasonable and customary wages and salaries of all persons engaged
in the maintenance and operation of the Building and Property at or
below the level of Property Manager;
(b) social security taxes and all other taxes which may be levied
against Landlord;
(c) medical and general benefits for all Building employees, pension
payments and other fringe benefits, at or below the level of
Property Manager;
(d) administrative expenses and charges;
(e) all insurance premiums;
(f) stand-by sprinkler charges, water charges and sewer charges;
(g) electricity and fuel used in the heating, ventilation,
air-conditioning, lighting and all other operations of the common
areas of the Building;
(h) trash removal;
(i) painting of all common areas in the Building and Property;
(j) window cleaning, janitorial services and related equipment and
supplies;
(k) maintenance and repair of the Building and Property;
(l) maintenance and service contracts;
(m) tools, equipment and supplies necessary for the performance of
repairs and maintenance (which are not required to be capitalized
for federal income tax purposes);
(n) maintenance and repair of all mechanical and electrical equipment in
the Building;
3
<PAGE>
(o) maintenance and repair of elevators, restrooms, lobbies, hallways
and other common areas of the Building;
(p) maintenance of pavement, curbs, walkways, lighting facilities,
landscaping, driveways, parking areas and drainage areas upon the
Property;
(q) personal property taxes, if any, only as they relate to property
located in the common areas of the Building;
(r) real estate taxes assessed against the Building and the Property.
The term "real estate taxes" shall mean any tax or assessment
levied, assessed or imposed at any time by any governmental
authority upon or against the Building or the Property or any part
thereof, any tax or assessment levied, or any franchise, or other
tax or governmental imposition levied, assessed or imposed against
or upon Landlord in substitution in whole or in part for any tax or
assessment against or upon the Building and the Property or any part
thereof;
(s) assessments for public improvements imposed against the Building and
the Property and assessments of the Association (defined below);
(t) a reasonable amortization cost due to any capital expenditures
incurred to reduce or limit Operating Expenses of the Property and
Building, to provide electronic security for the Building, or which
may now or hereafter be required by governmental authority or by
Landlord's insurance carrier;
(u) all other costs and expenses which would be considered as an expense
of maintaining, operating or repairing the Building and the
Property.
4. Included in Additional Rent is the full cost of Tenant's management
fee.
5. "Tenant's Proportionate Share" shall, at any given time, be defined as
that fraction having as a numerator the total rentable square footage leased
hereunder at said time, and having as a denominator the total rentable square
footage of Sawgrass Office Campus, Building B. Tenant's Proportionate Share, as
of the Commencement Date hereof is 8.64%.
6. The term "Declaration" shall mean that certain Declaration of
Covenants, Conditions and Restrictions for Sawgrass International Corporate
Park. Pursuant to the Declaration, a corporation not-for-profit, known as
Sawgrass Property Owners' Association, Inc. (the "Association") has been formed
to enforce the Declaration and to operate and maintain the Common Areas referred
to therein. Tenant agrees to pay Tenant's Proportionate Share of any and all
maintenance or other assessments imposed by the Association on Landlord as owner
of the Property, as provided in the Declaration.
Section 3.2 Interim Operating Expenses. During the period from the
Commencement Date through December 31, 1993, Tenant shall pay as Interim
Operating Expenses $5.34 per square foot per year, payable monthly as Additional
Rent, which is merely an estimate of the actual Interim Operating Expenses for
such period. Not later than 120 days after the end of the calendar year,
Landlord shall compute the actual Operating Expenses incurred during such
period. Tenant shall either receive a refund or be assessed an additional sum
based upon the difference between Tenant's Proportionate Share of the actual
Operating Expenses and the payments of Interim Operating Expenses made by Tenant
during such period. Any additional sum owed by Tenant to Landlord shall be paid
within ten (10) days of receipt of assessment. Any additional sum owed by
Landlord to Tenant shall be credited toward Tenant's next month's rental
payment.
4
<PAGE>
ARTICLE IV
SECURITY/DAMAGE DEPOSIT
Section 4.1 Security/Damage Deposit. Simultaneously with the execution of
this Lease, Tenant shall pay the sum of $-0- to be held by Landlord as a damage
deposit and/or as security for the performance by Tenant of all of the terms,
covenants and conditions hereof and the payment of Rent or any other sum due
Landlord hereunder. Landlord shall have the right to apply all or any part of
the security deposit against: (a) unreasonable wear and tear of the Premises;
(b) loss or damage to the Premises or other property of the Landlord caused by
Tenant, Tenant's employees, agents invitee, or licensees; (c) the cost of
restoring the Premises, except for reasonable wear and tear, to the same
condition it was in at the time Tenant began occupancy thereof; and (d) Rent
payments which remain due and owing beyond any applicable grace period. Landlord
shall not be limited in pursuing Landlord's remedies against Tenant for costs,
losses or damages to the Premises or to any other property of Landlord for any
such costs, losses or damages which are in excess of the above described
security deposit amount. Such security deposit shall bear no interest and may be
commingled with other security deposits or funds of Landlord.
ARTICLE V
USE OF PREMISES
Section 5.1 Use of Premises. Tenant shall use the Premises for business
offices engaged in telecommunications, and any other lawful ancillary uses
related thereto, and for no other purpose without first obtaining the written
consent of Landlord. Tenant will not use or permit the use of the Premises or
any part thereof for any unlawful purpose, or in violation of any and all
applicable ordinances, laws, rules or regulations of any governmental body, the
Association or of Landlord provided for in Exhibit "E" herein, and will not do
or permit any act which would constitute a public or private nuisance or waste
or which would be a nuisance or annoyance or cause damage to Landlord or
Landlord's other tenants or which would invalidate any policies of insurance or
increase the premiums thereof, now or hereafter written on the Building and/or
the Property.
ARTICLE VI
PARKING
Section 6.1 Parking. There shall be available at the Building one (1)
parking space for each 250 square feet of space leased by Tenant for the
nonexclusive use of Tenant.
ARTICLE VII
PREPARATION OF THE PREMISES
Section 7.1 Leasehold Improvements. Landlord, at Landlord's expense, shall
touch up the paint within the Premises where necessary, and provide a door for
the opening into the current display room from the reception area as depicted on
Exhibit "A" attached hereto. Otherwise, Tenant agrees to accept possession of
the Premises in its present "as is" condition. The facilities, materials and
work to be furnished, installed and performed in the Premises by Landlord, at
its expense, are hereinafter referred to as "Landlord's Work". Subject to
Section 7.3 below, Landlord represents that Landlord's Work will be
substantially completed no later than the Commencement Date hereof, as defined
in Section 1.2 above. Such other facilities, materials and work which may be
undertaken by or for the account and at the expense of Tenant to equip, decorate
and furnish the Premises for Tenant's occupancy are hereinafter referred to as
"Tenant's Work".
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Section 7.2 Completion by Landlord. The Premises shall be deemed ready for
occupancy on the date Landlord's Work is substantially completed and a
Certificate of Occupancy, if applicable, for the Premises is received. The same
shall be deemed substantially completed notwithstanding the fact that minor or
insubstantial details of construction, mechanical adjustment or decoration
remain to be performed, the non-completion of which does not materially
interfere with Tenant's use of the Premises.
Section 7.3 Delay by Tenant. If substantial completion of Landlord's Work
is delayed due to: (a) any act or omission of Tenant or any of its employees,
agents or contractors (including, but not limited to, (i) any delays due to
changes in or additions to Landlord's Work, or (ii) any delays by Tenant in the
submission of plans, drawings, specifications, or other information or in
approving any working drawings or estimates, or in giving any authorizations or
approvals); or (b) any additional time needed for the completion of Landlord's
Work by Tenant's inclusion in Landlord's Work of any special or unusual work,
then the Premises shall be deemed ready for occupancy on the date it would have
been ready, but for such delay, and Rent shall commence as of such earlier date.
Any changes to floor plans after execution of the Lease shall be subject to
Landlord's approval, and furthermore, Tenant shall pay for any extra costs that
may be incurred by Landlord which are caused by the changes so requested by
Tenant.
Section 7.4 Acceptance of Premises. Except as otherwise expressly set
forth herein, Tenant acknowledges that Landlord has not made any representations
or warranties with respect to the condition of the Premises and neither Landlord
nor any assignee of Landlord shall be liable for any latent defect therein. The
taking of possession of the Premises by Tenant shall be conclusive evidence that
the Premises were in good and satisfactory condition at the time such possession
was taken, except for the minor insubstantial details of which Tenant gives
Landlord notice within thirty (30) days after the Commencement Date. If Landlord
shall give Tenant permission to enter into possession of the Premises prior to
the Commencement Date, such possession or occupancy shall be deemed to be upon
all the terms, covenants, conditions, and provisions of this Lease, including
the execution of an estoppel certificate. Landlord represents that as of the
Commencement Date hereof, all systems serving the Premises are in good working
order.
ARTICLE VIII
LANDLORD AND TENANT OBLIGATIONS
Section 8.1 Tenant's Obligations. Landlord shall perform, at Tenant's
expense throughout the Lease Term, any repairs to the fixtures and appurtenances
within the Premises. Said expenses shall be reasonable, and are in addition to
the Operating Expenses set forth in Section 3.1 above. Tenant shall be
responsible for all repairs, the need for which arises out of: (a) the
performance or existence of Tenant's Work or alterations; (b) the installation,
use or operation of Tenant's Property (defined below) in the Premises; (c) the
moving of Tenant's Property in or out of the Building; (d) the act, omission,
misuse or neglect of Tenant or any of its subtenants, employees, agents,
contractors or invitees. Tenant shall also be responsible for the replacement of
all scratched, damaged or broken doors and glass in and about the Premises, the
maintenance and replacement of wall and floor coverings in the Premises, and for
the repair and maintenance of all sanitary and electrical fixtures therein. All
such repairs shall be performed at such times and in such a manner as shall
cause the least interference with Tenant's use of the Premises, the operation of
the central systems of the Building and the use of the Building by other
tenants.
Section 8.2 Landlord's Obligations. Landlord shall be obligated to keep
and maintain the common areas, including the roof, structure and exterior
portions of the Building, and the systems and
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facilities serving the Premises, in good working order and shall make all
repairs as and when needed in or about the common areas and the Premises, except
for those repairs for which Tenant is responsible pursuant to any of the
provisions of this Lease. Landlord shall not be liable for any damage to
Tenant's Property caused by (a) water from bursting or leaking pipes, or waste
water about the Property; (b) from an intentional or negligent act of any other
tenant or occupant of the Building or the Property; (c) fire, hurricane or other
acts of God; (d) riots or vandals; or (e) from any other cause not directly
attributable to the negligent or wrongful act of Landlord, its agents or
employees. Landlord shall not be required to furnish any services or facilities
to, or to make any repairs to or replacements or alterations of the Premises
where necessitated due to the fault of Tenant, its agents and employees, or
other tenants, their agents or employees.
Section 8.3 Floor Loads; Noise and Vibration. Tenant shall not place a
load upon any floor of the Premises which exceeds the load per square foot which
such floor was designed to carry or which is allowed by law. Business machines
and mechanical equipment belonging to Tenant which cause noise, electrical
interference or vibration that may be transmitted to the structure of the
Building or to the Premises to such a degree as to be objectionable to Landlord
or other tenants in the Building, shall, at Tenant's expense, be placed and
maintained by Tenant in settings of cork, rubber, or spring-type vibration
eliminators sufficient to eliminate such noise, electrical interference or
vibration.
Section 8.4 Electricity and Telephone. Tenant's use of electrical energy
in the Premises shall not, at any time, exceed the capacity of any of the
electrical conductors and equipment in or otherwise serving the Premises. In
order to ensure that such capacity is not exceeded and to avert possible adverse
effects upon the Building's electric service, Tenant shall not, without
Landlord's prior written consent in each instance, connect major equipment to
the Building's electric distribution system or telephone system, or make any
alteration or addition to the electric system of the Premises existing on the
Commencement Date. Tenant's electrical usage under this Lease contemplates only
the use of normal and customary office equipment. In the event Tenant wishes to
install any office equipment which uses substantial additional amounts of
electricity, then Tenant agrees that Landlord's consent is required before the
installation of such additional office equipment. Tenant shall be solely liable
for electricity and telephone expenses relating to the Premises. Tenant's
electrical service shall be separately metered, per Electrical Service Agreement
attached hereto as Exhibit F.
Section 8.5 Right to Stop Services. Landlord reserves the right, without
any liability to Tenant and without affecting Tenant's covenants and obligations
hereunder, to temporarily stop service of the heating, air conditioning,
electric, sanitary, or other Building systems serving the Premises, or to
temporarily stop any other services required by Landlord under this Lease,
whenever and for so long as may be necessary, by reason of accidents,
emergencies, strikes, or the making of repairs or changes which Landlord is
required to make pursuant to this Lease, by law or in good faith deems
necessary, and Landlord shall not be held liable for delays in the restoration
of such services resulting from difficulty in securing proper supplies of fuel,
steam, water, electricity, labor, supplies, or any other cause beyond Landlord's
reasonable control. Except in the case of an emergency, Landlord agrees to
provide Tenant with four (4) days notice prior to such stoppage of service(s).
In any event whereby Tenant elects, at its sole cost and expense, to utilize an
alternate means of power (i.e. emergency generator), Landlord agrees to
cooperate with Tenant in locating and installing such alternate means of power,
to enable Tenant to continue to operate.
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Section 8.6 Janitorial Services. Landlord shall cause the Premises,
including the exterior and interior of the windows thereof, to be cleaned in a
manner standard to the Building. Tenant shall pay to Landlord on demand, the
cost incurred by Landlord for: (a) extra cleaning work in the Premises required
because of (i) misuse or neglect on the part of Tenant or subtenants or its
employees or visitors; (ii) the use of portions of the Premises for purposes
requiring greater or more difficult cleaning work than normal office areas;
(iii) interior glass partitions or unusual quantity of interior glass surfaces,
and (iv) non-building standard materials or finishes installed by Tenant or at
its request; (b) removal from the Premises and the Building of any refuse and
rubbish of Tenant in excess of that ordinarily accumulated in business office
occupancy or at times other than Landlord's standard cleaning times; and (c) the
use of the Premises by Tenant other than during business hours on business days,
only to the extent that such additional cleaning is requested by Tenant.
ARTICLE IX
LANDLORD'S AND TENANT'S PROPERTY
Section 9.1 Landlord's Property. All fixtures, Landlord's equipment
relating to the operation or maintenance of the Building or Premises (i.e.
plumbing, electrical, HVAC), improvements and appurtenances attached to or built
into the Premises at the commencement of or during the Term of this Lease,
whether or not by or at the expense of Tenant, shall be and remain a part of the
Premises, and shall be deemed the property of Landlord ("Landlord's Property")
and shall not be removed by Tenant except as otherwise specifically set forth
herein. Further, any carpeting or other personal property in the Premises on the
Commencement Date, shall not be removed by Tenant.
Section 9.2 Tenant's Property. All moveable partitions, business and trade
fixtures, machinery and equipment, communications equipment and office
equipment, whether or not attached to or built into the Premises, which are
installed in the Premises by or for the account of Tenant without expense to
Landlord and which can be removed without structural damage to the Building, and
all furniture, furnishings and other articles of moveable personal property
owned by Tenant and located in the Premises (hereinafter collectively referred
to as "Tenant's Property") shall be and shall remain the property of Tenant and
may be removed by Tenant at any time during the Term of this Lease, provided
Tenant is not in default hereunder. In the event Tenant's Property is so
removed, Tenant shall repair or pay the cost of repairing any damage to the
Premises or to the Building resulting from the installation and/or removal
thereof and restore the Premises to the same physical condition and layout as
they existed at the time Tenant was given possession of the Premises.
Section 9.3 Removal of Tenant's Property. At or before the Expiration Date
of this Lease, or within five (5) days after any earlier termination hereof,
Tenant, at its expense, shall remove from the Premises all of Tenant's Property
(except such items thereof as Landlord shall have expressly permitted to remain,
which property shall become the property of Landlord), and Tenant shall repair
any damage to the Premises or the Building resulting from any installation
and/or removal of Tenant's Property, and shall restore the Premises to the same
physical condition and layout as they existed at the time Tenant was given
possession of the Premises, reasonable wear and tear excepted. Any other items
of Tenant's Property which shall remain in the Premises after the Expiration
Date of this Lease, or after a period of five (5) days following an earlier
termination date, may, at the option of Landlord, be deemed to have been
abandoned, and in such case, such items may be retained by Landlord. Landlord
may request Tenant to remove and pay to Landlord the cost of repairing any
damage to the Premises or the Building resulting from any installation and/or
removal of Tenant's Property and the coat of restoring the Premises to the same
physical
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condition and layout as they existed at the time Tenant was given possession of
the Premises, reasonable wear and tear excepted.
Section 9.4 Landlord's Lien and Security Interest. As security for the
performance of Tenant's obligations under this Lease, Tenant hereby grants to
Landlord a security interest in and Landlord's lien upon all of Tenant's
Property located in the Premises. Tenant hereby irrevocably appoints Landlord as
Tenant's attorney-in-fact and empowers Landlord to execute on Tenant's behalf a
UCC-l Financing Statement, renewals and terminations thereof, for the purpose of
perfecting Landlord's security interest. Notwithstanding the foregoing, however,
in the event tenant leases or finances equipment necessary for its business
operation, or Tenant's lender otherwise requires a lien on Tenant's equipment in
connection with a loan relating to Tenant's business, Landlord agrees to execute
a Landlord's Waiver of Lien.
ARTICLE X
INSURANCE
Section 10.1 Tenant's Insurance.
l. Tenant shall, during the Term of this Lease, maintain insurance against
public liability, including that from personal injury or property damage in or
about the Premises resulting from the occupation, use or operation of the
Premises, insuring both Landlord and Tenant, in amount of not less than One
Million ($1,000,000) Dollars Combined Single Limit for both bodily injury and
property damage.
2. Tenant shall maintain insurance upon all property in the Premises owned
by Tenant, or for which Tenant is legally liable, and shall provide Landlord
with evidence of same. The insurance specified herein shall provide protection
against perils included within the standard Florida form of fire and extended
coverage insurance policy, together with insurance against vandalism and
malicious mischief.
3. All policies of insurance provided for in Section 10.1 shall be issued
in a form acceptable to Landlord by insurance companies with general
policyholder's rating of "A" as rated in the most current available "Best's
Insurance Reports", and qualified to do business in Florida. Each and every such
policy:
(a) shall be issued in the name of Tenant and shall include Landlord and
any other parties in interest designated in writing by notice from
Landlord to Tenant as additional insureds;
(b) shall be for the mutual and joint benefit and protection of Landlord
and Tenant and any such other parties in interest named as additional
insureds;
(c) shall (or a certificate thereof shall) be delivered to Landlord and
any such other parties in interest within ten (10) days before delivery of
possession of the Premises to Tenant and thereafter, within thirty (30)
days prior to the expiration of each policy, and as often as any such
policy shall expire or terminate, renewal or additional policies shall be
procured and maintained in like manner and to like extent;
(d) shall contain a provision that the insurer will give to Landlord and
such other parties in interest at least thirty (30) days notice in writing
in advance of any cancellation, termination or lapse, or the effective
date of any reduction in the amount of insurance;
(e) shall be written as a primary policy which does not contribute to and
is not in excess of coverage which Landlord may carry; and
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(f) shall contain a provision that Landlord and any such other parties in
interest, although named as an insured, shall nevertheless be entitled to
recover under said policies for any loss occasioned to it, its servants,
agents and employees by reason of the negligence of Tenant.
4. Any insurance provided for in Section 10.1 may be maintained by means
of a policy or policies of blanket insurance, provided, however, that: (i)
Landlord and any other parties in interest from time to time designated by
Landlord to Tenant shall be named as additional insureds thereunder as their
interests may appear; (ii) the coverage afforded Landlord and any such other
parties in interest will not be reduced or diminished by reason of the use of
such blanket policy of insurance; and (iii) the requirements set forth in this
ARTICLE X are otherwise satisfied.
5. These insurance requirements are subject to modification in the event
any Superior Mortgagee (hereafter defined) of Landlord requires different
insurance. In such event, the reasonable requirements of such Superior Mortgagee
shall control.
Section l0.1(a) Landlord's Insurance. Landlord represents that it has in
effect during the Term hereof, sufficient insurance covering the Building and
the Property, and agrees to provide Tenant evidence of same upon Tenant's
request.
Section 10.2 Destruction of the Premises or Building. If, during the Term
hereof, the Premises and/or the Building are damaged by reason of fire or other
casualty to the extent the Premises are rendered untenantable, Tenant shall give
immediate notice thereof to Landlord. Subject to the prior rights of any
Superior Mortgagee, Landlord shall restore the Premises and/or the Building to
substantially the same condition they were in immediately before said
destruction. Landlord agrees to promptly commence such repair work and to
diligently proceed to restore the Premises. If the restoration can be
accomplished within 120 working days after the date Landlord receives notice of
the destruction, such destruction shall not serve to terminate this Lease.
However, in the event such repair and restoration is not complete within 120
days, Landlord agrees to provide Tenant with Substitute Premises (as defined in
Section 24.1 below. If such Substitute Premises is not available or is
unacceptable to Tenant, either party may terminate this Lease as of the date of
destruction. If Landlord reasonably determines that the restoration cannot
reasonably be anticipated to be performed within the time stated in this
Section, then within 30 days of such destruction, Landlord shall notify Tenant
in writing and either party may terminate this Lease. If Tenant fails to
terminate this Lease and restoration is permitted under existing laws, Landlord,
at its election, may restore the Premises and/or the Building, within a
reasonable period of time, and this Lease shall continue in full force and
effect. Rent shall be abated during the period in which the Premises (or portion
thereof on a prorated basis) are rendered untenantable as a result of such
damage, unless said damage was caused by the negligence or intentional wrongful
act of Tenant or its employees, agents or invitees. Should Landlord elect to
terminate this Lease, the entire insurance proceeds shall be and remain the
outright property of Landlord, subject to the prior rights of any Superior
Mortgagee, and except any proceeds received for Tenant's Property.
ARTICLE XI
ALTERATIONS AND MECHANIC'S LIENS
Section 11.1 Alterations by Tenant. No alterations shall be made by Tenant
unless the following conditions are met:
(a) Tenant shall have received the prior written consent of Landlord,
which consent shall not be unreasonably withheld;
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(b) all such alterations or improvements shall be performed by Landlord at
Tenant's expense, or by a contractor approved by Landlord;
(c) Tenant shall have procured all permits, licenses and other
authorizations required for the lawful and proper undertaking thereof;
(d) all alterations when completed shall be of such a nature as not to (i)
reduce or otherwise adversely affect the value of the Premises; (ii)
diminish the general utility or change the general character thereof;
(iii) result in an increase of the Operating Expenses, or (iv) adversely
affect the mechanical, electrical, plumbing, security or other such
systems of the Building or the Premises;
(e) all alterations made by Tenant shall remain on and be surrendered with
the Premises on expiration or earlier termination of this Lease, except
that Landlord can elect, within thirty (30) days before expiration or
earlier termination of the Lease, to require Tenant to remove any and all
alterations Tenant has made to the Premises;
Section 11.2 Construction Liens. Tenant agrees that it will make full and
prompt payment of all sums necessary to pay for the cost of repairs,
alterations, improvements, changes or other work done by Tenant to the Premises
and further agrees to indemnify and hold harmless Landlord from and against any
and all such costs and liabilities incurred by Tenant, and against any and all
construction liens arising out of or from such work or the cost thereof which
may be asserted, claimed or charged against the Premises or the Building or site
on which it is located. Notwithstanding anything to the contrary in this Lease,
the interest of Landlord in the Premises shall not be subject to liens for
improvements made by or for Tenant, whether or not the same shall be made or
done in accordance with any agreement between Landlord and Tenant, and it is
specifically understood and agreed that in no event shall Landlord or the
interest of Landlord in the Premises be liable for or subjected to any
construction liens for improvements or work made by or for Tenant; and this
Lease specifically prohibits the subjecting of Landlord's interest in the
Premises to any construction liens for improvements made by Tenant or for which
Tenant is responsible for payment under the terms of this Lease. All persons
dealing with Tenant are hereby placed upon notice of this provision. In the
event any notice or claim of lien shall be asserted of record against the
interest of Landlord in the Premises or Building or the site on which it is
located on account of or growing out of any improvement or work done by or for
Tenant, or any person claiming by, through or under Tenant, for improvements or
work the cost of which is the responsibility of Tenant, Tenant agrees to have
such notice of claim of lien cancelled and discharged of record as a claim
against the interest of Landlord in the Premises, the Building or the Property
(either by payment or bond as permitted by law), within ten (10) days after
notice to Tenant by Landlord, and in the event Tenant shall fail to do so,
Tenant shall be considered in default under this Lease.
ARTICLE XII
ASSIGNMENT AND SUBLETTING
Section 12.1 Tenant's Transfer.
(a) Tenant shall not voluntarily assign or encumber its interest in this
Lease or in the Premises, or sublease all or any part of the Premises, or allow
any other person or entity (except Tenant's authorized representatives) to
occupy or use all or any part of the Premises, without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld.
Any assignment, encumbrance or sublease without Landlord's written consent shall
be voidable and, at Landlord's election, shall constitute a default
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hereunder. No consent to any assignment, encumbrance, or sublease shall
constitute a further waiver of the provisions of this Section. Notwithstanding
the foregoing, however, Tenant may assign this Lease or sublease the Premises to
any entity which is an affiliate of Tenant or to an entity which purchases all
or substantially all of Tenant's assets.
(b) If Tenant is a partnership, a withdrawal or change, voluntary,
involuntary, or by operation of law, of any partner/or partners owning 50% or
more of the partnership, or the dissolution of the partnership, shall be deemed
a voluntary assignment.
(c) If Tenant is a corporation, any dissolution, merger, consolidation or
other reorganization of Tenant, or the sale or transfer of a controlling
percentage of the capital stock of Tenant, or the sale of 51% of the total
combined voting power of all classes of Tenant's capital stock issued,
outstanding, and entitled to vote for the election of directors, shall be deemed
a voluntary assignment.
(d) Landlord may consent to the sublease of all or any part of the
Premises provided Tenant and the sublessee enter into a sublease incorporating
the same terms and conditions as contained herein (exclusive of rent), and
Landlord shall be entitled to receive the total amount of any increased Rent,
including sales tax, paid by a sublessee or assignee.
(e) Any assignment agreed to by Landlord shall be evidenced by a validly
executed Assignment and Assumption of Lease Agreement. Any attempted transfer,
assignment, subletting, mortgaging or encumbering of this Lease in violation of
this Section shall be void and confer no rights upon any third person. Such
attempt shall constitute a material breach of this Lease and entitle Landlord to
the remedies provided for default.
(f) If, without such prior written consent, this Lease is transferred or
assigned by Tenant, or if the Premises, or any part thereof, are sublet or
occupied by anybody other then Tenant, whether as a result of any act or
omission by Tenant, or by operation of law or otherwise, Landlord may, in
addition to and not in diminution of, or substitution for, any other rights and
remedies under this Lease, or pursuant to law to which Landlord may be entitled
as a result thereof, collect Rent directly from the transferee, assignee,
subtenant or occupant and apply the net amount collected to the Rent herein
reserved.
Section 12.2 Tenant's Liability. Notwithstanding any assignment or
sublease, and notwithstanding the acceptance of Rent by Landlord from any such
assignee or sublessee, unless Landlord exercises its right set forth in Section
12.3 below, Tenant shall continue to remain liable for the payment of Rent
hereunder and for the performance of all of the agreements, conditions,
covenants and terms herein contained.
Section 12.3 Landlord's Right of Cancellation. Notwithstanding anything
contained herein to the contrary, should Tenant desire to assign the Lease or
sublease the Premises, Landlord shall have the right, but not the obligation, to
cancel and terminate the Lease and deal with Tenant's prospective assignee or
sublessee directly and without any obligation to Tenant. The foregoing shall not
apply to an assignment or sublease as permitted pursuant to the last sentence of
Section 12.1(a).
Section 12.4 Landlord's Transfer. Landlord shall have the right to sell,
mortgage, or otherwise encumber or dispose of Landlord's interest in the
Premises, the Building, the Property and this Lease.
Section 12.5 Minimum Rental Requirement. Except as permitted pursuant to
the last sentence of Section 12.1, Tenant may not, under
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any circumstances, assign this Lease or sublet the Premises or any part thereof
until at least ninety (90%) percent of the rentable space in the Building has
been leased by Landlord.
ARTICLE XIII
OBLIGATIONS
Section 13.1 Obligations of Tenant. Tenant shall, during the Term of this
Lease, at its sole cost and expense, comply with all valid laws, ordinances,
regulations, orders and requirements of any governmental authority which may now
or hereafter be applicable to the Premises or to its use, whether or not the
same shall interfere with the use or occupancy of the Premises, arising from (a)
Tenant's use of the Premises; (b) the manner or conduct of Tenant's business or
operation of its installations, equipment or other property therein; (c) any
cause or condition created by or at the instance of Tenant; or (d) breach of any
of Tenant's obligations hereunder; and Tenant shall pay all of the costs,
expenses, fines, penalties and damages which may be imposed upon Landlord by
reason or arising out of Tenant's failure to fully and promptly comply with and
observe the provisions of this Section. Tenant shall give prompt notice to
Landlord of any notice it receives of the violation of any law or requirement of
any public authority with respect to the Premises or the use or occupation
thereof.
Section 13.2 Rules and Regulations. Tenant shall also comply with all
rules and regulations now existing (see Exhibit "E"), or as may be subsequently
applied by Landlord to all tenants of the Building.
ARTICLE XIV
RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
Section 14.1 Payment or Performance. Landlord shall have the right, upon
ten (10) days prior written notice to Tenant (or without notice in case of
emergency or in order to avoid any fine, penalty, or cost which may otherwise be
imposed or incurred), following the expiration of any applicable cure period, to
make any payment or perform any act required of Tenant under any provision in
this Lease, and in exercising such right, to incur necessary and incidental
costs and expenses, including reasonable attorney's fees. Nothing herein shall
imply any obligation on the part of Landlord to make any payment or perform any
act required of Tenant, and the exercise of the right to do so shall not
constitute a release of any obligation or a waiver of any default.
Section 14.2 Reimbursement. All payments made and all reasonable costs and
expenses incurred in connection with Landlord's exercise of the right set forth
in Section 14.1, shall be reimbursed by Tenant within ten (10) days after
receipt of a bill setting forth the amounts so expended, together with interest
at the annual rate of 18% from the respective dates of the making of such
payments or the incurring of such costs and expenses. Any such payments, costs
and expenses made or incurred by Landlord may be treated as Additional Rent owed
by Tenant.
ARTICLE XV
NON-LIABILITY AND INDEMNIFICATION
Section 15.1 Non-Liability of Landlord. Neither Landlord, nor any
beneficiary, joint venture partner, agent, servant, or employee of Landlord, nor
any Superior Mortgagee (as defined in Article XX below), shall be liable to
Tenant for any loss, injury,
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or damage to Tenant or to any other person, or to its property, unless caused by
or resulting from the negligence or intentional wrongful act of Landlord, its
agents, servants or employees, in the operation or maintenance of the Premises
or the Building, subject to the doctrine of comparative negligence in the event
of contributory negligence on the part of Tenant or any of its subtenants,
licensees, employees, agents or contractors. Tenant recognizes that any Superior
Mortgagee will not be liable to Tenant for injury, damage or loss caused by or
resulting from the negligence of Landlord. Further, unless caused by the
intentional negligence or willful misconduct of Landlord, its agents, servants
or employees, neither Landlord, nor any Superior Mortgagee, nor any joint
venture partner, director, officer, agent, servant, or employee of Landlord
shall be liable (a) for any such damage caused by other tenants or persons in,
upon or about the Building, or caused by operations in construction of any
private, public or quasi-public work; or (b) for incidental or consequential
damages or lost profits arising out of any loss of use of the Premises, or any
equipment or facilities therein, by Tenant or any person claiming through or
under Tenant.
Section 15.2 Indemnification by Tenant. Tenant hereby agrees to indemnify
Landlord and hold it harmless from and against all claims, actions, damages,
liability, and expenses which may arise in connection with bodily injury, loss
of life, and/or damage to property arising from or out of any occurrence in,
upon, or at the Demised Premises, or the occupancy or use by Tenant of the
Demised Premises or any part thereof, or occasioned totally or in part by any
negligent act or omission of Tenant, its agents, contractors, employees,
servants, or subtenants unless such damage is due to the negligent act or
omission of Landlord, its agents or employees. In case Landlord shall, without
fault on its part or that of its agents, servants or employees, be made a party
to any litigation commenced by or against Tenant in connection with the Demised
Premises, Tenant hereby agrees to hold Landlord harmless and pay all costs,
expenses, and reasonable attorney's fees and costs incurred by Landlord in
connection with such litigation. Tenant also agrees to pay all costs, expenses,
and reasonable attorney's fees which may be incurred by Landlord in enforcing
the obligations of Tenant under this Lease. To the maximum extent permitted by
law, Tenant agrees to use and occupy the Demised Premises at Tenant's own risk.
Section 15.3 Independent Obligations; Force Majeure. The obligations of
Tenant hereunder shall not be affected, impaired or excused, nor shall Landlord
have any liability whatsoever to Tenant, because (a) Landlord is unable to
fulfill, or is delayed in fulfilling, any of its obligations under this Lease by
reason of strike, other labor trouble, governmental pre-emption of priorities or
other controls in connection with a national or other public emergency or
shortages of fuel, supplies, labor or materials, acts of God or any other cause,
whether similar or dissimilar, beyond Landlord's reasonable control; or (b) of
any failure or defect in the supply, quantity or character of electricity or
water furnished to the Premises, by reason of any requirement, act or omission
of the public utility or others serving the Building with electric energy,
steam, oil, gas or water, or for any other reason whether similar or dissimilar,
beyond Landlord's reasonable control. Tenant shall not hold Landlord liable for
any latent defect in the Premises or the Building nor shall Landlord be liable
for injury or damage to person or property caused by fire, theft, or resulting
from the operation of elevators, heating or air conditioning or lighting
apparatus, or from falling plaster, or from steam, gas, electricity, water,
rain, or dampness, which may leak or flow from any part of the Building, or from
the pipes, appliances or plumbing work of the same.
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ARTICLE XVI
DEFAULT
Section 16.1 Events of Default. Tenant shall be in default under this
Lease if any one or more of the following events shall occur:
(a) Tenant shall fail to pay any installment of the Rent and/or any
expanses called for hereunder as and when the same shall become due and
payable, and such default shall continue for a period of five (5) days
after Tenant's receipt of Landlord's written notification; or
(b) Tenant shall default in the performance of or compliance with any of
the other terms or provisions of this Lease, and such default shall
continue for a period of thirty (30) days after the giving of written
notice thereof from Landlord to Tenant, or, in the case of any such
default which cannot, with bona fide due diligence, be cured within said
thirty (30) days, Tenant shall fail to proceed within said thirty (30) day
period to cure such default and thereafter to prosecute the curing of same
with all due diligence (it being intended that as to a default not
susceptible of being cured with due diligence within such period of thirty
(30) days, the time within which such default may be cured shall be
extended for such period as may be necessary to permit the same to be
cured with due diligence); or
(c) Tenant shall assign, transfer, mortgage or encumber this Lease or
sublet the Premises in a manner not permitted by ARTICLE XII; or
(d) Tenant shall file a voluntary petition in bankruptcy or any Order for
Relief be entered against it, or shall file any petition or answer seeking
any arrangement, reorganization, composition, re-adjustment or similar
relief under any present or future bankruptcy or other applicable law, or
shall seek or consent to or acquiesce in the appointment of any trustee,
receiver, or liquidator of Tenant of all or any substantial part of
Tenant's properties; or
(e) If any creditor of Tenant shall file a petition in bankruptcy against
Tenant or for reorganization of Tenant, under state or federal law, and if
such petition is not discharged within ninety (90) days after the date on
which it is filed;
then, and in any such event, or during the continuance thereof (subject to the
time period described in subparagraph (e) above), Landlord may, at its option,
by written notice to Tenant, designate a date not less than five (5) days from
the giving of such notice on which this Lease shall end, and thereupon, on such
date, this Lease and all rights of Tenant hereunder shall terminate.
Section 16.2 Surrender of Premises. Upon any such termination of this
Lease, Tenant shall surrender the Premises to Landlord, and Landlord, at any
time after such termination, may, without further notice, re-enter and repossess
the Premises without being liable to any prosecution or damages therefore, and
no person claiming through or under Tenant or by virtue of any statute or of any
order of any court shall be entitled to possession of the Premises.
Section 16.3 Reletting. At any time or from time to time after any such
termination of this Lease, Landlord may relet the Premises or any part thereof,
in the name of Landlord or otherwise, for such term or terms and on such
conditions as Landlord, in its sole discretion, may determine, and may collect
and receive the rents therefore. Landlord shall in no way be responsible or
liable for any
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failure to relet the Premises or any part thereof or for any failure to collect
any rent due upon any such reletting.
Section 16.4 Survival of Obligations. No termination, pursuant to this
ARTICLE XVI, shall relieve Tenant of its liability and obligations under this
Lease, and such liability and obligations shall survive any such termination.
Section 16.5 Holdover. Should Tenant hold over and remain in possession of
the Premises at the expiration of any Term hereby created, Tenant shall, by
virtue of this Section, become a Tenant at sufferance and shall pay Landlord
twice the Rent per month of the last monthly installment of Rent above provided
to be paid. Said tenancy at sufferance shall be subject to all the conditions
and covenants of this Lease as though the same had been a tenancy at sufferance
instead of a tenancy as provided herein, and Tenant shall give to Landlord at
least thirty (30) days prior written notice of any intention to vacate the
Premises, and shall be entitled to ten (10) days prior notice of any intention
of Landlord to evict Tenant from the Premises in the event Landlord desires
possession of the Premises; provided, however, that said Tenant at sufferance
shall not be entitled to ten (10) days notice in the event the said Rent is not
paid in advance without demand, the ten (10) days written notice otherwise
required being hereby expressly waived.
ARTICLE XVII
DAMAGES/REMEDIES
Section 17.1 Damages. In the event this Lease is terminated under the
provisions or any provisions of law by reason of default hereunder on the part
of Tenant, Tenant shall pay to Landlord, as damages, at the election of
Landlord, either:
(a) The present value of the entire amount of the Rent which would have
become due and payable during the remainder of the Term of this Lease, in which
event Tenant agrees to pay the same at once, together with all Rent theretofore
due, at Landlord's address as provided herein; provided, however, that such
payment shall not constitute a penalty or forfeiture or liquidated damages, but
shall merely constitute payment in advance of the Rent for the remainder of the
said Term. Such present value shall be determined utilizing a discount rate of
six percent (6%). The acceptance of such payment by Landlord shall not
constitute a waiver of any failure of Tenant thereafter occurring to comply with
any term, provision, condition or covenant of this Lease. If Landlord elects the
remedy given in this section 17.1(a), then same shall be Landlord's sole remedy
for such default; or
(b) Sums equal to the Rent which would have been payable by Tenant had
this Lease not been so terminated, payable upon the due dates therefor following
such termination through the Expiration Date of this Lease.
If Landlord, at its option shall relet the Premises during said period,
Landlord shall credit Tenant with the net rents received by Landlord from such
reletting, such net rents to be determined by first deducting from the gross
rents, as and when received by Landlord, the expenses incurred or paid by
Landlord in terminating this Lease and in securing possession thereof, as well
as the expenses of reletting, including, without limitation, the alteration and
preparation of the Premises for new tenants, brokers' commissions, attorneys'
fees and all other expenses properly chargeable against the Premises and the
rental therefrom. It is hereby understood that any such reletting may be for a
period shorter or longer than the remaining Term of this Lease but in no event
shall Tenant be entitled to receive any excess of such net rents over the sum
payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in any
suit for the collection of damages pursuant
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hereto to a credit in respect of any net rents from a reletting, except to the
extent that such rents are actually received by Landlord.
Notwithstanding anything contained in this Article XVII to the contrary,
in the event Landlord elects option (a) above, Tenant's liability for the
payment of accelerated Rent shall be limited to an amount equal to one (1)
year's Base Rent, Additional Rent and Sales Tax thereon at the rental rate which
would have otherwise been applicable, as well as any past due Rents, and
Landlord shall thereafter be free to relet the Premises to a third party tenant
with no obligation to Tenant for the payment of any rents received from such
reletting.
Section 17.2 Remedies. Lawsuits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the Term of this Lease would have expired, nor
limit or preclude recovery by Landlord against Tenant of any sums or damages
which, in addition to the damages particularly provided above, Landlord may
lawfully be entitled by reason of any default hereunder on the part of Tenant.
All remedies of Landlord provided for herein, or otherwise at law or in equity,
shall be cumulative and concurrent.
ARTICLE XVIII
EMINENT DOMAIN
Section 18.1 Taking. If the whole of the Building or the Premises or if
more than 20% of the Building or the Property shall be taken by condemnation or
in any other manner for any public or quasi-public use or purpose, which
materially affects Tenant's use and occupancy of the Premises, this Lease shall
terminate as of the date of vesting of title as a result of such taking, and the
Base Rent and Additional Rent shall be prorated and adjusted as of such date.
Section 18.2 Award. Landlord shall be entitled to receive the entire award
or payment in connection with any taking without deduction therefrom, except to
the extent that Tenant shall be entitled to compensation based upon damages
sustained to Tenant's Property. Tenant shall not be precluded from taking its
own action against the condemning authority.
Section 18.3 Temporary Taking. If the temporary use or occupancy of all or
any part of the Premises shall be taken by condemnation or in any other manner
for any public or quasi-public use or purpose during the Term of this Lease,
Tenant shall be entitled, except as hereinafter set forth, to receive that
portion of the award or payment for such taking which represents compensation
for the use and occupancy of the Premises, for the taking of Tenant's Property
and for moving expenses, and Landlord shall be entitled to receive that portion
which represents reimbursement for the cost of restoration of the Premises. This
Lease shall be and remain unaffected by such taking and Tenant shall continue to
pay the Rent in full when due. If the period of temporary use or occupancy shall
extend beyond the Expiration Date of this Lease, that part of the award which
represents compensation for the use and occupancy of the Premises (or a part
thereof) shall be divided between Landlord and Tenant so that Tenant shall
receive so much thereof as represents the period up to and including such
Expiration Date and Landlord shall receive so much as represents the period
after such Expiration Date. All monies received by Landlord as, or as part of,
an award for temporary use and occupancy for a period beyond the date through
which the Rent has been paid by Tenant, shall be held and applied by Landlord as
a credit against the Rent becoming due hereunder.
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Section 18.4 Partial Taking. In the event of any taking of less than the
whole of the Premises, the Building and/or the Property, which does not result
in termination of this Lease: (a) subject to the prior rights of a Superior
Mortgagee, Landlord, at its expense, shall proceed with reasonable diligence to
repair the remaining parts of the Building and the Premises (other than those
parts of the Premises which are Tenant's Property) to substantially their former
condition to the extent that the same is feasible (subject to reasonable changes
which Landlord shall deem desirable), so as to constitute a complete and
tenantable Building and Premises; and (b) Tenant, at its expense, shall proceed
with reasonable diligence to repair the remaining parts of the Premises which
are deemed Tenant's Property pursuant hereto, to substantially their former
condition to the extent feasible, subject to reasonable changes which Tenant
shall deem desirable. Such work by Tenant shall be deemed alterations as
described in Section 11.1 hereinabove. In the event of any partial taking,
Tenant shall be entitled to a reduction in Rent for the remainder of the Lease
Term following such partial taking based upon the percentage of space taken
relative to the original Premises leased.
ARTICLE XIX
QUIET ENJOYMENT
Section 19.1 Quiet Enjoyment. Landlord agrees that Tenant, upon paying all
Rent and all other charges herein provided for and observing and keeping the
covenants, agreements, terms and conditions of this Lease and the rules and
regulations of Landlord affecting the Premises on its part to be performed,
shall lawfully and quietly hold, occupy and enjoy the Premises during the Term
of this Lease.
ARTICLE XX
NON-DISTURBANCE, SUBORDINATION AND ATTORNMENT
Section 20.1 Non-Disturbance. So long as Tenant is not in default under
the terms and conditions of this Lease, Tenant's possession and occupancy of the
Premises and Tenant's rights and privileges under this Lease shall not be
diminished or transferred by any mortgagee or purchaser. This particular
provision shall be binding upon any assigns or successors in interest to
Landlord. Notwithstanding the subordination and attornment of this Lease to any
superior mortgage which presently exists or which may hereafter be made, or to
any renewal, modification, replacement or extension hereafter of any superior
lease or any superior mortgage, the holder of such superior mortgage or lease,
by separate recordable agreement, shall agree that as long as this Lease in
effect, that Tenant shall not be evicted from the Premises without cause. The
Lease and Tenant's occupancy shall not be adversely affected by any default,
disaffirments, or other termination of any superior lease or mortgage where the
transfer of the Property in which these Premises are located. Said
Non-Disturbance Agreement shall also include attornment provisions satisfactory
to superior mortgagees.
Section 20.2 Subordination. This Lease, and all rights of Tenant
hereunder, are and shall be subordinate to any mortgage or other encumbrance,
whether now of record or recorded after the date of this Lease, affecting the
Premises, the Building or the Property. Notwithstanding that such subordination
is self-operative without any further act of Tenant, Tenant shall, from time to
time, within ten (10) days of request from Landlord, execute and deliver any
documents or instruments that may be required by a Superior Mortgagee to confirm
such subordination. Any mortgage to which this Lease is subject and subordinate
is hereinafter referred to as a "Superior Mortgage", and the holder of a
Superior Mortgage is hereinafter referred to as a "Superior Mortgagee".
Section 20.3 Notice to Landlord and Superior Mortgagee. If any act or
omission of Landlord would give Tenant the right,
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immediately or after the lapse of a period of time, to cancel this Lease or to
claim a partial or total eviction, Tenant shall not exercise such right (a)
until it has given written notice of such act or omission to Landlord and any
Superior Mortgagee whose name and address shall previously have been furnished
to Tenant; and (b) until a reasonable period of time for remedying such act or
omission shall have elapsed following the giving of such notice and following
the time when such Superior Mortgagee shall have become entitled under such
Superior Mortgage to remedy the same.
Section 20.4 Attornment. If any Superior Mortgagee shall succeed to the
rights of Landlord hereunder, whether through possession or foreclosure action
or delivery of a new lease or deed, then, at the request of such Superior
Mortgagee, Tenant shall attorn to and recognize such Superior Mortgagee as
Tenant's Landlord under this Lease, and shall promptly execute and deliver any
instrument such Superior Mortgagee may reasonably request to evidence such
attornment. Upon such attornment, this Lease shall continue in full force and
effect as a direct Lease between such Superior Mortgagee and Tenant, upon all
terms, conditions, and covenants as set forth in this Lease, except that the
Superior Mortgagee shall not: (a) be liable for any previous act or omission of
Landlord under this Lease; (b) be subject to any offset, not expressly provided
for in this Lease; or (c) be bound by any previous modification of this Lease or
by any previous prepayment, unless such modification or prepayment shall have
been previously approved in writing by such Superior Mortgagee. Further, upon
such attornment, Landlord shall be released from any future obligations
hereunder.
ARTICLE XXI
LANDLORD'S RIGHT OF ACCESS
Section 21.1 Access for Maintenance and Repair. Except for the space
within the inside surfaces of all walls, hung ceilings, floors, windows, and
doors bounding the Premises, all of the Building including, without limitation,
exterior walls, core interior walls and doors and any core corridor entrance,
any terraces or roofs adjacent to the Premises, and any space in or adjacent to
the Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts,
electric or other utilities, sinks, or other facilities of the Building, and the
use thereof, as well as access thereto throughout the Premises for the purposes
of operation, maintenance, decoration and repair, are reserved to Landlord.
Landlord reserves the right, and Tenant shall permit Landlord, to install,
erect, use and maintain pipes, ducts and conduits in and through the Premises.
Landlord shall be allowed to take all materials into and upon the Premises that
may be required in connection therewith, without any liability to Tenant and
without any reduction of Tenant's covenants and obligations hereunder, provided
Landlord shall not unreasonably interfere with Tenant's use or occupancy of the
Premises. Landlord and its agents shall have the right to enter upon the
Premises for the purpose of making any repairs therein or thereto which shall be
considered necessary or desirable by Landlord, in such a manner as not to
unreasonably interfere with Tenant in the conduct of Tenant's business on the
Premises; and in addition, Landlord and its agents shall have the right to enter
the Premises at any time in cases of emergency.
Section 21.2 Access for Inspection and Showing. Upon reasonable notice to
Tenant and during normal business hours, Landlord and its agents shall have the
right to enter and/or pass through the Premises to examine the Premises and to
show them to actual and prospective purchasers, mortgagees or lessors of the
Building. During the period of six (6) months prior to the Expiration Date of
this Lease, Landlord and its agents may exhibit the Premises to prospective
tenants.
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Section 21.3 Landlord's Alterations and Improvements. If, at any time, any
windows of the Premises are temporarily darkened or obstructed by reason of any
repairs, improvements, maintenance and/or cleaning in or about the Building, or
if any part of the Building, other than the Premises, is temporarily closed or
inoperable, the same shall be without liability to Landlord and without any
reduction or diminution of Tenant's obligations under this Lease, provided
Landlord does not unreasonably interfere with Tenant's use or occupancy of the
Premises. Landlord reserves the right to make such changes, alterations,
additions, and improvements in or to the Building and the fixtures and equipment
thereof, as well as in or to the street entrances, doors, halls, passages,
elevators, escalators and stairways thereof, and other public portions of the
Building, as Landlord shall deem necessary or desirable, and no such alterations
or changes shall be deemed a breach of Landlord's covenant of quiet enjoyment or
a constructive eviction, provided Landlord does not unreasonably interfere with
Tenant's use or occupancy of the Premises.
ARTICLE XXII
SIGNS AND OBSTRUCTIONS
Section 22.l Signs. Tenant shall not place or suffer to be placed or
maintained upon any exterior door, roof, wall or window of the Premises or the
Building, any sign, awning, canopy or advertising matter of any kind, and will
not place or maintain any decoration, lettering or advertising matter on the
glass of any window or door of the Premises except as approved by Landlord, and
will not place or maintain any freestanding standard within or upon the Common
Area of the Building or immediately adjacent thereto, without first obtaining
Landlord's express prior written consent. No exterior or interior sign visible
from the exterior of the Building shall be permitted. Tenant further agrees to
maintain any such signage approved by Landlord in good condition and repair at
all times and to remove the same at the end of the Term of this Lease if
requested by Landlord. Upon removal thereof, Tenant agrees to repair any damage
to the Premises caused by such installation and/or removal.
Section 22.2 Obstructions. Tenant shall not obstruct the sidewalks,
parking lots or other public portions of the Building or the Property in any
manner whatsoever.
ARTICLE XXIII
NOTICES
Section 23.1 Notices. Any notice or other information required or
authorized by this Lease to be given by either party to the other may be given
by hand or sent (by certified mail, return receipt requested with all postage
prepaid, telex, cable, facsimile transmission or comparable means of
communication) to the other party at the address stated below. Any notice or
other information given by mail pursuant to this Section which is not returned
to the sender as undelivered shall be deemed to have been given on the fifth
(5th) day after the envelope containing any such notice or information was
properly addressed, pre-paid, registered and mailed. The fact that the envelope
has not been so returned to the sender shall be sufficient evidence that such
notice or information has been duly given. Any notice or other information sent
by telex, cable, facsimile transmission or comparable means of communication
shall be deemed to have been duly sent on the date of transmission, provided
that a confirming copy thereof is sent by first class pre-paid mail to the other
party, at the address stated below, within twenty-four (24) hours after
transmission.
AS TO LANDLORD: STILES WEST ASSOCIATES, LTD.
c/o Stiles Property Management
6400 North Andrews Avenue
Fort Lauderdale, Florida 33309
Fax No. (305) 771-0416
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AS TO TENANT: URSUS TELECOM CORPORATION
440 Sawgrass Parkway, Suite 112
Sunrise, Florida 33325
Attn: Luca Giussani
Fax No. _____________________
The above addresses may be changed at any time by giving thirty (30) days
prior written notice as above provided. In addition to the foregoing, any
notices of a legal nature shall be copied to:
Stiles Corporation
6400 N. Andrews Avenue
Fort Lauderdale, Florida 33309
Attn: Legal Department
Fax No. (305) 771-0416
and to: Arnold O. Shevin, Esquire
Stroock, Stroock & Lavan
200 S. Biscayne Blvd., Suite 3300
Miami, Florida 33131
Fax No. ______________________
ARTICLE XXIV
MISCELLANEOUS
Section 24.1 Substitute Premises. At any time during the Term of this
Lease, Landlord shall have the right to request in writing that Tenant move to
substitute premises situated within the Building ("Substitute Premises"). The
Substitute Premises shall contain the same approximate square footage, shall
contain similar decor as the Premises and shall provide the same fiber optic
technical abilities as the Premises. Except for the change in designation of
Premises, all provisions of this Lease shall remain the same. Landlord shall pay
the cost of relocating Tenant and its technical equipment, the reasonable cost
of reprinting Tenant's stationery, and all costs of preparing and decorating,
the Substitute Premises. Tenant shall have thirty (30) days from the date of
Landlord's request to accept the Substitute Premises. If Tenant refuses to
accept the Substitute Premises or fails to reply to Landlord's request within
the time stated, or no Substitute Premises is available, either party may, at
its option, terminate this Lease upon thirty (30) days written notice to the
other party. If Tenant accepts the Substitute Premises, Tenant shall have four
(4) months from the date of landlord's request, to relocate to the Substitute
Premises. Landlord represents that such relocation will be accomplished in a
manner that will result in Tenant having no interruption of the service it
provides to its customers and any expenses incident to same shall be borne by
Landlord.
Section 24.2 Environmental Indemnity. Tenant agrees to indemnify and hold
Landlord harmless from and against any and all loss, claim, liability, damages,
injuries to person, property, or natural resources, cost, expense, action or
cause of action, arising in connection with the release or presence of any
"Hazardous Substances" at the Premises, through the acts of Tenant, its
employees, agents or invitees acting with Tenant's authority, whether
foreseeable or unforeseeable, regardless of the source of such release and when
such release occurred or such presence is discovered. The foregoing indemnity
includes, without limitation, all costs in law or in equity of removal,
remediation of any kind, and disposal of such Hazardous Substances, all costs of
determining whether the Premises is in compliance and to cause the Premises to
be in compliance with all applicable environmental laws, all costs associated
with claims for damages to persons, property, or natural resources, and
Landlord's reasonable attorneys' and consultants' fees and court costs. This
indemnity shall survive the expiration or earlier termination of this Lease. For
the purposes of definition,
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Hazardous Substances means any toxic or hazardous wastes, pollutants or
substances, including, without limitation, asbestos, PBCs, petroleum products
and by-products, substances defined or listed as "hazardous substances" or
"toxic substances" or similarly identified in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9061 et seq., hazardous materials identified in or pursuant to
the Hazardous Materials Transportation Act 49 U.S.C. Section 1802 et seq.
Section 24.3 Radon Gas. Pursuant to Florida Statutes, Section 404.056[8],
the following disclosure is required by law: Radon is a naturally occurring
radioactive gas that, when it has accumulated in a building in sufficient
quantities, may present health risks to persons who are exposed to it over time.
Levels of radon that exceed federal and state guidelines have been found in
buildings in Florida. Additional information regarding radon and radon testing
may be obtained from your county public health unit.
Section 24.4 Broker Commission. Landlord and Tenant covenant, warrant and
represent that Stiles Realty Co. (hereinafter "Broker") was instrumental in
bringing about and/or consummating this Lease. Further, neither Landlord nor
Tenant have had any conversations or negotiations with any broker except Broker
concerning the leasing of the Premises. Both parties agree to indemnify the
other against and from any claims for any brokerage commissions (except those
payable to Broker) and all costs, expenses and liabilities in connection
therewith, including, without limitation, reasonable attorneys' fees and
expenses for any breach of the foregoing. This indemnity shall survive the
expiration or earlier termination of this Lease. Landlord shall pay all
brokerage commissions due Broker in accordance with a separate agreement between
Landlord and Broker.
Section 24.5 Financial Statements. Throughout the Term of this Lease,
Tenant shall provide Landlord, at the request of Landlord, its most current and
complete financial statement including, but not limited to, its balance sheet
and profit and loss statement.
Section 24.6 Estoppel Certificates. Each party agrees, at any time and
from time to time as requested by the other party, to execute and deliver to the
other a statement certifying that this Lease is unmodified and in full force and
effect (or if there have been modifications, that the same is in full force and
effect as modified and stating the modifications), certifying the dates to which
the Base Rent and Additional Rent have been paid, stating whether or not the
other party is in default in performance of any of its obligations under this
Lease, and, if so, specifying each such default, and stating whether or not any
event has occurred which, with the giving of notice or passage of time, or both,
would constitute such a default, and, if so, specifying each such event. Each
party shall also include in any such statements such other information
concerning this Lease as the other party may reasonably request. In the event
either party fails to comply with this Section, such failure shall constitute a
material breach of the Lease. If Tenant fails to execute the initial Estoppel
Certificate, Rent shall continue to accrue, but Landlord shall be under no
obligation to deliver possession of the Premises.
Section 24.7 No Recordation. This Lease shall not be recorded by Tenant in
the Public Records of Broward County, Florida, or in any other place. Any
attempted recordation by Tenant shall render this Lease null and void and
entitle Landlord to the remedies provided for Tenant's default. However, at the
request of Landlord, Tenant shall promptly execute, acknowledge and deliver to
Landlord a Memorandum of Lease with respect to this Lease, and a Memorandum of
Modification of Lease with respect to any modification of this Lease, sufficient
for recording. Such Memorandum shall not be deemed to change or otherwise affect
any of the obligations or provisions of this Lease.
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Section 24.8 Governing Law. This Lease shall be governed by and construed
in accordance with the laws of the State of Florida. If any provision of this
Lease or the application thereof to any person or circumstance shall, for any
reason and to any extent, be invalid or unenforceable, the remainder of this
Lease shall remain in full force and effect. The table of contents, captions,
headings and titles in this Lease are solely for convenience of reference and
shall not affect its interpretation. This Lease shall be construed without
regard to any presumption or other rule requiring construction against the party
causing this Lease to be drafted. Each covenant, agreement, obligation, or other
provision of this Lease on either party's part to be performed, shall be deemed
and construed as a separate and independent covenant of either party, not
dependent on any other provision of this Lease. All terms and words used in this
Lease, regardless of the number or gender in which they are used, shall be
deemed to include any other number and any other gender, as the context may
require.
Section 24.9 Relationship of Parties. Nothing contained in this Lease will
be deemed or construed to create a partnership or joint venture between Landlord
and Tenant, or to create any other relationship between the parties other than
that of Landlord and Tenant.
Section 24.10 Capacity to Execute Lease. If Tenant is other than a natural
person, tenant represents that it is legally constituted, in good standing and
authorized to conduct business in the State of Florida. Tenant further
represents that the person who is executing this Lease on its behalf has the
full power and authority to perform such execution and deliver the Lease to
Landlord, and that upon such execution and delivery, the Lease shall be valid
and binding upon Tenant in accordance with its respective terms and conditions.
To further evidence the foregoing, upon request by Landlord, Tenant shall
deliver to Landlord an appropriate corporate or partnership resolution
specifying that the signator to the Lease has been duly authorized to execute
same on behalf of Tenant.
Section 24.11 Exculpation of Landlord. Landlord's obligations and
liability to Tenant with respect to this Lease shall be limited solely to
Landlord's interest in the Property, and neither Landlord nor any of the
partners of Landlord, nor any officer, director, or shareholder of Landlord,
shall have any personal liability whatsoever with respect to this Lease.
Section 24.12 Waiver of Trial by Jury. It is mutually agreed by and
between Landlord and Tenant that the respective parties hereto shall, and they
hereby do, waive trial by jury in any action, proceeding or counterclaim brought
by either of the parties against the other on any matter arising out of or in
any way connected with this Lease, the relationship of Landlord and Tenant or
Tenant's use or occupancy of the Premises.
Section 24.13 Attorneys's Fees. In connection with any litigation arising
out of this lease, the prevailing party shall be entitled to recover its costs
and reasonable attorneys' fees through and including appellate litigation and
any post judgment proceedings.
Section 24.14 Expansion Area. Tenant agrees that, upon the availability of
Suite 110, which Landlord represents will be no later than April 30, 1994, that
it will lease Suite 110 within the Building consisting of approximately 1,214
rentable square feet (hereinafter referred to as the "Expansion Area") as
depicted on Exhibit "G" attached hereto and made a part hereof. The Rent for the
Expansion Area shall be the Rent then in effect for the Demised Premises. Said
Expansion Area shall be leased upon the same terms and conditions contained
herein and shall be co-terminous with the Demised Premises. At the time of
expansion Landlord shall, at Landlord's expense, create an opening for adequate
passage between the Premises and the Expansion Area. Otherwise, tenant agrees to
accept possession of the
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Expansion area in its as-is condition. Landlord shall provide Tenant with not
less then thirty (30) days prior written notice of the availability of Suite
110.
Section 24.15 Option to Terminate. Landlord hereby grants to Tenant the
option to terminate this Lease in the event that Tenant relocates to another
Stiles-owned building or purchases Stiles-owned buildings or land within the
Park.
Section 24.16 Option to Renew. Provided Tenant has not defaulted under any
of the terms or conditions hereof, Landlord grants to Tenant the option to renew
this Lease (the "Renewal Option") for one additional term of three years upon
the same terms and conditions as contained herein including the Base Rent
Adjustment referenced in Section 2.2 above. Tenant shall exercise this Renewal
Option by providing Landlord with not less than ninety (90) days notice prior to
the expiration of the Term hereof. This Renewal Option shall inure only to
Tenant and shall not to that of any subtenant or assignee of Tenant.
Section 24.17 Landlord's Representation. Landlord hereby represents that
it is the owner of the Premises being leased hereunder, and that Terry W. Stiles
has the full power and authority to execute this Lease on its behalf.
Section 24.18 Installation of Security System. Notwithstanding anything
contained to the contrary herein or in the Rules and Regulations attached hereto
as Exhibit "E", Landlord grants Tenant permission to install a security system
at the Premises, the installation and maintenance of which shall be at Tenant's
sole cost and expense. Tenant agrees to provide Landlord's Property Manager with
the security code or key to the system, which Landlord represents will be kept
in safekeeping and used only in the case of an emergency. Upon expiration or
earlier termination of this Lease, Tenant agrees, upon Landlord's request, to
remove the system and repair any damage caused by its installation.
Section 24.19 Entire Agreement. This Lease constitutes the entire
understanding between the parties and shall bind the parties hereto, their
successors and assigns. No representations, except as herein expressly set
forth, have been made by either party to the other, and this Lease cannot be
amended or modified except by a writing signed by Landlord and Tenant.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written.
"LANDLORD"
Signed, sealed and delivered Stiles West Associates, Ltd.,
in the presence of: a Florida limited partnership
By: Glades Associates, Ltd.,
a Florida limited
partnership, its General
Partner
/s/ Karen Sherman By: Glades Park, Inc., a
- ---------------------------- Florida corporation,
General Partner
/s/ J. Nassina By: /s/ Terry W. Stiles
- ---------------------------- ----------------------------
Terry W. Stiles
its President
"TENANT"
/s/ [ILLEGIBLE] Ursus Telecom Corporation,
- ---------------------------- a Florida corporation
/s/ [ILLEGIBLE] BY: /s/ [ILLEGIBLE]
- ---------------------------- ----------------------------
[ILLEGIBLE], PRESIDENT
----------------------------
Print Name & Title
24
<PAGE>
EXHIBIT "A"
FLOOR PLAN
[GRAPHIC OMITTED]
Landlord's Work: Touch up paint where necessary
provide door for opening between
display area and reception area
<PAGE>
EXHIBIT "3"
=========================
LEGAL DESCRIPTION
=========================
LAND DESCRIPTION
SAWGRASS LOTS 10, 11 AND 12
A portion of Parcel 1, MARINA WEST PARCEL A, according to the plot thereof, as
recorded in Plot book 121, Page 17 of the Public Records of Broward County,
Florida, more particularly described as follows:
BEGINNING at the Northeast corner of said Parcel 1:
THENCE along the East line of said Parcel 1 and the Westerly Right-of-Way line
of Northwest 136th Avenue, as shown on said plot of MARINA WEST PARCEL A, and
amended by Resolution recorded in Official Records Book 1427B, Page 801, and by
Special Warranty Deed recorded in Official Records Book 14244, Page 533, all in
the Public Records of Broward County, Florida, the following eight (8) courses
and distances:
1. South 00(degrees) 04' 35" East, 191.91 feet;
2. North 89(degrees) 35' 25" East, 12.00 feet;
3. South 05(degrees) 45' 90" West, 100.72 feet;
4. South 00(degrees) 04' 35" East, 119.03 feet;
5. North 89(degrees) [Illegible] 25" East, 12.00 feet;
6. South [Illegible] East 27.97 feet;
7. South 06(degrees) 45' 59" West, 100.72 feet;
8. South 00(degrees) 04' 35" East, 190.55 feet to an intersection with
the Northerly Right-of-Way line of Sawgrass Corporate Parkway;
THENCE along said Northerly and Easterly Right-of-Way lines of Sawgrass
Corporate Parkway, the following four (4) courses and distances:
1. South 44(degrees) 55' 25" West, 49.90 feet;
2. South 89(degrees) 55' 25' West, 307.86 feet to the beginning of a
tangent curve concave to the Northeast;
3. Northwesterly along the arc of said curve, having a radius of 382.26
feet, a delta of [Illegible] an arc distance of 564.00 feet to a
Point of Tangency;
4. North 05(degrees) 14' 23" West, 75.94 feet on an intersection with
the Southerly Right-of-Way line of Northwest 5th Street;
THENCE along said Southerly and Easterly Right-of-Way lines of Northwest
5th Street, the following four (4) courses and distances:
1. North 39(degrees) 45' 37" East, 42.43 feet;
2. North 84(degrees) 47' 37" East, 189. 87 feet to the beginning of a
tangent curve concave to the Northwest;
3. Northeasterly along the arc of said curve, having a radius of 246.04
feet, a delta of 84(degrees) 58' 28",an arc distance of 364.90 feet
to a Point of Tangency;
4. North [ILLEGIBLE] West, 45.04 feet to a point on the North
line of said Parcel 1 and the South line of Parcel 2, MARINA
WEST PARCEL B, according to the plot thereof as recorded in Plot
Book 137, page 29, of the Public Records of Broward County, Florida:
THENCE North 89(degrees) 47' 09' East, along said North line and South line,
290.34 feet to the POINT OF BEGINNING:
Said lands lying in the City of Sunrise, Broward County, Florida, containing
407784 square feet (9.361 acres).
<PAGE>
EXHIBIT "C"
SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT "D"
ESTOPPEL CERTIFICATE
RE: Premises: ______________________________
Suite No: _____
LEASE DATED: ____________
BETWEEN ____________________________________, (Landlord) and
____________________________________ (Tenant)
1. The Lease is presently in full force and effect and is unmodified except
as indicated at the end of this Certificate.
2. Tenant took possession of the Premises on ________________.
3. The Term of the Lease commences on _______________, and expires on
________________.
4. Tenant has accepted possession of the Premises and all improvements
required by the terms of the Lease to be made by Landlord have been
completed to the satisfaction of Tenant.
5. No Rent under the Lease has been paid more than 180 days in advance of its
due date.
6. To the best of Tenant's knowledge, Landlord has not defaulted in its
obligations under the Lease to Tenant.
7. Tenant, as of this date, has no charge, lien, cause of action, claim or
right of offset against Landlord under the Lease or otherwise, against
rents or other charges due or to become due under the Lease.
8. There are no oral agreements between the parties to this Lease or relating
to this Lease and there have been no oral representations made by either
party which are being relied upon by either party except as indicated at
the end of this certificate. The purpose of this statement is to make
clear that the entire agreement between the parties has been reduced to
writing.
9. Tenant is leasing ________ rentable square feet in the Building.
10. The present Base Rent is $_____ per square foot, per year.
11. Tenant's security deposit is $________ and has been paid in full and is
presently held by Landlord.
__________________________
BY: __________________________
<PAGE>
EXHIBIT "E"
TENANT RULES & REGULATIONS
1. PARKING
Tenants and occupants of the building shall have access to the parking
area through common driveways. The parking areas are non-exclusive and
available to all Tenants and their employees, licensees, and guests, other
than reserved spaces. Landlord may, at any time during the term by notice
to Tenant, designate for Tenants' use other reasonable parking spaces on
the land, provided the number of parking spaces is not reduced, by mutual
agreement. No commercial or recreational vehicles shall be parked on the
premises except those vehicles parked on a short-time temporary basis
while delivering, repairing or servicing the Building and/or its Tenants.
2. SIGNAGE
Tenant shall not affix any device, sign or other fixture to the outside of
the building or any window, door, or hallway without the written consent
of the Landlord, in each and every case.
It is hereby understood that the Premises herein leased are part of an
office building consisting of professional suites, and it is understood
that there shall be uniformity as to appearance of all signage relating to
this Building. Signage shall consist of the following:
A. A site sign designed by Landlord and maintained by Landlord shall
contain the name of the Center.
B. All signage for the building will be of the same look and family size
and letter style. No advertising type signs shall be allowed. The Landlord
reserves the right, however, to attach such signs to the Premises as are
necessary for leasing and marketing purposes.
C. Landlord shall cause to be placed a sign directly adjacent to each
Tenants' entrance. Each sign shall be of a standard size and background
color that will conform to the overall concept of the Center. At the
Tenant's expense, the Landlord shall provide the Tenant with a sign face,
identifying the Tenant and his line of work. Such sign faces shall conform
to the artwork as approved by both Landlord and Tenant.
3. No curtains, draperies, blinds, shades, screens or other covering shall be
attached to or hung or used in connection with any window or door of the
demised Premises without the prior written consent of the Landlord, in
each and every case. Curtains, draperies, blinds, shades, screens or other
covering must be of a quality type design and color approved by Landlord.
Further, all draperies, shades, screens, or other covers shall have a
neutral color of fabric facing exterior window views.
No awnings or other projections shall be attached to the outside walls of
the Building. Tenant shall not place anything or allow anything to be
placed near the glass of any window, door, partition, or wall which may
appear unsightly from inside or outside of the Premises.
4. The parking areas, sidewalks, entrances, passages, courts, stairways,
corridors, and halls shall not be obstructed or encumbered by any Tenant,
unless a Tenant is specifically granted such right in his Lease, nor used
for any purpose other than ingress or egress to and from the Premises.
<PAGE>
5. In the event Tenant must dispose of crates, boxes, etc. which will not fit
into office wastepaper baskets, it will be the responsibility of Tenant to
dispose of same. In no event shall Tenant set such items in the public
hallways or other areas of the building or parking areas, excepting
Tenant's own premises for disposal.
6. The water and wash closets and other plumbing fixtures shall not be used
for any purposes other than those for which they were constructed and no
sweepings, rubbish, rags, or other substances shall be placed therein. All
damages resulting from any misuse of the fixtures shall be borne by the
Tenant who, or whose servants, employees, agents, visitors, or licensees
shall have caused the same.
7. No Tenant shall mark, paint, drill into, or in any way deface any part of
the Premises or the building of which they form a part. No boring,
cutting, or stringing of wires shall be permitted, except with the prior
written consent of the Landlord and as it may direct, in each and every
case.
8. No bicycles, vehicles, or animals of any kind shall be brought into or
kept in or about the Premises. No Tenant shall cause or permit any unusual
or objectionable odors to be produced upon or permeate from the Premises.
9. No Tenant shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring
buildings or premises or those having business with them, whether by the
use of any musical instrument, radio, talking machine, musical noise,
whistling, singing, or in any other way. No Tenant shall throw anything
out of the doors, windows, or skylights, or down the passageways.
10. Each Tenant, upon occupancy of its space, will be issued two (2) keys to
the leased space. No additional locks or bolts of any kind shall be placed
upon any of the doors or windows by any Tenant, nor shall any changes be
made in existing locks or the mechanism thereof. Each Tenant must, upon
the termination of his tenancy, return to the Landlord all keys of offices
and toilet rooms, either furnished to, or otherwise procured by, such
Tenant, and in the event of the need for additional keys, or the loss of
any keys so furnished, such Tenant shall pay to the Landlord the cost
thereof, as determined, from time to time, by the Landlord.
11. All removals, or the carrying in or out of any safes, freight, furniture
or bulky matter of any description must take place during the normal
business hours which the Landlord or its agent may determine from time to
time. The Landlord reserves the right to prescribe the weight and position
of all safes, which must be placed upon 2 inch thick plank strips to
distribute the weight. The moving of safes or other fixtures or bulky
matter of any kind must be made after previous notice to and approval of
the Manager of the building. Any damage done to the Building or to the
Tenants or to other persons in bringing in or removing safes, furniture or
other bulky or heavy articles shall be paid for by the Tenant.
12. Canvassing, soliciting and peddling in the Building is prohibited and each
Tenant shall cooperate to prevent the same.
13. The Landlord may retain a pass key to the Leased Premises, and allowed
admittance thereto at all times to enable the representatives to examine
the said Premises.
<PAGE>
14. The Landlord reserves the right to make such other and further reasonable
rules and regulations as in its judgment may from time to time be needed
for the safety, care and cleanliness of the Premises, and for the
preservation of good order therein, and any such other or further rules
and regulations shall be binding upon the parties hereto with the same
force and effect as if they had been inserted herein at the time of the
execution hereof.
15. No Tenant, nor any of the Tenant's servants, employees, agents, visitors,
or licensees, shall at any time bring or keep upon the Premises any
inflammable, combustible, or explosive fluid, chemical or substance.
16. Landlord will not be responsible for any lost or stolen personal property,
equipment, money or jewelry from Tenant's Premises or public rooms
regardless of whether such loss occurs when the area is locked against
entry or not.
17. Landlord shall not permit the preparation of food for consumption on the
Premises nor use the facilities for the preparation of food without
written consent, in each and every case. Tenant shall not use the Premises
for housing, lodging, sleeping nor any immoral or illegal purposes.
18. Tenant and its employees, and visitors are not permitted to smoke or
consume food or beverages in the common area.
19. Tenant shall not operate, or permit to be operated, any mechanical
machinery, steam engine, boiler, or stove without Landlord's written
consent, in each and every case; Tenant will not allow the use of oil,
burning fluids, kerosene, gasoline or other fuels within the Premises.
20. No article deemed as extra hazardous on account of fire or explosion shall
be brought into the Premises.
21. No loitering or littering.
22. It is understood and agreed that Landlord has the undisputed right to
temporarily discontinue water, electric, air conditioning, elevator, or
any other service necessary for the proper maintenance, repair or
improvement of the Building.
23. In the event of any inconsistency between the Lease with Tenant and the
rules and regulations herein, the terms of the Lease shall control.
<PAGE>
TENANT RECEIPT
Receipt is hereby acknowledged by the Landlord from Ursus Telecom
Corporation of $18,688.62 representing Base Rent, Additional Rent and
Sales Tax thereon for the first six (6) months of the Lease Term for Suite
112 within Sawgrass Office Campus, Building B.
Stiles Property Management Co.
By: /s/ Karen Sherman
--------------------------------
<PAGE>
EXHIBIT "F"
ELECTRICAL SERVICE AGREEMENT
PREMISES: Suite: 112
Address: 440 Sawgrass Parkway
Sunrise, Florida 33325
LEASE DATED: ____________________________
BETWEEN: Stiles West Associates, Ltd.
and
Ursus Telecom Corporation
1. Tenant's electrical service is separately metered.
2. Tenant is responsible for initiating and terminating electrical
service.
3. Tenant's security deposit will be applied to any unpaid electric
utility bills, if applicable.
<PAGE>
EXHIBIT "G"
EXPANSION PREMISES
(cross-hatched)
[GRAPHIC OMITTED]
SPECULATIVE OFFICE SUITE
SAWGRASS CAMPUS CONCEPT BLD. 'B' 1ST FL
SAWGRASS INTERNATIONAL CORP. PARK
SUNRISE, FLORIDA
AMENDMENT TO LEASE AGREEMENT
THIS AMENDMENT TO LEASE AGREEMENT (this " Amendment") dated as of this
______ day of _____________, 1993 amending that certain Lease Agreement dated
April 5, 1993, and any and all Letters of Agreement, Addenda, Amendments or
Extensions thereof (collectively, the "Lease" ) by and between Stiles West
Associates, Ltd. ("Landlord") and Ursus Telecom Corporation ("Tenant").
W I T N E S S E T H:
WHERSAS, Landlord and Tenant entered into the Lease relating to office
space known as Suite 112 consisting of 2,158 rentable square feet ( the
"Premises") within that certain real property known as Sawgrass Office Campus,
Building B located at 440 Sawgrass Corporate Parkway, Suite 206 Sunrise, Florida
(the "Building"); and
WHERESAS, Pursuant to Section 24.14 of the Lease, Tenant desires to lease
and additional 1,214 rentable square feet within the Building; and
WHEREAS, the parties wish to modify the terms of said Lease as hereinafter
set forth.
NOW, THEREFORE, for and in consideration of the terms, covenants and
conditions hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant
agree as follows:
1. Expansion Premises. In addition to the Premises, effective May 1, 1993,
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
and additional 1,214 rentable square feet within the Building, more
commonly known as Suite 110, as depicted on Exhibit "A" attached hereto
(the "Expansion Premises").
2. Expansion Premises Term. Tenant shall have and hold the Expansion Premises
for a term of five (5) years commencing May 1, 1993 and expiring April 30,
1998 (the "Expansion Premises Term").
3. Expansion Premises Rent. Tenant agrees to pay Landlord Base Rent for the
first year of the Expansion Premises Term in the amount of $13, 354.00
payable in twelve (12) equal monthly installments of $1,112.83 due on or
before the first day of each month of the Expansion Premises Term, which
Base Rent shall be adjusted in accordance with Section 2.2 of the Lease.
In addition to the Base Rent, Tenant shall pay Additional Rent and sales
tax for the Expansion Premises pursuant to the terms and conditions of the
Lease.
4. Completion of Expansion Premises. Prior to May 1, 1993, Landlord shall, at
Landlord's expense, create and opening for adequate passage between the
Premises and the Expansion Premises.
5. Additional Rent. For purposes of calculating Tenant's Additional Rent
pursuant to ARTICLE III of the Lease, Tenant's Proportionate Share of the
Building is hereby increased to 13.5%.
1
<PAGE>
All other terms and conditions of the Lease not specifically amended hereby are
in full force and effect and binding upon the parties thereto. Any provision of
this Amendment shall prevail over conflicting provisions contained in the Lease.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
"LANDLORD"
Signed, sealed and delivered Stiles West Associates, Ltd.,
in the presence of : a Florida limited partnership
By: Glades Associates, Ltd.,
a Florida limited
partnership, its General
Partner
By: Glades Park, Inc., a
Florida corporation,
General Partner
/s/ [ILLEGIBLE]
- ------------------------
By: /s/ Terry W. Stiles
- ------------------------ ------------------------
Terry W. Stiles,
its President
"TENANT"
[ILLEGIBLE] Ursus Telecom Corporation
- ------------------------- a Florida corporation
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- ------------------------- ------------------------
[ILLEGIBLE]
-------------------------
Print Name & Title
2
<PAGE>
EXHIBIT "A"
EXPANSION PREMISES
(cross-hatched)
[GRAPHIC OMITTED]
SPECULATIVE OFFICE SUITE
SAWGRASS CAMPUS CONCEPT BLD 'B' 1ST FL
SAWGRASS INTERNATIONAL CORP. PARK
SUNRISE, FLORIDA
<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT (this "Second Amendment") dated
as of this 10 day of November, 1995 amending that certain Lease Agreement
dated April 5, 1993, Amendment to Lease Agreement dated April 30, 1993, and any
and all Letters of Agreement, Addenda, Amendments or Extensions thereof
(collectively, the "Lease") by and between Camtech Associates as
successor-in-interest to Stiles West Associates, Ltd. ("Landlord") and Ursus
Telecom Corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into Lease relating to office space
known as Suite 112 consisting of 2,158 rentable square feet (the "Premises")
within that certain real property known as Sawgrass Office Campus, Building B
located at 440 Sawgrass Corporate Parkway, Suite 206 Sunrise, Florida (the
"Building"); and
WHEREAS, Pursuant to the Amendment to Lease Agreement dated April 30,
1993, Tenant leased and additional 1,214 rentable square feet for a total of
3,372 rentable square feet (the "Premises"); and
WHEREAS, Tenant now desires to lease an additional 1,700 rentable square
feet within the Building; and
WHEREAS, the parties wish to modify the terms of said Lease as hereinafter
set forth.
NOW, THEREFORE, for and in consideration of the terms, covenants and
conditions hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant
agree as follows:
1. Expansion Premises. In addition to the Premises, effective November 15,
1995, Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord an additional 1,700 rentable square feet within the Building,
more commonly known as Suite 102, as depicted on Exhibit "A" attached
hereto (the "Expansion Premises").
2. Expansion Premises Term. Tenant shall have and hold the Expansion Premises
for a term of twenty nine and one-half months commencing November 15,
1995 and expiring April 30, 1998 which expiration is coterminous with
the Expiration Date relative to the Premises (the "Expansion Premises
Term").
3. Expansion Premises Rent. Tenant agrees to pay Landlord Base Rent for the
Expansion Premises during the first year of the Expansion Premises Term
at the rate of $12.50 per rentable square foot, payable monthly on or
before the first day of each month of the first year of the Expansion
Premises Term. In addition to the Base Rent, Tenant shall pay Additional
Rent and sales tax for the Expansion Premises pursuant to the terms and
conditions of the Lease.
4. Base Rent Adjustment. Commencing on the first anniversary of the Expansion
Premises Term (or on the first day of the month within which the
anniversary date falls, if the anniversary date falls on a day other than
the first day of the month) and each and every anniversary thereafter, the
Base Rent for the Expansion Premises shall increase by three (3%) percent
over the previous year's Base Rent for the Expansion Premises, including
any renewal terms.
5. Condition of Premises. Tenant agrees to accept possession of the Expansion
Premises in its present "as is" condition and acknowledges that Landlord
has no obligation to construct any improvements to the Expansion Premises.
1
<PAGE>
6. Tenant's Proportionate Share. For purposes of calculating Tenant's
Additional Rent pursuant to ARTICLE III of the Lease, Tenant's
Proportionate Share of the Building is hereby increased to 20.3%.
7. Parking. The number of non-exclusive parking spaces made available for
use by Tenant shall be increased in accordance with the ratio set forth in
Section 6.1 of the Lease.
All other terms and conditions of the Lease not specifically amended hereby are
in full force and effect and binding upon the parties thereto. Any provision of
this Second Amendment shall prevail over conflicting provisions contained in the
Lease.
In WITNESS WHEREOF, the parties have executed this Second Amendment as of
the day and year first above written.
"LANDLORD"
Signed, sealed and delivered Camtech Associates
in the presence of : a Florida general partnership
By: C2T, Ltd. a Florida limited
Partnership, General Partner
/s/ Karen Kaminsky
- ------------------------ By: C2T, Inc., a Florida corporation
General partner
/s/ [ILLEGIBLE] By: /s/ Terry W. Stiles
- ------------------------ ----------------------------
Terry W. Stiles, its President
/s/ [ILLEGIBLE] "TENANT"
- ------------------------
Ursus Telecom Corporation,
a Florida corporation
/s/ [ILLEGIBLE]
- ------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------
[ILLEGIBLE] Giussani, President, C.E.O
-----------------------------------------
Print Name & Title
2
<PAGE>
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT (this "Third Amendment") dated as
of this 30th day of October, 1997 amending that certain Lease Agreement dated
April 5, 1993, Amendment to Lease Agreement dated April 30, 1993, Second
Amendment to the Lease Agreement dated November 10, 1995, and any and all
Letters of Agreement, Addenda, Amendments or Extensions thereof (collectively,
the "Lease") by and between Camtech Associates as successor-in-interest to
Stiles West Associates, Ltd. ("Landlord") and Ursus Telecom Corporation
("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into the Lease relating to office
space known as Suite 112 consisting of 2,158 rentable square feet (the
"Premises") within that certain real property known as Sawgrass Office Campus,
Building B located at 440 Sawgrass Corporate Parkway, Suite 206 Sunrise, Florida
(the "Building"); and
WHEREAS, pursuant to the Amendment to Lease Agreement dated April 30,
1993, Tenant leased an additional 1,214 rentable square feet; and
WHEREAS, pursuant to the Second Amendment to Lease Agreement dated
November 10, 1997, Tenant leased an additional 1,700 rentable square feet within
the Building for a total of 5,072 rentable square feet (hereinafter collectively
referred to as the "Premises").
WHEREAS, Tenant now desires to renew the term of the Lease for the
Premises and to lease an additional 3,015 rentable square feet within the
Building; and
WHEREAS, the parties wish to modify the terms of said Lease as hereinafter
set forth.
NOW, THEREFORE, for and in consideration of the terms, covenants and
conditions hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Landlord and
Tenant agree as follows:
1. Expansion Premises. Landlord hereby leases to Tenant 3,015 rentable square
feet within the Building as depicted on Exhibit "A" attached hereto (the
"Expansion Premises") known as Suite 108. The Premises and the Expansion
Premises consisting of a total of 8,087 rentable square feet are
hereinafter sometimes collectively referred as the "Total Premises".
2. Term.
A. Tenant shall have and hold the Expansion Premises for a term of five
(5) years and five (5) and one-half (1/2) months commencing on
November 15, 1997 and expiring on April 30, 2003 (the "Expansion
Premises Term").
B. The term of the lease for the Premises is hereby extended for an
additional term of five (5) years commencing May 1, 1998 and
expiring on April 30, 2003, which expiration date is coterminous
with the expiration of the Expansion Premises Term.
C. Landlord hereby grants to Tenant permission to enter into and upon
the Expansion Premises at any time following full execution of this
Lease. Except for the payment of Base Rent and Additional Rent, such
early access to the Expansion Premises shall be upon the same terms
and conditions set forth in the Lease, as amended, including the
insurance requirements set forth in Article X of the Lease. Tenant
agrees that upon its early possession of the Expansion Premises, it
shall be responsible for all electricity serving the Expansion
Premises.
1
<PAGE>
3. Rent.
A. Tenant shall pay Landlord Base Rent for the Total Premises at the
rate of $12.65 per rentable square foot through April 30, 1998.
Commencing May 1, 1998 and each anniversary thereafter, the Base
Rent shall increase by three (3%) percent over the previous year's
Base Rent. Tenant shall commence to pay Rent for the Expansion
Premises on November 15, 1997.
B. Tenant shall pay Additional Rent for the Total Premises pursuant to
Article III of the Lease, based upon $5.80 per rentable square foot
through December 31, 1997 which is Landlord's estimate of Additional
Rent for the calendar year 1997. For purposes of calculating
Tenant's Additional Rent pursuant to ARTICLE III of the Lease,
Tenant's Proportionate Share of the Building is hereby increased to
32.4%.
C. In addition to the Base Rent and Additional Rent, Tenant shall pay
Florida State Sales Tax (currently 6%).
4. Completion of Premises and Expansion Premises. Tenant hereby agrees to
accept the Expansion Premises in its present "as is" condition. Landlord
agrees to reimburse Tenant for the cost of repainting and recarpeting the
Premises or the Expansion Premises, or installing signage or hurricane
shutters in a total amount not to exceed $3.50 per rentable square foot
(i.e. $28,204.50). Such reimbursement shall be made within thirty (30)
days of Landlord's receipt of Tenant's paid invoices evidencing such cost.
5. Parking. There shall be available to Tenant a total of thirty two (32)
parking spaces at the Building for the non-exclusive use of Tenant.
6. Option to Renew. Provided Tenant has not been in default under any of the
terms or conditions of this Lease, Tenant shall have the option to renew
this Lease for one (1) additional term of five (5) years upon the same
terms and conditions contained in the Lease, as amended, with the
exception of the Base Rent which shall, during the first year of the
renewal term be based upon the then prevailing market rate for similar
space within the Office Campus buildings within Sawgrass International
Corporate Park, but in no event less than the rate being paid during the
last year of the Term hereof. On the first anniversary of the renewal
term, and each anniversary thereafter, the Base Rent shall increase by
three (3%) percent over the previous year's Base Rent. Tenant shall
exercise its option to renew by providing Landlord with not less than six
(6) months written notice prior to the expiration of the Term hereof.
7. Building Signage. Tenant, at Tenant's sole cost and expense, may install a
sign on one (1) facade of the Building subject to the following:
a. The plans and specifications, size, type and location of such sign
are subject to written approval by the Architectural Review
Committee of Sawgrass International Corporate Park.
b. Tenant, at Tenant's sole cost and expense, shall be responsible for
procuring all necessary governmental approvals and permits for the
installation of such sign.
c. Tenant, at Tenant's sole cost and expense, shall be responsible for
maintaining such sign in good order and repair, and upon the
expiration or earlier termination of this Lease, Tenant shall remove
the sign and repair any damage to the Building resulting from the
installation or removal thereof.
8. Hurricane Shutters. Tenant, at Tenant's sole cost and expense, may install
hurricane shutters on the windows of the Premises, the plans and
specifications of which are subject to written approval by the
Architectural Review Committee of Sawgrass International Corporate Park.
Tenant, at Tenant's sole cost and expense, shall be responsible for
maintaining, installing and removing such shutters at all times during the
Lease Term. If requested by Landlord, upon the expiration or earlier
termination of this Lease, Tenant
2
<PAGE>
shall remove the shutters and repair any damage to the Building resulting
from the installation or removal thereof.
All other terms and conditions of the Lease not specifically amended hereby are
in full force and effect and binding upon the parties thereto, with the
exception of Section 24.15 of the Lease (Option to Terminate) which, by the
execution hereof, Tenant acknowledges is hereby deleted in its entirety and of
no further force or effect. Any provision of this Third Amendment shall prevail
over conflicting provisions contained in the Lease.
IN WITNESS WHEREOF, the parties have executed this Third Amendment as of
the day and year first above written.
"TENANT"
Signed, sealed and delivered
in the presence of :
/s/ [ILLEGIBLE] Ursus Telecom Corporation,
- ------------------------- a Florida corporation
/s/ [ILLEGIBLE]
- -------------------------
By: /s/ [ILLEGIBLE]
--------------------
[ILLEGIBLE] CEO
--------------------
Print Name & Title
"LANDLORD"
Signed, sealed and delivered Camtech Associates
in the presence of: a Florida general partnership
By and through its authorized agent,
Stiles Corporation
/s/ [ILLEGIBLE]
- -------------------------
By: /s/ Kevin Coffey
----------------------------
/s/ [ILLEGIBLE] Kevin Coffey, Vice President
- -------------------------
3
<PAGE>
EXHIBIT "A"
EXPANSION PREMISES
OFFICE CAMPUS bld. B suite 108
SAWGRASS INTERNATIONAL CORPORATE PARK
SUNRISE, FLORIDA
[GRAPHIC OMITTED]
<PAGE>
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT (this "Third Amendment") dated as
of this 8th day of October, 1997 amending that certain Lease Agreement dated
April 5, 1993, Amendment to Lease Agreement dated April 30, 1993, Second
Amendment to Lease Agreement dated November 10, 1995, and any and all Letters of
Agreement, Addenda, Amendments of Extensions thereof (collectively, the "Lease")
by and between Camtech Associates as successor-in-interest to Stiles West
Associates, Ltd. ("Landlord") and Ursus Telecom Corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into the Lease relating to office
space known as Suite 112 consisting of 2,158 rentable square feet (the
"Premises") within that certain real property known as Sawgrass Office Campus,
Building B located at 440 Sawgrass Corporate Parkway, Suite 206 Sunrise, Florida
(the "Building"); and
WHEREAS, pursuant to the Amendment to Lease Agreement dated April 30,
1993, Tenant leased an additional 1,214 rentable square feet; and
WHEREAS, pursuant to the Second Amendment to Lease Agreement dated
November 10, 1997, Tenant leased an additional 1,700 rentable square feet within
the Building for a total of 5,072 rentable square feet (hereinafter collectively
referred to as the "Premises").
WHEREAS, Tenant now desires to renew the term of the Lease for the
Premises and to lease an additional 3,015 rentable square feet within the
Building; and
WHEREAS, the parties wish to modify the terms of said Lease as hereinafter
set forth.
NOW, THEREFORE, for and in consideration of the terms, covenants and
conditions hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant
agree as follows:
1. Expansion Premises. Landlord hereby leases to Tenant 3,015 rentable square
feet within the Building as depicted on Exhibit "A" attached hereto (the
"Expansion Premises") known as Suite 108. The Premises and the Expansion
Premises consisting of a total of 8,087 rentable square feet are
hereinafter sometimes collectively referred as the "Total Premises".
2. Term.
A. Tenant shall have and hold the Expansion Premises for a term of five
(5) years and five (5) and one-half (1/2) months commencing on
November 15, 1997 and expiring on April 30, 2003 (the "Expansion
Premises Term").
B. The term of the lease for the Premises is hereby extended for an
additional term of five (5) years commencing May 1, 1998 and
expiring on April 30, 2003, which expiration date is coterminous
with the expiration of the Expansion Premises Term.
C. Landlord hereby grants to Tenant permission to enter into and upon
the Expansion Premises at any time following full execution of this
Lease. Except for the payment of Base Rent and Additional Rent, such
early access to the Expansion Premises shall be upon the same terms
and conditions set forth in the Lease, as amended, including the
insurance requirements set forth in Article X of the Lease. Tenant
agrees that upon its early possession of the Expansion Premises, it
shall be responsible for all electricity serving the Expansion
Premises.
1
<PAGE>
3. Rent
A. Tenant shall pay Landlord Base Rent for the Total Premises at the
rate of $12.65 per rentable square foot through April 30, 1998.
Commencing May 1, 1998, and each anniversary thereafter, the Base
Rent shall increase by three (3%) percent over the previous year's
Base Rent. Tenant shall commence to pay Rent for the Expansion
Premises on November 15, 1997.
B. Tenant shall pay Additional Rent for the Total Premises pursuant to
Article III of the Lease, based upon $5.80 per rentable square foot
through December 31, 1997 which is Landlord's estimate of Additional
Rent for the calendar year 1997. For purposes of calculating
Tenant's Additional Rent pursuant to ARTICLE III of the Lease,
Tenant's Proportionate Share of the Building is hereby increased to
32.4%.
C. In addition to the Base Rent and Additional Rent, Tenant shall pay
Florida State Sales Tax (currently 6%).
4. Completion of Premises and Expansion Premises. Tenant hereby agrees to
accept the Expansion Premises in its present "as is" condition. Landlord
agrees to reimburse Tenant for the cost of repainting and recarpeting the
Premises or the Expansion Premises, or installing signage or hurricane
shutters in a total amount not to exceed $3.50 per rentable square foot
(i.e. $28,204.50). Such reimbursement shall be made within thirty (30)
days of Landlord's receipt of Tenant's paid invoices evidencing such cost.
5. Parking. There shall be available to Tenant a total of thirty two (32)
parking spaces at the Building for the non-exclusive use of Tenant.
6. Option to Renew. Provided Tenant has not been in default under any of the
terms or conditions of this Lease, Tenant shall have the option to renew
this Lease for one (1) additional term of five (5) years upon the same
terms and conditions contained in the Lease, as amended, with the
exception of the Base Rent which shall, during the first year of the
renewal term be based upon the then prevailing market rate for similar
space within the Office Campus buildings within Sawgrass International
Corporate Park, but in no event less than the rate being paid during the
last year of the Term hereof. On the first anniversary of the renewal
term, and each anniversary thereafter, the Base Rent shall increase by
three (3%) percent over the previous year's Base Rent. Tenant shall
exercise its option to renew by providing Landlord with not less than six
(6) months written notice prior to the expiration of the Term hereof.
7. Building Signage. Tenant, at Tenant's sole cost and expense, may install a
sign on one (1) facade of the Building subject to the following:
a. The plans and specifications, size, type and location of such sign
are subject to written approval by the Architectural Review
Committee of Sawgrass International Corporate Park.
b. Tenant, at Tenant's sole cost and expense, shall be responsible for
procuring all necessary governmental approvals and permits for the
installation of such sign.
c. Tenant, at Tenant's sole cost and expense, shall be responsible for
maintaining such sign in good order and repair, and upon the
expiration or earlier termination of this Lease, Tenant shall remove
the sign and repair any damage to the Building resulting from the
installation or removal thereof.
8. Hurricane Shutters. Tenant, at Tenant's sole cost and expense, may install
hurricane shutters on the windows of the Premises, the plans and
specifications of which are subject to written approval by the
Architectural Review Committee of Sawgrass International Corporate Park.
Tenant, at Tenant's sole cost and expense, shall be responsible for
maintaining, installing and removing such shutters at all times during the
Lease Term. If requested by Landlord, upon the expiration or earlier
termination of this Lease, Tenant
2
<PAGE>
shall remove the shutters and repair any damage to the Building resulting
from the installation or removal thereof.
All other terms and conditions of the Lease not specifically amended hereby are
in full force and effect and binding upon the parties thereto, with the
exception of Section 24.15 of the Lease (Option to Terminate) which, by the
execution hereof, Tenant acknowledges is hereby deleted in its entirety and of
no further force or effect. Any provision of this Third Amendment shall prevail
over conflicting provisions contained in the Lease.
IN WITNESS WHEREOF, the parties have executed this Third Amendment as of
the day and year first above written.
"TENANT"
Signed, sealed and delivered
in the presence of:
/s/ [ILLEGIBLE] Ursus Telecom Corporation,
- ------------------------- a Florida corporation
/s/ [ILLEGIBLE]
- -------------------------
By: /s/ [ILLEGIBLE]
--------------------
Print Name & Title
"LANDLORD"
Signed, sealed and delivered Camtech Associates,
in the presence of: a Florida general partnership
By and through its authorized agent,
Stiles Corporation
/s/ [ILLEGIBLE]
- -------------------------
By: /s/ Kevin Coffey
----------------------------
/s/ [ILLEGIBLE] Kevin Coffey, Vice President
- -------------------------
3
<PAGE>
EXHIBIT "A"
EXPANSION PREMISES
OFFICE CAMPUS bld. B suite 108
SAWGRASS INTERNATIONAL CORPORATE PARK
SUNRISE, FLORIDA
<PAGE>
EXHIBIT 10.9
1998 STOCK INCENTIVE PLAN
OF
URSUS TELECOM CORPORATION
1. Purpose. The purpose of this Stock Incentive Plan is to advance the
interests of the Corporation by encouraging and enabling the acquisition of a
larger personal proprietary interest in the Corporation by directors and key
employees of the Corporation and its Subsidiaries upon whose judgment and keen
interest the Corporation is largely dependent for the successful conduct of its
operations and by providing such directors and key employees with incentives to
put forth maximum efforts for the success of the Corporation's business. It is
anticipated that the acquisition of such proprietary interest in the Corporation
and such incentives will stimulate the efforts of such directors and key
employees on behalf of the Corporation and its Subsidiaries and strengthen their
desire to remain with the Corporation and its Subsidiaries. It is also expected
that such incentives and the opportunity to acquire such a proprietary interest
will enable the Corporation and its Subsidiaries to attract desirable personnel.
2. Definitions. When used in this Plan, unless the context otherwise
requires:
(a) "Alternative Rights" shall have the meaning set forth in Section
7.
(b) "Board of Directors" shall mean the Board of Directors of the
Corporation, as constituted at any time.
(c) "Chairman of the Board" shall mean the person who at the time
shall be Chairman of the Board of Directors.
(d) "Committee" shall mean the Committee hereinafter described in
Section 3.
(e) "Conjunctive Rights" shall have the meaning set forth in Section
7.
(f) "Corporation" shall mean Ursus Telecom Corporation, a Florida
corporation.
<PAGE>
(g) "Eligible Persons" shall mean those persons described in Section
4 who are potential recipients of Incentive Awards.
(h) "Fair Market Value" on a specified date shall mean the closing
price at which a Share is traded on the stock exchange, if any, on which
Shares are primarily traded or, if the Shares are not then traded on a
stock exchange, the closing price of a Share as reported on the NASDAQ
National Market System or, if the Shares are not then traded on the NASDAQ
National Market System, the average of the closing bid and asked prices at
which a Share is traded on the over-the-counter market, but if no Shares
were traded on such date, then on the last previous date on which a Share
was so traded, or, if none of the above are applicable, the value of a
Share as established by the Board of Directors for such date using any
reasonable method of valuation.
(i) "Incentive Award" shall mean an Option, Restricted Stock Award
or Rights granted pursuant to this Plan.
(j) "Incentive Stock Option" shall have the meaning set forth in
section 422 of the Internal Revenue Code.
(k) "Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended.
(l) "Options" shall mean the stock options granted pursuant to this
Plan.
(m) "Plan" shall mean this 1998 Stock Incentive Plan of Ursus
Telecom Corporation as adopted by the Board of Directors on___________,
1998 and approved by the stockholders of the Corporation on _______, 1998,
as such Plan from time to time may be amended.
(n) "President" shall mean the person who at the time shall be the
President of the Corporation.
(o) "Restricted Shares" shall mean the Shares issued as a result of
a Restricted Stock Award.
2
<PAGE>
(p) "Restricted Stock Award" shall mean a grant of Shares or of the
right to purchase Shares pursuant to Section 12 hereof. Such Shares, when
and if issued, shall be subject to such transfer restrictions and risk of
forfeiture as the Board of Directors shall determine at the time the Award
is granted, until such specific conditions are met. Such conditions may be
based on continuing employment or achievement of pre-established
performance objectives, or both.
(q) "Rights" shall mean stock appreciation rights granted pursuant
to the Plan, which shall entitle the holder thereof to receive from the
Corporation cash or Shares or a combination of cash and Shares based upon
the excess of the Fair Market Value of Shares at the time of exercise over
the purchase price of the Shares subject to the related Option, or the
Fair Market Value of Shares on the date the Rights were granted, as the
case may be, subject to the terms and conditions of the Plan.
(r) "Reload Option" shall have the meaning set forth in Section 6.
(s) "Share" shall mean a share of common stock, par value $ .01 per
share, of the Corporation.
(t) "Spread" shall mean (i) with respect to Conjunctive Rights and
Alternative Rights, the excess of the Fair Market Value of one Share on
the date of exercise of such Rights over the purchase price per Share
payable under the related Option and (ii) with respect to Rights not
granted in connection with an Option, the excess of the Fair Market Value
of one Share on the date of exercise of such Rights over the Fair Market
Value of one Share on the date such Rights were granted.
(u) "Subsidiary" shall mean any corporation 50% or more of whose
stock having general voting power is owned by the Corporation, or by
another Subsidiary as herein defined, of the Corporation.
3. Administration. The Plan shall be administered by a Committee of the
Board of Directors which shall consist of two or more directors of the
Corporation, each of whom shall be a "Non-Employee Director" within the meaning
of Rule 16b-3 under the Securities Exchange Act of 1934, as from time to time
amended (the "Exchange Act") and an "outside director" within the meaning of
Section 162(m) of the Internal Revenue Code. Notwithstanding the foregoing,
prior to the effective date of the Corporation's initial public offering
3
<PAGE>
of Shares, the Plan shall be administered by the Board of Directors. During such
period in which the Plan is administered by the Board of Directors, all
references herein to the Committee shall be deemed to refer to the Board of
Directors. The Committee shall establish such rules and procedures as are
necessary or advisable to administer the Plan.
Determinations of the Committee as to any question which may arise with
respect to the interpretation of the provisions of the Plan and Incentive Awards
shall be final. The Committee may authorize and establish such rules,
regulations and revisions thereof not inconsistent with the provisions of the
Plan, as it may deem advisable to make the Plan and Incentive Awards effective
or provide for their administration, and may take such other action with regard
to the Plan and Incentive Awards as it shall deem desirable to effectuate their
purpose.
4. Participants. Except as hereinafter provided, the class of persons who
are potential recipients of Incentive Awards granted under this Plan shall
consist of (i) the directors of, and consultants to, the Corporation or a
Subsidiary and (ii) employees of the Corporation or a Subsidiary, as determined
by the Committee. The parties to whom Incentive Awards are granted under this
Plan, and the number of Shares subject to each such Incentive Award, shall be
determined by the Committee in its sole discretion, subject, however, to the
terms and conditions of this Plan.
5. Shares. Subject to the provisions of Section 16 hereof, the Board of
Directors may grant Incentive Awards with respect to an aggregate of up to
1,000,000 Shares, all of which Shares may be either Shares held in treasury or
authorized but unissued Shares. The maximum number of Sha res which may be the
subject of Options and Rights granted during any calendar year to any individual
shall not exceed __________ Shares. If the Shares that would be issued or
transferred pursuant to any Incentive Awards are not issued or transferred and
cease to be issuable or transferable for any reason, or if Restricted Shares
which are subject to a Restricted Stock Award are forfeited, the number of
Shares subject to such Incentive Award will no longer be charged against the
limitation provided for herein and may again be made subject to Incentive
Awards; provided, however, that Shares as to which an Option has been
surrendered in connection with the exercise of an Alternative Right shall not
again be available for the grant of any further Incentive Awards.
Notwithstanding the preceding, with respect to any Option and/or any Rights
granted to any individual who is a "covered employee" within the meaning of
4
<PAGE>
Section 162(m) of the Internal Revenue Code that is cancelled, the number of
shares subject to such Option and/or Rights shall continue to count against the
maximum number of shares which may be the subject of Options and Rights granted
to such individual. For purposes of the preceding sentence, if, after grant, the
exercise price of an Option and/or the base amount of any Rights is reduced,
such reduction shall be treated as a cancellation of such Option and/or Rights
and the grant of a new Option and/or Rights (if any), and both the cancellation
of the Option and/or Rights and the new Option and/or Rights shall reduce the
maximum number of shares for which Options and Rights may be granted to the
holder of such Option and/or Rights.
6. Grant of Options. The number of Options to be granted to any Eligible
Person shall be determined by the Committee in its sole discretion. At the time
an Option is granted, the Committee may, in its sole discretion, designate
whether such Option (a) is to be considered as an Incentive Stock Option, or (b)
is not to be treated as an Incentive Stock Option for purposes of this Plan and
the Internal Revenue Code. No Option which is intended to qualify as an
Incentive Stock Option shall be granted under this Plan to any individual who,
at the time of such grant, is not an employee of the Corporation or a
Subsidiary.
Notwithstanding any other provision of this Plan to the contrary, to the
extent that the aggregate Fair Market Value (determined as of the date an Option
is granted) of the Shares with respect to which Options which are designated as
(or deemed to be) Incentive Stock Options granted to an employee (and any
incentive stock options granted to such employee under any other stock option
plan maintained by the Corporation or any Subsidiary that meets the requirements
of Section 422 of the Internal Revenue Code) first become exercisable in any
calendar year exceeds $100,000, such Options shall be treated as Options which
are not Incentive Stock Options. Options with respect to which no designation is
made by the Committee shall be deemed to be Incentive Stock Options to the
extent that the $100,000 limitation described in the preceding sentence is met.
This paragraph shall be applied by taking options into account in the order in
which they are granted.
Nothing herein contained shall be construed to prohibit the issuance of
Options at different times to the same person.
An Option may, in the discretion of the Committee, include a reload option
right which shall entitle the holder, upon (i) the exercise of such original
5
<PAGE>
Option prior to the holder's termination of employment or service and (ii)
payment of the appropriate exercise price in Shares that have been owned by such
holder for at least six months prior to the date of exercise, to receive a new
Option (the "Reload Option") to purchase, at the Fair Market Value per Share on
the date of the exercise of the original Option, the number of Shares equal to
the number of whole Shares delivered by the holder as payment of the exercise
price of the original Option, subject to the availability of Shares under the
Plan at the time of exercise of the original Option. A Reload Option may, in the
discretion of the Committee, also allow that, upon the exercise of an Option
(using any method of payment) prior to the holder's termination of employment or
service, the holder shall receive a new Option to purchase at the Fair Market
Value per Share on the date of exercise of the original Option, the number of
Shares equal to the number of Shares issued upon exercise of the original
Option, subject to the availability of Shares under the Plan at the time of
exercise of the original Option. Any Reload Option shall be subject to the same
expiration date, and shall be exercisable at the same time or times as, the
original Option with respect to which it is granted. A Reload Option shall not
itself include any reload option rights.
The form of Option shall be determined from time to time by the Committee.
A certificate of Option signed by the Chairman of the Board or the President or
a Vice President of the Corporation shall be issued to each person to whom an
Option is granted. The certificate of Option for an Option shall be legended to
indicate whether or not the Option is an Incentive Stock Option.
7. Grant of Rights. The Committee shall have the authority to grant to any
Eligible Person, in its sole discretion, Rights which may be granted separately,
or in connection with an Option at the time of the grant of an Option. Rights
granted in connection with an Option shall be granted with respect to the same
number of Shares as are covered by the Option, subject to adjustment pursuant to
the provisions of Section 16 hereof, and may be exercised, as determined by the
Committee in its discretion at the time of the grant of the Rights, either in
conjunction with, or as an alternative to, the exercise of the related Option.
Conjunctive Rights ("Conjunctive Rights") granted in connection with an
Option shall entitle the holder thereof to receive payment from the Corporation,
determined as hereinafter provided, only if and to the extent that the related
Option is exercisable and is exercised. Upon any exercise of an Option in
respect of which Conjunctive Rights shall have been granted, the holder of the
6
<PAGE>
Rights shall be entitled to receive payment of an amount equal to the product
obtained by multiplying (i) the Spread, or a portion of the Spread determined by
the Committee at the time of grant, by (ii) the number of Shares in respect of
which the related Option shall have then been so exercised.
Alternative Rights ("Alternative Rights") granted in connection with an
Option shall entitle the holder thereof to receive payment from the Corporation,
determined as hereinafter provided, only if and to the extent that the related
Option is exercisable, by surrendering the Option with respect to the number of
Shares as to which such Rights are then exercised. Such Option, to the extent
surrendered, shall be deemed exercised for purposes of the limitations under
Section 5. Upon any exercise of Alternative Rights, the holder thereof shall be
entitled to receive payment of an amount equal to the product obtained by
multiplying (i) the Spread, or a portion of the Spread determined by the
Committee at the time of grant, by (ii) the number of Shares in respect of which
the Rights shall have then been so exercised. Notwithstanding anything contained
herein, Alternative Rights granted in connection with an Option that is an
Incentive Stock Option may not be exercised at any time when the Fair Market
Value of the Shares subject thereto is less than the exercise price of such
Option.
Rights granted without relationship to an Option shall be exercisable for
a duration determined by the Committee, but in no event more than ten years from
the date of grant. Such Rights shall entitle the holder, upon the exercise
thereof, to receive payment from the Corporation of an amount equal to the
product obtained by multiplying (i) the Spread, or a portion of the Spread
determined by the Committee at the time of grant, by (ii) the number of Shares
in respect of which the Rights shall have then been so exercised.
Notwithstanding anything contained herein, the Committee may, in its sole
discretion, limit the amount payable upon the exercise of Rights. Any such
limitation shall be determined as of the date of grant and noted on the
certificate evidencing the grant of the Rights.
Payment of the amount determined hereunder upon the exercise of Rights may
be made solely in cash, or solely in Shares valued at their Fair Market Value on
the date of exercise of Rights, or in a combination of cash and Shares, as
determined by the Committee. No fractional Shares shall be issued by the
Corporation, and settlement therefor shall be made in cash.
7
<PAGE>
The form of Rights shall be as determined from time to time by the
Committee. A certificate of Rights signed by the Chairman of the Board or the
President or a Vice President of the Corporation shall be delivered to each
Eligible Person to whom Rights are granted.
8. Purchase Price. The price per Share of the Shares to be purchased
pursuant to the exercise of any Option shall be fixed by the Committee at the
time of grant; provided, however, that the purchase price per Share for the
Shares to be purchased pursuant to the exercise of an Incentive Stock Option
shall not be less than the Fair Market Value of a Share on the day on which the
Option is granted.
The purchase price per Share for Restricted Shares to be purchased
pursuant to Restricted Stock Awards shall be fixed by the Committee at the time
of the grant of the Restricted Stock Award; provided, however, that such
purchase price shall not be less than the par value of such Shares. Payment of
such purchase price shall be made in cash or by check payable to the order of
the Corporation, or by such other method as the Committee may permit.
9. Duration of Options and Related Rights. The duration of any Option
granted under this Plan shall be fixed by the Committee at the time of grant;
provided, however, that no Option shall remain in effect for a period of more
than ten years from the date upon which the Option is granted. The duration of
any Rights granted in connection with any Option shall be coterminous with the
duration of the related Option.
10. Ten Percent Stockholders. Notwithstanding any other provision of this
Plan to the contrary, no Option which is intended to qualify as an Incentive
Stock Option may be granted under this Plan to any employee who, at the time the
Option is granted, owns shares possessing more than 10 percent of the total
combined voting power or value of all classes of stock of the Corporation,
unless the exercise price under such Option is at least 110% of the Fair Market
Value of a Share on the date such Option is granted and the duration of such
Option is no more than five years.
11. Exercise of Options and Rights. Except as otherwise provided herein,
Options and Rights, after the grant thereof, shall be exercisable by the holder
at such rate and times as may be fixed by the Committee.
Notwithstanding the foregoing, all or any part of any remaining
8
<PAGE>
unexercised Options or Rights granted to any person may be exercised in the
following circumstances: (a) immediately upon (but prior to the expiration of
the term of the Option or Rights) the holder's retirement from the Corporation
and all Subsidiaries on or after his 65th birthday, (b) subject to the
provisions of Section 15 hereof, upon the disability (to the extent and in a
manner as shall be determined by the Committee in its sole discretion) or the
death of the holder, (c) upon the occurrence of such special circumstance or
event as in the opinion of the Committee merits special consideration [, or (d)
if, while the holder is employed by, or serving as a director of or consultant
to, the Corporation or a Subsidiary, there occurs a Change in Control. For
purposes of this Plan, a "Change in Control" shall be deemed to have occurred if
(x) any "person" or group of "persons" (as the term "person" is used in Sections
13(d) and 14(d) of the Exchange Act) ("Person"), acquires (or has acquired
during the twelve-month period ending on the date of the most recent acquisition
by such Person) direct or indirect beneficial ownership of securities of the
Corporation representing [33%] or more of the combined voting power of the then
outstanding securities of the Corporation or (y) a Person acquires (or has
acquired during the twelve-month period ending on the date of the most recent
acquisition by such Person) assets from the Corporation that have a total fair
market value equal to or more than [one-third] of the total fair market value of
all of the assets of the Corporation immediately prior to such acquisition [;
provided, however, that if any transaction or event or series of transactions or
events resulting in a Change in Control is approved by a majority of the members
of the Board of Directors holding office prior to the transaction or event or
series of transactions or events, then the transaction or event or series of
transactions or events shall not be deemed to be a Change in Control].
Notwithstanding the foregoing, for purposes of subsection (x), a Change in
Control will not be deemed to have occurred if the power to control (directly or
indirectly) the management and policies of the Corporation is not transferred
from a Person to another Person; and, for purposes of subsection (y), a Change
in Control will not be deemed to occur if the assets of the Corporation are
transferred: (i) to a shareholder in exchange for his stock, (ii) to an entity
in which the Corporation has (directly or indirectly) 50% ownership, or (iii) to
a Person that has (directly or directly) at least 50% ownership of the
Corporation with respect to its stock outstanding, or to any entity in which
such Person possesses (directly or indirectly) 50% ownership.]
An Option shall be exercised by the delivery of a written notice duly
signed by the holder thereof to such effect ("Exercise Notice"), together with
the Option certificate and the full purchase price of the Shares purchased
9
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pursuant to the exercise of the Option, to the Chairman of the Board or an
officer of the Corporation appointed by the Chairman of the Board for the
purpose of receiving the same. Payment of the full purchase price shall be made
as follows: in cash or by check payable to the order of the Corporation; by
delivery to the Corporation of Shares which shall be valued at their Fair Market
Value on the date of exercise of the Option (provided, that a holder may not use
any Shares acquired pursuant to this Plan or any other plan maintained by the
Corporation or a Subsidiary unless the holder has beneficially owned such Shares
for at least six months); by providing with the Exercise Notice an order to a
designated broker to sell part or all of the Shares and to deliver sufficient
proceeds to the Corporation, in cash or by check payable to the order of the
Corporation, to pay the full purchase price of the Shares and all applicable
withholding taxes; or by such other methods as the Committee may permit from
time to time. Any Conjunctive Rights granted in connection with such Option
shall be exercised by the inclusion in the Exercise Notice of a notice of
exercise of Rights, together with the Rights certificate and a specification of
the percentages of the Rights which the holder desires to receive in cash and in
Shares.
Within a reasonable time after the exercise of an Option, the Corporation
shall cause to be delivered to the person entitled thereto, a certificate for
the Shares purchased pursuant to the exercise of the Option and, if Conjunctive
Rights have been exercised in connection therewith, the amount of cash and/or a
certificate for the number of Shares determined in accordance with Section 7
hereof. If the Option and any Conjunctive Rights shall have been exercised with
respect to less than all of the Shares subject to the Option and Rights, the
Corporation shall also cause to be delivered to the person entitled thereto a
new Option certificate and a new Rights certificate in replacement of the
certificates surrendered at the time of the exercise of the Option and Rights,
indicating the number of Shares with respect to which the Option and Rights
remain available for exercise, or the original Option certificate and Rights
certificate shall be endorsed to give effect to the partial exercise thereof.
Alternative Rights or Rights not granted in connection with an Option
shall be exercised by the delivery of a duly signed notice in writing to such
effect, together with the Rights certificate, and a specification of the
percentages of the Rights which the holder desires to receive in cash and in
Shares. Holders of Alternative Rights shall also surrender the related Option
certificate. Within a reasonable time thereafter, the Corporation shall cause to
be delivered to the person entitled thereto, the amount of cash and/or a
certificate for the number of
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Shares determined in accordance with Section 7 hereof. Upon the exercise of
Alternative Rights, the number of Shares subject to exercise under the related
Option or portion thereof shall be reduced by the number of Shares represented
by the Option or portion thereof surrendered. Shares subject to Options or
portions thereof surrendered upon the exercise of Alternative Rights shall not
be available for subsequent Incentive Awards under the Plan. If the Rights shall
have been exercised with respect to less than all of the Shares subject thereto
(or to the related Option, if any), the Corporation shall also cause to be
delivered to the person entitled thereto a Rights certificate (and an Option
certificate, in the case of Alternative Rights) with respect to the difference
between the number of Shares of the Rights certificate (and related Option
certificate, if any) surrendered at the time of the exercise of the Rights and
the number of Shares with respect to which the Rights were so exercised (and the
related Option, if any, was so surrendered), or the original Rights certificate
(and related Option certificate, if any) shall be endorsed to give effect to the
partial exercise (and surrender) thereof.
Notwithstanding any other provision of the Plan or of any Option or
Rights, no Option or Rights granted pursuant to the Plan may be exercised at any
time when the Option or Rights or the granting or exercise thereof violates any
law or governmental order or regulation.
12. Terms and Conditions of Restricted Stock Awards.
(a) All Restricted Shares granted to or purchased by an eligible
person pursuant to the Plan shall be subject to the following conditions:
(i) the Restricted Shares may not be sold, transferred, or otherwise
alienated or hypothecated until the restrictions are satisfied, removed or
expire;
(ii) each certificate representing Restricted Shares issued pursuant
to a Restricted Stock Award under this Plan shall bear a legend making
appropriate reference to the restrictions imposed; and
(iii) the Committee may impose such other conditions as it may deem
advisable on any Restricted Shares granted to or purchased by an Eligible
Person pursuant to a Restricted Stock Award under this Plan, including,
without limitation, restrictions under the requirements of any stock
exchange upon which such Shares or shares of the same class are
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then listed, and under any securities law applicable to such Shares.
(b) The restrictions imposed under subsection (a) hereof upon
Restricted Stock Awards shall lapse in accordance with a schedule or such other
conditions as shall be determined by the Committee, subject to the provisions of
Section 15 hereof.
(c) Prior to the satisfaction, expiration or lapse of all of the
restrictions and conditions imposed upon Restricted Shares, a stock certificate
or certificates representing such Restricted Shares shall be registered in the
holder's name but shall be retained by the Corporation for the holder's account.
The holder shall have the right to vote such Restricted Shares and shall have
all other rights and privileges of a beneficial and record owner with respect
thereto, including, without limitation, the right to receive dividends,
distributions and adjustments with respect thereto; provided, however, that such
dividends, distributions and adjustments shall be retained by the Corporation
for the holder's account and for delivery to the holder, together with the stock
certificate or certificates representing such Restricted Shares, as and when
said restrictions and conditions shall have been satisfied, expired or lapsed.
13. Consideration for Incentive Awards. The Corporation shall obtain such
consideration for the grant of an Incentive Award as the Committee in its
discretion may determine.
14. Restrictions on Transferability of Incentive Awards. An Incentive
Award shall not be transferable otherwise than by will or the laws of descent
and distribution or as provided in this Section 14. Notwithstanding the
preceding, the Committee may, in its discretion, authorize a transfer of any
Incentive Award, other than an Option which is an Incentive Stock Option, by the
initial holder to (i) the spouse, children, step children, grandchildren or
other family members of the initial holder ("Family Members"), (ii) a trust or
trusts for the exclusive benefit of such Family Members, [(iii) a corporation or
partnership in which such Family Members and the initial holder are the only
shareholders or partners,] or (iv) such other persons or entities which the
Committee may permit, subject in each case to such terms and conditions as the
Committee shall approve; provided, however, that subsequent transfers of such
Incentive Awards shall be prohibited except by will or the laws of descent and
distribution. Following any transfer of such an Incentive Award, such Incentive
Award shall continue to be subject to the same terms and conditions of the
Incentive Award and of the Plan. An Option which is intended to be an
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Incentive Stock Option shall not be transferable otherwise than by will or the
laws of descent and distribution and shall be exercisable during the holder's
lifetime only by the holder thereof.
15. Termination of Employment or Service. All or any part of any Option
and/or Rights, to the extent unexercised, shall terminate immediately, upon the
cessation or termination for any reason of the holder's employment by, or
service as a director of, or consultant to, the Corporation or any Subsidiary,
except that the holder shall have until the end of the [tenth] business day
following the cessation of his employment or service with the Corporation or its
Subsidiaries, and no longer, to exercise any unexercised Option and/or Rights
that he could have exercised on the day on which such employment or service
terminated; provided, that such exercise must be accomplished prior to the
expiration of the term of such Option and Rights. Notwithstanding the foregoing,
if the cessation of employment or service is due to retirement on or after
attaining the age of sixty-five (65) years, or to disability (to an extent and
in a manner as shall be determined in each case by the Committee in its sole
discretion) or to death, the holder or the representative of the Estate or the
heirs of a deceased holder shall have the privilege of exercising the Options
and Rights which are unexercised at the time of such retirement, or of such
disability or death; provided, however, that such exercise must be accomplished
prior to the expiration of the term of such Option and Rights and (a) within
three months of the holder's retirement or disability, or (b) within six months
of the holder's death, as the case may be. If the employment or service of any
holder of an Option or Rights with the Corporation or a Subsidiary shall be
terminated because of the holder's violation of the duties of such employment or
service with the Corporation or a Subsidiary as he may from time to time have,
the existence of which violation shall be determined by the Committee in its
sole discretion (which determination by the Committee shall be conclusive) all
unexercised Options and Rights of such holder shall terminate immediately upon
such termination of the holder's employment or service with the Corporation and
all Subsidiaries, and a holder of Options or Rights whose employment or service
with the Corporation and Subsidiaries is so terminated, shall have no right
after such termination to exercise any unexercised Option or Rights he might
have exercised prior to the termination of his employment or service with the
Corporation and Subsidiaries.
Except as hereinafter provided, if a holder of a Restricted Stock Award
shall voluntarily or involuntarily leave the employ of the Corporation or any
Subsidiary, all Restricted Shares subject to restrictions at the time his
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employment terminates (and any dividends, distributions and adjustments retained
by the Corporation with respect thereto) shall be forfeited and any
consideration received therefor from the holder shall be returned to the holder.
Notwithstanding the foregoing, all restrictions to which Restricted Stock Awards
are subject shall lapse (a) upon the death or disability of the holder, (b) upon
the occurrence of such special circumstance or event as in the opinion of the
Committee merits special considerations [or (c) upon a Change in Control while
the holder is employed by, or serving as a director of, the Corporation or a
Subsidiary].
16. Adjustment Provision. If prior to the complete exercise of any Option,
or prior to the satisfaction, expiration or lapse of all of the restrictions and
conditions imposed pursuant to a Restricted Stock Award, there shall be declared
and paid a stock dividend upon the Shares or if the Shares shall be split up,
converted, exchanged, reclassified, or in any way substituted for,
(a) in the case of an Option, then the Option, to the extent that it has
not been exercised, shall entitle the holder thereof upon the future exercise of
the Option to such number and kind of securities or cash or other property
subject to the terms of the Option to which he would have been entitled had he
actually owned the Shares subject to the unexercised portion of the Option at
the time of the occurrence of such stock dividend, split-up, conversion,
exchange, reclassification or substitution, and the aggregate purchase price
upon the future exercise of the Option shall be the same as if the originally
optioned Shares were being purchased thereunder; and
(b) in the case of a Restricted Share issued pursuant to a Restricted
Stock Award, the holder of such Award shall receive, subject to the same
restrictions and other conditions of such Award as determined pursuant to the
provisions of Section 12, the same securities or other property as are received
by the holders of the Corporation's Shares pursuant to such stock dividend,
split-up, conversion, exchange, reclassification or substitution.
Any fractional shares or securities issuable upon the exercise of the Option as
a result of such adjustment shall be payable in cash based upon the Fair Market
Value of such shares or securities at the time of such exercise. If any such
event should occur, the number of Shares with respect to which Incentive Awards
remain to be issued, or with respect to which Incentive Awards may be reissued,
shall be adjusted in a similar manner.
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In addition to the adjustments provided for in the preceding paragraph,
upon the occurrence of any of the events referred to in said paragraph prior to
the complete exercise of any Rights, the Board of Directors, in its sole
discretion, shall determine the amount of cash and/or number of Shares or other
property to which the holder of the Rights shall be entitled upon their
exercise, so that there shall be no increase or dilution in the cash and/or
value of the Shares or other property to which the holder of Rights shall be
entitled by reason of such events.
In the event of a recapitalization, merger, consolidation, rights
offering, separation, reorganization or liquidation, or any other change in the
corporate structure or outstanding Shares, the Committee may make such equitable
adjustments to the number of Shares and the class of shares available hereunder
or to any outstanding Incentive Awards as it shall deem appropriate to prevent
dilution or enlargement of rights.
17. Issuance of Shares and Compliance with Securities Act. The Corporation
may postpone the issuance and delivery of Shares pursuant to the grant or
exercise of any Incentive Award until (a) the admission of such Shares to
listing on any stock exchange on which Shares of the Corporation of the same
class are then listed, and (b) the completion of such registration or other
qualification of such Shares under any State or Federal law, rule or regulation
as the Corporation shall determine to be necessary or advisable. Any holder of
an Incentive Award shall make such representations and furnish such information
as may, in the opinion of counsel for the Corporation, be appropriate to permit
the Corporation, in the light of the then existence or non-existence with
respect to such Shares of an effective Registration Statement under the
Securities Act of 1933, as from time to time amended (the "Securities Act"), to
issue the Shares in compliance with the provisions of the Securities Act or any
comparable act. The Corporation shall have the right, in its sole discretion, to
legend any Shares which may be issued pursuant to the grant or exercise of any
Incentive Award, or may issue stop transfer orders in respect thereof.
18. Income Tax Withholding. If the Corporation or a Subsidiary shall be
required to withhold any amounts by reason of any Federal, State or local tax
rules or regulations in respect of the issuance of Shares pursuant to the grant
or exercise of any Incentive Award, the Corporation or the Subsidiary shall be
entitled to deduct and withhold such amounts from any cash payments to be made
to the holder of such Incentive Award. In any event, the holder shall
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make available to the Corporation or Subsidiary, promptly when requested by the
Corporation or such Subsidiary, sufficient funds to meet the requirements of
such withholding; and the Corporation or Subsidiary shall be entitled to take
and authorize such steps as it may deem advisable in order to have such funds
made available to the Corporation or Subsidiary out of any funds or property due
or to become due to the holder of such Incentive Award.
19. Amendment of the Plan. Except as hereinafter provided, the Board of
Directors or the Committee may at any time withdraw or from time to time amend
the Plan as it relates to, and the terms and conditions of, any Incentive Awards
not theretofore granted, and the Board of Directors or the Committee, with the
consent of the affected holder of an Incentive Award, may at any time withdraw
or from time to time amend the Plan as it relates to, and the terms and
conditions of, any outstanding Incentive Award. Notwithstanding the foregoing,
any amendment by the Board of Directors or the Committee which would increase
the number of Shares issuable under the Plan or to any individual or change the
class of Eligible Persons shall be subject to the approval of the shareholders
of the Corporation within one year of such amendment.
20. No Right of Employment. Nothing contained herein or in an Incentive
Award shall be construed to confer on any employee, director or consultant any
right to be continued in the employ of the Corporation or any Subsidiary or as a
director of, or consultant to, the Corporation or a Subsidiary or derogate from
any right of the Corporation and any Subsidiary to retire, request the
resignation of, discharge, or terminate its consulting arrangement with, such
employee, director or consultant (without or with pay), at any time, with or
without cause.
21. Effective Date of the Plan. This Plan is effective as of ____________,
1998.
22. Final Issuance Date. No Incentive Award shall be granted under the
Plan after _____________, 2008.
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Exhibit 10.11
Agency Agreement
================================================================================
EXCLUSIVE AGENCY AGREEMENT
THIS EXCLUSIVE AGENCY AGREEMENT (the "Agreement") is made and entered into this
____ day of _____, 1996, by and between URSUS TELECOM CORPORATION (hereinafter
referred to as "Ursus") __ __ a corporation duly formed under the laws of the
State of Florida, and _________________________ (hereinafter referred to as
"Agent") a Company duly incorporated under the laws of ___________________.
W I T N E S S E T H:
WHEREAS, Ursus is a provider of enhanced telecommunications services engineered
to provide efficient and reasonably priced international and domestic long
distance services to persons residing both within and outside of the United
States; and
WHEREAS, Ursus desires to make its Services available to Subscribers within the
Territory, as hereinafter defined, through selected sales representatives; and
WHEREAS, Ursus desires to appoint Agent as its exclusive sales representative
within the Territory and Agent desires to be appointed as such exclusive sales
representative for Ursus in the Territory, subject to and in accordance with the
terms and conditions set forth here
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ARTICLE I
DEFINITIONS
A. Defined Terms. The following terms when used herein shall have the meanings
set forth below.
1. Agent. Agent shall mean the party designated as such above. Agent shall
maintain an independent sales organization and by entering this Agreement does
hereby commit financial and other resources to the representation of Ursus in
the sales of its Services within the Territory.
2. Additional Services. Additional Services shall mean those Additional Services
that enhance the flexibility and usefulness of the Ursus Services that enhance
the flexibility and usefulness of the Ursus system and are made available to
Subscribers from time to time by Ursus system and are made available to
Subscribers from time to time by Ursus in accordance with a price list
applicable thereto and provided to agent and/or the Subscriber by Ursus.
3. Commission. Commission shall mean the sum paid by Ursus to Agent, which
Commission is determined by applying the Commission Rate to the total of
Subscriber charges billed and paid to Ursus -net of Subscriber credits and
adjustments processed on Agent's request, and accepted by Ursus- with respect to
the period of time for which the Commission is then being paid.
4. Commission Rate. Commission Rate shall mean the rate of Commission to be paid
to Agent for the sale of Ursus' telecommunications services to users within the
Territory. Such Commission Rate shall be applicable only to sums actually billed
by and collected by Ursus from a Subscriber within the Territory.
5. Services. Services shall mean those Services more particularly described in
Exhibit "A" attached hereto and made a part hereof.
6. Sub-Agents. Sub-agents shall mean independent sales agents, including
entities operating sales offices, contracting with Agent to serve as a
representative of Agent in marketing the Services within the Territory. Agent
shall be fully responsible for overseeing all of the Sub-Agents and shall be
fully responsible for compensating them from Commissions earned by it.
7. Subscriber. Subscriber shall mean any user, individual or collective, within
the Territory who executes a Subscriber's Agreement which is also executed by
Agent and accepted by Ursus.
8. Subscriber's Agreement. Subscriber's Agreement shall mean the agreement
executed between Agent and Subscriber, pursuant to which Ursus shall provide
Services to Subscribers, as same may be amended or revised by Agent from time to
time.
9. Subscription Rates. Subscription Rates shall mean the rates charged by Ursus
to Agent for Services provided to Agent's Subscribers under a Subscriber's
Agreement, which rates may change from time to time.
10. Territory. Territory shall mean the geographical area in which Agent shall
be the exclusive Agent of Ursus: _______________________, herein after referred
as Territory.
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ARTICLE II
APPOINTMENT OF AGENT
A. Appointment and Acceptance. Ursus hereby designates and appoints Agent as its
exclusive Agent, subject to the terms hereof, to solicit, market, promote and
sell its Services to potential Subscribers and to service such Subscribers
throughout the Territory. Agent accepts such appointment and agrees to exert its
best efforts and to devote sufficient financial resources as appropriate to
market and sell the Services throughout the Territory.
B. Sub-Agents. Agent may contract with Sub-Agents within the Territory. Agent
shall be fully responsible and liable for the performance of its Sub-Agents.
Agent shall properly train its Sub-Agents in the marketing and sale of the
Services. Agent shall provide Ursus with the name of its Sub-Agents and such
reasonable information as is available to it concerning the Sub-Agents
experience and reputation. Ursus, either initially or at any subsequent time,
may reject the Sub-Agent and Agent agrees to immediately suspend use of any
Sub-agent upon notice to do so from Ursus.
D. Covenant Not to Compete. During the term of this Agreement, and for a period
of twenty-four (24) months following the termination hereof, for any reason,
Agent covenants and agrees that it will not, either directly or indirectly,
without first having obtained written permission of Ursus, solicit or arrange,
or own an interest in or serve as an employee, agent or consultant of or to any
entity which solicits or arranges for the sale or representation of any products
or services within the Territory which compete with or can reasonably be used in
substitution for the Services. Nothing contained herein is intended to prohibit
Agent's sale of related hardware products such as phones, answering machines or
other like devices which do not directly compete with Ursus.
ARTICLE III
SERVICES
A. Services to be Offered and Provided. Ursus may add Additional Services at its
discretion. Ursus shall attempt to give Agent reasonable advance notice of any
Additional Services it intends to offer. Ursus shall provide Agent with
appropriate training concerning such Additional Services to the extent deemed
appropriate by Ursus, and Agent agrees to participate in such training and to
train its Sub-Agents and employees with respect thereto. Such additional
Services shall, upon notice to Agent of their availability, be deemed to be
included among the Services available hereunder. Agent agrees that it and any
Sub-Agents utilized by it shall offer Subscribers the full array of Services
available from Ursus, including any Additional Services then being provided by
Ursus. Agent further agrees that it will offer any Additional Services made
available by Ursus to all existing Subscribers who had entered a Subscriber's
Agreement before such Additional Services became available.
B. Discontinued Services. Ursus shall have the right, at any time in its sole
discretion, to discontinue the offering of any Services that it determines to be
unprofitable or otherwise undesirable. Ursus will provide appropriate
information and consult with Agent with regards to the timing, with the aim to
cure eventually existing problems. Ursus may, likewise, terminate the right of
Agent to offer any Service which Ursus determines Agent is improperly or
inadequately marketing to Subscribers. Ursus will give Agent written
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notice of the discontinuance of any such Discontinued Services and Agent and its
Sub-Agents shall immediately cease the marketing and sale of same. Agent shall
further notify all Subscribers of the unavailability of such Discontinued
Services.
ARTICLE IV
TRADEMARKS
A. Use and Protection of Tradename and Trademark. During the term of this
Agreement, Agent is granted the right to use the tradename and trademark of
Ursus, together with such other service marks, trade names or copyrighted
material which are the property of Ursus, in, and only in, connection with the
marketing and sale of Services under this Agreement. Agent agrees to take such
action as is appropriate to prevent infringement of the trademark and tradename
by others within the Territory and to preserve Ursus' rights in such tradenames
and trademarks. Agent shall immediately notify Ursus of any infringement that
becomes known to Agent. Agent and all of its Sub-Agents shall immediately cease
and desist use of the Ursus tradename and trademark on demand from Ursus or on
termination of this Agreement, whichever first occurs.
B. Registration. Agent agrees, at its expense, to register, for use throughout
the Territory, the Ursus tradename and trademark on behalf of and in the name of
Ursus. Agent shall provide Ursus, within ninety (90) days from the date of this
Agreement, with all necessary completed applications and forms required to be
signed by Ursus in order to register its tradename and trademark in the
Territory for Ursus' approval and execution. Agent shall work with Ursus to
amend and modify such documents as necessary to properly permit such
registration. All rights in any such registration shall vest solely Ursus.
C. Alleged Infringement of Service Marks. Any notices received by Agent alleging
any infringement by it or by Ursus of any other parties' service mark, trade
mark, or notice of actual or pending litigation pertaining to Ursus or the
Services shall be provided to Ursus immediately by Agent. Agent will reasonably
aid and assist Ursus in any reasonable manner required in defense of any such
claims or litigation. Agent shall immediately cease use of any trademark or
tradenames and cease sale and marketing of any Service upon notice form Ursus
based upon an alleged infringement that might be caused by continued use
thereof.
ARTICLE V
OBLIGATIONS OF URSUS
A. Provision of Services. Ursus shall use reasonable efforts to design its own
network in such a manner as will comply with its obligations under the
Subscriber's Agreements and will be responsible for maintaining the integrity
of its telecommunications network. Ursus shall use reasonable efforts to design
its own network and provide its Services in a manner that will meet the
specifications of a maximum of one busy signal for every one hundred (100)
calls.
B. Training. Ursus shall be responsible for providing training programs to
Agent. Such training may be conducted, at Ursus discretion, at its facilities
in Sunrise, Florida or at such other places as Ursus believes will be convenient
and beneficial to Agent. Agent shall be responsible for its and its Sub-Agents,
and employees' travel costs and expenses
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<PAGE>
incurred to travel to and attend the training, and shall reimburse Ursus, in
addition to the sum for the initial training stated in Section VI(E) hereof, for
the costs and expenses incurred by it in sending its representatives to conduct
such training session if at other than Ursus' offices in Sunrise, Florida. If a
training session conducted by Ursus is for the benefit of multiple agents,
Agent shall be responsible only for its pro rata share of Ursus' costs and
expenses based on the number of attendees. Ursus may, in its discretion, provide
Agent with written materials concerning the Services. Unless designated
otherwise, all such materials shall be held in confidence by Agent on behalf of
Ursus and shall be returned to Ursus on demand by it or on termination of this
Agreement, for any reason, whichever first occurs.
C. Promotional Materials and Prices. Ursus, at its sole discretion, shall
provide Agent with reasonable support and advertising material for the promotion
of the Services. Ursus may provide Agent with promotional and advertising
materials from time to time, and Agent agrees to use such material in its
marketing and sales efforts. Agent agrees that it will, at its expense,
translate into the language predominately spoken in the Territory all
promotional materials provided it by Ursus. Ursus shall at its expense,
translate the Subscriber's Agreement into the language predominately spoken in
the Territory, and provide written current pricing of Services to Agent from
time to time. It is understood that the prices stated in any printed matter are
subject to modification and alteration by Ursus, effective immediately upon
notice to Agent. Agent shall immediately cease the use of any promotional
material or pricing provided by Ursus upon written notice from Ursus to do so.
E. Subscriber Records. Ursus shall keep proper accounts and other records
documenting its provision of Services to Subscribers. As such, records that
relate only to Subscribers, and only in the event of a dispute between Ursus
and Agent as to the amount of Commission due to Agent, shall these be open to
Agent for inspection and then only during normal business hours and upon
reasonable notice by Agent or its authorized representative. Ursus shall
provide Agent with a daily summary of all subscriber activity with respect to
which Commissions are due Agent.
F. Subscriber's Activity Reports. Ursus has the ability to provide Subscribers
with monthly reconciliation reports of their utilization of the Services. Such
reports may contain detailed information concerning all calls placed on
Subscriber's account or with reference only to the country called. Agent shall
advise Subscriber of this ability and the differing charges, if any, applicable
thereto and notify Ursus of the method of reporting chosen by each Subscriber.
ARTICLE VI
OBLIGATIONS OF AGENT
A. Sales Efforts and Subscriber Service. Agent shall use its best efforts to
solicit, promote and arrange for the sale of Services in the Territory, shall
distribute approved information concerning the Services and Ursus, and shall
follow up all inquiries made by persons in the Territory concerning the
purchase of the Services. Agent shall cooperate with Ursus in connection with
any sales program which Ursus wishes Agent to undertake in the Territory.
Additionally, Agent shall continuously service the Subscribers in the
Territory, and at the request of Ursus service other accounts not originated by
Agent, and assist all of same in utilizing the Services. Agent shall use its
best efforts to assure Subscriber satisfaction with the Services being provided.
Agent shall attempt to remedy
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<PAGE>
any Subscriber complaint or problem an will promptly notify Ursus of same if
Agent is unable to fully solve the problem.
B. Staffing and Training. Agent shall employ and retain a sufficient and
adequately trained staff and/or a sufficient number of Sub-Agents as necessary
in order to carry out its responsibilities and obligations under this Agreement.
If any of Agent's employees and/or Sub-Agents did not attend initial training
provided by Ursus, thereafter, Agent will have the sole responsibility for
providing these employees and Sub-Agents with the necessary training and
support for the promotion and sale of the Services. Agent shall make itself and
its employees and Sub-Agents available, at its own expense, to receive training
from Ursus in accordance with the terms hereof.
C. Agent as Subscriber. Agent shall become a Subscriber of the Services and
shall execute a Subscriber's Agreement, in the standard form and under standard
conditions, for the provision of Services to Agent. Agent, and any of its
employees or Sub-Agents authorized by Agent may use such Services. The tariff to
be applied will be the published rates (Exhibit A) discounted 30%.
D. Agent's Facilities. Agent shall maintain a sufficient number of sales offices
and business offices in the Territory as are necessary an appropriate for Agent
to adequately market and sell the Services. Such offices will be open during
normal business hours. Agent shall prominently display, on its office doors,
the name and logo of Ursus in a form approved by Ursus.
E. Agent's Expenses. Agent shall be solely responsible for all costs of
conducting its business, including, but not limited to, the maintaining,
operating, equipping an furnishing of its offices, the payment of any rent,
taxes, insurance and expenses incident to its operations, and the compensation,
fees, costs and other benefits provided to its employees, Sub-Agents, or others
providing services to Agent. Agent shall pay Ursus, within thirty (30) day's
from the date hereof, Ten Thousand U.S. Dollars (U.S. $10,000) in reimbursement
for costs incurred and services rendered in connection with its assisting and
training Agent, in accordance with Ursus' initial training package, in
establishing and setting up its operations.
F. Terms of Sale. Agent shall not render or give any special consideration,
discount, rebate or promotional benefit, that may be legally construed as a
kickback or bribe. Agent shall not make any additional charges to any
Subscriber without the express advance written approval of Ursus.
G. Rates for International Calls from the Territory. Agent shall become well
educated in the applicable long distance rates of the Territory. Agent shall
provide Ursus with a schedule of the current rates in effect for international
telephone calls originating within the Territory through carriers providing
long distance telephone services within the Territory. Such schedule shall be
provided to Ursus not later than fifteen (15) days after the execution of this
Agreement and will be continuously updated by Agent, and Ursus shall be
notified of any changes thereto within ten (10) days after any change in such
rates.
H. Promotional Materials. Ursus has the right to disapprove -at its sole
discretion- any material to be used in the advertising and/or promotion of
Services which Ursus considers prejudicial to the image of Ursus's Services
or its trademark.
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I. Compliance With Laws. Agent will comply with all laws and regulations
applicable to Agent's activities hereunder, and will assist Ursus in complying
with any such local laws of the Territory applicable to it.
J. Agent's Reports. Agent shall submit to Ursus such reports as may be requested
from time to time by Ursus, including, but not limited to, a monthly activity
report identifying sales activity and Subscriber service visits conducted
during the prior month.
ARTICLE VII
AGENT COMPENSATION
A. Basis of Compensation. During the term of this Agreement, Ursus shall pay to
Agent, in full satisfaction and payment for its services hereunder, a Commission
on the amounts invoiced Agent by Ursus, for Services rendered by Ursus to
Subscribers within the Territory.
B. Rate of Commission. The current effective Commission Rate payable to Agent
shall be fifteen (l5%) percent.
C. Subscriber Credits. No compensation shall be payable for Services which are
refused by the Subscriber and is granted by Ursus in its sole discretion, or for
which payment is refused or otherwise not made by the Subscriber or the
Subscriber's credit card company. If any compensation has been paid to Agent
for such Services, Agent shall repay such amount received from Ursus upon
demand; in the alternative, Ursus shall have the right to deduct such amount
from any amount then or thereafter due Agent from Ursus. If any charge for
Services rendered to a Subscriber is then being challenged by the Subscriber,
any Commission due to Agent with respect to such disputed charges shall be
deferred until the dispute is finally resolved.
D. Fees and charges. Ursus shall have the exclusive right to set and establish
the recurrent fees and charges to be assessed to Subscribers and to establish
any discounts or promotional allowances with respect to Subscribers. Upon
giving Agent not less than ten (10) days written notice, Ursus shall have the
right, from time to time, to change its fee schedule which may be in effect
provided that such notice shall not be required for any particular rate change
caused by changes in telephone rates which become applicable without notice.
E. Payment. Payments of Ursus Invoices for call traffic originated in Agent's
territory are the sole responsibility of Agent. Subscribers' bills will be
proportionately distributed into four (4) billing cycles. Each subscriber's
call activity will be compiled in detail, and invoiced monthly. Ursus will
invoice Agent four (4) times per month. The Invoices will reflect the call
activity of Agent's Subscribers in each billing cycle. Ursus' Invoice will
cover the Subscriber's call activity for the prior 30 days. Each and everyone
of Ursus' Invoices must be paid 14 days after the date in which Invoices are
received. It is Agent's responsibility to inquire and to ascertain that
Invoices are received in the customary date for each of the four (4) cycles.
Ursus' invoice will show the calculation of the Commission payable to Agent.
Commission due shall be retained by Agent, after deductions for credits and
amounts due Ursus from Agent, if any. Failure to make timely payments of any
amount owed Ursus, and failure to cure within ten(10) days from the notice
thereof will constitute reason for immediate suspension of Ursus' Services.
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Payment will be made by wire transfer to Ursus' account with Citibank in New
York City, account number 36133091, as per detailed instructions in Annex "B".
F. Errors and Omissions. Agent shall give prompt notice of any error or omission
from the statement provided by Ursus immediately upon the same becoming known to
Agent. In the event that Agent does not give written notice of any such error
or omission within ninety (90) days after receipt of such statement, then Agent
shall be forever barred from making any claim against Ursus by reason of any
such alleged error in the calculation of the Commission payable to Agent for
said period.
G. Additional Compensation. Ursus may, in its discretion, pay additional
compensation to Agent for services rendered by Agent on its behalf.
ARTICLE VIII
EFFECTIVE DATE, TERM AND RENEWAL
A. Effective Date, Term, and Renewal. This Agreement shall become effective
immediately upon its execution by all the parties hereto, and the initial term
of 5 years hereof shall expire on_______. Provided that Agent is not then in
default hereunder, Agent shall have the option, exercisable by written notice
given not less than six (6) months prior to the expiration date of the expiring
term, of renewing this Agreement for two (2) additional terms of three (3) years
each. Failure to timely exercise either such option shall result in a waiver and
loss of all such rights by Agent. Failure to exercise the first renewal option
shall also extinguish the second renewal option and same shall not thereafter be
available to Agent.
B. Termination. This Agreement may be terminated by the party designated below
under the following conditions:
(1) by both parties in the event of the mutual written agreement of the
parties;
(2) by the non-defaulting party, immediately upon written notice to that
effect, in the event that the other party is in default of its obligations
hereunder, which as to Agent shall include, but not be limited to, the
obligations set forth in Article VI above, and fails to cure such default
within twenty (20) days following receipt of written notice specifying the
nature of the default from the non-defaulting party;
(3) by Ursus, on thirty (30) days advance written notice, if Agent fails
to demonstrate the ability to make available, or, notwithstanding such
ability, fails to make available for its business operations sufficient
capital as required by Article VI above;
(4) by Ursus, on thirty (30) days advance written notice, if the legal
status of Agent is changed without the prior written approval of Ursus,
which approval shall not be unreasonably withheld;
(5) by either party, on thirty (30) days advance written notice, if the
other party makes an assignment for the benefit of creditors, files a
petition in bankruptcy, petitions or applies to any tribunal for the
appointment of a custodian, receiver, or trustee for it or a substantial
part of its properties or assets, commences any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of
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debt, dissolution, or liquidation law or statute of any jurisdiction, or
if there shall have been filed any involuntary petition or application
against said party and same remains undismissed for a period thirty (30)
days or more, or said party indicates its consent to, approval of, or
acquiescence in any such petition or application;
(6) by either party, immediately upon written notice to that effect, in the
event that the other party ceases business activities for any reason
whatsoever; or
(7) by Ursus, immediately upon written notice that effect in the event of
the sale or disposition by Agent of substantially all of its stock or
assets, or the attempted assignment by Agent of this Agreement, without
the advance written consent of Ursus.
C. Failure to Act not a Waiver. The waiver of any breach or default hereunder
and/or the failure of any party to terminate this Agreement in the event of the
occurrence of any one or more of those events described above, shall not be
implied to constitute a waiver of such breach or failure, either then or in the
future, or constitute a waiver of the right of such party to terminate this
Agreement as a result of such occurrence or on account of any subsequent
occurrence giving rise to such rights. Further, the election by a party to
exercise the right to terminate this Agreement as aforementioned, shall not be
deemed a release by said party of the party whose conduct, acts or omissions
gave rise to such termination rights, and notwithstanding such termination, the
party terminating this Agreement may continue to pursue such remedies as might
be available to it under the law or in equity.
ARTICLE IX
MISCELLANEOUS
A. Independent Contractor Status. The parties agree that Ursus and Agent each
are independent contractors as to each other and as such are solely responsible
for, among other things, the conduct of and the duties and obligations of its
own employees and agents. Neither party shall have any authority to bind the
other except as may be specifically set forth herein. Agent shall not be
deemed to be the agent or employee or otherwise represent Ursus except as
expressly provided in this Agreement.
B. Indemnification. Agent hereby agrees to indemnify and hold harmless Ursus
from any and all damages, claims, losses, fees and expenses incurred by Ursus,
including reasonable legal fees and costs incurred in defense of any such
claims, which arise, relate to, or are as a result of the conduct, acts or
omissions of Agent, its Sub-Agents, servants or employees.
C. Assignment. Agent shall not sell nor assign its rights hereunder nor delegate
any of its performance obligations and duties, except as expressly permitted
hereunder, without the prior written consent of Ursus.
D. Amendment. This Agreement may not be amended or modified except in a writing
signed by all parties hereto.
E. Further Instruments. each party hereto agrees that they will take such
further acts and shall execute and deliver such further instruments and
documents as may be reasonably necessary to carry out the purposes and intent
of this Agreement.
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F. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
G. Binding Effect. This Agreement shall be binding upon, an shall inure to the
benefit of, the permitted successors and assigns of the parties hereto.
H. Entire Agreement. This Agreement constitutes and contains the entire
agreement of the parties hereto and supersedes any and all prior negotiations,
correspondence, understandings and agreements among the parties respecting the
subject matter hereof.
I. Severability. The invalidity or/and unenforceability of any provision of this
Agreement shall not affect the validity and enforceability of applicability of
the remaining portions of this Agreement.
J. Gender and Number. Whenever required by the context hereof, the singular and
plural shall be deemed inclusive of each other and the use of any pronouns
shall be deemed to include the masculine, feminine and neuter as appropriate.
K. Headings. all headings used herein are for convenience only and shall not be
deemed to be part of this Agreement with respect to the interpretation hereof.
M. Notices. All notices required or permitted to be given hereunder shall be in
writing and shall be delivered by personal delivery, by recognized national
(as to and from locations within the U.S.) or international (as to and from
locations outside the U.S.) courier service such as Federal Express or DHL or by
registered or certified mail with postage and fees prepaid, addressed to the
parties as follows:
If to Ursus: Ursus Telecom Corporation
440 Sawgrass Corporate Parkway
Suite 112
Sunrise, Florida 33325
U.S.A.
Attn: Chief Operating Officer
with a copy to: Stroock & Stroock & Lavan
200 South Biscayne Boulevard
3300 First Union Financial Center
Miami, Florida 331131-2385
U.S.A.
Attn: Arnold D. Shevin, Esq.
If to Agent:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
Attn: --------------------------
Either party may change the addresses for or persons to whom notices are to be
directed,by giving written notice to the other party in the manner set forth
herein. All notices shall be deemed given when received by the other party, or
on the date shown on the delivery
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<PAGE>
or return receipt as the date delivery was refused or determined to be
impossible to accomplish.
N. Force Majeure. Either party to this Agreement shall be excused from
performance of its duties for a reasonable length of time in the event that it
is prevented from performing such duties due to acts of government, war, natural
disaster, civil turmoil, industry which adversely affect the abilities of the
parties to perform their obligations or provide the services contemplated to be
available hereunder, or other similar factor which is beyond the control of the
party seeking to be excused from performance.
0. Governing Law
The parties agree that this Agreement shall be construed in accordance with, and
governed in all respects by the laws of the State of Florida, and jurisdiction
and venue with respect to any litigation which may be based upon, arise under
or in anyway relate to this Agreement, shall be in the County of Broward, State
of Florida or such other county within Florida where the corporate offices of
Ursus may be located at the time of commencement of the litigation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
URSUS TELECOM CORPORATION AGENT
By: By:
-------------------------------- ----------------------------------
Title: Title:
----------------------------- -------------------------------
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<PAGE>
EXHIBIT 10.12
URSUS TELECOM FRANCE
Protocol of Agreement
of November 20, 1997
<PAGE>
PROTOCOL OF AGREEMENT
Between the undersigned:
Ursus Telecom Corporation, a company subject to the laws of the State of Florida
(United States), headquartered at 440 Sawgrass Corporate Pkwy, Suite 112,
Sunrise, FL 33325 USA, and represented by Mr. Luca Giussani,
hereinafter referred to as "Ursus Telecom Corporation,"
As party of the first part,
And,
Central Call International, a limited liability company with capital in the
amount of 50,000 francs, headquartered at 110, rue de Longchamp in Paris
(75116), registered in the Register of Commerce and Companies of Paris under the
number B 395 189 061, and represented by its manager, Mr. Guillaume de
Beaurepaire,
hereinafter referred to as "Central Call,"
As party of the second part,
And,
Mondial Telecom, a limited liability company with capital in the amount of
55,000 francs, headquartered at 34, boulevard Exelmans in Paris (75016), in the
process of being assigned a registration number in the Register of Commerce and
Companies of Paris following the transfer of the headquarters from Papeete to
Paris, and represented by its manager, Mr. Paul-Henry Derly,
hereinafter referred to as "Mondial Telecom,"
As party of the third part.
It being stipulated that "Party" signifies any one of the Parties to the present
protocol of agreement and that "Parties" refers indiscriminately to all the
Parties to the present protocol of agreement.
IT HAS PREVIOUSLY BEEN ESTABLISHED:
(A) Ursus Telecom Corporation, Central Call and Mondial Telecom each carry out
an activity related to the supply and marketing of telecommunications
services open to competition.
(B) Ursus Telecom Corporation, Central Call and Mondial Telecom have indicated
the desire to combine the experience they have acquired separately and to
establish a partnership that shall allow them to enhance and exploit their
complementarity to the greatest extent possible.
(C) The partnership between Ursus Telecom Corporation, Central Call and Mondial
Telecom shall take the form of a capitalistic alliance within Ursus Telecom
France, a limited liability company with capital in the amount of 50,000
francs, headquartered at 110, rue de Longchamp in Paris (75116), registered
in the Register of Commerce and Companies of Paris under the number B 413
441 395, and whose articles of incorporation appear in Attachment 1 hereto,
it being clarified that to date, Ursus Telecom
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<PAGE>
Corporation owns almost all the shares of capital stock (hereinafter "Ursus
Telecom France").
Consequently, Ursus Telecom Corporation, Central Call and Mondial Telecom
have agreed to enter into the present protocol of agreement that sets forth
the basic principles and terms of the partnership they have decided to
establish for the operation and development of Ursus Telecom France
(hereinafter the "Protocol"), with the stipulation that certain provisions
of the Protocol shall be reviewed, detailed and finalized in definitive
agreements that shall be entered into by the Parties or by the Parties and
Ursus Telecom France.
THIS HAVING BEEN ESTABLISHED, IT HAS BEEN AGREED AS FOLLOWS:
Article 1 - Activities of Ursus Telecom France
1.1 Operation of Ursus Telecom France
Ursus Telecom France has and shall have as activity (i) the installation
and operation on French territory of telecommunications equipment set up or
used to supply the public with telecommunications services (ii) the supply
and marketing of all telecommunications services open to competition and
free enterprise, and (iii), subject to procurement of the authorizations
required by the French Postal and Telecommunications Code, the supply and
marketing of telecommunications services subject to prior government
authorization.
The Parties agree that the partnership that they have decided to establish
among themselves requires that operation of Ursus Telecom France begin as
soon as possible and no later than January 1, 1998, it being stipulated
that if, on this date, operation of Ursus Telecom France has not begun,
more particularly for reasons associated with the installation of the
technical equipment described in section 1.2 hereinafter, the Parties shall
meet to determine together and in good faith, a new date that, in any
event, may not result in extending the term of the Protocol as such is
stipulated in article 6 hereinafter.
1.2 Obligations of Ursus Telecom Corporation
Ursus Telecom Corporation binds itself to make available to Ursus Telecom
France, under the conditions and in accordance with the terms to be
stipulated in a definitive agreement between Ursus Telecom Corporation and
Ursus Telecom France, all the technical equipment, and primarily a switch
described in Attachment 2 to this protocol, that shall be indispensable to
the operation of Ursus Telecom France, the list whereof shall be
established in the aforementioned definitive agreement.
Ursus Telecom Corporation agrees to make the technical equipment mentioned
in the preceding paragraph available to Ursus Telecom France within a
sufficient time period so as to allow the start-up of operation of Ursus
Telecom France under the conditions described in section 1.1 above.
Ursus Telecom Corporation agrees to insure that the technical equipment
that it shall make available to Ursus Telecom France pursuant to the
present section complies with the legal and regulatory provisions in force
in France.
1.3 Relations between Ursus Telecom Corporation and Ursus Telecom France
Concomitant with the availability of the technical equipment as set forth
by the provisions of section 1.2 above, Ursus Telecom Corporation shall
enter into an agreement according to which Ursus Telecom
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Corporation owns almost all the shares of capital stock (hereinafter "Ursus
Telecom France").
Consequently, Ursus Telecom Corporation, Central Call and Mondial Telecom
have agreed to enter into the present protocol of agreement that sets forth
the basic principles and terms of the partnership they have decided to
establish for the operation and development of Ursus Telecom France
(hereinafter the "Protocol"), with the stipulation that certain provisions
of the Protocol shall be reviewed, detailed and finalized in definitive
agreements that shall be entered into by the Parties or by the Parties and
Ursus Telecom France.
THIS HAVING BEEN ESTABLISHED, IT HAS BEEN AGREED AS FOLLOWS:
Article 1 - Activities of Ursus Telecom France
1.1 Operation of Ursus Telecom France
Ursus Telecom France has and shall have as activity (i) the installation
and operation on French territory of telecommunications equipment set up or
used to supply the public with telecommunications services (ii) the supply
and marketing of all telecommunications services open to competition and
free enterprise, and (iii), subject to procurement of the authorizations
required by the French Postal and Telecommunications Code, the supply and
marketing of telecommunications services subject to prior government
authorization.
The Parties agree that the partnership that they have decided to establish
among themselves requires that operation of Ursus Telecom France begin as
soon as possible and no later than January 1, 1998, it being stipulated
that if, on this date, operation of Ursus Telecom France has not begun,
more particularly for reasons associated with the installation of the
technical equipment described in section 1.2 hereinafter, the Parties shall
meet to determine together and in good faith, a new date that, in any
event, may not result in extending the term of the Protocol as such is
stipulated in article 6 hereinafter.
1.2 Obligations of Ursus Telecom Corporation
Ursus Telecom Corporation binds itself to make available to Ursus Telecom
France, under the conditions and in accordance with the terms to be
stipulated in a definitive agreement between Ursus Telecom Corporation and
Ursus Telecom France, all the technical equipment, and primarily a switch
described in Attachment 2 to this protocol, that shall be indispensable to
the operation of Ursus Telecom France, the list whereof shall be
established in the aforementioned definitive agreement.
Ursus Telecom Corporation agrees to make the technical equipment mentioned
in the preceding paragraph available to Ursus Telecom France within a
sufficient time period so as to allow the start-up of operation of Ursus
Telecom France under the conditions described in section 1.1 above.
Ursus Telecom Corporation agrees to insure that the technical equipment
that it shall make available to Ursus Telecom France pursuant to the
present section complies with the legal and regulatory provisions in force
in France.
1.3 Relations between Ursus Telecom Corporation and Ursus Telecom France
Concomitant with the availability of the technical equipment as set forth
by the provisions of section 1.2 above, Ursus Telecom Corporation shall
enter into an agreement according to which Ursus Telecom
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Corporation shall be responsible for the ordinary maintenance of said
equipment, nor including the supply of spare parts, for a renewable minimum
period of five (5) years, and shall supply Ursus Telecom France with
technical assistance during its use. It shall expressly be agreed, and
Central Call and Mondial Telecom hereby accept, that Ursus Telecom
Corporation shall collect an annual fixed compensation of sixty thousand
dollars US (60,000 $) in exchange for the services that it shall perform
under the aforementioned agreement, it being stipulated that this annual
fixed compensation paid by Ursus Telecom France shall be revised each year
in accordance with the terms that shall be stipulated in the agreement to
be signed by Ursus Telecom Corporation and Ursus Telecom France.
More generally, Ursus Telecom Corporation shall sign any agreements
necessary for the operation and development of Ursus Telecom France.
1.4 Obligations of Central Call and of Mondial Telecom
Central Call and Mondial Telecom agree to transfer to Ursus Telecom France,
under the conditions and in accordance with the terms that shall be set
forth in the definitive agreements signed by Central Call and Ursus Telecom
France, on the one hand, and by Mondial Telecom and Ursus Telecom France on
the other, all of their respective customers and the related files
connected with the supply and marketing in France of the telecommunications
services defined in section 1.1 above, as such customers shall be
described, with respect to Central Call and Mondial Telecom respectively,
in Attachment 3 and in Attachment 4 of this protocol of agreement.
Central Call and Mondial Telecom agree to pay Ursus Telecom Corporation any
amounts they may owe Ursus Telecom Corporation, as needed, no later than
the date set by the Parties in section 1.1 above.
Central Call and Mondial Telecom, as well as Mr. Guillaume de Beaurepaire
and Mr. Paul-Henry Derly, these latter acting on their own behalf, bind
themselves with respect to Ursus Telecom Corporation as of the signing of
the Protocol, to establish the partnership covered by the Protocol as
exclusive, and, as a consequence, not to conduct any discussions or
negotiations, either by themselves or through their respective counsels,
for the purpose of entering into any agreements of any kind with any third
parties involving similar or related activities to those carried out by
Ursus Telecom France.
Central Call and Mondial Telecom, as well as Mr. Guillaume de Beaurepaire
and Mr. Paul-Henry Derly, these latter acting on their own behalf, agree
with respect to Ursus Telecom Corporation as of the date this Protocol
shall be signed, not to carry out, directly or indirectly, in any manner
whatsoever, any activity likely to compete with the activities of Ursus
Telecom France, not to have any interest in or participate in any
investment, directly or indirectly, in any business likely to compete with
Ursus Telecom France for as long as Central Call and Mondial Telecom shall
be shareholders in Ursus Telecom France, pursuant to the provisions of
article 2 hereinafter and for a period of three (3) years after they have
ceased to be shareholders in Ursus Telecom France.
As a consequence of the provisions of the second and third paragraphs
above, Central Call and Mondial Telecom, as well as Mr. Guillaume de
Beaurepaire and Mr. Paul-Henry Derly, these latter acting on their own
behalf, agree to offer first and as a priority to Ursus Telecom Corporation
and to Ursus Telecom France all projects involving activities similar or
related to those carried out by Ursus Telecom France, it being stipulated
that they may only be involved, directly or indirectly, in such activities
if the projects presented were previously rejected by Ursus Telecom
Corporation and by Ursus
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Telecom France within the framework of the provisions of article 3, section
3.2 (f) hereinafter.
Article 2 - Entry of Central Call and Mondial Telecom into the capital of
Ursus Telecom France
2.1 Increase of the capital stock of Ursus Telecom France
The Parties agree that the partnership that they decided to set up between
themselves involves the entry of Central Call and of Mondial Telecom into
the capital of Ursus Telecom France, that shall take the form of a capital
increase whereupon the holding of each of the Parties in the capital of
Ursus Telecom France shall be as follows:
- Ursus Telecom Corporation: fifty percent (50 %) plus two (2) shares of
capital stock;
- Central Call: twenty-five percent (25 %) less one (1)
share of capital stock;
- Mondial Telecom: twenty-five percent (25 %) less one (1)
share of capital stock.
These holdings were determined by the Parties in exchange for the
conventional appraisal of the contributions that each of them shall make to
Ursus Telecom France, under the conditions and in accordance with the terms
that the Parties shall set forth as soon as possible and no later than the
date set in article 2, section 2.2 above, as such contributions are defined
in article 1 above.
The increase of the capital stock of Ursus Telecom France, a part whereof,
or, if necessary, all thereof shall be reserved for Central Call and
Mondial Telecom, shall be accomplished through in-kind contributions or by
cash contributions.
Ursus Telecom Corporation shall insure that the manager of Ursus Telecom
France calls a general meeting of shareholders of Ursus Telecom France for
the purpose of voting on the capital increase described in the present
section no later than the date set by the Parties for the start of
operations of Ursus Telecom France, pursuant to the provisions of article
1, section 11 above.
Ursus Telecom Corporation binds itself with respect to Central Call and
Mondial Telecom, subject to the signing of a shareholders' agreement by the
Parties, as set forth by the provisions of article 5 hereinafter, to ratify
all the resolutions that shall appear on the agenda of the aforementioned
general meeting of shareholders relating to the increase in Ursus Telecom
France capital stock.
Central Call, Mondial Telecom and, as needed, Ursus Telecom Corporation
agree to subscribe all the new shares of capital stock that shall be issued
for their benefit at the time of the increase of Ursus Telecom France
capital, and to pay them up in full through in-kind and/or cash payments or
by compensation with sure, liquid and payable debts that they hold, should
the case arise, on Ursus Telecom France.
2.2 Effective date of the entry of Central Call and Mondial Telecom into the
capital of Ursus Telecom France
The entry of Central Call and Mondial Telecom into the capital of Ursus
Telecom France must take place no later than January 1, 1998, it being
stipulated that if, on this date, the increase in the capital
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stock of Ursus Telecom France has not been completed, the Parties shall
meet to determine a new date that, in any event, may not result in
extending the term of the Protocol, as such is stipulated in article 6
hereinafter.
2.3 Administration of Ursus Telecom France prior to the entry of Central Call
and Mondial Telecom into the capital of Ursus Telecom France
The Parties agree, and Ursus Telecom Corporation shall insure with respect
to Central Call and Mondial Telecom, that during the period between the
date the Protocol shall be signed and the date of entry of Central Call and
Mondial Telecom into the capital of Ursus Telecom France, Ursus Telecom
France shall conduct its activities, insofar as possible, with customary
and due diligence.
Additionally, Ursus Telecom Corporation guarantees Central Call and Mondial
Telecom that no significant strategic, financial, technical or commercial
decisions may be made during the period described in the preceding
paragraph without the prior cooperation of the Parties.
Article 3 - Functioning of Ursus Telecom France
3.1 Management of Ursus Telecom France
The Parties agree that as of the entry of Central Call and Mondial Telecom
into the capital of Ursus Telecom France under the conditions set forth by
the provisions of article 2 above, Ursus Telecom France shall be managed by
two co-managers who shall each have the same powers and who shall be
appointed by the general meeting of shareholders of Ursus Telecom France at
the proposal of Central Call and Mondial Telecom.
Ursus Telecom Corporation agrees to vote in favor of appointing the two
individuals, one proposed by Central Call and the other by Mondial Telecom,
as co-managers of Ursus Telecom France, it being stipulated that the first
two (2) co-managers shall be Mr. Guillaume de Beaurepaire and Mr.
Paul-Henry Derly.
3.2 Ursus Telecom France management decisions
The Parties expressly agree that the powers of the co-managers shall be
limited by the articles of incorporation, and that they must receive the
prior authorization of the shareholder or shareholders, voting under the
conditions set forth by the articles of incorporation and representing the
majority of capital stock shares, for all of the following decisions:
(a) establishment of a subsidiary, opening of a secondary establishment or
of an agency, acquisition of a business, acquisition or subscription
of shares or of capital stock in another company and, more generally,
any acquisition of holdings, direct or indirect, in any legal entity
regardless of the type thereof;
(b) sale of a strategic asset of Ursus Telecom France, it being specified
that this term designates in a general manner any asset necessary for
the operation of Ursus Telecom France or that plays a significant part
in the valorization thereof;
(c) signing of any contract and/or modification of any contractual
relation, including the termination of any contract between Ursus
Telecom France and a co-manager or shareholder or a company in which a
co-manager or a shareholder is directly or indirectly involved;
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<PAGE>
(d) commitment of Ursus Telecom France in projects involving the supply
and sale of telecommunications services subject to prior government
approval;
(e) commitment of Ursus Telecom France in projects that involve the
performance of activities other than those described in article 1
above;
(f) strategic decision or commitment of Ursus Telecom France in projects
that involve investments in excess of one hundred fifty thousand
francs (150,000 Frf);
(g) adoption of the annual budget and of the business plan provided for in
article 3, section 3.3 hereinafter;
(h) securities, endorsements, guarantees given or received by Ursus
Telecom France on its behalf or on behalf of third parties;
(i) endorsement of any loan in an amount greater than fifty thousand
francs (50,000 Frf.);
(j) granting by Ursus Telecom France of a loan or advance to a third
party;
(k) pledge of security collateral, mortgage or the granting of any other
security of any kind whatsoever involving the assets of Ursus Telecom
France.
The Parties expressly agree that the provisions of the present section
shall be integrated into the articles of incorporation of Ursus Telecom
France no later than at the time of the general meeting of shareholders
that must vote on the capital increase described in article 2, section 2.1
above.
3.3 Administration and financing of Ursus Telecom France
The Parties agree that Ursus Telecom France shall be managed on the basis
of an annual budget that shall be presented by the two (2) co-managers and
adopted in accordance with the conditions set forth by the provisions of
section 3.2 (g) above. The annual budget must, in particular, specify the
mode of functioning of Ursus Telecom France.
Additionally, the activities of Ursus Telecom France shall be developed in
accordance with a business plan prepared by the Parties at the start of
each fiscal period and revised on a regular basis.
Article 4 - Provisions pertaining to the sale and assignment of capital stock
shares
4.1 Right of pre-emption
Without prejudice to the enforcement of the provisions of the articles of
incorporation of Ursus Telecom France pertaining to the approval of new
shareholders, and excepting sales of capital stock shares that took place
pursuant to the provisions of section 4.3 hereinafter, any sale of shares
of capital stock contemplated by any of the Parties shall initiate the
right of pre-emption of the other Parties in proportion to the percentage
of shares that they own without taking into consideration the shares of the
Party who is contemplating selling.
The right of pre-emption must be exercised for all the shares offered for
sale by the Party wishing to sell and under the same conditions,
particularly as regards price, as those set forth for the sale initially
planned by said Party.
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4.2 Promise to sell shares of capital stock
Without prejudice to the enforcement of the provisions of the articles of
incorporation of Ursus Telecom France pertaining to the approval of new
shareholders and of those resulting from section 4.3 hereinafter, in the
event the major shareholder plans to sell all his shares of capital stock
to one or more third parties, Central Call and Mondial Telecom irrevocably
bind themselves, unless they exercise their right of preemption as
stipulated in section 4.1 above, to sell to the major shareholder or to the
third-party assignee(s) all the shares they own in the capital stock of
Ursus Telecom France, if the major shareholder and/or the third-party
assignee indicate their desire, under the same conditions, particularly as
regards price, as those set forth for the sale initially planned by the
major shareholder.
4.3 Purchase by Ursus Telecom Corporation of the shares owned by Central Call
and Mondial Telecom
In the event Ursus Telecom Corporation is offered on a regulated market or
stock exchange in the United States, Ursus Telecom Corporation agrees to
purchase all the shares of stock owned by Central Call and Mondial Telecom
in the capital of Ursus Telecom France, if these latter companies so
request, under the conditions and in accordance with the terms that shall
be set forth in a definitive agreement signed by the Parties no later than
at the time of the general meeting of shareholders called to vote on the
capital increase described in article 2, section 2.1 above.
The Parties hereby agree that the purchase by Ursus Telecom Corporation of
all the shares owned by Central Call and Mondial Telecom in the capital
stock of Ursus Telecom France shall take place in three (3) successive
installments each involving the purchase of thirty-three point thirty three
percent (33.33 %) of the shares of capital stock owned respectively by
Central Call and Mondial Telecom; the first purchase must take place on the
first anniversary of the initial offering of Ursus Telecom Corporation on a
regulated market or stock exchange in the United States, the second and
third being carried out respectively on the second and third anniversaries
of said initial offering.
Nevertheless, Central Call and Mondial Telecom shall have the right to
request that Ursus Telecom Corporation purchase the shares of stock that
they own in the capital of Ursus Telecom France either in two (2)
successive installments on the second and third anniversaries of the
initial offering of Ursus Telecom Corporation on a regulated market or
stock exchange in the United States, these purchases involving respectively
sixty-six point sixty-six percent (66.66%) and thirty-three point
thirty-three (33.33 %) of their shares of capital stock, or in a single
purchase on the third anniversary of said initial offering, involving one
hundred percent (100%) of their shares.
The Parties agree that payment for the shares purchased by Ursus Telecom
Corporation from Central Call and Mondial Telecom may be made in cash
and/or in Ursus Telecom Corporation shares. If payment for the shares of
capital stock is made in Ursus Telecom Corporation shares, the Parties
shall do their utmost to insure, as soon as possible and in compliance with
the applicable legal provisions, the possibility of offering said Ursus
Telecom Corporation shares for sale on the market.
The Parties also agree that the price of the shares of capital stock
purchased by Ursus Telecom Corporation from Central Call and Mondial
Telecom shall be determined on the basis of eight (8) months of Ursus
Telecom France revenues calculated according to the average of the three
(3) months of Ursus Telecom France revenues preceding any purchase made
under the conditions set forth in the present section.
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<PAGE>
4.4 Purchase by Central Call and Mondial Telecom of the shares of capital stock
owned by Ursus Telecom Corporation
If Ursus Telecom Corporation has not been offered on a regulated market or
stock exchange in the United States three (3) years from the date the
Protocol shall be signed, Central Call and Mondial Telecom shall purchase
from Ursus Telecom Corporation, who hereby agrees to sell, a sufficient
number of shares of capital stock so that each shall own twenty-five
percent (25 %) of the capital stock of Ursus Telecom France plus one (1)
share of capital stock.
As soon as Central Call and Mondial Telecom each own twenty-five percent
(25 %) plus one (1) share of the capital stock of Ursus Telecom France, and
in the event Central Call and Mondial Telecom plan to sell all or part of
their shares of capital stock to one or more third parties. Central Call
and Mondial Telecom agree to purchase or to have purchased by the
third-party assignee(s) all the shares owned by Ursus Telecom Corporation,
if it so requests, under the same conditions, particularly as regards
price, as those set forth for the sale planned by Central Call and Mondial
Telecom.
Article 5 - Signing of a shareholder' agreement
The Parties agree to negotiate and sign, no later than the meeting of
shareholders that shall convene to vote on the capital increase described in
article 2, section 2.1 above, a shareholders' agreement that shall review,
detail and finalize all the provisions cited by articles 1,2,3 and 4 above.
Article 6 - Term
The Protocol shall be entered into for a period of five (5) months from the date
it is signed, unless this period shall be extended by mutual agreement of the
Parties.
Article 7 - Confidentiality
The Parties agree that the Protocol and its provisions are and shall remain
confidential, and that no disclosure or communication of information concerning
this Protocol may be made in any form whatsoever, without the express and prior
consent of each of the Parties, unless (i) said disclosure shall be made
mandatory by law or the regulations in force or (ii) said disclosure shall be
made in order to respond to requests issued by legal, administrative or stock
exchange authorities or (ii) insofar as said disclosure shall be necessary for
the completion of the transactions covered by the Protocol.
Article 8 - Entire Agreement
The Protocol expresses the entire and sole agreement of the Parties regarding
the provisions covered thereby. Consequently the Protocol supersedes and
replaces any contract, agreement, exchange of letters or verbal agreement that
may have occurred between the Parties prior to the date the Protocol was signed
and pertaining to the same purpose.
Article 9 - Attachments - Modification
9.1 Each of the Attachments shall be an integral part of the Protocol.
9.2 Any modification made to the Protocol may only result from an amendment
signed by the Parties.
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Article 10 - Costs
Each of the Parties shall pay its own costs, charges and other expenses of any
kind whatsoever connected with the negotiation, preparation and implementation
of the Protocol.
Article 11 - Notices
11.1 Any notice or communication of information issued under the Protocol shall
only be effective if it is made in writing and delivered in person or sent
by registered mail, return receipt requested, or by fax, this fax
transmittal must be confirmed the same day by registered letter, return
receipt requested. Said notice or communication shall be considered to have
been received by the recipient Party/Parties, for personal deliveries, on
the day of delivery, for a registered letter, return receipt requested, on
the date indicated on the acknowledgement of receipt and for faxes, on the
day the fax was sent.
11.2 All notices or information shall be sent to the addresses cited at the
beginning of this Protocol or to any address previously indicated by the
Party concerned to each of the other Parties in accordance with the terms
stipulated in section 11.1 above.
Article 12 - Applicable law - Disputes
12.1 The Protocol shall be subject in all its provisions to French law.
12.2 The Parties shall endeavor to settle by amicable arrangement and in good
faith any dispute that may arise among them in connection with the Protocol
and pertaining to the validity, interpretation, the performance and the
consequences thereof.
12.3 If settlement by amicable arrangement fails, any dispute between the
Parties in connection with the Protocol and pertaining to the validity,
interpretation, performance and the consequences thereof will be submitted
to the exclusive competence of the Commercial Court of Paris.
Executed in Paris on November 20, 1997,
in three (3) original copies.
[Signed]
- -----------------------------
For Ursus Telecom Corporation
Mr. Luca Giussani
[Signed]
- -----------------------------
For Central Call
Mr. Guillaume de Beaurepaire
[Signed]
- -----------------------------
For Mondial Telecom
Mr. Paul Henry Derly
<PAGE>
ATTACHMENT 1
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<PAGE>
Ursus Telecom France
A limited liability company with capitalization in the amount of 50,000 francs
Headquarters: 110, rue de Longchamp 75116 Paris
[Stamp - illegible]
ARTICLES OF INCORPORATION
The undersigned:
- - Ursus Telecom Corporation, a company governed by the laws of the Sate of
Florida (United States), headquartered at 440 Sawgrass Corporate Pkwy,
Suite 112, Sunrise, FL 33325 USA, and represented by Mr. Luca Giussani,
- - Mr. Guillaume de Beaurepaire, born November 5, 1941, of French nationality
and residing at 7, rue Villaret de Joyeuse in Paris (75017),
Have decided to form a limited liability company and have adopted the articles
of incorporation set forth hereinafter:
Article 1st - Form
A limited liability company governed by the laws and regulations in force, as
well as by the present articles of incorporation is formed between the owners of
the shares of capital stock created hereinafter and those that may be created
subsequently.
Article 2 - Purpose
The purpose of the Company shall be:
- - the installation and operation on French territory of telecommunications
equipment set up or used to supply the public with telecommunications
services,
- - the supply and marketing of all telecommunications services open to
competition and free enterprise,
- - insofar as needed, and subject to procurement of the authorizations
required by the French Postal and Telecommunications Code, the supply and
marketing of telecommunications services subject to prior government
authorization,
- - all directly or indirectly by means of the creation or new companies and
groups, contributions, limited partnerships, the subscription or purchase
of company shares or rights, mergers, alliances, or the acquisition or
granting in lease or lease-management of all assets and other rights,
- - and generally, all industrial, commercial, financial, civil, personal or
real property transactions that may be directly or indirectly connected
with one of the purposes cited above or with any similar or related
purpose.
[sets of handwritten initials on all pages]
<PAGE>
Article 3 - Name
The name of the Company shall be:
Ursus Telecom France
In all instruments and documents emanating from the Company, the company name
must be immediately preceded or followed by the words "a limited liability
company" or the initials "S.A.R.L." [Inc.] and the statement of the amount of
capital stock.
Article 4 - Headquarters
The main office shall be located at:
110, rue de Longchamp 75116 Paris
The main office may be transferred to any other location in the same department
or in a neighboring department by simple decision of its management subject to
ratification by the next Ordinary General Meeting, and anywhere else in France
pursuant to a vote of the Extraordinary General Meeting.
Article 5 - Term
The term of the Company shall be set at ninety-nine (99) years from the date of
its registration in the Register of Commerce and Companies, unless the company
shall be dissolved early or the term shall be extended.
Article 6 - Contributions
The undersigned make the following contributions to the Company:
Ursus Telecom Corporation, the cash amount of ....................49,900 francs,
Mr. Guillaume de Beaurepaire, the cash amount of ....................100 francs,
i.e., a total of .................................................50,000 francs.
Which sum was deposited, prior to this date, in the account opened in the name
of the Company in formation at the Credit Lyonnais, Corporate Banking Center,
Paris Kleber, as witnessed by a certificate issued by said bank on June 20,
1997.
Article 7 - Capital stock
The capital stock shall be set at fifty thousand francs (50,000 Frf.).
It shall be divided into five hundred (500) shares of one hundred (100) francs
each, fully paid-up.
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Article 8 - Shares of capital stock
The shares of capital stock shall be allocated as follows:
Ursus Telecom Corporation ...........................................499 shares,
Mr. Guillaume de Beaurepaire ...........................................1 share,
[Total] equal to the number of shares making up the capital stock ...500 shares.
Article 9 - Demand accounts
In addition to their contributions, the partners may loan or make available to
the Company any amounts it may need. The conditions of withdrawal or repayment
of these amounts shall be determined either by collective decision of the
shareholders or by agreements between the management and the party concerned. If
the advance is made by a manager, the conditions shall be set by collective
decision of the shareholders. These agreements shall be subject to the audit
procedures for agreements between the Company and one of its managers or
shareholders.
Article 10 - Changes in capital stock
I - The capital stock may be increased, either through the creation of new
shares, or by increasing the par value of the existing shares, pursuant to an
extraordinary collective decision of the shareholders.
If the capital increase is carried out either in full or in part through
contributions in kind, the decision of the shareholders pertaining to the
capital increase must include the appraisal of each in-kind contribution,
published in a report attached to this decision and prepared by an appraiser
appointed by order of the Presiding Judge of the Commercial Court ruling at the
request of the management.
II - The capital stock may also be reduced pursuant to an extraordinary
collective decision of the shareholders, but in no case may it negatively impact
the equality of the shareholders.
The reduction of capital stock to an amount less than the legal minimum may only
be voted under the precedent condition of a capital increase intended to raise
it to an amount at least equal to the minimum amount of capital stock required
by law, unless the Company is being transformed into a company of another form.
Otherwise, any interested party may petition the court to dissolve the Company.
This dissolution may not be ordered if, on the date the court rules on the
issue, the situation has been regularized.
III - If the increase or decrease results in fractional shares, the shareholders
shall be responsible for carrying out any purchase or sale of allocation rights
or old shares to achieve the allocation of a whole number of new shares.
Article 11 - Subscription and representation of shares of capital stock
The shares of capital stock shall be subscribed in full by the shareholders and
fully paid-up, whether they represent in-kind or cash contributions.
The shares of capital stock may never be represented by negotiable instruments.
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Ownership of the shares arises solely from the present articles of
incorporation, from subsequent instruments that may modify the capital stock,
and from sales and allocations that may be accomplished in due form. Ownership
of all the shares by a single shareholder will not result in the dissolution of
the Company, that will continue to exist with a single shareholder.
Article 12 - Rights and obligations of the shares of capital stock
Each share of capital stock confers upon its owner an equal right to the Company
profits, in the ownership of company assets and to the liquidation surplus. It
also gives the right to one vote in all shareholder votes and proceedings.
The shareholders shall only be liable with regard to third parties up to the
amount of their contribution.
Ownership of a share of capital stock carries with it by full right adherence to
the articles of incorporation and to the resolutions duly ratified by the
shareholders.
Article 13 - Indivisibility of the shares
The shares of capital stock shall be indivisible with respect to the Company.
The joint co-owners are required to appoint one among them to represent them
with respect to the Company. If no agreement is reached, the first co-owner
shall have the right to decide to take action and have the court appoint a
representative responsible for representing them.
Article 14 - Sale and transfer of partners' shares
I - Any sale of shares of capital stock must be recorded by a notarized
instrument or simple contract.
To be binding on the Company, it must receive notification thereof by process
served by a process server or be accepted by same in a notarized instrument.
Service may be replaced by delivering the original of the deed of sale to the
headquarters in exchange for a manager's certification of this delivery.
To be binding on third parties, it must also have been filed with the office of
the clerk of the court and noted in the Register of Commerce and Companies.
II - Shares of capital stock shall be freely transferable among shareholders.
III - Shares of capital stock may only be sold between spouses, ascendants or
descendants under the conditions and according to the procedure stipulated in
article 45 of the law of July 24, 1966, for sales to third parties.
IV - Shares of capital stock shall be freely transferrable through succession or
in the event of the liquidation of assets between spouses.
V - Shares of capital stock may only be sold to third parties outside the
Company with the consent of the majority of shareholders representing at least
three-fourths of the shares of capital stock.
When the Company consists of more than one shareholder, notice of the projected
sale shall be given to the Company and to each of the shareholders by a process
server or by registered letter, return receipt requested. Within eight days
after this notice, the management must call a meeting of shareholders to discuss
the projected sale of shares or consult the shareholders in writing regarding
said projected sale. The assignor will be notified regarding the Company's
decision, that need not be justified, by the management, by registered letter,
return receipt requested
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If the Company does not indicate its decision within three months from the last
of the notices provided for in the present paragraph, consent for the sale shall
be considered to have been granted.
If the Company denied consent for the sale, the seller may, within eight days
from notice of this denial, indicate by registered letter, return receipt
requested, that he is abandoning the intended sale.
If the seller does not abandon this intended sale, the shareholders shall be
required to acquire or have acquired the shares at a price set by an expert
appraiser under the conditions set forth in article 1843-4 of the Civil Code
within three months from the denial of consent. At the request of the manager,
this time period may be extended once by order of the Presiding Judge of the
Commercial Court ruling on request.
The Company may also, with the consent of the selling shareholder, decide within
the same time period to purchase the shares at the price set under the
conditions cited above and to reduce its capital stock by the amount of the par
value of the seller's shares. A payment period, that shall not exceed two years,
may, upon justification, be granted to the Company by the Presiding Judge of the
Commercial Court ruling by summary order. The amounts owed shall bear interest
at the legal rate.
If none of the solutions have been implemented by the end of the time period,
the shareholder may complete the sale as initially planned.
The preceding provisions shall be applicable to all sales, including in the
event of a contribution in connection with a merger or a split or by way of an
allocation in kind to the liquidation of another company.
Article 15 - Claims of the joint-property spouse
If the joint-property spouse of a shareholder indicates his/her intention to
become a shareholder subsequent to a contribution of joint property made by said
shareholder to the Company or to an acquisition of shares of capital stock
completed by his/her spouse using joint property, this spouse may only acquire
the status of shareholder if he/she is approved by the majority of shareholders
representing at least three-fourths of the shares of capital stock. The spouse
will be notified concerning the decision of the shareholders by registered
letter, return receipt requested. Approval results either from notification of
the decision or from the failure to respond within two months from the notice
given by the spouse. In the event approval is denied, the shareholder spouse
retains this status for all the shares.
Article 16 - Sole shareholder
In the event all the shares of capital stock of a limited liability company
become owned by a single shareholder, the provisions of article 1844-5 of the
Civil Code pertaining to legal dissolution shall not applicable.
Article 17 - Management
I - The Company shall be administered by one or more managers; these shall be
individuals, whether shareholders or not, selected by the shareholders
representing more than half of the capital stock, with our without limitation to
the term of their mandate.
The manager(s) may receive compensation, that shall be set and may be modified
by an ordinary decision of the shareholders.
II - In relations with third parties, the manager(s) has/have the most extensive
powers possible to act in any circumstance on behalf of the Company, except for
those powers assigned expressly to the shareholders by law.
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The Company shall be bound even by acts of the manager that do not fall within
the company purpose, unless it can be proven that the third party knew that the
act exceeded this purpose or that this party could not have been ignorant of
this fact considering the circumstances; publication of the articles of
incorporation alone shall not be sufficient to constitute this proof.
III - In relations between shareholders, the manager may perform any acts of
management in the interest of the Company.
IV - Managers shall be liable, individually and jointly, depending on the case,
to the Company or to any third parties, either for violations of legal or
regulatory provisions applicable to limited liability companies, or for
violations of the articles of incorporation, or for errors committed during
their management.
If several managers have cooperated in the same deeds, the court will determine
the contributing share of each when repairing the damage.
No decision of the Meeting may have the effect of terminating an action for
liability against the managers for errors committed in carrying out their
mandate.
Article 18 - Auditors
One or more Auditors may or must be appointed in accordance with the conditions
cited in article 64 of the law of July 24, 1966.
They shall be appointed for a term of six fiscal periods and perform their
duties in accordance with the conditions and with the effects provided for by
the legal and regulatory provisions in force.
Article 19 - Amendment between a manager or a shareholder and the company
The management or, if such exists, the Auditor, presents to the Meeting or
encloses with the documents sent to the shareholders in the case of a written
consultation, a report regarding the agreements signed by the Company and one of
its managers or shareholders.
The Meeting shall vote on this report, which must contain the following
information:
- - a list of the agreements subject to the approval of the Meeting of
shareholders;
- - the names of the managers of shareholders involved;
- - the nature and the purpose of said agreements;
- - the basic terms of these agreements, more particularly the indication of
the prices or rates used, of discounts or commissions granted, of payment
schedules granted, of interest stipulated, of securities granted and, as
necessary, any other indications that shall allow the shareholders to
assess the advantage involved in signing the agreements analyzed;
- - the importance of supplies delivered or of services provided, as well as
the total of sums paid or received during the last fiscal period.
The manager or the shareholder involved may not take part in the voting, and his
shares shall not be taken into consideration for the calculation of the quorum
and of the majority.
Nevertheless, if there is no Auditor, the agreements signed by a manager who
shall be not a shareholder shall be subject to the prior approval of the
Meeting.
Agreements that are not approved nevertheless produce their effects on the
manager, and if warranted, on the contracting shareholder to bear individually
or jointly, depending on the case, the consequences of the contract that shall
be detrimental to the Company.
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These provisions extend to agreements entered into with a company of which an
indefinitely liable shareholder, manager, director, chief executive officer,
member of the directory or of the supervisory board, shall be simultaneously a
manager or shareholder of the limited liability company.
These provisions shall not be applicable to agreements concerning customary
transactions entered into under normal conditions.
Under penalty of invalidating the contract, managers or shareholders other than
legal entities shall be prohibited from borrowing money from the Company in any
form whatsoever, from having it grant them an overdraft on a demand or other
type of account, and from having the company guarantee or secure their
obligations to third parties. This prohibition applies to spouses, ascendants
and descendants of managers or shareholders, as well as to any intermediaries
and to the legal representatives of shareholders that are legal entities.
Article 20 - Collective decisions
In the event there are multiple shareholders, collective decisions shall be
made, at management's choice, in a Meeting or by written consultation of the
shareholders. Nevertheless, a Meeting must be called to vote on the approval of
the annual accounts or at the request of one or more shareholders owning half of
the shares of capital stock or owning one quarter of the shares of capital stock
if they represent at least one quarter of the shareholders.
Shareholders shall be called to the Meetings by the management or, if this is
not the case, by the Auditor, if such exists, or, if this is not the case, by a
representative appointed by the court at the request of any shareholder. One or
more shareholders owning half of the shares of capital stock or, if they
represent at least one quarter of the shareholders, one quarter of the shares of
capital stock, may request that a Meeting be called.
Notice of the meeting shall be given by registered letter sent to the
shareholders at least fifteen days prior to the date of the meeting. This notice
contains the agenda for the Meeting drawn up by the author of the notice of
meeting. Any Meeting not duly called may be invalidated. Nevertheless, the
action for invalidation shall not be admissible when all the shareholders were
present or represented.
The Meeting of shareholders meets at the headquarters or at any other location
indicated in the notice of meeting. It shall be chaired by the manager or one of
the managers or, if neither of them is a shareholder, by the shareholder present
and willing who owns or represents the largest number of shares of capital
stock. If two shareholders who own or represent the same number of shares are
willing, the Meeting shall be chaired by the eldest.
All proceedings of the Meeting of shareholders shall be recorded in minutes
containing the required information, prepared and signed by the manager or
managers, and, as needed, by the chairman of the meeting.
In the case of a written consultation, the management shall send to each
shareholder, by registered mail, the text of the resolutions proposed as well as
the documents necessary for the shareholders' information.
The shareholders have fifteen days from the date of receipt of the draft of the
resolutions to transmit their vote to the management by registered mail. Any
shareholder who has not responded within the time period indicated above shall
be considered to have abstained.
In the event of a division of ownership, the voting right belongs to the
bare-owner, except for decisions involving the allocation of the outcome, in
which case it shall be reserved for the usufructuary.
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<PAGE>
The minutes shall be written in a numbered, initialed register or on separate
sheets that shall also be numbered and initialed, in accordance with the
prescribed conditions.
Copies or excerpts of the minutes of the meetings shall be validly certified
true by one single manager.
Article 21 - Ordinary collective decisions
Decisions of the shareholders that involve neither modifications to the articles
of incorporation nor the approval of a sale or changes in ownership of shares of
capital stock, subscription or allocation rights shall be considered to be
ordinary decisions.
Within six months following the end of each fiscal period, the shareholders
shall be called to a Meeting to approve the accounts of said fiscal period and
the allocation of the outcome.
Ordinary decisions shall be ratified by one or more shareholders representing
more than half of the shares of capital stock. If this majority is not met, the
decisions shall be made, upon a second consultation, by the majority of votes
cast, regardless of the number of voters.
Nevertheless, decisions pertaining to the appointment or to the dismissal of a
manager shall always be made by the absolute majority of shares of capital
stock, and the matter may not be settled by a second consultation and the simple
majority of votes cast.
Article 22 - Extraordinary collective decisions
Decisions concerning the modification of the articles of incorporation or the
approval of sales or changes in ownership of shares of capital stock,
subscription or allocation rights shall be considered to be extraordinary
decisions.
Extraordinary decisions shall only be valid if they were ratified:
- - unanimously, in the case of a change in the Company's nationality, the
increase of a shareholder's obligation or the transformation of the Company
into a general partnership, a limited partnership, a partnership limited by
shares or into a civil company;
- - by the majority of shareholders representing at least three-quarters of the
shares of capital stock, in the case of the approval of new shareholders or
the authorization to pledge shares as collateral;
- - by the shareholders representing at least three-quarters of the shares for
all other extraordinary decisions.
Article 23 - Shareholders' right to information
All shareholders have a permanent right to information whose scope and methods
of practice shall be determined by the regulatory provisions in force.
Prior to any Meeting or written consultation, the shareholders have the right to
obtain any documents and information, that are sent to them or that are made
available to them in accordance with the conditions set by the legal and
regulatory provisions in force.
Article 24 Fiscal period - Company accounts
Each fiscal period lasts for one year, that shall begin on January 1 and ends on
December 31.
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<PAGE>
Exceptionally, the first fiscal period shall begin on the day of registration in
the Register of Commerce and Companies and shall end on December 31, 1998.
At the end of each fiscal period, the management shall prepare the inventory,
the annual accounts and notes and drafts a written management report. These
documents, as well as the text of the resolutions proposed and, as needed, the
Auditor's report, shall be sent to the shareholders in accordance with the
conditions and schedules set forth by the regulatory provisions. As of this
transmittal, any shareholder has the right to ask written questions to which the
management shall be required to respond during the Meeting.
A General Meeting called to vote on the accounts for the expired fiscal period
must be convened within six months after the end of the fiscal period or, in the
event of an extension, within the period set by decision of the court.
Article 25 - Allocation and distribution of profits
The General Meeting distributes the distributable profit as such shall be
defined by law among all the shareholders in proportion to the number of shares
owned by each.
It shall also determine the method of payment.
The General Meeting may decide to distribute sums withdrawn from the reserves
available to it by indicating expressly the reserve categories from which the
withdrawals were made. Nevertheless, dividends are, by priority, taken from the
distributable profit for the fiscal period.
The General Meeting may also decide to allocate distributable amounts to the
reserves and to the carry forward balance in full or in part.
No distribution may be made when shareholders' equity is or, as a result of this
distribution, would be less than the amount of capital plus reserves that the
law establishes as the limit for distribution.
Article 26 - Shareholders' equity less than half of the capital stock
If, as a result of losses recorded in the accounting documents, the
shareholders' equity in the Company falls to less than half of the capital
stock, the management must, within four months following the approval of the
accounts that disclosed this loss, consult the shareholders in order to decide
if the early dissolution of the Company is warranted.
If the dissolution is not declared, subject to the legal provisions pertaining
to the minimum capital in limited liability companies and within the time period
set by law, the capital must be reduced by an amount equal to the losses that
could not be applied to the reserves if the shareholders' equity has not once
again become at least equal to half of the capital stock within this period.
In any event, the decision of the General Meeting must be published in
accordance with legal and regulatory conditions.
If these requirements are not obeyed, any interested party may request that the
court dissolve the Company. This shall be also true if the Meeting was unable to
transact business validly.
Article 27 - Dissolution-Liquidation
The Company shall be dissolved when its term expires, unless this has been
extended, in the event its purpose has been completed or terminated, by court
decision on valid grounds.
-9-
<PAGE>
Early dissolution may be decided upon at any time by the shareholders
representing three-quarters of the shares of capital stock.
The Company shall be in liquidation as soon as it shall be dissolved, regardless
of the reason.
The legal status of the Company continues to exist, for the purposes of the
liquidation, until the end of this liquidation. The dissolution of the Company
only produces its effects with respect to third parties from the date when it
shall be published in the Register of commerce and companies. The note "company
in liquidation," as well as the name of the liquidator or liquidators must
appear on all instruments and documents emanating from the Company.
Management duties shall be terminated by the dissolution of the Company. The
collective of shareholders shall retain its powers and determine the method of
liquidation; it shall appoint one or more liquidators, selected from among or
outside the shareholders, and determine their powers. The liquidation shall be
carried out in compliance with the law.
After redemption of all the shares of capital stock, the liquidation surplus
shall be distributed among the shareholders in proportion to the number of
shares belonging to each of them.
In the event all the shares are owned by a single shareholder, the dissolution
that may thereby arise shall result in the universal transfer of the assets,
without giving rise to liquidation.
Article 28 - Disputes
In the event of multiple shareholders, any disputes that may arise during the
term of the Company or during its liquidation among the shareholders or between
the Company and the shareholders pertaining to company affairs or to the
performance of these articles of incorporation shall be submitted to the
competent courts.
Executed in Paris on June 27, 1997
In as many copies as required by law
[Signed]
[Signed]
- --------------------------
Ursus Telecom Corporation
[Signed]
- --------------------------
Guillaume de Beaurepaire
-10-
<PAGE>
AMENDMENT NO. 1
TO THE
PROTOCOL OF AGREEMENT
of November 20, 1997
Between the undersigned:
Ursus Telecom Corporation, a company governed by the laws of the state of
Florida (United States), headquartered at 440 Sawgrass Corporate Pkwy., Suite
112, Sunrise, FL 33325 USA, and represented by Mr. Luca Giussani,
hereinafter referred to as "Ursus Telecom Corporation,"
As party of the first part,
And,
Central Call International, a limited liability company with capital in the
amount of 50,000 francs, headquartered at 110, rue de Longchamp in Paris
(75116), registered in the Register of Commerce and Companies of Paris under the
number B 395 189 061, and represented by its manager, Mr. Guillaume de
Beaurepaire,
hereinafter referred to as "Central Call,"
As party of the second part,
And,
Mondial Telecom, a limited liability company with capital in the amount of
55,000 francs, headquartered at 34, boulevard Exelmans in Paris (75016), which
is in the process of being assigned a registration number in the Register of
Commerce and Companies of Paris following the transfer of its headquarters from
Papeete to Paris, and represented by its manager, Mr. Paul Henry Derly,
hereinafter referred to as "Mondial Telecom,"
As party of the third part.
It being specified that "Parties" indicates all the Parties indiscriminately,
and that "Party" indicates any one of the Parties to the present amendment No. 1
of the protocol of agreement dated November 20, 1997.
-1-
[handwritten initials at bottom of
all pages]
<PAGE>
IT HAS BEEN PREVIOUSLY ESTABLISHED:
(A) On November 20, 1997, Ursus Telecom Corporation, Central Call and Mondial
Telecom entered into a protocol of agreement (hereinafter the "Protocol")
that sets forth the basic principles and terms of the partnership that the
Parties decided to establish between themselves for the operation and
development of Ursus Telecom France (as this term is defined in the
Protocol).
(B) Ursus Telecom Corporation, Central Call and Mondial Telecom have expressly
agreed in accordance with the Protocol that certain of its provisions shall
be reviewed, detailed and finalized in definitive agreements that must be
signed by the Parties or by the Parties and Ursus Telecom France.
(C) Ursus Telecom Corporation, Central Call and Mondial Telecom have
nevertheless indicated the desire to make certain modifications to the
Protocol for the purpose of facilitating the operation and development of
Ursus Telecom France, as well as the settlement of the definitive
agreements cited above.
(D) Consequently, and in compliance with the provisions of article 9, section
9.2 of the Protocol, Ursus Telecom Corporation, Central Call and Mondial
Telecom decided to sign the present amendment No. 1 to the Protocol
(hereinafter "Amendment No. 1").
THIS BEING ESTABLISHED, IT HAS BEEN AGREED AS FOLLOWS:
Article 1 - Operation of Ursus Telecom France
The Parties decide to modify the provisions of article 1, section 1.1,
second paragraph of the Protocol pertaining to the operation of Ursus
Telecom France.
The Parties therefore agree that the partnership that they decided to form
between themselves requires start-up of the operation of Ursus Telecom
France as soon as possible and no later than January 31, 1998, it being
specified that this date may in no case be postponed or delayed for any
reason whatsoever, except for a case of force majeure.
Article 2 - Obligations of Ursus Telecom Corporation
The Parties decide to modify and to complete the provisions of article 1,
section 1.2, first and second paragraphs of the Protocol pertaining to the
obligations of Ursus Telecom Corporation.
Ursus Telecom Corporation binds itself to make available to Ursus Telecom
France, under the conditions and in accordance with the terms that shall be
set forth in a definitive agreement between Ursus Telecom Corporation and
Ursus Telecom France, all the technical equipment, principally the switch
and the "groomers" described in Attachment 2 of the Protocol, that shall be
indispensable to the operation of Ursus Telecom France, a list whereof
shall be established in the aforementioned definitive agreement.
Ursus Telecom Corporation agrees to make the technical equipment cited in
the previous paragraph available to Ursus Telecom France within a
sufficient time period so as to allow the start-up of the operation of
Ursus Telecom France under the conditions described in article 1 above.
-2-
<PAGE>
Article 3 - Obligations of Central Call and of Mondial Telecom
The Parties decide to modify and complete the provisions of article 1,
section 1.4, fourth and fifth paragraphs of the Protocol pertaining to the
non-competition obligations of Central Call and Mondial Telecom with
respect to Ursus Telecom Corporation and Ursus Telecom France.
Central Call and Mondial Telecom, as well as Mr. Guillaume de Beaurepaire
and Mr. Paul-Henry Derly, these latter acting on their own behalf, bind
themselves with respect to Ursus Telecom Corporation, as of the arrival in
Paris of the technical equipment described in article 2 above and subject
to the provisions stipulated in the following paragraph, not to carry out,
directly or indirectly, in any manner whatsoever, any activity likely to
compete with the activities of Ursus Telecom France, not to be involved or
participate in any investment, directly or indirectly, in any business
likely to compete with Ursus Telecom France, for as long as Central Call
and Mondial Telecom shall be shareholders in Ursus Telecom France pursuant
to the provisions of article 2 of the Protocol and/or, if necessary, as
long as Mr. Guillaume de Beaurepaire and/or Mr. Paul-Henry Derly shall be
shareholders in Ursus Telecom France or bound to Ursus Telecom France by an
employment contract.
As a consequence of the foregoing, Central Call and Mondial Telecom, as
well as Mr. Guillaume de Beaurepaire and Mr. Paul-Henry Derly, these latter
acting on their own behalf, agree to offer first and on a priority basis to
Ursus Telecom Corporation and to Ursus Telecom France all projects
involving activities that are similar or related to those carried out by
Ursus Telecom France. Nevertheless, the Parties agree that Central Call and
Mondial Telecom, as well as Mr. Guillaume de Beaurepaire and Mr. Paul-Henry
Derly, these latter acting on their own behalf, may have direct or indirect
interests in such activities if the projects presented were not previously
accepted in writing by Ursus Telecom Corporation and Ursus Telecom France
within thirty (30) days from notification of Ursus Telecom Corporation and
Ursus Telecom France concerning said projects by the Party or the Parties
concerned.
In the event Central Call and/or Mondial Telecom cease to be shareholders
in Ursus Telecom France and/or, if necessary, in the event Mr. Guillaume de
Beaurepaire and/or Mr. Paul-Henry Derly cease to be shareholders in Ursus
Telecom France or are no longer bound to Ursus Telecom France by an
employment contract, and for a period of one (1) year from the loss of the
status as shareholder and/or as employee of Ursus Telecom France, Central
Call and Mondial Telecom, as well as Mr. Guillaume de Beaurepaire and Mr.
Paul-Henry Derly, these latter acting on their own behalf, agree to submit
to Ursus Telecom Corporation and to Ursus Telecom France all projects
involving activities in the area of the telecommunications industry in
France and to carry out such activities [only] if Ursus Telecom Corporation
and Ursus Telecom France have informed the Party or the Parties concerned
within thirty (30) days from submission of the aforementioned projects of
their intention not to become involved in said activities.
Central Call and Mondial Telecom, as well as Mr. Guillaume do Beaurepaire
and Mr. Paul-Henry Derly, these latter acting on their own behalf, agree,
in the event Central Call and/or Mondial Telecom cease to be shareholders
in Ursus Telecom France and/or, should the occasion arise, in the event Mr.
Guillaume de Beaurepaire and/or Mr. Paul-Henry Derly are not longer bound
to Ursus Telecom France by an employment contract, and for one (1) year
from the loss of status as shareholder and/or as employee of Ursus Telecom
France, not to hire or attempt to hire or even recruit any person employed
by Ursus Telecom France.
-3-
<PAGE>
Article 4 - Effective date of the entry of Central Call and Mondial Telecom into
the capital of Ursus Telecom France
The Parties decide to modify the provisions of article 2, section 2.2 of
the Protocol pertaining to the effective date of the entry of Central Call
and Mondial Telecom into the capital of Ursus Telecom France as a result of
the modifications set forth in article 1 above.
Central Call and Mondial Telecom must purchase Ursus Telecom France capital
stock no later than January 31, 1998, it being specified that if on this
date the increase in Ursus Telecom France capital stock has not been
completed, the Parties shall meet to set a new date that, in any event, may
not result in extending the term of the Protocol as such is stipulated in
article 6 of the Protocol.
Article 5 - Purchase by Ursus Telecom Corporation of the capital stock owned by
Central Call and Mondial Telecom
The Parties decide to replace purely and simply the provisions of article
4, section 4.3 of the Protocol with the provisions of the present article 5
of Amendment No. 1.
In the event Ursus Telecom Corporation is offered on a regulated market or
stock exchange in the United States, Ursus Telecom Corporation agrees to
purchase all the stock shares owned by Central Call and Mondial Telecom in
the capital of Ursus Telecom France, and, if necessary, by Mr. Guillaume de
Beaurepaire and Mr. Paul-Henry Derly, if these latter so request, under the
conditions and in accordance with the terms to be defined in a definitive
agreement signed by the Parties no later than the General Meeting of
Shareholders that shall meet to vote on the capital increase described in
article 2, section 2.1 of the Protocol.
The Parties hereby agree that the purchase by Ursus Telecom Corporation of
all the shares of stock owned by Central Call and Mondial Telecom and, if
necessary, by Mr. Guillaume de Beaurepaire and Mr. Paul-Henry Derly, in the
capital of Ursus Telecom France shall take place in three (3) successive
installments each involving the purchase of thirty-three point thirty-three
percent (33.33%) of the shares owned by Central Call and Mondial Telecom
respectively, and, if necessary, by Mr. Guillaume de Beaurepaire and Mr.
Paul-Henry Derly; the first instalment purchase must occur on the first
anniversary of the initial offering of Ursus Telecom Corporation on a
regulated market or stock exchange in the United States; the second and
third instalment purchase shall be completed on the second and third
anniversaries respectively of said initial offering.
Nevertheless, Central Call and Mondial Telecom, and, if necessary, Mr.
Guillaume de Beaurepaire and Mr. Paul-Henri Derly, shall have the right to
request that Ursus Telecom Corporation purchase the shares of stock that
they own in the capital of Ursus Telecom France either in two (2)
successive installments on the second and third anniversaries of the
initial offering of Ursus Telecom Corporation on a regulated market or
stock exchange in the United States, each purchase involving respectively
sixty-six point sixty-six percent (66.66%) and thirty-three point
thirty-three percent (33.33%) of their shares of capital stock, or in a
single purchase on the third anniversary of said initial offering involving
one hundred percent (100%) of their shares of capital stock.
The Parties agree that in the event Ursus Telecom Corporation purchases the
shares of Ursus Telecom France capital stock owned by Central Call and
Mondial Telecom, and, if necessary, by Mr. Guillaume de Beaurepaire and Mr.
Paul-Henri Derly, the price of said shares shall be determined in the
following manner.
-4-
<PAGE>
(i) The prime cost of all the shares of Ursus Telecom France owned by
Central Call and Mondial Telecom and, if necessary, by Mr. Guillaume
de Beaurepaire and Mr. Paul-Henri Derly, shall be equal to three (3)
and one half months of Ursus Telecom France revenues, with the
stipulation that one (1) month of revenues shall correspond to the
average of Ursus Telecom France revenues for the months of February
1998, March 1998 and April 1998. The prime cost for all the shares of
Ursus Telecom France capital stock purchased by Ursus Telecom
Corporation under the conditions set forth in the preceding provisions
of the present article shall be paid in cash, and payment of this cost
by Ursus Telecom Corporation shall take place in advance within a
maximum of six (6) months from the initial offering of Ursus Telecom
Corporation on a regulated market or stock exchange in the United
States.
(ii) One or more price supplements for the shares of Ursus Telecom France
capital stock purchased by Ursus Telecom Corporation from Central Call
and Mondial Telecom and, if necessary, from Mr. Guillaume de
Beaurepaire and Mr. Paul-Henri Derly, shall be determined at the time
of the purchase or purchases of said shares completed in accordance
with the aforementioned provisions of the present article. Each price
supplement due by virtue of said purchase or purchases shall
correspond to the percentage of the total value of Ursus Telecom
France represented by the shares of capital stock purchased. The total
value of Ursus Telecom France taken into consideration for the
determination of the price supplement or supplements for the
aforementioned shares shall be equal to eight (8) times the difference
between three (3) months of Ursus Telecom France revenues, with the
stipulation that one (1) month of revenues shall correspond to the
average of the three (3) months of Ursus Telecom France revenues
preceding the purchase or purchases of capital stock shares, and the
fraction of the prime cost paid by Ursus Telecom Corporation pursuant
to (i) above corresponding to the fraction of shares of capital stock
sold. The price supplement or supplements for all the shares of
capital stock of Ursus Telecom France purchased by Ursus Telecom
Corporation from Central Call and Mondial Telecom, and, if necessary
from Mr. Guillaume de Beaurepaire and Mr. Paul-Henri Derly, shall be
paid in Ursus Telecom Corporation shares, and payment of this price
supplement or these price supplements by Ursus Telecom Corporation
shall take place at the time of the purchase or purchases of the
shares of capital stock; the Parties additionally agree to do their
utmost to insure, as soon as possible and in compliance with
applicable legal provisions, the possibility of offering the shares of
Ursus Telecom Corporation for sale on the market. Nevertheless, the
aforementioned price supplement or supplements may be paid in cash at
the sole discretion of Ursus Telecom Corporation. In this case, the
total value of Ursus Telecom France taken into consideration to
determine the price supplement or supplements for the shares purchased
shall be equal to five (5) and one half times the difference between
three (3) months of Ursus Telecom France revenues, with the
stipulation that one (1) month of revenues shall correspond to the
average of the three (3) months of Ursus Telecom France revenues
preceding the purchase or purchases of capital stock shares, and the
fraction of the prime cost paid by Ursus Telecom Corporation pursuant
to (i) above corresponding to the fraction of capital stock shares
purchased.
Article 6 - Costs
Each of the Parties shall bear its own costs, charges and other expenses of any
kind related to the negotiation, preparation and implementation of Amendment No.
1.
-5-
<PAGE>
Article 7 - Notices
Any notice or communication of information carried out under Amendment No. 1
shall only be effective if it is accomplished according to the conditions set
forth by the provisions of article 11 of the Protocol.
Article 8 - Scope of Amendment No. 1
Only the provisions of the Protocol that are expressly cited above are completed
or modified by Amendment No. 1.
Article 9 - Applicable law. Disputes
9.1 Amendment No. 1 shall be subject in all its provisions to French law.
9.2 The Parties shall endeavor to settle by amicable arrangement and in good
faith any disputes that may arise between them in connection with Amendment
No. 1 and pertaining to the validity, its performance and the consequences
thereof.
9.3 If settlement by amicable arrangement fails, any litigation between the
Parties related to Amendment No. 1 and regarding the validity,
interpretation, performance and the consequences thereof, shall be
submitted to the exclusive competence of the Court of Commerce of Paris.
Executed in Paris on January 6, 1998.
And signed in three (3) original copies.
- --------------------------------
For Ursus Telecom Corporation
Mr. Luca Giussani
[Signed]
- --------------------------------
For Central Call
Mr. Guillaume de Beaurepaire
[Signed]
- --------------------------------
For Mondial Telecom
Mr. Paul Henry Derly
-6-
<PAGE>
EXHIBIT 10.13
Memorandum of Understanding
between
Ursus Telecom Corporation ("Ursus")
and
Orion Telecom (Pty) Limited ("Orion")
and
Millisle Limited ("Millisle")
Page 1
12th August, 1997
1. Rates will be fixed through January 31st, 1998 at present levels. Should
Telkom reduce rates to any destinations during this period, the commission
structure on these destinations shall be calculated on a case by case
basis, based on the principle of 1/3 to Ursus and 2/3 to Orion.
2. The commission payable by Ursus to Orion will be increased by 9%
commencing with the first invoice raised in August 1997 and terminating
six months thereafter in January 31st, 1998. This commission increase (the
"Commission Increase") shall be payable monthly by Ursus to Orion.
At the end of the period the total amount of the Commission increase shall
be added and credited to Ursus for the purchase of shares by Ursus or its
nominee in Orion at a total valuation of Orion which shall be calculated
as follows:
Ursus's gross telecommunication billed amount to Orion for the months of
October + November + (the first 11 working days of December multiplied by
two), divided by 3, and multiplied by 6.
3. From February 1st, 1998 the commission payable by Ursus to Orion shall be
calculated based on a revised structure as follows:
Retail selling price less the cost (being switched minutes + access time),
(hereinafter defined as the "Profit")
The Profit shall be split 1/3 to Ursus and 2/3 to Orion.
4. The Exclusive Agency Agreement dated 15th June 1994 between Ursus and
Millisle shall be assigned to Orion with effect immediately. Concurrently,
Orion shall renew said contract for an additional 3 year period as
provided for on page 8 of said agreement.
<PAGE>
Memorandum of Understanding
between
Ursus Telecom Corporation ("Ursus")
and
Orion Telecom (Pty) Limited ("Orion")
and
Millisle Limited ("Millisle")
Page 2
12th August, 1997
5. The timing of payments by Orion to Ursus shall be maintained at current
levels.
6. Orion's Audited financial statements will be provided to Ursus by the end
of October 1997; non-audited financial statements by the end of September
1997.
/s/ [ILLEGIBLE]
For an on behalf of
Orion Telecom Corporation
/s/ [ILLEGIBLE]
For an on behalf of
Ursus Telecom Corporation
/s/ [ILLEGIBLE]
For an on behalf of
Millisle Limited
<PAGE>
EXHIBIT 10.14
SETTLEMENT AGREEMENT AND FINAL RELEASE
This SETTLEMENT AGREEMENT AND RELEASE (the "Agreement") is made as of this
th day of January, 1998 by and between URSUS TELECOM CORPORATION, a
Florida corporation (the "Company"), LUCA GIUSSANI, an individual ("Giussani"),
and BEN RISPOLI, an individual ("Rispoli"). The Company and the above
individuals collectively are referred to herein as the "Parties."
In reliance upon the mutual covenants, releases, agreements and conditions
contained herein and subject to the provisions and terms of this Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
hereby are conclusively acknowledged, the Parties, intending to be legally bound
agree as follows:
1. Headings. The headings contained in this agreement are included solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement nor affect the rights of the Parties.
2. Effectiveness. This agreement shall become binding and effective as of
its execution by all of the Parties, whether in counterpart or upon single
instrument (the "Effective Date"). A signature by fax shall be as fully
effective as an original signature.
3. Settlement.
a. Ownership Interest. The Company recognizes and acknowledges that
Rispoli is the owner of 406.25 shares (the "Shares") of the Company's Class C
common stock ("Class C") and that such Shares shall be deemed to have been
issued upon the formation of the Company in April 1993. The Company represents
that there are currently 1416.67 issued and outstanding shares of Class C and
4,000 shares of Class A and B for a total of 5416.67 shares of Classes A, B, and
C combined, representing all of the issued and outstanding equity of the Company
as of the Effective Date. Certificates representing Rispoli's Shares shall bear
no legend, but shall be registered in the name of Fincogest, S.A. ("Fincogest"),
as trustee, and beneficially owned by Rispoli pursuant to a trust agreement
between Rispoli and Fincogest (the "Rispoli Trust") which shall be separate from
the trust agreement between Fincogest and Giussani. The agreement for the
Rispoli Trust shall be finalized and executed, within 30 days of the Effective
Date. The Company's counsel shall have the right to approve the terms of the
Rispoli Trust solely to verify that they include the terms of the restraints on
sale contained in the Lockups, and as imposed by applicable securities laws. The
Company warrants that the Shares will represent 7.5% of the Company's issued and
outstanding shares of common stock, on a fully diluted basis except as set forth
below, immediately prior to the consummation of the Company's presently proposed
initial public offering with Joseph Charles & Associates, Inc. as underwriter
(the "Pending IPO"), and will be part of the same class of common stock which is
sold in the Pending IPO ; however, (i) such percentage interest shall exclude
employee stock options and underwriters' warrants to be issued and outstanding
upon consummation of the Pending IPO at exercise prices equal to or higher than
the public offering price in the Pending IPO, and (ii) such percentage interest
shall be subject to dilution upon and after the consummation of the Pending IPO
and after any termination of the Pending IPO for any reason.
<PAGE>
b. Consulting Agreement. The Company and Rispoli have entered
into a Consulting Agreement, dated November 1, 1995. On the Effective Date,
the term of the Consulting Agreement shall be extended without lapse so that
such term shall terminate on December 31, 1998, and the compensation provisions
of the Consulting Agreement shall be modified so that Rispoli receives an
additional payment of consulting fees thereunder in the amount of $15,000 upon
consummation of an initial public offering of the Company's securities during
the term of such consulting agreement, payable within two business days of such
consummation. Except as so extended and modified, all other terms and
conditions of the Consulting Agreement will remain unmodified and in full force
and effect; provided, however, that Rispoli shall not serve as an officer, agent
or employee of the Company under the Consulting Agreement, the Consulting
Agreement shall not be terminable pursuant to paragraph 9.3 of its terms, and
the covenants not to compete contained in the Consulting Agreement shall
terminate as of December 31, 1998.
c. Repayment of Existing Debt. As of the Effective Date, Rispoli
is indebted to the Company (the "Debt"). Rispoli agrees and directs the Company
to apply his monthly compensation under the Consulting Agreement towards the
Debt until March 31, 1998, when the principal and interest due on the Debt shall
be repaid in full, with a portion of the March consulting fee, and the balance
of such month's fee shall be paid to Rispoli. Each payment shall be credited
first to accrued but unpaid interest, and then to principal; and interest shall
then cease on the portion of principal credited.
d. SEC Reporting. Rispoli acknowledges and agrees that he shall,
upon the effectiveness of any public offering of the Company's securities,
become responsible to comply with all requirements of the United States Federal
and State securities laws applicable to the holding, acquisition and disposition
of the Company's securities, including but not limited to reporting
requirements. The Company acknowledges that Rispoli shall not be an officer,
director, employee or serve in any other capacity other than as set forth in
the Consulting Agreement of the Company, nor responsible for or privy to actions
taken by the Board in connection with the management of the Company's business.
4. Mutual Releases.
a. Rispoli's Release. Except as to rights to enforce the provisions
of this Agreement (including the Exhibits hereto) against the Company and
Giussani, Rispoli, on behalf of himself and each of his predecessors,
successors, beneficiaries, assigns, partners, employees, accountants, attorneys,
and agents (each of the foregoing, "Rispoli's Affiliate"), hereby fully and
forever releases and discharges the Company and Giussani, and each of their
respective predecessors, successors, beneficiaries, assigns, shareholders,
directors, officers, partners, employees, accountants, attorneys and agents
(each of the foregoing, "Affiliate"), from any and all, known or unknown,
anticipated or unanticipated, suspected or unsuspected, or fixed, conditional or
contingent actions or causes of action at law or in equity, suits, debts,
demands, claims, contracts, covenants, liens, liabilities, losses, costs,
expenses (including, without limitation, attorneys' fees) or damages of every
kind, nature and description, arising from the
2
<PAGE>
beginning of the world through the Effective Date, and covenants and agrees not
to maintain or assert any claim or defense relying on any claim released hereby.
b. The Company's and Giussani's Releases. Except as to rights to
enforce the provisions of this Agreement (including the Exhibits hereto)
against Rispoli, the Company and Giussani and their respective Affiliates
hereby fully and forever release and discharge Rispoli and Rispoli's Affiliates
from any and all, known or unknown, anticipated or unanticipated, suspected or
unsuspected, or fixed, conditional or contingent actions or causes of action at
law or in equity, suits, debts, demands, claims, contracts, covenants, liens,
liabilities, losses, costs, expenses (including, without limitation, attorneys'
fees) or damages of every kind, nature and description, arising from the
beginning of the world through the Effective Date, and covenants and agrees not
to maintain or assert any claim or defense relying on any claim released hereby.
5. Lock Up Agreements. As a beneficial shareholder of the Company,
Rispoli hereby agrees to execute and deliver lock up agreements restricting
any sale of the Shares without the underwriter's consent that may be required by
any underwriter in connection with any initial public offering of the Company's
securities, to the same extent as the agreement to be signed by Giussani (the
"Lockups"). The Lockups under the Pending IPO shall have a term not to
exceed one year. The Company and Giussani confirm and agree that each of them
has and will interpose no objection to the sale of the Shares or to the waiver
of the Lockups by the underwriters.
6. Entire Understanding; Integrated Instrument. This Agreement
contains and constitutes the entire agreement and understanding of the Parties
concerning the subject matter hereof, and supersedes and replaces all prior
discussions and negotiations, proposed agreements or agreements, written or
oral, pertaining to such subject matters. Each of the Parties acknowledges that
no other party or agent or attorney of any other party has made any promise,
representation or warranty whatsoever, express or implied, written or oral, not
contained herein and concerning the subject matters hereof, to induce he, she or
it to execute this Agreement, and each of the Parties acknowledges that he, she
or it has not executed this Agreement in reliance on any promise, representation
or warranty not contained herein.
7. Representations And Warranties. Each of the Parties represents and
warrants to the other Parties that he, she or it has not assigned or
transferred, or purported to assign or transfer, to any person, entity or
institution any liability, suit, action, cause of action, right, claim, demand,
dispute, obligation, duty, debt, lien, loss, cost, expense, or damage, or any
part or portion thereof, encompassed by, released, involved or referred to in
this Agreement.
8. Supplement, Amendment, Waiver, Etc. This Agreement cannot be
supplemented, modified, amended, waived, released or terminated except by a
writing executed by the party or parties to be bound thereby. In any suit,
action or proceeding arising out of or in connection with this Agreement, the
prevailing party shall be entitled to an award of reasonable attorney's fees
incurred in connection therewith.
3
<PAGE>
9. Construction. This Agreement in all respects shall be interpreted,
construed, enforced and governed by and under the laws of the State of Florida
without regard to any internal conflicts of law principles in such jurisdiction.
This Agreement shall be deemed to have been prepared by the Parties jointly, and
any uncertainty or ambiguity existing in this Agreement shall not be interpreted
against any of the Parties by reason of such party having been the draftsperson
hereof. The provisions of this Agreement shall be interpreted in a reasonable
manner to effect the intentions of the Parties and of this Agreement.
10. Execution; Counterparts. This Agreement may be executed as a single
original or in any number of counterparts, each of which shall be deemed to be
an original and which taken together shall be deemed to be one and the same
instrument.
IN WITNESS WHEREOF, each of the Parties further states that he, she or it
has carefully read the foregoing Agreement and knows the contents thereof, that
he, she or it signs the same of his, her or its own free act, and that the
Parties have executed this Agreement as of the date set forth above.
LUCA GIUSSANI
_______________________________
URSUS TELECOM CORPORATION
By:____________________________
Its: ____________________________
BEN RISPOLI
______________________________
4
<PAGE>
23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 15, 1997 in the Registration Statement (Form
S-1, No. 333-00000) and related Prospectus of Ursus Telecom Corporation for the
registration of 1,925,000 shares of its common stock, 150,000 representative's
warrants and 150,000 shares of common stock underlying representative's
warrants.
/s/ Ernst & Young LLP
Miami, Florida
February 10, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 351,675
<SECURITIES> 0
<RECEIVABLES> 4,127,179
<ALLOWANCES> 40,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,995,389
<PP&E> 1,034,021
<DEPRECIATION> 322,832
<TOTAL-ASSETS> 6,012,200
<CURRENT-LIABILITIES> 3,591,255
<BONDS> 0
0
0
<COMMON> 250,000
<OTHER-SE> 2,104,762
<TOTAL-LIABILITY-AND-EQUITY> 6,012,200
<SALES> 0
<TOTAL-REVENUES> 13,214,451
<CGS> 0
<TOTAL-COSTS> 8,769,764
<OTHER-EXPENSES> 3,632,157
<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> 14,846
<INCOME-PRETAX> 790,968
<INCOME-TAX> 297,641
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 493,327
<EPS-PRIMARY> 0.10
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