<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1998
REGISTRATION STATEMENT NO. 333-51299
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
TELTRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7389 06-1513427
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
6322 SOUTH 3000 EAST
SALT LAKE CITY, UTAH 84121
(801) 535-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
--------------
MARC B. COHEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TELTRUST, INC.
6322 SOUTH 3000 EAST
SALT LAKE CITY, UTAH 84121
(801) 535-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------
COPIES TO:
DAVID F. DIETZ, P.C. MICHAEL E. MICHETTI, ESQ.
JOHN B. STEELE, ESQ. CAHILL GORDON & REINDEL
GOODWIN, PROCTER & HOAR LLP 80 PINE STREET
EXCHANGE PLACE NEW YORK, NEW YORK 10005
BOSTON, MASSACHUSETTS 02109-2881 (212) 701-3000
(617) 570-1000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
--------------
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, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] -
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, 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. [_]
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(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 STATES IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated May 6, 1998
PROSPECTUS
3,200,000 SHARES
LOGO
COMMON STOCK
-------------
Of the 3,200,000 shares of common stock, par value $.01 per share ("Common
Stock"), of Teltrust, Inc. ("Teltrust" or the "Company") offered hereby (the
"Offering"), 700,000 shares are being sold by certain stockholders of the
Company (the "Selling Stockholders"). The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Stockholders
pursuant to the Offering. See "Use of Proceeds" and "Principal and Selling
Stockholders."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price of the Common
Stock will be between $15.00 and $17.00 per share. For information relating to
the factors to be considered in determining the initial offering price to the
public of the Common Stock, see "Underwriting."
Application has been made to list the Common Stock on the Nasdaq National
Market ("Nasdaq") under the symbol "TTST."
-------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIESAND
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>
Price Proceeds
to Underwritin Discounts to Proceeds to
Public and Commissions(1) Company(2) the Selling Shareholder
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...... $ $ $ $
- -------------------------------------------------------------------------------
Total(3)....... $ $ $ $
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters (as defined) against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses estimated at $900,000, which will be paid by the
Company.
(3) The Company and certain of the Selling Stockholders have granted the
Underwriters an option, exercisable within 30 days of the date hereof, to
purchase up to 123,800 and 356,200 additional shares of Common Stock,
respectively, at the Price to the Public less Underwriting Discounts and
Commissions, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to the Public, Underwriting Discounts
and Commissions, Proceeds to Company and Proceeds to the Selling
Stockholders will be $ , $ , $ and $ , respectively. See
"Underwriting" and "Principal and Selling Stockholders."
-------------
The shares of Common Stock are being offered by the several Underwriters
when, as, and if delivered to and accepted by the Underwriters against payment
therefor and subject to various prior conditions, including their right to
reject orders in whole or in part. It is expected that the delivery of the
shares of Common Stock offered hereby will be made in New York, New York or
through the book-entry facilities of The Depository Trust Company on or about
, 1998.
-------------
LEHMAN BROTHERS WHEAT FIRST UNION
,1998
<PAGE>
[DESCRIPTION OF ART WORK]
Four panels comprising front cover (designated C2); a fold-out with 2 panels
(designated C2a and C2b); and the inside back cover (designated C3).
C2--corporate logos or names of major customers occupies top quadrant;
bottom quadrant depicts inset color photo of corporate headquarters with
company logo.
C2a & C2b--2-page spread shows map of United States with colored lines and
symbols representing the company's network facilities and switching centers.
Map is surrounded by 7 inset photographs showing images of call center, switch
room, live agent, prepaid calling cards, graphic depictions for third-party
verification and directory assistance and public pay telephone.
C3--Top quadrant lists markets served; bottom quadrant contains the
Company's commitment statement: "Teltrust is dedicated to: integrity in our
relationships with clients, employees and vendors; excellence in customer
service; responsiveness to the needs of the industry and the community; and
quality in all operations."
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED (THE "EXCHANGE ACT"). SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, references in this Prospectus to "Teltrust" or the "Company" refer
collectively to Teltrust, Inc. and its subsidiaries, and all information
presented in this Prospectus assumes no exercise of the Underwriters' over-
allotment option. See the "Glossary" at page 63 for definition of certain
technical terms used in this Prospectus.
THE COMPANY
Teltrust is a leading independent outsource provider of a broad range of
enhanced call processing and calling card services to the domestic
telecommunications industry. The Company believes that it offers the most
comprehensive suite of services of any independent outsource provider in its
industry. This diversified suite of services includes call completion, national
directory assistance and third-party verification services in addition to
calling card services. Teltrust serves its customers through state-of-the-art
technology and switch-based call processing platforms and, as of March 1998,
more than 1,000 employees. The Company's customers include regional Bell
operating company ("RBOC") affiliates (such as BellSouth Long Distance and
BellSouth Public Communications), pay telephone and hospitality aggregators
(such as Peoples Telephone Company, AMI Telecommunications and Global Net),
interexchange carriers ("IXCs") (such as US Long Distance, WorldCom and LCI
International), and other large telecommunications resellers or users (such as
TON Services and Eastern Communications Network). The Company has also recently
established contractual relationships with affiliates of Ameritech Corporation
(Ameritech Communications and Ameritech Services) and emerging
telecommunications companies including competitive local exchange carriers
("CLECs") (such as Nextlink and Cox Com), wireless providers (such as
Centennial Cellular, Omnipoint Communications and PowerTel) and international
carriers (such as Justice Technology Corp. and Star Telecommunications). Many
of the Company's customers purchase a number of the Company's services under
multi-year contracts and utilize Teltrust to provide complex outsourcing
solutions. During the quarter ended March 31, 1998, Teltrust processed over 21
million call processing transactions and decremented more than 17.6 million
domestic minutes for its prepaid calling card customers.
A brief description of Teltrust's enhanced call processing and calling card
service offerings is as follows:
CALL PROCESSING SERVICES
CALL COMPLETION SERVICES. Teltrust provides call completion services to
RBOCs, IXCs, other local exchange carriers ("LECs"), CLECs, wireless providers,
pay telephone providers, hospitality service providers and international
carriers. Call completion services include calling card calling, collect
calling and third-party billed calling. A majority of calls handled are branded
in the names of Teltrust's customers. The Company also offers STATUS(TM), a
proprietary refund and repair service.
NATIONAL DIRECTORY ASSISTANCE SERVICES. Teltrust provides national directory
assistance services to RBOCs, IXCs, LECs, wireless providers and other
telecommunications resellers. As part of its national directory assistance
services, the Company offers enhanced features such as direct call connection,
reverse searches and standard industrial classification code searches.
THIRD-PARTY VERIFICATION SERVICES. Teltrust provides third-party verification
services to RBOCs, IXCs, LECs, CLECs, international carriers and
telecommunications resellers. These services allow Teltrust customers to verify
consumer orders for changes in local and long distance telephone service and
public utility service in compliance with regulations promulgated by the
Federal Communications Commission ("FCC") and many state public utility
commissions ("PUCs"). These regulations were implemented to combat "slamming"
(the practice of changing a consumer's telecommunications or other utility
provider without such consumer's knowledge).
CALLING CARD SERVICES
The Company provides calling card programs and platform services to RBOCs,
IXCs, LECs, CLECs, wireless providers, major retail operations and other firms
to allow such customers to sell prepaid and postpaid
3
<PAGE>
calling card products to the general public. Teltrust's customers utilize the
Company's advanced point-of-sale activation technology and can offer users of
calling cards serviced by Teltrust access to numerous enhanced services,
including voice mail, paging, faxing and conference calling.
INDUSTRY
During the 1990s, changes in the regulatory environment and the emergence of
new technologies have created a growing and fiercely competitive environment in
the telecommunications industry. According to FCC reports, the
telecommunications market in the United States, including local, long distance,
wireless and prepaid calling, generated revenues of more than $220 billion in
1996. As new participants enter the market, telecommunications companies,
including RBOCs, IXCs, LECs, CLECs and wireless providers, are evaluating their
existing services and seeking opportunities that will allow them to compete
more effectively, reduce operating costs, and increase usage, market
penetration and customer retention. Many of these companies are seeking access
to call completion services, national directory assistance services and calling
card platforms which are considered essential by end-users. Partnering with an
outsource provider, such as Teltrust, allows telecommunications companies to
bring to market new value-added products and services in a more expeditious and
cost-effective manner than by building the necessary infrastructure to provide
such services internally and enables telecommunications companies to focus on
their core competencies and strategies.
GROWTH STRATEGY
Teltrust believes it is well-positioned to capitalize on the changes in the
telecommunications industry by utilizing its competitive advantages as an
experienced independent outsource provider of a broad range of enhanced call
processing and calling card services. Teltrust's distinct operational advantage
is its focus on providing enhanced call processing and calling card services on
a wholesale basis to its customers. This emphasis has allowed the Company to
avoid competing in the core businesses of its customers and enables Teltrust to
concentrate on offering and expanding a diversified suite of enhanced call
processing and calling card services. Other advantages include the Company's
use of a proven operating infrastructure and technology that can be customized
to respond to customer needs, a commitment to excellence in customer service
and a demonstrated ability to meet the performance expectations of
sophisticated customers with demanding and changing standards.
Teltrust's goal is to be the premier provider of outsourced enhanced call
processing and calling card services. The key elements of the Company's focused
growth strategy are (i) cross-selling its current service offerings to existing
customers, (ii) pursuing customers in new and existing markets, (iii)
developing new services, (iv) leveraging its operating structure to enable the
Company to expand its business and meet the needs and requirements of current
and future customers, (v) maintaining its dedication to high levels of customer
satisfaction and (vi) considering strategic acquisitions.
QUEST ACQUISITION
On December 31, 1997, the Company completed the acquisition of Quest
International Group, Inc. and its affiliated companies ("Quest"), a pioneer in
the United States prepaid calling industry. This acquisition enabled the
Company to combine its existing calling card operations with Quest's
proprietary technology, innovative management and marketing team. Teltrust
believes this acquisition will enable it to offer its customers a broader range
of services and position it for additional growth in its calling card services
business.
Teltrust was incorporated under the laws of Delaware in 1998, and its
predecessor was incorporated under the laws of Utah in 1986. The Company's
principal executive offices are located at 6322 South 3000 East, Salt Lake
City, Utah, 84121, and its telephone number is (801) 535-2000.
"Teltrust", "Quest" and the Company's logo are trademarks of the Company and
are used throughout this document as such. All other trademarks and trade names
referred to in this Prospectus are the property of their respective owners.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered
By the Company..................................... 2,500,000 shares
By the Selling Stockholders........................ 700,000 shares
Total.......................................... 3,200,000 shares
-------
Common Stock to be Outstanding after the Offering(1).. 12,695,023 shares
Use of Proceeds....................................... To repay existing
indebtedness; to finance
capital expenditures, to
fund working capital,
other general corporate
purposes, new business
opportunities and
possible strategic
acquisitions. See "Use
of Proceeds."
Proposed Nasdaq National Market Symbol................ TTST
</TABLE>
- --------------------
(1) Excludes: (i) an aggregate of 1,183,799 shares of Common Stock issuable
upon the exercise of outstanding stock options under the Company's 1993
Employee Stock Option Plan (the "1993 Option Plan") at a weighted average
exercise price of $5.24 per share at December 31, 1997 and (ii) 864,201
additional shares of Common Stock available for future grants under the
1993 Option Plan and the Company's 1998 Stock Option and Grant Plan (the
"1998 Option Plan"). See "Management--Stock Option Plans."
Unless otherwise indicated, all information presented in this Prospectus
assumes the conversion of all outstanding shares of the Company's Series A
Preferred Stock, par value $.01 per share ("Series A Preferred Stock"), into
shares of Common Stock immediately prior to the closing of the Offering and
gives effect to the acquisition of Quest on December 31, 1997 in a transaction
accounted for as a pooling-of-interests. Teltrust was incorporated under the
laws of the State of Delaware in 1998. Following its formation, Teltrust, Inc.
entered into a merger transaction with Teltrust Holdings, Inc., a Utah
corporation formed in 1986 and Teltrust, Inc.'s predecessor ("Holdings"), and a
wholly owned subsidiary of Teltrust, Inc. As a result of this merger, Holdings
became a wholly owned subsidiary of Teltrust, Inc. and all of the stockholders
of Holdings became stockholders of Teltrust. Prior to this Offering, Teltrust
held no assets other than its capital stock in Holdings.
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth summary consolidated financial and operating
data of the Company for the periods indicated. The Company's summary
consolidated historical financial data as of December 31, 1997 and for the
years ended December 31, 1995, 1996 and 1997 have been derived from audited
financial statements of Teltrust, Inc. and subsidiaries, as audited by Arthur
Andersen LLP, independent public accountants. The summary consolidated
historical financial data for the years ended December 31, 1993 and 1994 have
been derived from the audited financial statements of Teltrust, Inc. and
subsidiaries and the unaudited financial statements of Quest for those years
(as combined before restatement for the pooling-of-interest accounting
treatment). The summary data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1993(1) 1994(1) 1995 1996 1997
------------------------------------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE, EMPLOYEE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Operating revenues:
Call processing
services............. $ 19,796 $ 26,188 $ 29,290 $ 33,885 $ 46,222
Calling card
services............. 33 1,716 4,572 7,216 10,782
----------- ----------- ----------- ----------- -----------
Total operating
revenues........... 19,829 27,904 33,862 41,101 57,004
Costs of operating
revenues.............. 11,519 17,478 23,486 29,301 45,473
----------- ----------- ----------- ----------- -----------
Gross profit........... 8,310 10,426 10,376 11,800 11,531
Operating expenses..... 8,517 11,987 14,001 13,615 23,712
----------- ----------- ----------- ----------- -----------
Operating income
(loss)................ (207) (1,561) (3,625) (1,815) (12,181)
Other expense, net..... (90) (274) (629) (732) (1,037)
Benefit from (provision
for) income taxes..... 241 110 783 20 (5)
----------- ----------- ----------- ----------- -----------
Income (loss) from
continuing
operations............ (56) (1,725) (3,471) (2,527) (13,223)
Discontinued
operations, net of
income taxes.......... 295 296 1,380 -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ 239 $ (1,429) $ (2,091) $ (2,527) $ (13,223)
=========== =========== =========== =========== ===========
BASIC AND DILUTED NET
INCOME (LOSS) PER
COMMON SHARE(2):
Income (loss) from
continuing
operations............ $ (0.01) $ (0.48) $ (0.80) $ (0.57) $ (2.47)
Discontinued
operations............ 0.06 0.08 0.32 -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ 0.05 $ (0.40) $ (0.48) $ (0.57) $ (2.47)
=========== =========== =========== =========== ===========
Basic and diluted
weighted average
number of common
shares outstanding.... 5,031,054 3,579,005 4,339,117 4,641,999 5,843,313
OTHER OPERATING DATA:
Employees.............. 168 216 574 630 892
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................ $ (6,041) $ 8,159
Total assets......................................... 25,918 50,118
Long-term debt (including capital lease obligations),
net of current portion.............................. 14,407 2,307
Stockholders' equity (deficit)....................... (5,659) 30,641
</TABLE>
- --------------------
(1) The financial data for 1993 and 1994 is derived from the audited financial
statements of Teltrust, Inc. and subsidiaries which included $14,302 and
$20,029 of total operating revenues; $186 and $(1,873) of operating income
(loss), and $481 and $(1,577) of net income (loss), respectively, before
combination with Quest.
(2) Basic and diluted net loss per common share calculations for 1996 and 1997
include undeclared dividends on preferred stock of $132 and $1,200,
respectively. See Note 2 to the Consolidated Financial Statements. In
addition, 1993 net income (loss) per common share is presented on a diluted
basis. Basic net income (loss) per common share--continuing operations,
discontinued operations, net loss and weighted average number of common
shares outstanding--basic were $(0.01), $0.08, $(0.07) and 3,586,245,
respectively.
(3) Adjusted to reflect the sale of 2,500,000 shares of Common Stock by the
Company at an assumed public offering price of $16.00 per share and the
application of the net proceeds therefrom. As of December 31, 1997, the
Company had a $12.1 million balance outstanding under the facility.
Subsequent to December 31, 1997, the Company's balance outstanding under
the Company's senior secured credit facility increased from $12.1 million
to $13.9 million on March 31, 1998. See "Use of Proceeds," and Note 4 to
the Consolidated Financial Statements.
7
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this Prospectus,
before purchasing the Common Stock offered hereby. This Prospectus contains
forward-looking statements within the meaning of the federal securities laws.
Discussions containing such forward-looking statements may be found in the
material set forth below and under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as
elsewhere in this Prospectus. Prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties. Actual events or results may differ
materially from those discussed in the forward-looking statements as a result
of various factors, including, without limitation, the risk factors set forth
below and other matters set forth in this Prospectus.
HISTORY OF OPERATING LOSSES
Primarily as a result of expenses associated with the expansion of its
business and certain infrastructure and capital equipment upgrades undertaken
since 1993, the Company has incurred significant net operating losses and
negative cash flows from operating activities. As of December 31, 1997, the
Company had an accumulated deficit of $23.6 million. For the years ended
December 31, 1995, 1996 and 1997, net losses were approximately $2.1 million,
$2.5 million and $13.2 million, respectively, and the Company generated
negative cash flows from operating activities of approximately $5.3 million,
$3.5 million and $6.7 million, respectively. The Company expects to incur
significant expenditures in the future in connection with the development and
expansion of its call centers, network, services and customer base. Although
the Company achieved profitability and positive cash flows in the quarter
ended March 31, 1998, there can be no assurance that the Company will achieve
or sustain profitability or generate positive cash flows from operating
activities in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
FUTURE NEEDS FOR ADDITIONAL FINANCING
The Company's continued development, expansion and delivery of existing
services and its further development and enhancement of new services will
require substantial capital expenditures. The funding of these expenditures
will depend in part upon the Company's ability to raise substantial additional
financing. Since January 1, 1996, the Company has raised approximately $15.0
million from preferred equity financings, obtained $2.0 million in debt
financing and established a $20.0 million senior secured credit facility (the
"Credit Facility") of which $12.1 million had been drawn at December 31, 1997.
In addition, the Company continues to consider potential acquisitions or other
arrangements that may fit the Company's strategic plan. Any such acquisitions
or arrangements that the Company might consider are likely to require
additional equity or debt financing.
The Company believes that its existing cash and cash equivalents,
availability under the Credit Facility and expected cash from operations will
be sufficient to fund its operating activities through at least the end of
1998.
To meet its capital requirements and to successfully implement its growth
strategy thereafter, the Company anticipates that it will be required to sell
additional equity securities, increase the Credit Facility, obtain additional
credit facilities or sell additional debt securities. The Company may not be
able to obtain additional required capital on satisfactory terms, if at all.
Any failure by the Company in its efforts to raise the funds necessary to
finance future cash requirements could have a material adverse effect on the
Company's business, financial condition and results of operations. If Teltrust
raises additional funds through the issuance of equity securities, dilution to
the Company's existing stockholders may result. If the Company raises
additional funds through the incurrence of debt, the agreements governing such
debt may contain restrictive financial, operating and security covenants.
Because the Credit Facility is secured by substantially all of its assets, the
Company may not be able to obtain future financings which require security.
Because there can be no assurance that the Company will be able to obtain
additional financing, the Company may be unable to fund its ongoing
operations,
8
<PAGE>
which would have a material adverse effect on its business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
RISKS RELATED TO SUBSTANTIAL CUSTOMER CONTRACT
The Company has entered into three contracts with affiliates of BellSouth
Corporation ("BellSouth"), BellSouth Long Distance ("BSLD") and BellSouth
Public Communications ("BSPC"), under which Teltrust has agreed to provide a
variety of services. Under the terms of the Company's October 1997 agreement
with BSLD, Teltrust provides enhanced call processing services for calls
placed through the 1-800-BELLSOUTH(TM) access number and certain network
services. In providing such services, the Company recognizes operating
revenues directly from end-users and pays BSLD certain commissions for
interLATA service outside the nine-state BellSouth region. The Company also
contributes to the expenses of marketing the 1-800-BELLSOUTH(TM) name.
BellSouth is currently prohibited from providing interLATA service within the
nine-state BellSouth region although it has applied for regulatory approval to
provide such services. When BellSouth obtains such approval, the Company will
no longer earn its operating revenues directly from end-users as provided in
the October 1997 contract with BSLD. Instead, the arrangement for this service
will change substantially so that the Company will earn operating revenues
directly from BSLD only for the specific services the Company provides to BSLD
under its November 1996 contract with BSLD. In addition, when BellSouth
obtains the aforementioned approval, it is expected that BSLD will cease using
the Company for automated call processing services. As a result of these
factors, the Company expects that there will be a substantial reduction in
operating revenues to the Company and it is unlikely that operating revenues
under these contracts will return to the level of operating revenues prior to
such change. Although the Company believes that, after such changes in its
contracts with BellSouth, the services it will provide to BellSouth will
generate significant gross profit, the operating revenues and gross profits
generated from such services are dependent upon the timing of BellSouth's
achieving a meaningful long distance market penetration, if at all, in the
markets that BellSouth will serve. Accordingly, it is unlikely that after such
changes the Company's gross profit under these contracts will return to the
levels achieved prior to such changes. For the year ended December 31, 1997
and the quarter ended March 31, 1998, operating revenues from the October 1997
contract accounted for approximately 2.7% and 27.5%, respectively, of the
Company's total operating revenues. Failure to return to such levels of gross
profit from such contracts may have a material adverse effect on its business,
financial condition and results of operations. In addition, future contracts
with RBOC affiliates may also contain provisions that could result in a
similar transition upon the customer's obtaining regulatory approval to
provide interLATA long distance service. See "Business--Significant Customer
Contracts."
SIGNIFICANT CUSTOMER RELATIONSHIPS
For the year ended December 31, 1997, revenues from the three contracts
between the Company and BSLD and BSPC accounted for approximately 2.7%, 11.9%
and 1.6% of the Company's total operating revenues. For the quarter ended
March 31, 1998, these three contracts accounted for approximately 27.5%, 7.4%
and 3.1% of the Company's total operating revenues. In addition, the Company
currently has contracts with two subsidiaries of Ameritech Corporation,
Ameritech Services ("ASI") and Ameritech Communications ("ACI"). The Company
began earning revenues under the Ameritech contracts during April 1998. The
aforementioned contracts require payment of a contractually-agreed upon amount
in the event of early termination of such contracts without cause. There can
be no assurance, however, that the Company would be able to collect such
amounts or that such amounts, if received, together with operating revenues
generated under such contracts, would sufficiently compensate the Company for
the investment it has made to support the canceled contracts. The amount of
such termination fees are relatively insignificant when compared to the
operating revenues generated and expected to be generated under such
contracts. There can be no assurance, however, that such expected revenues
will be realized.
None of the Company's contracts with BSLD, ASI or ACI have current terms
that extend beyond the year 2000. The Company's contract with BSPC currently
terminates in 2002. There can be no assurance that any of these customers will
renew their contracts after the expiration of their current terms, nor can
there be any assurance that these customers will not terminate the contracts
during their initial terms. In addition, if the contracts are not
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renewed, there can be no assurance that the Company can replace these
contracts with contracts with other customers. Consequently, the failure of
the Company to obtain renewal of any of the contracts with BSLD, BSPC, ASI or
ACI, or the termination of such contracts, could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Significant Customer Contracts."
The Company's five largest customers accounted for 20.4%, 27.3% and 39.7% of
the Company's operating revenues for 1995, 1996 and 1997, respectively. The
Company expects that operating revenues attributable to a relatively small
number of customers including BSPC, BSLD, ASI and ACI, will represent a
significant percentage of its total operating revenues for the foreseeable
future. The terms of the Company's contracts with these customers vary from
one to three years. Although Teltrust believes that it has good relationships
with its customers, there can be no assurance that the Company's largest
customers will continue to use the Company's services in amounts similar to
previous years or at all. The loss or significant reduction of business from
any of the Company's large customers could have a material adverse effect on
the Company's business, financial condition and results of operations.
Additionally, customers who account for significant portions of the Company's
operating revenues may have the ability to negotiate prices for the Company's
services that are more favorable to the customer and that result in lower
profit margins for the Company. See "Business--Significant Customer
Contracts."
DEPENDENCE ON THE RAPIDLY CHANGING TELECOMMUNICATIONS INDUSTRY
Substantially all of the Company's revenues to date have resulted from
services provided to companies in the telecommunications industry.
Developments in the telecommunications industry generally or by any reduction
in expenditures for, or future outsourcing of, activities by
telecommunications companies could materially and adversely affect the
Company's business, financial condition and results of operations.
Expenditures by telecommunications companies could be negatively impacted by,
among other things, changes in governmental regulations designed to alter the
manner in which companies provide their products.
Recent events, including the passage of the Telecommunications Act of 1996,
are expected to result in an increasing number of telecommunications companies
operating in each market. This may result in competitive situations that
unfavorably impact the Company, such as the withdrawal of a customer from a
market that the Company serves or the acquisition or merger of a major
customer, where the acquiror or surviving entity provides those services
itself or obtains them from another third-party or exerts substantial
influence on the contract negotiation process. In addition, the creation of
alliances and joint ventures among telecommunications companies may increase
the negotiating leverage for these carriers as they deal with providers of
services such as those the Company offers. Although the Company believes that
an increase in the number of providers generally will be beneficial to the
Company as the providers look for ways to differentiate their services, no
assurance can be given that the Company will not be adversely impacted, either
directly or indirectly, by the potential changes in the marketplace. See
"Business--Significant Customer Contracts."
DEPENDENCE ON CERTAIN SUPPLIERS
The Company relies on other telecommunications companies to supply certain
key components of its network infrastructure, including telecommunications
services, network capacity and switching and networking equipment, which, in
the quantities and quality demanded by the Company, are available only from
certain limited sources. The Company is also dependent upon certain IXCs and
other carriers to provide telecommunications services and facilities to the
Company and its customers. The Company relies on a national data provider to
supply information used by the Company in providing its national directory
assistance services and on a third-party billing and collection service to
perform certain billing and collection services for the Company's operations.
The Company has, from time to time, experienced delays, outages or other
problems in receiving telecommunications components, services and facilities
and data which it requests from certain suppliers, and there can be no
assurance that the Company will be able to obtain such services or facilities
or data on the scale and within the time frames required by the Company at an
affordable cost, or at all. Any failure to obtain such components, services,
facilities or data on a timely basis, at an affordable cost or at all, would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Operations and Technology."
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DEPENDENCE UPON NETWORK INFRASTRUCTURE; RISK OF SYSTEM FAILURE; SECURITY RISKS
The Company's success in marketing its services to telecommunications
companies requires that the Company provide superior reliability, capacity and
security via its network infrastructure. The Company owns and operates
switching, call processing and networking sites located in Salt Lake City and
additional facilities in Atlanta, Los Angeles, Miami and New York City. The
Company's call processing platforms and networks and the third-party networks
upon which they depend are subject to physical damage, power loss, capacity
limitations, software defects, breaches of security (by computer virus, break-
ins or otherwise) and other factors, certain of which may cause interruptions
in service or reduced capacity for customers. Although the Company has taken
precautions to protect itself and its customers from events that could
interrupt delivery of services, including the use of back-up systems and
redundant operations, there can be no assurance that a fire, act of sabotage,
technical failure, human error, natural disaster or any similar event would
not cause the failure of a significant technical component, thereby resulting
in a failure of service. Interruptions in service, capacity limitations or
security breaches could have a material adverse effect on the Company's
business, financial condition and results of operations. Certain losses
suffered by Teltrust as a result of any infrastructure-related disruptions
would be covered by business interruption insurance maintained by the Company.
However, there can be no assurance that the Company will be able to maintain
its business interruption insurance, that such insurance will continue to be
available at reasonable prices, that such insurance would cover all such
losses or that such insurance would be sufficient to compensate the Company
for losses it may experience due to the Company's inability to provide
services to its customers. See "Business--Operations and Technology."
RISKS RELATED TO RAPID GROWTH
Although the Company has recently experienced substantial growth in
operating revenues, there can be no assurance that such growth will continue
or that the Company will be able to effectively manage such growth. The
Company's ability to continue to grow and to effectively manage such growth
may be affected by various factors, many of which are not within the Company's
control, including competition and federal and state regulation of the
telecommunications industry. The Company's rapid growth has placed, and is
expected to continue to place, significant demands on all aspects of the
Company's business, including its administrative, technical and financial
personnel and systems. The Company's operating and reporting systems will
require enhancement and substantial investment in the future to accommodate
the Company's anticipated growth. There can be no assurance that the Company
will not encounter difficulties in expanding these systems to meet its future
needs. If the Company is unable to respond to and manage changing business
conditions, the quality of its services and its results of operations could be
materially adversely affected. Difficulties in managing continued growth could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON KEY MANAGEMENT AND PERSONNEL; ABILITY TO HIRE ADDITIONAL
QUALIFIED PERSONNEL
The Company's future operating results will substantially depend on the
ability of its officers and key employees to manage its growth, to attract,
retain and integrate additional highly qualified management, technical and
financial personnel and to implement and/or improve its technical,
administrative, financial controls and reporting systems. Further, the loss of
key management personnel would likely have a material adverse impact on the
Company. Although the Company believes that it would be able to locate
suitable replacements for such management personnel if their services were
lost, there can be no assurance that qualified personnel will be available in
the regions in which the Company operates. Accordingly, the loss of the
services of any of such management personnel could have a material adverse
effect on the Company. Failure to retain and attract additional management
personnel who can manage the Company's growth effectively would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The success of the Company also depends upon its ability to hire and retain
qualified operating, marketing, sales, financial, accounting and technical
personnel. Competition for qualified personnel in the telecommunications
industry is intense and, accordingly, there can be no assurance that the
Company will be
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able to continue to hire or retain necessary personnel. Further, tight labor
markets in areas where the Company operates, including the existence of
significant competition for skilled employees in the Salt Lake City area, may
affect the Company's ability to recruit and hire the substantial number of new
accounting, sales, information systems, network engineering and support
personnel and service agents required to implement the Company's growth
strategy. See "Management."
COMPETITION
Telecommunications markets are intensely competitive, rapidly evolving and
subject to constant technological change. The Company currently faces
significant competition in each of the markets in which it operates and
expects competition to increase in the future. Many of the Company's current
and potential competitors are substantially larger and have greater financial,
technical, engineering, personnel and marketing resources; longer operating
histories; greater name recognition; and larger and more diversified customer
bases than the Company. Telecommunications companies compete for customers
(both in the wholesale and end-user segments) on the basis of service,
quality, price, reputation, technological innovation and experience. The
Company believes that existing competitors are likely to continue to expand
their service offerings to their customers. Moreover, with the continuing
trend toward business alliances in the telecommunications industry and the
absence of substantial barriers to entry in the call completion, national
directory assistance, third-party verification and calling card services
markets, the Company expects that new competitors are likely to enter the
telecommunications market and attempt to market telecommunications services
similar to the Company's services, which would result in greater competition.
The ability of the Company to compete effectively in telecommunications
markets will depend upon the Company's continued ability to provide high
quality services at prices generally competitive with, or lower than, those
charged by its competitors. Certain of the Company's current and potential
competitors dominate the telecommunications industry and have the financial
resources to enable them to withstand substantial price competition, which is
expected to increase significantly, and there can be no assurance that the
Company will be able to compete successfully in the future. Moreover, there
can be no assurance that certain of the Company's competitors will not be
better positioned to negotiate contracts with telecommunications companies
that are more favorable than contracts negotiated by the Company. In addition,
there can be no assurance that competition from existing or new competitors or
a decrease in the rates charged for telecommunications services by competitors
would not have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Competition."
IMPACT OF TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW SERVICES
The market for the Company's services is characterized by rapidly changing
technology, evolving industry standards, emerging competition and frequent new
product and service introductions. The Company's future success will depend on
the continued use of its existing services and products, the acceptance of new
services and products in the markets in which Teltrust operates and the
Company's ability to develop new products and services or adapt existing
products and services to keep pace with changes in the telecommunications
industry. Future technological changes, including changes related to
automation of certain call processing functions, network protocols and
software, could have a material adverse effect on the Company's business,
results of operations and financial condition. There can be no assurance that
the Company will successfully identify new service opportunities and develop
and bring new services to market in a timely manner. The Company's pursuit of
necessary technological advances may require substantial time and expense, and
there can be no assurance that the Company will be successful in adapting to
new technologies and market and product evolutions. In addition, there can be
no assurance that the Company will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of its
existing services or that its new services or enhancements thereto will
adequately meet the requirements of the marketplace and achieve market
acceptance. Delay in the introduction of new services or enhancements, or the
failure of such services or enhancements to achieve market acceptance could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Industry Overview."
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YEAR 2000 COMPLIANCE
The Company has reviewed its information and technology systems to assess
what changes might be needed for those systems to recognize the year 2000
("Y2K") and not to treat any date after December 31, 1999 as a date during the
twentieth century. Management believes that all such changes have been or will
be implemented in an orderly and timely manner and without material cost. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance." The Company has begun to coordinate its
response to these issues with those third parties with whom the Company
engages in electronic transactions, both domestically and internationally,
including suppliers, customers, creditors and financial service organizations,
although the Company cannot effectively ensure against all potential Y2K
problems that might originate with third parties. If the Company or any third
party with whom the Company does business were to have a Y2K problem, the
Company's business could be seriously disrupted and the Company's business,
financial condition and results of operations could be materially adversely
affected. See "Business--Operations and Technology--Year 2000 Compliance."
DEPENDENCE ON PROPRIETARY AND LICENSED SOFTWARE
The Company has developed, and depends on, its own proprietary in-house data
reporting and tracking system to provide a series of database query and report
capabilities that are used to track inventory, control fraud and monitor
system usage. The Company also depends on its software, as well as software
developed by third parties, to provide services to its customers. The software
utilized by the Company in providing its services may contain undetected
errors. Although the Company engages in extensive testing of its software
prior to using the software on its network, there can be no assurance that
errors will not be found in software after commencement of use of such
software. Any such error may result in partial or total failure of the
Company's network, requiring the Company to commit additional and
unanticipated funds for further product development, including the retention
of additional programming personnel. In addition, any such failure may result
in a loss of customers and a corresponding decrease in revenue which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Operations and Technology."
The Company regards certain of the software it uses as proprietary and
relies primarily on a combination of statutory and common law copyright,
trademark and trade secret laws, customer licensing agreements, employee and
third-party nondisclosure agreements and other methods to protect its
proprietary rights. These laws and contractual provisions provide only limited
protection of the Company's proprietary rights. Despite the Company's efforts
to protect its proprietary rights, it may be possible for a third party to
copy or otherwise obtain and use the Company's technology without
authorization or to develop similar technology independently. If unauthorized
copying or misuse of the Company's products were to occur to any substantial
degree, the Company's business, results of operations and financial condition
could be materially adversely affected. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or that
the Company's competitors will not independently develop similar technology.
Although the Company does not believe that it is infringing intellectual
property rights of third parties in its operations, there can be no assurance
that third parties will not claim that the Company's current or future
products violate the proprietary rights of others. The Company expects that
software developers will increasingly be subject to such claims as the number
of products and competitors providing products and services to the
telecommunications industry grows. Any such claim, with or without merit,
could result in costly litigation, require significant management resources,
require the Company to enter into royalty or licensing agreements or cause the
Company to discontinue the use of the challenged trade name, service mark or
technology, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company or at all. See "Business--Operations and
Technology."
RISKS OF OPERATING IN A REGULATED INDUSTRY
As a common carrier, the Company is subject to substantial federal, state,
and local regulation. The following paragraphs describe certain impacts of
these regulations as currently in force; however, regulatory
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policies are subject to change as a result of agency, legislative and judicial
actions and there can be no assurance that the Company will not be adversely
affected by future changes of this nature.
Teltrust currently must file with the FCC tariffs setting forth the
Company's rates, terms and conditions of service for prepaid and postpaid
calling card operations and call processing services and must provide certain
information about its interstate and international long distance traffic. In
addition, the Company is required to maintain a certificate, issued by the
FCC, in connection with its international services. State regulatory agencies
regulate intrastate communications, call completion services, third-party
verification services, in-state long distance services and prepaid, postpaid
and proprietary calling card services. The Company generally must obtain and
maintain certificates of public convenience and necessity from regulatory
authorities in most states in which it offers services. In most of these
jurisdictions, the Company must file and obtain prior regulatory approval of
tariffs for intrastate services. In addition, the Company must update or amend
the tariffs and, in some cases, the certificates of public convenience and
necessity when rates are adjusted or new products are added to the
telecommunications services offered by the Company. The FCC and numerous state
agencies also impose prior approval requirements on transfers of control,
including corporate reorganizations, and assignments of certain regulatory
authorizations. Failure by the Company to adhere to these filing requirements
and other regulations could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Telecommunications Act of 1996 directs the FCC to prescribe mechanisms
for the preservation of universal service, the promotion of nationwide access
to telecommunications services in rural, insular and high cost areas that are
reasonably comparable in price and type to those found in urban areas and the
promotion of access to advanced services for schools, libraries and certain
health care providers. Providers of interstate telecommunications, including
call completion services providers, pay telephone providers and private
network operators that offer services to others for a fee on a non-common
carrier basis, must contribute toward the funding of universal service
according to a formula prescribed by the FCC. Although the Company's
competitors will be similarly affected, the universal service fund annual
assessment may have a material adverse effect on the long-term financial
condition of the Company.
Section 276 of the 1996 Telecommunications Act mandated the establishment of
a per call compensation plan to insure that all pay telephone providers are
fairly compensated for each completed intrastate and interstate pay telephone
initiated coinless call. Such calls include those placed to toll free numbers
(800/888), dial around access code calls (such as 1-800-BELLSOUTH(TM)) and
other such access code calls. The FCC has established a two-year "default"
compensation rate, payable by all IXCs including the Company, of $0.284 per
compensable call. At the end of the two year interim period, the per call pay
telephone compensation rate will be the deregulated market-based local coin
rate less $0.066. The current FCC rules became effective on October 7, 1997,
but continue to be subject to regulatory and legal challenges. The Company is
unable to predict whether this regulation or other potential changes in the
communications laws, other regulations or determinations will have a material
adverse effect on the Company's business, financial condition and results of
operations.
In May 1997, the FCC adopted changes to its system of interstate access
charges to make them compatible with the pro-competitive, deregulatory
framework established by the Telecommunications Act of 1996. The FCC's access
reform order adopts various reforms to the existing rate structure for
interstate access that are designed to move access charges, over time, to more
economically efficient levels and rate structures. The FCC's access reform
order also imposes the phase-in of replacing usage-based carrier common line
charges with a line-based flat fee to be assessed upon all telecommunications
carriers beginning on January 1, 1998. In addition, the FCC's access order
requires LECs to reduce their access revenue requirements by reducing
interconnection access charges to telecommunications carriers. Although the
Company's competitors will be similarly affected, the changes in the system of
interstate access charges may have a material adverse effect on the business,
financial condition and results of operations of the Company.
In January 1998, the FCC addressed what it viewed as widespread consumer
dissatisfaction concerning high charges by many IXCs and call completion
service providers for calls from public phones and other aggregator locations
such as pay telephones, hospitals, hospitality locations and educational
institutions. Although it declined to implement a concept known as "billed
party preference," which would have required that the billed
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party be allowed to choose the preferred long-distance service provider for
each of its calls, the FCC issued an order requiring call processing service
providers and IXCs to disclose orally to "away from home callers" how to
obtain the total cost of a 0+ interstate domestic call before the call is
connected. The Company is unable to predict whether this regulation or other
potential changes in the communications laws, other regulations or
determinations could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Government
Regulation."
RISKS RELATED TO STRATEGIC INVESTMENTS OR BUSINESS COMBINATIONS
The Company recently completed the acquisition of Quest and may consider
future acquisitions of, or strategic investments in, companies engaged in
businesses similar or related to the business of the Company in order to
complement Teltrust's existing services, broaden its customer base and improve
its operating efficiencies. Acquisitions and strategic investments also
involve numerous additional risks, including difficulties in the integration
of the operations, services, products and personnel of the acquired company,
which could result in charges to earnings or otherwise adversely effect the
Company's operating results. In addition, there can be no assurance that
acquisition opportunities will be available, that the Company will have access
to the capital required to finance potential acquisitions, that the Company
will acquire businesses, that any acquired business will be profitable or that
any acquisition or strategic investment effected through the issuance of
equity will not ultimately prove to be dilutive. There can be no assurance
that the anticipated benefits of the Quest acquisition will be fully realized
or that the combination of the Company and Quest will ultimately be considered
successful.
In addition, the Company from time to time engages in discussions with
potential business partners to consider formation of business combinations or
strategic alliances that would expand the reach of the Company's networks or
services and potential strategic investors who have expressed an interest in
making an investment in the Company. Such acquisitions, combinations or
alliances, if consummated, could divert the resources and management time of
the Company and may require integration with the Company's existing networks
and services. There can be no assurance that any acquisitions, combinations or
alliances will occur or, if consummated, would be on terms favorable to the
Company or would be successfully integrated into the Company's operations.
CONTROL BY CERTAIN STOCKHOLDERS AND MANAGEMENT
Upon completion of the Offering, the Company's Directors and executive
officers are expected to own beneficially approximately 64.7% of the
outstanding Common Stock. At such time, approximately 22.6% of the outstanding
Common Stock will be beneficially owned by Lyle O. Keys, the Company's
Chairman and 11.8% of the outstanding Common Stock will be beneficially owned
by Carmelo Catalano, a Director of the Company. In addition, at such time,
entities affiliated with Media/Communications Partners, whose designees occupy
two positions on the Board of Directors, will own approximately 23.6% of the
outstanding Common Stock. As a result, these stockholders will be able to
exercise significant influence over all matters requiring stockholder
approval, including the election of directors and the approval of significant
corporate transactions. Such concentration of ownership may also have the
effect of delaying or preventing a change in control of the Company. See
"Principal and Selling Stockholders."
SEASONALITY; FACTORS AFFECTING OPERATING RESULTS; POTENTIAL FLUCTUATIONS IN
PERIOD-TO-PERIOD RESULTS
The Company's sales have been, and the Company expects that its sales will
continue to be, somewhat seasonal, due to the nature of call traffic from
independent and LEC-owned pay telephones and the use of prepaid and other
calling cards. Traditional agent-assisted long distance services produce peak
revenues during the summer months, coincident with domestic travel and
vacation patterns. To a lesser degree, national directory assistance, prepaid
and other calling card and third-party verification services are also affected
by seasonal demand fluctuations with demand peaking in the spring and summer
months.
The Company's operating results have varied significantly from period-to-
period in the past and may vary significantly in the future. Factors that may
cause the Company's operating results to vary include: (i) changes in
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operating expenses; (ii) the timing of the introduction of services; (iii)
market acceptance of new and enhanced versions of services; (iv) potential
acquisitions; (v) changes in legislation and regulations that affect the
competitive environment for services; (vi) customer marketing strategies; and
(vii) general economic factors. As a result of these factors, the Company
believes that period-to-period comparisons of its results of operations are
not necessarily meaningful and should not be relied upon as an indication of
future performance.
RISK OF LOSS FROM RETURNED TRANSACTIONS; FRAUD; BAD DEBT; THEFT OF SERVICES
The Company utilizes national and credit card clearance systems for
electronic credit card settlement and billing of telephone calls. The Company
often bears the same credit risks normally assumed by other users of these
systems arising from returned transactions that are caused by closed accounts,
frozen accounts, unauthorized use, disputes, theft or fraud. The Company's
relationship with providers of merchant card services, including credit card
issuers, could be adversely affected by excessive uncollectables or
chargebacks, which are generally higher in the telecommunications services
industry than in other industries, particularly with respect to recharging (or
"refreshing") the limits on prepaid calling cards because the transaction does
not require a cardholder signature. Termination of the Company's ability to
refresh prepaid calling cards through merchant card services would have a
material adverse effect on the business, financial condition and results of
operations of the Company. Although the Company attempts to limit its
financial exposure by limiting the amount that consumers can refresh within
specified time frames, from time to time, persons have obtained services
without rendering payment to the Company by unlawfully utilizing the Company's
access numbers and personal identification numbers. The Company attempts to
manage these credit, theft and fraud risks through its internal controls,
monitoring and blocking systems. The Company also maintains reserves which it
deems adequate for such risks. Past experience in estimating and establishing
reserves and the Company's historical losses are not necessarily accurate
indications of the future. Although the Company believes that its risk
management and bad debt reserve practices are adequate, there can be no
assurance that the Company's risk management practices or reserves will be
sufficient to protect the Company from unauthorized or returned transactions
or thefts of services which could have a material adverse effect on the
Company. See "Business--Operations and Technology--Fraud Prevention."
POSSIBLE DELAY IN RECOGNIZING A PORTION OF DEFERRED REVENUE
The sale of long distance domestic and outbound international telephone
service through prepaid calling cards may be subject to "escheat" laws in
various states. These laws generally provide that payments or deposits
received in advance or in anticipation of the provision of utility (including
telephone) services that remain unclaimed for a specific period of time after
the termination of such services are deemed "abandoned property" and must be
submitted to the state. The Company, however, is not aware of any case in
which escheat laws have been applied to unused balances remaining on prepaid
calling cards and does not believe that such laws are applicable. In the event
that such laws were deemed applicable and tariffed service charges for periods
of non-use had not accumulated to reduce such unused balance, the Company may
be unable to recognize the portion of its deferred revenue remaining upon the
expiration of the cards with unused calling time. In such event, the Company
may be required to deliver such amounts to certain states in accordance with
these laws, which could have a material adverse effect on the Company.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
The sale of a substantial number of shares of Common Stock of the Company in
the public market could adversely affect the market price of the Common Stock.
After giving effect to the offering of the Company's 2,500,000 shares of
Common Stock, the 3,200,000 shares offered hereby will be eligible for
immediate sale in the public market without restriction under the Securities
Act (except that any shares purchased in the Offering by "affiliates" of the
Company may generally be resold only in compliance with applicable provisions
of Rule 144). Beginning 90 days after the date of this Prospectus, an
additional shares may be resold under Rule 144 subject to the volume and
manner limitations set forth in Rule 144 and an additional shares may be
resold under Rule 144 without such restrictions (in each case, subject to the
lock-up agreements described in "Underwriting"). Holders of approximately
of these shares have contractual rights to have those shares
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registered with the Commission for resale to the public. In addition, after
the effective date of the Registration Statement, the Company intends to file
a registration statement covering the 2,200,000 shares of Common Stock issued
or reserved for issuance under the Company's 1993 Stock Option Plan and 1998
Stock Option Plan, and, upon filing any shares subsequently issued under such
plans will be eligible for sale in the public market, subject to compliance
with Rule 144 in the case of affiliates of the Company. A decision by any such
stockholder(s) to publicly sell a significant number of shares of the Common
Stock will have the potential to cause a material decrease in the trading
price of the Common Stock and may impair the future ability of the Company to
raise capital at prices or on terms favorable to the Company. See "Shares
Eligible for Future Sale."
SUBSTANTIAL DISCRETION OF MANAGEMENT CONCERNING USE OF PROCEEDS
The Company has allocated approximately $30.0 million of the net proceeds of
the Offering for specific identified purposes, with the remainder of
approximately $6.0 million to be used for working capital and general
corporate purposes, including possible acquisitions. Accordingly, management
will have substantial discretion in using a significant percentage of the
proceeds to be received by the Company, and there is no assurance that
management's use of the proceeds can or will yield a return. See "Risks
Related to Strategic Investments or Business Combinations" and "Use of
Proceeds."
ANTI-TAKEOVER CONSIDERATIONS
Prior to the completion of the Offering, the Company will adopt an amended
and restated certificate of incorporation and amended and restated by-laws.
Certain provisions of these documents may have the effect of discouraging a
third party from making an acquisition proposal for the Company and thereby
inhibit a change in control of the Company in circumstances that could give
holders of the Common Stock the opportunity to realize a premium over the then
prevailing market price of such stock. Such provisions may also adversely
affect the market price of the Common Stock. Such provisions include, among
other things, a classified Board of Directors serving staggered three-year
terms, the elimination of stockholder voting by consent, the removal of
Directors only for cause, the vesting of exclusive authority in the Board of
Directors to determine the size of the Board of Directors and (subject to
certain limited exceptions) to fill vacancies thereon, the vesting of
exclusive authority in the Board of Directors (except as required by law) to
call special meetings of stockholders and certain advance notice requirements
for stockholder proposals and nominations for election to the Board of
Directors. These provisions, and the ability of the Board of Directors to
issue preferred stock without further action by stockholders, could delay or
frustrate the removal of incumbent Directors or the assumption of control by
stockholders, even if such removal or assumption of control would be
beneficial to stockholders, and also could discourage or make more difficult a
merger, tender offer or proxy contest, even if such events could be beneficial
to the interests of stockholders. The Company will be subject to Section 203
of the General Corporation Law of the State of Delaware which, in general,
imposes restrictions upon certain acquirors (including their affiliates and
associates) of 15% or more of the Company's Common Stock. See "Description of
Capital Stock--Certain Provisions of Certificate of Incorporation and By-laws"
and "Description of Capital Stock--Statutory Business Combination Provision."
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company has never paid a cash dividend on the Common Stock and does not
anticipate paying cash dividends on the Common Stock in the foreseeable
future. Further, the ability of the Company to pay cash dividends is subject
to contractual restrictions contained in the Credit Facility. See "Dividend
Policy."
ABSENCE OF PUBLIC MARKET
Prior to the Offering, there has been no established trading market for the
Common Stock and there can be no assurance that, following this Offering, an
active trading market for the Common Stock will develop or be sustained or
that the market price of the Common Stock will not decline below the initial
public offering price. The initial public offering price will be determined by
negotiations between the Company and the Underwriters
17
<PAGE>
and will not necessarily be indicative of the market price of the Common Stock
after this Offering. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. After the
Offering, the market price of shares of Common Stock is likely to be volatile.
The Company believes factors such as actual or anticipated quarterly
fluctuations in financial results, changes in earnings estimates by securities
analysts and announcements of material events by the Company, its customers or
its competitors may cause the market price for the Common Stock to fluctuate.
In addition, in recent years the stock market has experienced extreme price
and volume fluctuations which have affected the market price for many
companies in industries similar to the telecommunications industry and which
have often been unrelated to the operating performance of these companies.
These fluctuations, as well as general economic conditions, may have a
material adverse effect on the price of the Common Stock.
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution of the net tangible book value of the Common Stock in the
amount of $13.02 per share. To the extent options to purchase the Common Stock
are exercised in the future, there will be further dilution. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,500,000 shares of Common
Stock offered by the Company hereby, at an assumed public offering price of
$16.00 per share (the midpoint of the filing range), are estimated to be $36.0
million. Of the net proceeds to be received by the Company, the Company plans
to use (i) approximately $20.0 million to repay amounts outstanding under the
Credit Facility and (ii) approximately $10.0 million for anticipated capital
expenditures, over the next 12 to 18 months, including purchases of new
switches and software, expansion of the Company's facilities and network
infrastructure and implementation of telephony and other related improvements.
The Company entered into the Credit Facility in November 1997 and subsequently
amended such facility in March 1998. The Credit Facility consists of a five-
year revolving credit facility in the amount of $20.0 million. The Credit
Facility expires on December 31, 2002. Funds may be borrowed at either the
bank's base rate plus 1.5% or LIBOR plus 2.75%. The Company has used its
borrowings under the Credit Facility for working capital and capital
expenditures. See "Capitalization" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The remaining estimated net proceeds of approximately $6.0 million will be
used for working capital and other general corporate purposes. Such general
corporate purposes include the continued funding of the development and
enhancement of the Company's services and technology and the expansion of its
operations. The Company may also use a portion of the net proceeds to acquire
businesses, technologies, services or products complementary to the Company's
current business, although the Company currently has no agreements or
understandings with respect to any acquisition, and no portion of the net
proceeds has been allocated to specific acquisitions. Pending such uses of the
net proceeds, the Company intends to invest such funds in short-term,
interest-bearing investment grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain its earnings for future growth
and, therefore, does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results and current and
anticipated cash needs. In addition, under the terms of the Credit Facility,
the payment of cash dividends generally is prohibited without the consent of
the lenders.
18
<PAGE>
CASH AND CAPITALIZATION
The following table sets forth the cash and cash equivalents, current
portion of long-term debt and capitalization of the Company as of December 31,
1997 and as adjusted as of such date to reflect the sale of the 2,500,000
shares of Common Stock offered by the Company hereby (at an assumed public
offering price of $16.00 per share) and the application of the net proceeds
therefrom, after deducting estimated underwriting discounts and offering
expenses payable by the Company. See "Use of Proceeds." This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Consolidated Financial Statements and
notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C>
Cash and cash equivalents............................. $ 526 $ 14,726
======== ========
Current portion of long-term debt and capital lease
obligations.......................................... $ 1,205 $ 1,204
-------- --------
Long-term debt and capital lease obligations, less
current portion...................................... 14,407 2,307
-------- --------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value; 5,000,000 shares
authorized; 3,218,884 shares issued and
outstanding; 0 shares issued and outstanding, as
adjusted (2)....................................... 14,511 --
Common Stock, $.01 par value, 20,000,000 shares
authorized; 6,974,039 shares issued and
outstanding; 12,692,293 shares issued and
outstanding, as adjusted (2)(3).................... 70 127
Additional paid-in capital.......................... 3,616 54,370
Stockholder receivables............................. (275) (275)
Accumulated deficit................................. (23,581) (23,581)
-------- --------
Total stockholders' equity (deficit).............. (5,659) 30,641
-------- --------
Total capitalization............................ $ 9,953 $ 34,152
======== ========
</TABLE>
- ---------------------
(1) As of December 31, 1997, the Company had a $12.1 million balance
outstanding under the Credit Facility. Subsequent to December 31, 1997,
the Company's balance outstanding under the Credit Facility increased from
$12.1 million to $13.9 million as of March 31, 1998. See "Use of Proceeds"
and Note 4 to the Consolidated Financial Statements.
(2) Assumes conversion of preferred stock into 3,218,884 shares of Common
Stock in connection with the Offering.
(3) Excludes: (i) an aggregate of 1,183,799 shares of Common Stock issuable
upon the exercise of outstanding stock options under the 1993 Option Plan
at a weighted average exercise price of $5.24 per share at December 31,
1997 and (ii) 864,201 additional shares of Common Stock available for
future grants under the 1993 Option Plan and the 1998 Option Plan. See
"Management--Stock Option Plans."
19
<PAGE>
DILUTION
As of December 31, 1997, Teltrust had a pro forma deficit in net tangible
book value of approximately $6.1 million or a deficit of $0.60 per share of
Common Stock. Pro forma net tangible book value represents the amount of total
tangible assets less total liabilities divided by the number of shares of
Common Stock outstanding, excluding all outstanding stock options. Without
taking into account any other changes in the pro forma net tangible book value
after December 31, 1997, other than to give effect to the receipt by the
Company of the net proceeds from the sale of the 2,500,000 shares of Common
Stock offered by the Company hereby at an assumed public offering price of
$16.00 per share, the pro forma net tangible book value of the Company as of
December 31, 1997 would have been approximately $30.2 million or $2.38 per
share. This represents an immediate increase in pro forma net tangible book
value of $2.98 per share to existing stockholders and an immediate dilution of
$13.02 per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $16.00
------
Pro forma deficit in net tangible book value per share at
December 31, 1997 (1)........................................ $(0.60)
Increase per share attributable to new investors.............. 2.98
------
Pro forma net tangible book value per share after the Offering.. 2.38
------
Pro forma net tangible book value dilution per share to new in-
vestors........................................................ $13.02
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1997, the differences between existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 10,192,923 80.3% $17,743,290 30.7% $ 1.74
New investors.................. 2,500,000 19.7 40,000,000 69.3 16.00
---------- ----- ----------- -----
Total........................ 12,692,923 100.0% $57,743,290 100.0%
========== ===== =========== =====
</TABLE>
Other than as noted above, the foregoing computations assume no exercise of
any outstanding stock options after December 31, 1997 or the Underwriters'
over-allotment option. See "Use of Proceeds." As of December 31, 1997, options
to purchase 1,183,799 shares of Common Stock were outstanding at a weighted
average exercise price of $5.24 per share. To the extent these options or the
Underwriters' over-allotment option are exercised, there will be further
dilution to new investors. See "Underwriting" for information concerning the
Underwriters' over-allotment option.
- ---------------------
(1) Assumes conversion of all outstanding preferred stock into Common Stock as
if it had occurred as of December 31, 1997.
20
<PAGE>
SELECTED FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected consolidated financial and operating
data of the Company for the periods indicated. The selected financial data as
of December 31, 1995, 1996 and 1997 and for the years then ended have been
derived from the audited financial statements of Teltrust, Inc. and
subsidiaries, as audited by Arthur Andersen LLP, independent public
accountants. The selected financial data as of December 31, 1993 and 1994 and
for the years then ended have been derived from the audited financial
statements of Teltrust, Inc. and subsidiaries and the unaudited financial
statements of Quest for those years (as combined before restatement for the
pooling-of-interests accounting treatment). The selected financial and
operating data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1993 (1) 1994 (1) 1995 1996 1997
------------------------------------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE, EMPLOYEE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Operating revenues:
Call processing
services............. $ 19,796 $ 26,188 $ 29,290 $ 33,885 $ 46,222
Calling card
services............. 33 1,716 4,572 7,216 10,782
----------- ----------- ----------- ----------- -----------
Total operating
revenues........... 19,829 27,904 33,862 41,101 57,004
Cost of operating
revenues.............. 11,519 17,478 23,486 29,301 45,473
----------- ----------- ----------- ----------- -----------
Gross profit.......... 8,310 10,426 10,376 11,800 11,531
Operating expenses..... 8,517 11,987 14,001 13,615 23,712
----------- ----------- ----------- ----------- -----------
Operating income
(loss)............... (207) (1,561) (3,625) (1,815) (12,181)
Other expense, net..... (90) (274) (629) (732) (1,037)
Benefit from (provision
for) income taxes..... 241 110 783 20 (5)
----------- ----------- ----------- ----------- -----------
Income (loss) from
continuing
operations............ (56) (1,725) (3,471) (2,527) (13,223)
Discontinued
operations, net of
income taxes.......... 295 296 1,380 -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ 239 $ (1,429) $ (2,091) $ (2,527) $ (13,223)
=========== =========== =========== =========== ===========
BASIC AND DILUTED NET
INCOME (LOSS) PER
COMMON SHARE (2):
Income (loss) from
continuing
operations............ $ (0.01) $ (0.48) $ (0.80) $ (0.57) $ (2.47)
Discontinued
operations............ 0.06 0.08 0.32 -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ 0.05 $ (0.40) $ (0.48) $ (0.57) $ (2.47)
=========== =========== =========== =========== ===========
Basic and diluted
weighted average
number of common
shares outstanding.... 5,031,054 3,579,005 4,339,117 4,641,999 5,843,313
OTHER OPERATING DATA:
Employees.............. 168 216 574 630 892
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).... $(4,801) $ (6,857) $ (5,285) $ (1,699) $ (6,041)
Total assets................. 7,670 11,461 11,588 24,667 25,918
Long-term debt (including
capital lease obligations),
net of current portion...... 2,369 3,907 4,421 5,373 14,407
Stockholders' equity
(deficit)................... (1,861) (3,303) (3,143) 9,141 (5,659)
</TABLE>
- ---------------------
(1) The financial data for 1993 and 1994 is derived from the audited financial
statements of Teltrust, Inc. and subsidiaries financial statements which
included $14,302 and $20,029 of total operating revenues; $186 and
$(1,873) of operating income (loss), $481 and $(1,577) of net income
(loss); $5,535 and $8,859 of total assets; and $(1,636) and $(3,213) of
stockholders' deficit for 1993 and 1994, respectively, before combination
with Quest.
(2) Basic and diluted net loss per common share calculations for 1996 and 1997
include undeclared dividends on preferred stock of $132 and $1,200,
respectively. See Note 2 to the Consolidated Financial Statements. In
addition, 1993 net income (loss) per common share is presented on a
diluted basis. Basic net income (loss) per common share-continuing
operations, discontinued operations, net loss and weighted average number
of shares outstanding-basic were $(0.01), $0.08, $(0.07) and 3,586,245,
respectively.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus. This Prospectus contains forward-looking statements.
Discussions containing such forward-looking statements may be found in the
material set forth below and under "Business," as well as elsewhere in this
Prospectus. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. Actual events or results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including, without limitation, the risk factors set forth under "Risk Factors"
and the matters set forth elsewhere in this Prospectus.
OVERVIEW
Teltrust is a leading independent outsource provider of a broad range of
enhanced call processing and calling card services to the domestic
telecommunications industry. The Company believes that it offers the most
comprehensive suite of services of any independent outsource provider in its
industry. This diversified suite of services includes call completion,
national directory assistance and third-party verification services in
addition to calling card services. Teltrust serves its customers through
state-of-the-art technology and switch-based call processing platforms and, as
of March 1998, more than 1,000 employees. The Company's customers include RBOC
affiliates (such as BSLD and BSPC), pay telephone and hospitality aggregators
(such as Peoples Telephone Company, AMI Telecommunications and Global Net),
IXCs (such as US Long Distance, WorldCom and LCI International), and other
large telecommunications resellers or users (such as TON Services and Eastern
Communications Network). The Company has also recently established contractual
relationships with affiliates of Ameritech Corporation and emerging
telecommunications companies including CLECs (such as Nextlink and Cox Com),
wireless providers (such as Centennial Cellular, Omnipoint Communications and
PowerTel) and international carriers (such as Justice Technology Corp. and
Star Telecommunications). Many customers purchase a number of the Company's
services under multi-year contracts and utilize Teltrust to provide complex
outsourcing solutions. During the quarter ended March 31, 1998, Teltrust
processed over 21 million call processing transactions and decremented more
than 17.6 million domestic minutes for its prepaid calling card customers.
The Company believes the following market factors, among others, create
excellent opportunities for growth as an outsource service provider in the
telecommunications industry. With the continued increase in telecommunications
competition, fostered by the Telecommunications Act of 1996 and subsequent
entry of new providers, an increasing number of telecommunications companies
are seeking to outsource certain functions, such as those provided by
Teltrust, in order to focus capital and other resources on consumer market
penetration and core asset deployment. Also critical to these companies is the
ability to offer differentiated enhanced call processing services to end-
users. Teltrust's growth strategy addresses these two factors by offering
customers the ability to bring enhanced services to market in a more
expeditious and cost-effective manner when compared to building the necessary
infrastructure and expertise to deliver the services internally and enables
customers to focus instead on their core competencies and strategies.
The Company has over 12 years of experience in the telecommunications
industry, its predecessor having been incorporated under the laws of the State
of Utah as Romney & Johnson Company on July 21, 1986. The Company became one
of the largest independent pay telephone providers in Utah by 1988. In 1989,
the Company initiated its call completion services business by installing a
small switch, along with its own dedicated network lines, and obtaining
necessary federal and state regulatory approvals. The Company changed its name
on July 31, 1990 to Teltrust, Inc. Since 1992, the Company has expanded its
service offerings to include national directory assistance, third-party
verification and calling card services. On November 1, 1995, the Company sold
all of the assets of its independent pay telephone business in order to focus
on its enhanced call processing and calling card service businesses. Effective
December 31, 1997, the Company acquired Quest to expand the
23
<PAGE>
Company's calling card services market and infrastructure. TTST Holdings, Inc.
was incorporated under the laws of the State of Delaware in April 1998.
Following the reorganization of the Company in April 1998, TTST Holdings
changed its name to Teltrust, Inc.
Teltrust's business is primarily transaction-based and operating revenues
are recognized as fees are earned for services performed. Depending on the
application, fees can be based on a variety of factors, including but not
limited to, calls attempted, calls completed, minutes of usage or hours of
service. The Company has a recurring revenue stream from a majority of its
customers. See "Business--Significant Customer Contracts."
The Company's costs of operating revenues consist primarily of compensation
and benefits for service agents, network and telephony costs, the cost of data
for its national directory assistance services and direct overhead costs
associated with generating operating revenues.
Operating expenses consist primarily of salaries, wages and related
benefits, sales and marketing costs, professional fees, legal fees, accounting
fees, rent, insurance and other general expenses including depreciation and
amortization.
RESULTS OF OPERATIONS
The following table sets forth selected data derived from the Company's
statements of operations as a percentage of total operating revenues for the
periods indicated.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Total operating revenues......................... 100% 100% 100%
Costs of operating revenues...................... 69 71 80
------ ------ ------
Gross profit..................................... 31 29 20
Operating expenses............................... 41 33 41
------ ------ ------
Operating income (loss).......................... (10) (4) (21)
Other expense, net............................... (2) (2) (2)
------ ------ ------
Net income (loss) from continuing operations be-
fore income taxes............................... (12) (6) (23)
Income taxes..................................... 2 0 0
Discontinued operations, net of income taxes..... 4 -- --
------ ------ ------
Net income (loss)................................ (6)% (6)% (23)%
====== ====== ======
</TABLE>
The following table sets forth for the years presented, the total operating
revenues of each of the Company's services, within the Company's two business
segments, and the percentage of total operating revenues represented by each
service:
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Call Processing Services:
Call completion services..................... $27.8 82% $29.6 72% $38.3 67%
National directory assistance services....... 0.8 2 2.3 5 4.0 7
Third-party verification services............ 0.7 2 2.0 5 3.9 7
----- --- ----- --- ----- ---
Total call processing services............. 29.3 86 33.9 82 46.2 81
Calling card services.......................... 4.6 14 7.2 18 10.8 19
----- --- ----- --- ----- ---
Total operating revenues....................... $33.9 100% $41.1 100% $57.0 100%
===== === ===== === ===== ===
</TABLE>
24
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
OPERATING REVENUES
Operating revenues increased $15.9 million, or 39%, to $57.0 million in 1997
from $41.1 million in 1996. Call processing services revenues increased $12.3
million, or 36%, to $46.2 million in 1997 from $33.9 million in 1996. Calling
card services revenues increased $3.6 million, or 49%, to $10.8 million in
1997 from $7.2 million in 1996. The primary reasons for the increased revenues
can be attributed to: (i) additional business volumes with existing customers,
(ii) business with new customers and (iii) a shift to larger contracts with
both new and existing customers.
The Company's three contracts with BSLD and BSPC accounted for approximately
2.7%, 11.9% and 1.6% of the Company's 1997 consolidated operating revenues,
which combined represented 16.2% of the Company's 1997 consolidated operating
revenues. There were no other customers that accounted for more than 10% of
the Company's consolidated operating revenues during 1997. Furthermore, there
were no customers that accounted for more than 10% of the Company's
consolidated operating revenues in 1996. See "Business--Significant Customer
Contracts."
COSTS OF OPERATING REVENUES
Costs of operating revenues increased $16.2 million, or 55%, to $45.5
million in 1997 from $29.3 million in 1996. Approximately $12.7 million of
this increase was associated with the 39% increase in operating revenue during
1997 from 1996 levels. The remaining $3.5 million increase can be attributed
to: (i) a shift in the mix of operating revenues toward more lower-margin
services; (ii) the opening of two new call centers; (iii) increased staffing
and training costs; and (iv) additional network and telephony infrastructure
required for new business that the Company contracted for in 1996 and 1997.
Most of the operating revenues for this new business were not realized in
1997, but are expected to be realized in 1998 and thereafter.
OPERATING EXPENSES
Operating expenses increased $10.1 million, or 74%, to $23.7 million in 1997
from $13.6 million in 1996. This increase was primarily due to: (i) a $2.6
million provision for bad debts in 1997 (as opposed to a $0.8 million
provision for bad debts in 1996); (ii) the write-down of the Company's
investment in, and assets related to, dot.One (formerly Teltrust Data
Services, LLC d.b.a. Teltrust.com), which totaled $1.9 million; (iii) costs
associated with the Company's acquisition of Quest; (iv) increased
depreciation expenses of $ 0.5 million relating to greater capital asset
acquisitions and infrastructure enhancements during 1997; (v) increased
staffing and related compensation and benefits expense consistent with the 39%
growth in 1997 operating revenues; and (vi) increases in operating expenses
attributable to the increased business volume in 1997 and the ramp-up of
programs to accommodate expected future growth based upon new contracts
obtained during 1997.
OTHER EXPENSE
Other expense increased $0.3 million, or 42%, to $1.0 million in 1997 from
$0.7 in 1996. This increase was primarily attributable to increased interest
expense relating to higher borrowing levels in 1997 than in 1996 which was
partially offset by increased interest income on higher average cash and cash
equivalent balances in 1997.
INCOME TAXES
During 1997, the Company's effective income tax rate was less than 1% as a
result of recording a valuation allowance against the deferred tax asset
resulting from the 1997 net operating loss. During 1996, the Company's
effective income tax rate was less than 1% also as a result of recording a
valuation allowance against the 1996 net operating loss which was partially
offset by a benefit resulting from refunds of previously paid income taxes.
Certain of the Company's net operating loss carryforwards ("NOLs") are
limited by ownership changes (as that term is defined in Section 382 of the
Internal Revenue Code of 1986, as amended) that occurred on
25
<PAGE>
January 21, 1997 and December 31, 1997. See Note 7 to the Consolidated
Financial Statements for a more detailed discussion of the Company's NOLs.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
OPERATING REVENUES
Operating revenues increased $7.2 million, or 21%, to $41.1 million in 1996
from $33.9 million in 1995. Call processing service revenues rose $4.6
million, or 16%, to $33.9 million in 1996 from $29.3 million in 1995. The
national directory assistance services and third-party verification services
revenues increased due to increased business with a broader range of customers
and additional revenues being realized from previously secured contracts. Both
of these product lines were in the formative stages in 1995 with revenue
growth accelerating in 1996. Calling card services grew $2.6 million, or 58%,
to $7.2 million in 1996 from $4.6 million in 1995. The Company increased its
focus and its sales efforts on larger accounts with longer sales cycles in
1995 and 1996 and was successful in securing a contract with BSLD in November
1996.
COSTS OF OPERATING REVENUES
Costs of operating revenues increased $5.8 million, or 25%, to $29.3 million
in 1996 from $23.5 million in 1995. Approximately $5.0 million of this
increase was associated with the 21% increase in revenue during 1996 from 1995
levels. The remaining $0.8 million increase is attributable to: (i) the
opening of a second call center and the corresponding increase in staffing and
training costs and (ii) additional network and telephony infrastructure
required for new business that the Company contracted for in 1995 and 1996.
OPERATING EXPENSES
Operating expenses decreased $0.4 million, or 3%, to $13.6 million in 1996
from $14.0 million in 1995. This decrease of $0.4 million was primarily due to
cost reductions by Teltrust during 1996.
OTHER EXPENSE
Other expense increased $0.1 million, or 16%, to $0.7 million in 1996 from
$0.6 million in 1995. This increase was primarily attributable to increased
interest expense relating to higher borrowing levels in 1996 than in 1995
which was partially offset by increased interest income on higher average cash
and cash equivalent balances in 1996.
INCOME TAXES
During 1996, the Company's effective income tax rate was less than 1% as a
result of recording a valuation allowance against the deferred tax asset
resulting from 1996 net operating loss which was partially offset by a benefit
resulting from refunds of previously paid income taxes. During 1995, the
Company's net effective income tax rate (after combining the benefit from
income taxes with the income tax provision for the discontinued operations and
gain on disposal) was 2%. This net income tax provision primarily resulted
from the Company's alternative minimum tax liability. During 1995, the Company
provided a valuation allowance against the deferred tax asset resulting from
the 1995 net operating loss.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements consist primarily of working capital
needs, capital expenditures and payments of interest on its Credit Facility.
The Company's working capital requirements have increased largely as a result
of higher accounts receivable due to increases in operating revenues. In
addition, the Company has purchased and deployed additional property and
equipment in anticipation of future operating revenue growth.
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Teltrust had a negative $6.0 million working capital position at December
31, 1997 compared with a negative $1.7 million working capital position at
December 31, 1996. This $4.3 million change in working capital was primarily
due to the net loss the Company incurred in 1997.
The Company has a $20.0 million secured operating line of credit with Fleet
National Bank (the "Credit Facility"). The Credit Facility expires September
30, 2002 but is subject to quarterly reductions in the commitment amount
beginning March 31, 1999 in the following amounts: (i) 3.0% per quarter in
1999; (ii) 5.625% per quarter in 2000; (iii) 9.0% per quarter in 2001; and
(iv) 9.833% per quarter in 2002. Under the terms of the Credit Facility,
outstanding borrowings bear interest at the bank's base rate plus 1.5% or the
LIBOR rate plus 2.75%, although, these rates can change based upon the ratio
of total debt to EBITDA. Availability under the Credit Facility is subject to,
among other things, compliance with loan covenants. The Credit Facility
contains certain restrictive covenants such as: (i) minimum EBITDA
requirements; (ii) minimum interest and debt service coverage ratios; (iii) a
minimum fixed charge coverage ratio; (iv) a capital expenditures limitation;
and (v) a prohibition against the payment of cash dividends. The Credit
Facility is secured by a first priority perfected security interest in all
assets of the Company in addition to a pledge of the capital stock of Holdings
and its subsidiaries. As of December 31, 1997, the Company had advances under
the Credit Facility of $12.1 million with an effective interest rate of 8.8%.
As of December 31, 1997, the Company had $0.5 million in cash and cash
equivalents compared to a total of $8.5 million in cash and cash equivalents
and restricted cash at December 31, 1996, a decrease of approximately $8.0
million resulting primarily from the Company's net losses, the expansion of
the Company's switch and network infrastructure, and the addition of two new
call centers.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used by operating activities for the year ended December 31, 1997
was $6.7 million, resulting primarily from the net loss for 1997 of $13.2
million. The impact of the net loss was mitigated in part by increases in
current liabilities of $7.2 million, depreciation and amortization of $2.0
million, provision for doubtful accounts of $3.6 million and loss on writedown
of joint venture of $0.8 million which were partially offset by increases in
receivables of $6.6 million due to longer payment terms on larger contracts.
Net cash used by operating activities for the year ended December 31, 1996
was $3.4 million, resulting primarily from the net loss for that period. The
impact of the net loss was mitigated in part by depreciation and amortization
of $1.5 million and provision for doubtful accounts of $0.8 million and an
increase in receivables of $2.0 million. The use of cash by operating
activities in 1995 was primarily due to the Company's net loss of $2.0
million. The net loss was mitigated in part by depreciation and amortization
of $1.4 and a provision for doubtful accounts of $0.5 million and increased by
(i) increases in accounts receivable of $1.2 million and (ii) decreases in
current liabilities of $1.5 million and a gain not relating to operating
activities of $1.6 million. The gain related to the disposal of the assets of
the Company's pay telephone business in November 1995.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash used in investing activities was $3.2 million for 1997 and was related
primarily to $7.2 million of capital expenditures for new switch and computer
equipment, software, operator stations, furniture and leasehold improvements
for new call centers which was partially offset by use of $4.0 million in cash
restricted pursuant to the Company's sale of preferred stock. During the year
ended December 31, 1997, approximately $1.0 million of capital equipment was
acquired through lease financing.
Cash used in investing activities was $5.7 million in 1996 and was related
primarily to capital expenditures for equipment upgrades and expansion. During
the year ended December 31, 1996, approximately $1.9 million of capital
equipment was acquired through lease financing. In addition, $4.0 million of
the proceeds from the Company's sale of preferred stock was restricted for
capital expenditures. Net cash provided by investing activities in 1995 was
$2.5 million. Approximately $1.1 million was used for the purchase of
equipment which
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was offset by proceeds from the sale of the Company's pay telephone operations
for $3.7 million. Capital equipment acquired through lease financing was $0.5
million during the year ended December 31, 1995.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided from financing activities for the year ended December 31,
1997 was $8.9 million resulting primarily from $12.1 million in borrowings
under the Company's line of credit which was established in November 1997, the
use of $2.9 million of restricted cash to repurchase common stock and retire
debt and $0.8 million from the exercise of warrants, offset by $3.1 million in
notes payable that were retired in conjunction with the Quest acquisition,
$2.4 million in payments made to repurchase the Company's common stock and
$1.5 million in other debt and capital lease obligations that were retired.
Net cash provided from financing activities for the year ended December 31,
1996 was $10.2 million resulting primarily from $14.5 million of proceeds from
the sale of preferred stock, $1.5 million from the issuance of notes relating
to Quest and $0.5 million of proceeds from the issuance of subordinated notes
payable offset by $3.1 million in notes that were retired during 1996 and $0.3
million in capital lease obligations that were retired. In addition, $2.9
million of the proceeds from the sale preferred stock was restricted for the
retirement of debt.
Net cash provided from financing activities for the year ended December 31,
1995 was $3.0 million resulting primarily from the issuance of $4.9 million in
notes payable net of $1.5 million in notes that were retired in 1995 and $0.4
million in capital lease obligations that were retired.
FUTURE CAPITAL NEEDS AND RESOURCES
The Company expects to incur approximately $7.8 million in capital
expenditures during 1998 for: (i) additional switches, (ii) software, (iii)
network capability, (iv) telephony infrastructure and (v) the expansion and
improvement of the Company's facilities including its corporate offices and
call center operations. The Company will also use capital to repay principal
and interest on indebtedness.
The Company believes that its existing cash and cash equivalents,
availability under the Credit Facility and expected cash from operations will
be sufficient to fund its operating activities at least through the end of
1998. See "Risk Factors--Future Needs for Additional Financing."
IMPACT OF INFLATION
Teltrust does not consider inflation to have had a material impact on the
results of operations for the years ended December 31, 1995, 1996 and 1997.
YEAR 2000 COMPLIANCE
The Company believes that it has achieved substantial compliance on all
systems and software utilized in its operations. At present, the fraud control
systems at each of the Company's sites are not yet Y2K compliant. However,
each of the systems is being upgraded, with a target compliance date of
September 1998. The Company expects its total cost to achieve Y2K compliance
to be between $100,000 and $150,000. See "Risk Factors--Year 2000 Compliance"
and "Business--Operations and Technology--Year 2000 Compliance."
SEASONALITY
The Company's business follows the seasonal trends of its customers'
businesses. The Company generally experiences lower operating revenues during
the first and fourth quarters of each calendar year due to seasonal travel and
vacation patterns and reduced sales efforts by the Company's customers.
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BUSINESS
Teltrust is a leading independent outsource provider of a broad range of
enhanced call processing and calling card services to the domestic
telecommunications industry. The Company believes that it offers the most
comprehensive suite of services of any independent outsource provider in its
industry. This diversified suite of services includes call completion,
national directory assistance and third-party verification services in
addition to calling card services. Teltrust serves its customers through
state-of-the-art technology and switch-based call processing platforms and, as
of March 1998, more than 1,000 employees. The Company's customers include RBOC
affiliates (such as BSLD and BSPC), pay telephone and hospitality aggregators
(such as Peoples Telephone Company, AMI Telecommunications and Global Net),
IXCs (such as US Long Distance, WorldCom and LCI International), and other
large telecommunications resellers or users (such as TON Services and Eastern
Communications Network). The Company has also recently established contractual
relationships with affiliates of Ameritech Corporation (ACI and ASI) and
emerging telecommunications companies including CLECs (such as Nextlink and
Cox Com), wireless providers (such as Centennial Cellular, Omnipoint
Communications and PowerTel) and international carriers (such as Justice
Technology Corp. and Star Telecommunications). Many of the Company's customers
purchase a number of the Company's services under multi-year contracts and
utilize Teltrust to provide complex outsourcing solutions. During first
quarter ended March 1998, Teltrust processed over 21 million call processing
transactions and decremented more than 17.6 million domestic minutes for its
prepaid calling card customers.
INDUSTRY OVERVIEW
During the 1990s, changes in the regulatory environment and the emergence of
new technologies have created a growing and fiercely competitive environment
in the telecommunications industry. As a result, telecommunications companies,
including RBOCs, IXCs, LECs, CLECs and wireless providers, are evaluating
their existing services and seeking opportunities that will allow them to
compete more effectively, reduce operating costs, and increase usage, market
penetration and customer retention. Many of these companies are seeking access
to call completion services, national directory assistance services and
calling card platforms which are considered essential by end-users. Partnering
with an outsource provider, such as Teltrust, allows telecommunications
companies to bring new value-added products and services to market in a more
expeditious and cost-effective manner than by building the necessary
infrastructure to provide such services internally and enables
telecommunications companies to focus on their core competencies and
strategies. Additionally, such consumer service providers, through
outsourcing, are able to focus capital and other resources on marketing, in
addition to building and maintaining switching and network capacity. The
Company believes that an increasing number of telecommunications companies
consider outsourcing a critical element in executing their business plans as
evidenced by the emergence of growing numbers of third-party billing, customer
care and calling card service providers.
According to FCC reports, the telecommunications market in the United
States, including local, long distance, wireless and prepaid calling,
comprised an overall market estimated at more than $220 billion in 1996. In
addition, CLEC and wireless markets are growing at rates in excess of the
telecommunications industry as a whole, thus attracting new entrants into
those markets. As a result, the competitive environments in which
telecommunications companies compete for market share are being reshaped,
placing increasing demands on these companies to establish and differentiate
themselves in order to penetrate new markets and retain existing business.
Outsourcing allows new entrants in the telecommunications industry to
accomplish these goals without incurring extensive capital expenditures.
TELTRUST'S COMPETITIVE ADVANTAGES
Teltrust provides telecommunications companies with a broad range of
flexible and cost-effective solutions to their call completion, national
directory assistance, third-party verification service and calling card needs.
The Company believes that its services allow its customers to: (i) offer new,
value-added services to their retail customers, (ii) expand and enhance
traditional services such as agent-assisted, calling card and directory
assistance calling, (iii) reduce capital expenditures and operating costs
through outsourcing, and (iv) differentiate themselves in markets in ways that
enhance brand recognition and customer loyalty.
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The Company believes that the following constitute key competitive
advantages in its ability to successfully market and deliver to its customers
and potential customers the enhanced call processing and calling card services
they need:
FOCUS ON PROVIDING WHOLESALE OUTSOURCE SERVICES
Teltrust offers its diversified suite of enhanced call processing and
calling card services on a wholesale basis to companies in the
telecommunications industry. The Company's ability to provide a diversified
suite of outsource services to its customers distinguishes Teltrust from most
of its competitors who provide a more limited range of services. In addition,
unlike many other providers of call processing services, the Company does not
compete with its customers in their core businesses or target the end-users of
their products and services. Because Teltrust does not engage in mass market
operations, it is able to direct its service, technical and other resources
toward offering and developing a broad array of enhanced call processing and
calling card services to telecommunications companies. The Company believes
that telecommunications companies are increasingly seeking to outsource
functions to specialized third-party service providers, particularly those who
can offer a wide array of services.
PROVEN AND FLEXIBLE OPERATING INFRASTRUCTURE AND TECHNOLOGY
The Company's advanced technology and infrastructure has met and continues
to meet the rigorous service performance standards of its customers. The
Company believes its proven infrastructure and technology are key
differentiating factors in furthering existing relationships and attracting
new customers. In addition, the Company's flexible infrastructure allows it to
customize services to meet its customers' changing needs. The call processing
software resident in its switch platforms offers flexible call treatment and
routing options, and the search engine technology utilized in national
directory assistance services offers enhanced search capabilities and service
agent responsiveness. Components of the Company's call completion platforms
and calling card platforms are proprietary and have been developed to offer a
highly versatile approach to service delivery and have been tested over
several years of operations.
EXCELLENCE IN CUSTOMER SERVICE
Teltrust is committed to providing excellent service to its customers and
strives to respond to their individual needs. For example, many of Teltrust's
customers need to provide call processing and calling card services to end-
users who do not speak English. The Company believes that its ability to offer
service to its customers in over 20 foreign languages has been an important
factor for many of its customers in choosing Teltrust as its service provider.
Teltrust's customer support staff works closely with its customers to
establish quality standards and tailor the Company's services to meet the
individual needs of such customers. Service representatives participate in
extensive training that emphasizes courtesy, accuracy and time of response to
callers.
DEMONSTRATED PERFORMANCE AND EXPERIENCE
Since its founding in 1986, Teltrust has developed the infrastructure,
technology and operating methods and procedures necessary to secure ongoing
relationships with telecommunications companies. The Company provides reliable
and high quality enhanced call processing and calling card services as
measured against the stringent contractual performance standards that its
customers demand. The Company believes this experience has positioned it as a
recognized provider of high quality services and has enabled it to attract
customers such as BSLD, BSPC, ACI and ACS, LCI International, Cox Com and
Nevada Bell. Additionally, the Company believes its demonstrated performance
for existing clients has prompted such clients to turn to the Company to
fulfill their expanding service needs.
TELTRUST'S GROWTH STRATEGY
Teltrust's goal is to be the premier provider of outsourced enhanced call
processing and calling card services. The key elements of the Company's
focused growth strategy are as follows:
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CROSS-SELL TO EXISTING CUSTOMERS
The Company is focusing on expanding current customer relationships by
cross-selling additional services. The majority of the Company's customers
require many or all types of services the Company provides as part of its end-
user service offerings. Local, long distance and wireless providers offer call
completion and national directory assistance as standard services to their
retail customers, and many also offer prepaid calling card programs. In
addition, many of the Company's customers operate in regulated environments
requiring third-party verification of new service orders. The Company has been
successful in forming relationships in which its customers purchase one or,
more frequently, a combination of the Company's enhanced call processing and
calling card services. In some instances, network connectivity between the
Company and a particular customer for a single service can be utilized for the
provision of additional services, increasing operating efficiencies for the
customer, the Company, or both.
SECURE NEW CUSTOMERS
The Company is expanding its customer base by continuing to target RBOCs,
IXCs, LECs, CLECs, wireless providers and others that are not currently
customers. Such companies are seeking cost-effective and flexible ways to
provide enhanced services such as those offered by Teltrust to distinguish
themselves in retail markets. The Company intends to use its operating
experience, product strength and position in the marketplace to capture
increased market share and become the leading provider of outsourced enhanced
call processing and calling card services. The Company also intends to
generate growth by expanding its current service offerings to new markets.
Further, as deregulation continues and competition expands in international
telecommunications markets, the Company intends to offer its suite of call
processing and calling card services to international carriers. In addition,
deregulation of the public utility industry may lead to opportunities to
utilize the Company's third-party verification services in new markets.
DEVELOP ADDITIONAL SERVICES
The Company believes that telecommunications companies seeking to outsource
call processing and calling card functions will increasingly rely on full-
service outsource providers who can offer a broad array of high-quality
services. To meet this demand, the Company intends to continue to expand the
types of services it offers to meet its customers' expanding needs. One
current example of a new service is the Company's proprietary B.O.S.S.TM
system which expedites carrier change orders. Possible additional service
offerings could include international directory assistance and enhanced
calling card features such as conferencing, "follow me/find me" service and
speed-dialing.
MAINTAIN HIGH LEVELS OF CUSTOMER SATISFACTION
The Company intends to continue to provide superior customer service in
order to maintain and enhance its reputation as a leading independent provider
of outsourced call processing and calling card services. By responding to the
individual needs of customers, tailoring its services to those needs and
delivering its services professionally and efficiently, the Company believes
it will continue to be regarded as a high quality provider of such services.
LEVERAGE OPERATING INFRASTRUCTURE
Teltrust's operational structure provides opportunities to realize operating
leverage as the Company expands its business to meet the needs of current and
future customers. The Company currently operates 14 switches at 11 locations
in five cities, maintains network facilities in 24 states, operates four
service agent centers and employs, as of March 1998, more than 1,000 people.
In 1997, the Company upgraded and expanded certain switch sites and invested
in additional service agent centers. The flexible architecture of the
Company's infrastructure facilitates network connectivity between Teltrust and
its customers. Once it establishes a connection in order to provide a service
to a customer, the Company is often able to leverage this relationship to
provide additional services with the existing network connection.
Additionally, the Company has significant infrastructure capacity. As a
result, the Company can realize greater efficiencies through growth in its
business.
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CONSIDER STRATEGIC ACQUISITIONS
The Company's business strategy includes consideration of strategic
acquisitions in complementary and existing business areas, which may
facilitate more effective and rapid development of a broader array of services
or expansion of existing services than developing these service capabilities
internally. As an example, the Company's acquisition of Quest expanded
Teltrust's presence in the calling card services market and enhanced its
technology base.
DESCRIPTION OF TELTRUST SERVICES
ENHANCED CALL PROCESSING SERVICES
Teltrust provides its customers with a variety of enhanced call processing
services. These services provide the Company's customers the ability to
distinguish themselves in mass markets, bring products and services to market
faster and reduce operating costs. The Company's suite of enhanced call
processing services includes (i) call completion services, (ii) national
directory assistance and (iii) third-party verification services.
CALL COMPLETION SERVICES. The Company provides call completion services to
many sectors of the telecommunications industry, including RBOCs, IXCs, LECs,
CLECs, wireless providers, pay telephone and hospitality aggregators,
telecommunications resellers and international carriers. Customers of the
Company's call completion services include RBOC affiliates, such as BSPC and
BSLD; pay telephone and hospitality aggregators, such as Peoples Telephone
Company, Global Net and AMI Telecommunications; and IXCs, such as Access Long
Distance and Tel America/Kenna Communications. The Company also recently
entered into an agreement with an affiliate of Ameritech Corporation and
emerging telecommunications companies including CLECs, such as Cox Com and
Comcast Telecommunications. Teltrust's call completion services consist of
automated or live agent assisted calling card calling, collect calling and
third-party billed calling. The Company generally earns revenues from its call
completion services customers on a per-completed call, per call-attempt or
per-minute-of-use basis.
The Company's call completion services are delivered through the use of
state-of-the-art automated call processing platforms and highly trained
service agents. The Company provides call completion services from call
processing platforms located in Salt Lake City, Atlanta, Los Angeles, Miami,
and New York City, and from three service agent centers located in Salt Lake
City. Call completion services are accessed when users dial proprietary 1-800
numbers (e.g. 1-800-BELLSOUTH(TM) or 1-800-AMERITECH(TM)), 0 + area code and
phone number or 00 or 0. Calls being transported to Company facilities for
call completion services are dependent on network routing, programming of
premise equipment, or customer switch to Company switch connections.
When a call is routed to Company telecommunications switches for service,
databases are accessed to determine the type of service(s) to be provided.
Switching databases capture the incoming circuit identification, and the line
number (i.e., the phone number) from which a call was originated. Customer
specific configurations are implemented at the time of service initiation
based on customer requirements. These configurations instruct switching
systems how to treat a call based on circuit identification and/or line
number. The Company's switching databases employ extensive use of local and
wide area networks and are centrally managed from the Company's headquarters
in Salt Lake City. See "Business--Operations and Technology."
In conjunction with providing call completion services, the Company also
offers STATUS(TM), a proprietary refund and repair service that enables
callers who are experiencing difficulty in completing a call or who may have
lost money at a pay telephone to register their complaint and either arrange
to receive a cash refund or have their call completed at no charge (or free
call completion service). Each call that identifies a problem with a telephone
location results in a "trouble ticket" being posted on an electronic bulletin
board to enable the Company's customer to retrieve the information and take
corrective measures. The Company has developed a sophisticated fraud control
system in conjunction with its free call completion service, without which
system the offering of free calls would entail a high degree of risk of
fraudulent abuse of the system. Customers who utilize the Company's free call
completion service are able to realize substantial savings by avoiding the
expense of
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mailing small refund checks, and they are able to minimize their risk of
losses from callers abusing the system by making repeated requests for free
calls. Among the Company's clients utilizing this service are Peoples
Telephone Company and Nevada Bell.
One of the Company's advantages in the marketplace is its ability to offer
multiple services from a single platform. In addition to traditional calling
card, collect or third-party call options, the Company can implement enhanced
service options for its customers. For example, a customer may wish to offer
their telecommunications cardholders the ability to access national directory
assistance or customer service, in addition to traditional call completion
options, by dialing "0" or a proprietary "1-800" number. The Company believes
its ability to integrate service offerings in this fashion provides a
competitive advantage.
According to industry reports, it is estimated that calling card or agent-
assisted calls generate more than $13.0 billion in revenue per year. The vast
majority of these calls are handled by the major IXCs, such as AT&T, MCI and
Sprint, the RBOCs and GTE. Over the last five or more years, the
telecommunications industry has seen a significant transition to "access code"
calling, such as 1-800-BELLSOUTH(TM). These calls, handled by automated
platforms or live operators, are generally billed to IXC- or LEC-issued
calling cards or are collect or third-party billed. Many second and third tier
IXCs, as well as CLECs and wireless communications providers, simply route
these calls, from their telephony switches, to the major IXCs or RBOCs for
call completion, instead of building the necessary infrastructure to handle
such calls. Historically, these calls were placed by consumers dialing "0"
plus the area code and the number to which they wished to be connected.
With increased competition in telecommunications markets, many
telecommunications companies seek a more economical way to provide call
completion services to end-users, and expect increased flexibility and
functionality in the platforms and operators who provide such services. The
Company has developed and deployed systems, technology, management and trained
service agents to deliver a broad range of call completion services. These
services are distinguished by branding capabilities and enhanced functionality
resident in platforms to which such "0" or "1-800" calls are routed.
NATIONAL DIRECTORY ASSISTANCE SERVICES. The Company currently provides
national directory assistance services to many sectors of the
telecommunications industry including RBOCs, IXCs, LECs, CLECs, wireless
providers, pay telephone and hospitality aggregators, telecommunications
resellers and international carriers. Customers of the Company's national
directory assistance services are telecommunications aggregators, such as
Eastern Communications Network, and IXCs, such as US Long Distance (recently
acquired by LCI International), Total Tel and Coastal Telephone. The Company
has also established relationships with wireless providers, such as Omnipoint
Communications, CellularOne of Springfield, Centennial Cellular and PowerTel,
and CLECs, such as Cox Com. Teltrust provides national directory assistance
service covering the entire United States, Puerto Rico and the United States
Virgin Islands. The Company earns revenues from its national directory
assistance operations on a per-call basis.
One of the advantages of the Company's national directory assistance
services is that a user does not need to know the area code for the listing
being requested. This is an important feature given the recent proliferation
of new area codes throughout the United States. Under traditional directory
assistance service models, if a user dialed 213-555-1212 to find a listing in
Los Angeles, but the desired listing was in the 310 area code, the user would
need to hang up and dial 310-555-1212 to access the listing. Teltrust's
national directory assistance services can provide the 310 listing even if the
user dialed 213-555-1212. Additionally, listings can be provided for different
geographic regions during the same call.
Teltrust's national directory assistance service has a number of enhanced
features, including automated national directory assistance call completion
services. A user has the option, after having received the listing, of
automatically being connected to the listing received. The Company's wireless
provider customers, in particular, find this option attractive in enhancing
"ease of use" for their subscribers. Industry estimates indicate that by the
year 2000 calls placed through wireless providers will account for 50% of all
directory assistance calls. The Company's national directory assistance
services can also provide reverse search listings to an end-user who has a
phone number for which a name listing is sought. Additionally, the Company's
systems can provide listings
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based on a single key word search criterion. For example, if an end-user is on
California Street in San Francisco, and is looking for the nearest flower
shop, national directory assistance can provide a listing by searching on the
entry "flower" and the entry "California Street" in San Francisco. In
addition, the Company's national directory assistance services can perform
searches by standard industrial classification code.
The Company utilizes a leading national database provider to supply the data
used by the Company in providing national directory assistance services.
Additionally, the Company has access to Electronic Directory Assistance
databases maintained by LECs. Access to such data enhances the Company's
accuracy in providing listings to callers and provides it with a competitive
advantage in the marketplace.
In late 1997, the Company invested in substantial system upgrades to further
enhance its national directory assistance services. The upgrades are expected
to provide additional value-added service components to the existing national
directory assistance service, reduce Company operating costs by providing
additional staff management tools and enhancing system interface for service
agents and provide the Company with the ability to offer a stratified product
set to meet its customers' demands.
According to industry reports, it is estimated that directory assistance
calls generate more than $1.5 billion in revenue per year. The directory
assistance market has historically been primarily served by the RBOCs and
other traditional LECs such as GTE. Only recently has the market seen IXCs and
other directory assistance companies provide this service. This is due to the
fact that the RBOCs and LECs issue a phone number when local service is
initiated for a residence or business and therefore have been the parties who
control and maintain the data regarding phone numbers and addresses. The RBOCs
and LECs operate directory assistance centers within their respective regions
and ultimately handle most calls needing a directory listing for residences or
businesses served by that RBOC or LEC. This historically included providing
service to IXCs and wireless providers. For example, if a long distance
carrier customer dialed information for a listing in another state, the long
distance carrier would typically route that call to the LEC that provided
local service to that listing.
With the advent of national listing databases, long distance and wireless
providers have an alternative and can begin to purchase directory assistance
service from new competitive providers. During recent years, the market has
seen companies develop comprehensive and updated national listing databases,
followed by companies who set up operations to utilize such data for directory
assistance resale. These databases are typically comprised of any number of
input sources, including white and yellow page listings and the purchase of
RBOC and LEC data.
The demand for competitive directory assistance service has grown in recent
years, in large part due to increased competition among established local and
long distance carriers and wireless providers, as well as new entrants in each
of these markets. Telecommunications companies are looking to single source,
competitive alternatives to provide their retail customers with national
directory assistance, complemented by enhanced services. The introduction of
national "411" directory assistance by some of the RBOCs has heightened
consumer awareness of national directory assistance, and has set the stage for
local competitors also requiring a national product. Competition in the
directory assistance marketplace has also spurred innovation and resulted in
increased functionality of directory assistance platforms, above and beyond
the typical playback of a listed number. For many companies, a single source,
national provider can reduce network interconnection costs and provide branded
service, something historically not available from the RBOCs and LECs. The
Company has established key relationships with data providers and deployed
highly technical database interface software to take advantage of this trend,
with the goal of becoming the premier national directory assistance provider
in its markets.
THIRD-PARTY VERIFICATION SERVICES. The Company is one of the leading
independent providers of third-party verification services to
telecommunications companies in the United States. The Company recently
expanded operations into a new service agent center with 250 stations
dedicated to its third-party verification services. Utilizing a strong
management team and sophisticated call management and digital recording
technology, the Company provides third-party verification services to all
sectors of the telecommunications industry. Customers utilizing the Company's
third-party verification services include IXCs, such as LCI
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International and WorldCom, and telecommunications resellers, such as The
Furst Group and Cydcor. The Company also recently entered into agreements to
provide third-party verification services to an RBOC affiliate, US West
Communications, CLECs, such as Cox Com and Comcast Telecommunications and
international carriers, such as Star Telecommunications and RSL Com U.S.A.
Third-party verification is an FCC requirement designed to protect consumers
from a practice known as "slamming," which is the unauthorized switching of an
end-user's IXC or LEC without first obtaining the consent of the end-user.
Slamming first emerged as a significant problem in the late 1980's and early
1990's with the emergence of significant competition in the long distance
marketplace. Hundreds of new long distance carriers and resellers began
competing with AT&T through a variety of innovative marketing approaches
including telemarketing. The increase in competition in the long distance
marketplace benefited end-users by lowering long distance charges
significantly, but it also created an environment that made slamming all too
common. By 1996, the FCC and many state PUCs received more complaints
regarding slamming than any other issue.
To deter slamming, in 1992 the FCC ordered all IXCs to implement one of four
procedures to verify long distance service change orders generated by
telemarketing. The four alternatives are: (i) obtain a written Letter of
Agency from the end-user; (ii) receive confirmation from the end-user via a
toll-free number provided exclusively for the purpose of confirming change
orders electronically; (iii) use an independent third party to verify the end-
user's order; or (iv) send an information package that includes a postpaid
postcard which the end-user can use to deny, cancel or confirm a service
order, and wait 14 days after mailing the packet before submitting the
preferred IXC change order. Because the third option, the use of an
independent third party to verify an end-user's order, is the quickest way to
effect the change to an end-user's preferred IXC, most IXC's have adopted this
option when telemarketing their services. It is estimated that more than 40
million third-party verification transactions were processed in the United
States in 1997. With the passage of the Telecommunication Act of 1996 and the
emergence of telecommunications competition in local markets, Congress, the
FCC, state PUCs and numerous other consumer protection organizations have
begun to evaluate the need to implement third-party verification and other
anti-slamming measures on a broader scale than is currently in place in the
long distance marketplace. For example, the FCC has proposed to amend its
rules to apply the four verification procedures described above to changes in
local exchange, as well as long distance, services.
In addition to the FCC's efforts to expand verification requirements to all
carriers, several state PUCs have implemented anti-slamming rules, which the
Company believes will result in the increased need for the Company's third-
party verification services. For example, on January 1, 1997, the State of
California implemented rules that expanded the requirements for third-party
verification services by requiring that an independent third-party
verification company verify any residential subscriber carrier change, no
matter how the carrier marketed its services to the residential consumer.
Numerous other states have either implemented new verification requirements or
are in the process of implementing verification requirements to combat
slamming.
The Company believes third-party verification services will benefit from
regulatory changes taking place in the United States telecommunications
industry. Third-party verification should become increasingly important as
telecommunications competition increases at the local level. The Company
believes that deregulation in other monopoly markets such as gas and electric
utilities may also create new demand for third-party verification services
beyond the telecommunications industry.
CALLING CARD SERVICES
The Company's calling card services are provided through two applications:
wholesale service applications and co-branded applications. Wholesale service
applications customers purchase network and platform services from the Company
on a "minutes of use" basis. Such customers have their own distribution or
end-user bases in place and outsource the telecommunications carriage and
technology provision. Certain customers, including IXCs, CLECs and others, may
utilize an existing network and simply route calls over that network to the
Company's platforms, paying the Company solely for the use of its call
processing technology. The Company
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also works closely with its customers to offer additional enhanced services to
end-users. Customers of co-branded service applications purchase cards from
the Company at a discount from retail value. Customers in this market segment
are generally retail chains who wish to offer patrons prepaid calling cards in
their name. Customers utilizing the Company's calling card services include
TON Services (an affiliate of one of the largest operators of truck stop
fueling and convenience facilities in the United States) and ACI. In co-
branded service applications, the Company provides services to retailers, such
as Heilig Myers and El Amal, a Puerto Rico-based convenience and drug store
chain.
All customers have access to state-of-the-art point-of-sale activation
technology, offering users quick, convenient activation of accounts. The
Company also can supply ready-to-use displays for its customers' outlets.
Customers are able to leverage the Company's technology to offer end-users
multiple services from a single access point. Enhanced services available as
part of the Company's calling card services include: voice mail, fax
capabilities, the ability to purchase other types of products, and access to
weather and stock market reports. The Company's technology also provides its
customers with the ability to quickly refresh cards for re-use.
Point-of-sale activation and refresh technology is a critical component of
prepaid calling card services. Generally, cards are either "active" on the
shelf or activated by swiping an exposed magnetic strip at the time of end-
user payment. Such programs generally utilize cards carrying certain
denominations of value, such as $10, $25 or $50. The Company has developed
technology allowing retail locations to stock cards that carry no pre-
determined denomination or value. The end-user elects how much credit to
purchase, and upon remittance of payment, the card is swiped through a cash
register or credit card verification machine, and instantly activated in the
Company's platforms. Cards can be refreshed either at a point of sale or
through a customer service agent over the telephone. The Company is also
deploying postpaid applications utilizing its technologically advanced
existing prepaid platforms. The Company's objective is to provide a robust,
flexible calling card platform giving Teltrust customers the ability to offer
a broad range of services with flexible payment options.
Prepaid calling cards have been widely accepted and used for many years
outside of the United States and have become an increasingly accepted method
of payment for away from home calling over the last four years in the United
States. The prepaid calling card segment is now one of the fastest growing
segments in the telecommunications industry and is estimated in industry
reports to be a $2.0 billion market by 2000. Prepaid calling cards allow the
consumer to purchase a pre-determined amount of calling value. Cards are
usually purchased in grocery stores, drug stores, convenience stores and other
retail locations. A prepaid calling card enables a consumer to place local,
long distance and international calls from virtually any touch tone phone.
Callers dial special "1-800" numbers, are prompted for a card number and PIN,
and then given access to Company platforms for a variety of service options.
End-users in the United States are increasingly finding prepaid calling cards
advantageous and convenient. With prepaid calling cards, users receive no
monthly billing statement, can purchase and refresh cards by purchasing
additional minutes based on their calling needs, and the risk of fraud or
theft is limited to the purchased amount of time on the card.
In December 1997, the Company completed the acquisition of Quest and
combined its calling card operations with those of the Company. Quest is a
ten-year old company and over the last five years has been a pioneer in the
United States prepaid calling card market, being one of the first prepaid
service companies to be fully tariffed for service provision in the entire
United States. Quest has developed and deployed sophisticated and flexible
proprietary technology, utilizing Harris Digital Telephone Systems ("Harris")
telephony switches similar to those used by the Company. The Company believes
the acquisition will enable it to offer its customers a broader range of
services, position it for additional growth and enhance the Company's focus on
the ongoing growth of prepaid and postpaid calling card revenues and profits.
The Quest transaction was the Company's first acquisition and was executed as
a strategic expansion of an existing service. Certain economies of scale are
anticipated to be realized from the acquisition, including purchasing power
relative to network transmission, the primary cost in the provision of prepaid
services.
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SALES AND MARKETING
The Company markets its services through its executive management, sales
management, customer support and marketing teams. Executive level personnel
are based in Salt Lake City and Atlanta, and the Company has sales
representatives in several other locations in the United States. Sales and
marketing strategies focus on leveraging initial service contacts to include
additional services and often cross multiple vertical markets, taking
advantage of the Company's diversified suite of services.
Product management teams facilitate the Company's marketing strategies
through: (i) market research performed in-house and by outside specialty
firms; (ii) evaluations of the Company's product lines vis-a-vis its
competition; (iii) product enhancements required to meet vertical market
demands; and (iv) product development recommendations to meet short and long-
term marketing and profitability goals.
In Salt Lake City, the Company's sales force is comprised of three sales
executives and five sales professionals. This staff focuses primarily on the
following markets: RBOCs, IXCs, LECs, CLECs, wireless providers and calling
card service providers. In Atlanta, the Company has a sales executive and
professional staff focused on the calling card services market. Additionally,
the Company has sales professionals located in Chicago, Las Vegas and Vero
Beach who serve clients in the pay telephone provider and hospitality service
markets. The Company also engages a limited number of brokers or non-employee
sales aggregators nationwide. Sales cycles are typically measured in months.
An important component of the Company's sales and marketing efforts is its
customer support team. Once the sales staff has secured a customer contract,
Teltrust's customer support specialists work closely with the new customer to
coordinate operations set up and implement the appropriate technical interface
applications, such as switch interfaces and customized data communications
processes. In addition, the customer support staff works with the Company's
clients to establish quality standards and tailor Teltrust's services to the
individual needs of such customers. In addition, as customer support
specialists learn about new customers, they work with sales and marketing
personnel to attract these customers to other components of the Company's
suite of services.
The Company's advertising and promotional activities include the production
of a variety of sales and marketing materials across all markets served. The
Company advertises in prominent trade publications, and produces white papers
and feature articles aimed at local and national publications. The Company has
a public relations program assisted by an outside public relations firm for
development of press materials and participates in major industry trade shows
in all of the Company's vertical markets.
OPERATIONS AND TECHNOLOGY
The technology segments that support the Company's operations are (i)
switching and service agent centers, (ii) network technology, (iii)
information systems and (iv) remote systems and a network control center.
SWITCHING AND SERVICE AGENT CENTERS. The Company utilizes Harris 2020
switches for both tandem and operator switching systems for its call
processing and calling card services. The Company utilizes the Harris
Protocall operator services systems for automated and live agent services. In
its calling card operations, the Company utilizes the Harris 2020 system as
the base switching system. The Harris 2020 system is modular and scalable in
design allowing for cost-effective systems deployment from 768 to 10,000
ports. The Harris 2020 system is fully certified for Class 4 (tandem), agent
services/ACD and Class 5 (local exchange) operation, is fully Signaling System
7 ("SS7") compliant and has full critical component redundancy for network
reliability. In addition to such designed redundancy, each site has been
configured with fully redundant and dual redundant SS7 links, battery back-up
and triple redundant common control links from all sites to the Salt Lake City
tandem and network operations center. All sites are also supported by
emergency power systems.
Switching sites for its call processing services currently include the
principal tandem location in Salt Lake City, four additional switching sites
in the Salt Lake City area and remote switching sites in Atlanta, Miami, Los
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Angeles and New York City. Switching sites for the Company's calling card
operations currently include Salt Lake City and two switches in Atlanta. The
Company currently plans to install several new switch sites in 1998 to
accommodate additional business under contract.
The following chart depicts the Company's switch deployment as at March 31,
1998:
<TABLE>
<CAPTION>
NUMBER NUMBER % PORT TOTAL PORT
CITY OF SITES OF SWITCHES UTILIZATION CAPACITY
- ---- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Salt Lake City...................... 5 6 55% 32,000
Atlanta............................. 2 4 60 28,000
Los Angeles......................... 2 2 50 14,000
Miami............................... 1 1 45 10,000
New York City....................... 1 1 72 2,000
--- --- ------
Total........................... 11 14 55 86,000
=== === ======
</TABLE>
The Company presently operates three service agent centers in Utah and one
service agent center in Atlanta, Georgia. An additional Utah-based service
agent center (Clearfield) is planned to be utilized beginning in the quarter
ending September 30, 1998. The following chart depicts the Company's service
agent center capacity at March 31, 1998 (including the Clearfield facility):
<TABLE>
<CAPTION>
STATION STATION %
SERVICE CENTER CAPACITY UTILIZATION UTILIZATION SERVICE
- -------------- -------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C>
Gatty Center(1)........ 269 202 75% Call Completion,
National Directory
Assistance, STATUS(TM)
Teltrust West Center... 250 100 40 Third-Party
Verification
Cottonwood Center...... 219 86 39 Call Completion,
National Directory
Assistance, Calling
Card Services
Clearfield Center...... 150 0 0 As Required
Atlanta Center......... 60 10 12 Calling Card Services
--- ---
Total.............. 948 398 42(1)
=== ===
</TABLE>
- --------
(1) The Company expects to terminate its operations at the Gatty Center in
November 1998. Termination of such operations will result in a station-
capacity reduction of 269 stations. Such capacity loss is expected to be
offset, however, by the planned opening of an additional Utah-based
service agent center in the quarter ending September 30, 1998 that would
provide approximately 125 additional stations. After giving effect to a
net 144-station capacity loss, the Company's utilization of its station
capacity on a pro forma basis at March 31, 1998 would be 50% of capacity
rather than 42%. The Company believes, however, that its current capacity
is adequate for its existing business and that it will have the ability
to add additional station capacity when required in the future.
The Company operates a proprietary Least Queue Routing system for its call
processing services to provide the network the ability to query the service
agent center command routing database prior to selecting a location to which
to route each call. This system allows the network to be updated every second
as to the availability of agents in each functional service center which
increases overall efficiency while adding a level of redundancy not otherwise
available.
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NETWORK TECHNOLOGY. The Company has developed a communications and control
network between all remote locations and the Salt Lake City main tandem and
the Company's network operations control center. The Company's communications
and control network provides triple redundant high-speed data communication
between each site and the main tandem, all service agent centers, the
information systems center and the network operations center. Each independent
function within the network that requires command and control is not only
triple redundant but all circuits are also routed on diverse routes for
greater reliability.
The network technology operation utilizes highly reliable communications
equipment such as Codex, Cisco routers, Cisco ATM and 100Mb wide area data
networks. The Company has also embarked on a program of developing an even
higher level of network reliability with the deployment of synchronous optical
network self-healing technology between all locations in the greater Salt Lake
City area.
INFORMATION SYSTEMS. The Company's information systems operation is based on
client server technology. Network data is processed by the information systems
department into a base call record. The Company utilizes the base call record
to deliver all revenue, traffic, utilization, exception and agent activity
reports. Complete and comprehensive reporting packages have been developed
over the last seven years. Network technology provides dual redundant data
feeds from all sites to the information systems operations. Data feeds are
both real time and hourly. Dual real-time feeds are crosschecked to each other
and the dual hourly feeds are also checked to each other. Accuracy is further
maximized by cross checking the real-time feeds to the hourly feeds. Data
processing systems are all client server systems with redundant or triple
redundant mission critical components. Quality control processes are managed
by the Company's information systems support and quality control group within
the information systems department. The Company has taken aggressive steps to
ensure that its information systems are able to consistently handle and
process information using post-year 2000 date information.
REMOTE SYSTEMS AND NETWORK CONTROL. The Company presently monitors and
manages all sites, including all Salt Lake City sites, remotely from the
technical operations center. The present remote systems and network control
operation allows the Company's technical and engineering staff to manage and
monitor all network elements and network support elements remotely. The
Company's technical operations center currently utilizes several surveillance
systems for monitoring and managing its remote sites including: a Boole and
Babbage "Command Post" system used to monitor the Harris switches and many of
the site support systems; a General Signal 7 View system used to monitor SS7
links at all sites; a Hewlett Packard HP Open View system used to monitor all
peripheral processors, billing, validation, and fraud control processors,
local area networks, wide area networks, routers, data communications gear and
all other SNMP compliant network and network support elements.
FRAUD PREVENTION. The Company presently utilizes a three-tiered fraud
prevention system: the Company's internal controls, checks conducted by the
Company's "Hub" provider and safeguards implemented by credit card companies.
All of the Company's switches have on-site proprietary fraud-control systems
that are redundant and utilize the validation, verification and fraud control
processes of both its validation "Hub" provider and each of the RBOCs and
major commercial credit card companies. Prior to any call being placed on the
network, the billing number or card number is checked against Teltrust's
proprietary fraud system which analyzes factors such as high usage in a short
time period, long call durations, high-risk location information,
international calling patterns and several other factors. After call
information clears the Company's proprietary fraud control application, a
query is sent to the validation "Hub" provider which conducts a similar fraud-
control check based on activity from dozens of other carriers that utilize the
validation networks. After call information clears the Hub provider's
scrutiny, a query is launched to the applicable RBOC or credit card system for
final verification. The applicable RBOC or credit card company conducts
additional audits on a more global basis and then sends an appropriate
acceptance, warning or negative response to the Hub provider which in turn
forwards such information to the Company's system. Statistics are provided on
a real-time basis to the Company's fraud control department and the technical
operations center for additional decision making if necessary. Management
believes that its fraud prevention program has enabled its losses attributable
to fraud to be substantially less than the industry average.
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<PAGE>
YEAR 2000 COMPLIANCE. In mid-1997, the Company embarked upon an in-depth Y2K
compliance project. Working with the major system and software manufacturers,
the Company believes that it has achieved substantial compliance on all
systems and software utilized in its operations. Presently, the Harris
switching systems and the Harris-provided automated operator service systems
are Y2K compliant. In addition, the Company's billing and validation systems,
information systems, database systems and network surveillance and control
center systems are presently Y2K compliant. At present, the fraud control
systems at each of the Company's sites are not yet Y2K compliant; however,
each of such systems is being upgraded, with a target compliance date of
September 1998.
Y2K compliance "inter-operability" testing is currently underway or has been
completed with all major customers such as BSLD, BSPC and ASI. All bulletin
board data files have been brought up to Y2K compliance, and all of the
Company's customers have been notified of the compliance methodology and file
modifications. The Company intends to continue to notify all customers of
compliance issues and implementation.
SIGNIFICANT CUSTOMER CONTRACTS
The Company has entered into a series of multi-service contracts with BSLD,
BSPC, ACI and ASI. For the year ended December 31, 1997, operating revenues
from Teltrust's three contracts with BSLD and BSPC accounted for 2.7%, 11.9%
and 1.6% of the Company's operating revenues, and operating revenues from
these contracts are expected to generate a higher percentage of total
operating revenues in the future. The Company expects to begin earning
operating revenues under its contracts with ASI and ACI during the quarter
ending June 30, 1998. The Company believes its contracts with ASI and ACI will
generate significant operating revenues in the future. An overview of the
principal terms of Teltrust's contracts with these customers is set forth
below. See "Risk Factors--Risk Related to Loss of Substantial Customer
Contract" and "--Significant Customer Relationships."
BELLSOUTH AGREEMENTS. In November 1996, the Company entered into a contract
with BSLD under which the Company provides call processing and national
directory assistance services to BSLD's markets, which currently include
wireless markets, wireline markets outside of the nine-state BellSouth region
and certain intraLATA markets within the nine-state BellSouth region. At this
time, BellSouth does not have the authority to provide interLATA long distance
service within the nine-state BellSouth region. When BellSouth obtains such
authority and commences providing such service, this contract provides that
Teltrust will supply call processing and national directory assistance
services to BSLD in such expanded markets. It is expected, however, that when
BellSouth obtains the aforementioned authority, BSLD will cease using the
Company for automated call processing services. The initial term of the
contract expires on January 2000, but the agreement is automatically renewed
quarterly unless one of the parties provides prior written notice of its
intention to terminate.
In February 1997, the Company entered into a contract with BSPC to provide
call processing and national directory assistance services for calls
originating from BSPC's paystations. In addition, the Company serves as the
interLATA network carrier for services originating from certain BSPC
locations. In the event that BellSouth becomes able to provide interLATA long
distance service within the nine-state BellSouth region, the Company will
cease to provide interLATA long distance carrier services and will lose the
interLATA network carrier operating revenues generated by the provision of
these services. The initial term of the contract expires in February 2002, but
the agreement is automatically renewed quarterly unless one of the parties
provides prior written notice of its intention to terminate.
In October 1997, the Company entered into an additional contract with BSLD
to provide call processing and national directory assistance services for
calls placed through the 1-800-BELLSOUTH(TM) access number. As the contract is
currently structured, the Company earns revenues directly from the end-users
of its services and remits certain commissions to BSLD for calls initiated
outside the nine-state BellSouth region. The Company also contributes to the
expenses of marketing the 1-800-BELLSOUTH(TM)name. In the event BellSouth
receives regulatory authority to provide interLATA long distance service in
any of the nine states in the BellSouth region prior to December 31, 1999, the
nature of the relationship will change substantially so that the Company will
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<PAGE>
begin paying commissions that it has not previously incurred. If BellSouth
secures such regulatory authority in all nine states, the Company will
recognize a wholesale operating revenue stream under the terms of the November
1996 contract with BSLD, and the Company will no longer recognize operating
revenues from end-users. As a result, there would be a substantial reduction
in operating revenues to the Company. The Company would continue, however, to
be a provider of outsourced services to BSLD to support its 1-800-
BELLSOUTH(TM) service. The initial term of the contract expires on December
31, 1999, but the agreement is automatically renewed on a monthly basis unless
otherwise agreed by the parties. See "Risk Factors--Risks Related to
Substantial Customer Contract" and "Risk Factors--Significant Customer
Relationships."
AMERITECH AGREEMENTS. In February 1998, the Company entered into a contract
with ASI to be a provider of call processing services for calls placed through
the 1-800-AMERITECH(TM) access number. Teltrust provides the
telecommunications services sold under such name which originate from the
Ameritech region. The ASI contract is scheduled to terminate in March 2000 but
is renewable at ASI's option for additional twelve-month periods. ASI has the
right to terminate the agreement if a change in control of the Company occurs
so that it is controlled by any of certain specified telecommunications
companies or, after the initial term of the contract, without cause.
In September 1997, Quest entered into a contract with ACI to provide
technology and a variety of services in connection with ACI's prepaid calling
card program. ACI purchases from Teltrust on a wholesale basis services such
as calling card activation and personal identification number implementation,
card printing and design, and three-way calling, voice mail and similar
services. The initial term of this contract is scheduled to expire in
September 2000, but the agreement is automatically renewed on an annual basis
unless one of the parties delivers notice of its intention to terminate. ACI
has the right to terminate the agreement if a change in control of the Company
occurs so that it is controlled by any of certain specified telecommunications
companies.
Each of the BSLD, BSPC, ASI and ACI contracts requires payment of a
contractually-agreed upon amount in the event of early termination of such
contracts without cause. There can be no assurance, however, that any such
amount will sufficiently compensate the Company for the investment it has made
to support the canceled contract or that it will replace the revenues it will
lose as a result of the early termination. Consequently, the failure of the
Company to obtain renewal of any of the contracts with BSLD, BSPC, ASI or ACI,
or the termination of such contracts, could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Risk Factors--Significant Customer Relationships."
PERSONNEL AND TRAINING
The Company believes a key component of its success is the quality of its
employees; therefore, the Company emphasizes a systematic approach to
recruiting, training and managing qualified personnel. The Company enjoys a
full-time training staff that customizes programs for all its service
applications. Typically, training for call completion and national directory
assistance is a four-week process that includes classroom training and closely
supervised call handling. Sales and marketing personnel also attend the
training sessions provided to the Company's service agents. The Company
provides regular refresher training, motivational training sessions and
training on how to address process changes, new services features and enhanced
system functions.
As of February 28, 1998, the Company employed approximately 1,030 persons.
Of this total, approximately 714 persons worked full time and 316 persons
worked on a part-time basis. None of the Company's employees are members of a
labor union or are covered by a collective bargaining agreement. The Company
believes that its relations with its employees are good. The Company has
located its primary switching and service agent centers in Salt Lake City to
take advantage of the available high quality, dedicated, multilingual work
force. The Company believes that its relatively high proportion of full time
employees provides a stable work force and reduces the Company's recruiting
and training expenditures.
COMPETITION
The various markets in which the Company competes are characterized by
rapidly changing market forces, technological advancements and increasing
competition from large IXC- or RBOC-affiliated companies and a
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variety of small, independent companies. The Company expects competition to
increase in the future. The Company attempts to differentiate itself from its
competitors by offering an integrated suite of services primarily on a
wholesale basis to other telecommunications companies. Other providers
currently offer each of the individual services and certain combinations of
the services offered by the Company, but Teltrust is unaware of any single
competitor offering the full range of products offered by the Company.
CALL COMPLETION SERVICES. In the call completion services market, the
Company's principal competitors include RBOCs and RBOC affiliates, IXCs and
IXC affiliates, independent LECs, such as SNET and Century Telephone, and
other independent companies offering various forms of call completion services
including Opticom, a division of One Call Communications.
NATIONAL DIRECTORY ASSISTANCE SERVICES. In the national directory assistance
services market, the Company's principal competitors include RBOCs and RBOC
affiliates, IXCs and IXC affiliates and independent LECs. The Company also
faces competition in this market from independent companies offering various
forms of directory assistance services including Metro One Telecommunications,
Excell Agent Services, INFONXX and HebCom. Management believes that many of
these independent companies typically focus on narrow market segments, such as
the wireless market, rather than offer directory assistance services to the
broader telecommunications marketplace.
THIRD-PARTY VERIFICATION SERVICES. In the third-party verification services
market, the Company's principal competitors include specialized companies such
as Verification Plus--Advanced Datacomm, Quick Response, Unibase Technologies
and Century Telecommunication. The Company also faces competition from smaller
companies that offer automated verification services including VoiceLog and
Unitel. Because federal and state third-party verification rules typically
mandate that carrier verification services be conducted by an "independent"
third-party, the Company does not anticipate that large RBOCs, IXCs, or other
telecommunication carriers will enter this business segment.
CALLING CARD SERVICES. In the calling card services market, the Company's
principal competitors include RBOCs and RBOC affiliates, IXCs and IXC
affiliates and independent LECs. The Company also faces competition in this
market from independent companies including SmarTalk Teleservices and Premiere
Technologies.
The Company believes that the principal competitive factors in the
aforementioned markets are service, quality, price, reputation, technological
innovation and experience. Historically, the Company has sought to distinguish
itself from competitors based on its independence in the marketplace, the
quality of its product, the development of enhanced features and its
experience derived from successfully establishing its call centers and
operations centers. The Company believes, however, that its future growth will
depend on its ability to maintain and improve the quality of its products, and
to develop and successfully introduce new connectivity features and content.
PROPERTIES
The Company's corporate headquarters is located in approximately 33,000
square feet of office space in Salt Lake City under a lease expiring March 31,
2004. The lease may be renewed for two additional five-year terms. On December
31, 1997, the Company acquired a building with approximately 25,000 square
feet in Atlanta as part of its acquisition of Quest. The Company also leases
approximately 124,000 square feet of space for its various call centers and
network operations in and around Salt Lake City, Los Angeles, New York City,
Atlanta and Miami. The various leases expire on dates ranging from November
30, 1998, to July 8, 2007. Most leases have renewal options. Additional office
space and equipment rooms will be leased as additional network switches are
added and the Company's operations are expanded. The Company believes that its
insurance coverage on these properties is adequate and in compliance with the
related leases.
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GOVERNMENT REGULATION
FEDERAL REGULATION OF LONG DISTANCE AND CALL PROCESSING SERVICES. The
Company, as a provider of call processing and calling card services, is
subject to substantial federal regulation. Under the Telephone Operator
Consumer Services Improvement Act of 1990 and implementing rules promulgated
by the FCC thereunder, interstate call processing services providers are
required to file "informational" tariffs, in order to ensure that their
aggregator customers unblock access to other providers of call processing
services and to identify their services prior to the initiation of charges,
through both an audible "brand" and the posting of consumer information near
pay telephones and other aggregator telephones. In addition, long distance
companies are required to obtain authority under Section 214 of the
Communications Act of 1934 (as amended) prior to providing international
service and to file tariffs setting forth their international rates and
charges with the FCC.
Providers of interstate long distance, operator services and calling card
services are considered nondominant interstate service providers by the FCC
and, as such, have for many years been subject to an FCC policy, known as
"forbearance," pursuant to which rates and charges for such services are not
reviewed or affirmatively regulated by the FCC and, except for the requirement
to file informational tariffs for call processing services, tariff filings
were optional. However, a Supreme Court decision in 1994 reinstated the
requirement that all carriers file tariffs for all interstate communications
services. Under the Telecommunications Act of 1996, the FCC has proposed
extending the forbearance doctrine by requiring mandatory detariffing of all
interstate, nondominant interexchange services. Under this proposal, which has
been stayed pending legal challenges, long distance services including
traditional 1+ long distance services, travel and calling card services and
prepaid calling card services and call processing services available to
presubscribed customers would be provided as a nontariff offerings. Call
processing services provided at aggregator locations, such as hotels,
hospitals, prisons, public and private pay telephones etc., would not be
detariffed.
The FCC's forbearance doctrine continues its traditional policy favoring
competition in the marketplace as the principal means of ensuring just and
reasonable interstate rates for telephone end-users. It nonetheless requires
that long distance companies implement methods, other than tariffs, for
setting rates, terms and other conditions of their relationship with end-
users. The FCC suggests that a legal relationship, known as an "implied-in-
fact" contract, may be established when the caller provides billing or payment
information and completes use of the telecommunications service.
Since 1992, the FCC has been considering proposals for adoption of a billed
party preference system for interstate 0 + operator-assisted calls. A billed
party preference system is an access plan pursuant to which 0+ calls from
aggregator locations, including call processing services and calls placed with
calling cards, would be routed to the carrier chosen by the billed party,
rather than the presubscribed provider of call processing services, thus
eliminating the need for the caller to input an access code to "dial around"
the presubscribed carrier.
In June 1994, the FCC had proposed that a billed party preference system
should apply to all interstate operator assisted 0 + calls. This proposed
solution was widely criticized by various IXCs, RBOCs, LECS, call processing
services providers and others as excessively costly and not in the public
interest. Trade associations representing both pay telephone providers and
competitive long distance companies had submitted alternative proposals for
rate "ceilings" on interstate call processing services as an alternative to a
billed party preference system. These rate ceiling proposals, with
modification, were tentatively endorsed by the FCC in a proposal to establish
benchmarks for call processing services rates at the average charges of AT&T,
MCI and Sprint, the three largest providers of interstate call processing
services. The FCC, in a June 1996 Notice of Proposed Rulemaking, proposed to
require call processing services providers that charge rates above the
benchmark to disclose the applicable charges to consumers orally before
completing a call. Although the FCC did not formally withdraw its earlier
proposal for implementation of a billed party preference system, it noted the
cost and widespread opposition to the billed party preference plan and sought
comment on the efficacy of rate benchmarks as an alternative to a billed party
preference system.
43
<PAGE>
In May 1997, the FCC adopted changes to its system of interstate access
charges to make them compatible with the pro-competitive, deregulatory
framework established by the Telecommunications Act of 1996. The FCC's access
reform order adopts various reforms to the existing rate structure for
interstate access that are designed to move access charges, over time, to more
economically efficient levels and rate structures. The FCC's access reform
order also imposes the phase-in of replacing usage-based carrier common line
charges with a line-based flat fee to be assesssed upon all telecommunications
carriers beginning on January 1, 1998. In addition, the FCC's access order
requires LECs to reduce their access revenue requirements by reducing
interconnection access charges to telecommunications carriers.
In January 1998, the FCC took action on the billed party preference issue.
In its order, the FCC addressed what it views as widespread consumer
dissatisfaction concerning high charges by many IXCs and call processing
services providers for calls from public phones and other aggregator locations
such as pay telephones, hospitals, hospitality locations and educational
institutions. Rather than implement its billed party preference system or any
of the other alternative proposed by participants in the telecommunications
industry, the FCC has ordered all call processing services providers and IXCs
providing call processing services to orally disclose to "away from home
callers" how to obtain the total cost of a 0 + interstate domestic call,
before the call is connected. The FCC required that such consumer disclosure
must be done without the consumer having to hang up or dial a separate
telephone number and must be accomplished by dialing no more than two keys.
The FCC mandated that the rate notification apply to all domestic 0+
interstate calls. While the Company is unable to predict whether this
regulation will have a material adverse effect on the Company, it is a far
more favorable proposal to the Company than the original billed party
preference system proposal and other alternatives considered by FCC.
FEDERAL REGULATION OF PREPAID CALLING CARD SERVICES. As noted above, prepaid
calling card services are considered interstate services, subject to the FCC's
forbearance doctrine and mandatory detariffing. Currently, providers of these
services are required to file tariffs with the FCC disclosing the rates, terms
and conditions of their services. The FCC has proposed to abolish this tariff
requirement, but its order has been stayed pending court review.
PAYPHONE COMPENSATION. The Telecommunications Act of 1996 mandated that the
FCC promulgate rules to establish a per call compensation plan to insure that
all pay telephone providers are fairly compensated for each completed
intrastate and interstate pay telephone initiated call, including non-coin
calls for which pay telephone providers had not heretofore received
compensation. The FCC has established a two year "default" compensation rate,
effective October 7, 1997, of $0.284 per pay telephone originated toll free or
access code call. At the end of the two year interim period, the per call pay
telephone-compensation rate will be the deregulated market-based local coin
rate less $0.066. This amount is payable by all IXCs and may be passed through
to non-facilities-based resellers. The revised FCC rules continue to be
subject to regulatory and legal challenges.
While prepaid calling cards are one of the types of so-called "dial-around"
calling for which compensation to pay telephone service providers is due under
the Telecommunications Act of 1996, the FCC has not fully addressed the unique
technical and competitive impact of per-call pay telephone compensation on
prepaid card services. Comments submitted by the International Telecard
Association, a prepaid card trade group, urged the FCC to limit pay telephone
compensation to calls completed to the end-user (i.e., the called party),
rather than calls that only reach the calling card "platform" switch via an
"800" toll-free access number. In a November 1996 order, the FCC accepted the
International Telecard Association's position and, in addition, ruled that pay
telephone compensation is to be implemented on a "carrier pays" basis, without
deciding how, if they choose to do so, facilities-based carriers may recover
such charges from their reseller customers.
STATE REGULATORY ISSUES. Long distance service, call processing services and
prepaid and calling card services are also regulated at the state level
through state PUCs. Such regulation typically includes certification and/or
registration requirements, authorizations for changes in corporate control,
filing and approval of tariffs for in-state calls and special consumer
protection rules applicable to call processing services and calling card
services. Certification can generally be conditioned, modified, canceled,
terminated or revoked by state regulatory
44
<PAGE>
agencies for failure to comply with state law and/or the rules, regulations
and policies of the state regulatory authorities. Penalties, fines and other
sanctions, such as refund of monies collected from residents of a state, may
be imposed for violations such as overcharging, billing errors, or
noncompliance with certain requirements of intrastate services. In extreme
cases, PUCs have the authority to revoke a carrier's right to offer in-state
services within a state.
In connection with the Company's provision of intrastate call processing
services and prepaid calling card services, the Company's Teltrust
Communications Services and Quest Telecommunications, Inc. subsidiaries must
maintain certificates of public convenience and necessity from state
regulatory authorities and are generally required to file tariffs with such
authorities.
INTERNATIONAL REGULATORY ISSUES. International common carriers, such as the
Company and its regulated subsidiaries, are required to obtain authority under
Section 214 of the Communications Act of 1934 (as amended) and file a tariff
containing the rates, terms and conditions applicable to their services prior
to initiating their international value-added telecommunications services. The
Company has obtained all required authorizations from the FCC to use, on a
facilities and resale basis, various transmission media for the provision of
international switched services and international private line services.
LEGAL PROCEEDINGS
The Company is not party to any legal proceedings which, individually or in
the aggregate, the Company expects to have a material adverse effect on its
financial condition or results of operations. The Company is, from time to
time, involved in regulatory proceedings before various PUCs, as well as
before the FCC.
45
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and Directors and their ages as of April 1,
1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Lyle O. Keys(1)......... 73 Chairman of the Board of Directors and Director
Jerry E. Romney, Jr..... 44 Vice Chairman, President-Corporate Development and Director
Marc B. Cohen........... 32 President, Chief Executive Officer and Director
Martin J. Huebschman.... 50 Vice President-Finance, Secretary and Chief Financial Officer
Vicki S. Pearson........ 55 Senior Vice President-Business Operations
Joseph E. Sharkey....... 51 Senior Vice President and Chief Operating Officer
Carmelo Catalano........ 47 Director
Christopher S. 35 Director
Gaffney(1)(2)..........
John G. Hayes(1)(2)..... 34 Director
George C. Huff, Jr...... 36 Director
Alan W. Saltzman(2)..... 51 Director Nominee*
</TABLE>
- ---------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
* Mr. Saltzman has consented to become a Director of the Company after the
closing of the Offering.
Lyle O. Keys has served as the Chairman of the Board of Directors since July
1988 and was also the Chief Executive Officer of the Company from 1991 until
March 1997. Prior to joining Teltrust in 1988, Mr. Keys had an extensive
background in the manufacture of equipment for broadcast television. In 1977,
he founded Utah Scientific, a manufacturer of broadcast switching and control
products. After Utah Scientific was acquired by Dynatech Corp. in 1981, Mr.
Keys remained as President of Utah Scientific until 1987. Prior to joining
Utah Scientific, Mr. Keys founded Telemation, also a manufacturer of high-end
television equipment, which was sold to Bell & Howell in 1976. Mr. Keys is
also a director of Fi-Foil Company, Inc. and Protective Technologies
International, Inc.
Jerry E. Romney, Jr. founded the Company in 1986 and served as its President
until March 1997. Mr. Romney has served as a Director since 1986. In March
1997, Mr. Romney was elected to the position of Vice Chairman and President-
Corporate Development. Mr. Romney is involved in investigating emerging
opportunities for Teltrust, including new service offerings, mergers and
possible acquisition candidates and directs the Company's regulatory affairs.
Mr. Romney currently serves on the Board of Directors of the American Public
Communications Council and is active in other industry associations. Mr.
Romney has more than 18 years of communications management experience.
Marc B. Cohen was appointed President and Chief Executive Officer and
elected a Director of the Company in March 1997. From 1988 until March 1997,
Mr. Cohen served in various other positions with the Company, most recently as
Chief Financial Officer and Executive Vice President where he directed the
Company's finance functions and was active in contract negotiations and
strategic and business segment analysis. Prior to joining Teltrust, Mr. Cohen
held positions in finance and accounting in the entertainment and
communications industries.
Martin J. Huebschman joined Teltrust in November 1997 and since that time
has served as Chief Financial Officer and Vice President-Finance of the
Company. Mr. Huebschman was also elected the Secretary of the Company in April
1998. Mr. Huebschman directs all of the Company's accounting, financial
planning and legal functions. From January 1993 until its sale, Mr. Huebschman
was President, Chief Operating Officer and Chief Financial Officer at Voice-
Tel Enterprises, Inc., a leading multinational voice messaging service
provider, and from January 1991 until January 1993, Mr. Huebschman was Senior
Vice President and Chief Financial Officer of Edge Systems, Inc., a computer
integration and software development company. Mr. Huebschman holds a juris
doctorate degree and is an attorney licensed to practice in Ohio.
46
<PAGE>
Vicki S. Pearson joined Teltrust in January 1994 as Vice President-Corporate
Communications and has served as Senior Vice President-Business Operations
since March 1997. Ms. Pearson is responsible for call center operations,
customer operations, marketing services, human resources and corporate
training. Previously, Ms. Pearson held the position of Vice President-
Corporate Communications, where she directed the company's marketing services,
client services, implementation services, human resources and corporate
training activities. Prior to joining Company's management, Ms. Pearson served
as an independent consultant to the Company since March 1993. Ms. Pearson has
more than 25 years of management experience, having owned and operated a
successful advertising agency for nearly 10 years and having held executive
management positions with several communications equipment manufacturers.
Joseph E. Sharkey joined the Company in October 1997 and since that time has
served as Senior Vice President and Chief Operating Officer. Mr. Sharkey is
responsible for Teltrust's network, technical and information systems
operations. Mr. Sharkey has over 32 years of management experience with
interexchange and operator services companies. For 15 years prior to joining
Teltrust, Mr. Sharkey owned The Sharkey Group, a domestic and international
telecommunications consulting firm, which specialized in the design and
upgrade of telecommunications systems, networks and call centers. Mr. Sharkey
is active in numerous other industry forums, committees and telecommunications
associations including the Ordering and Billing Forum, Network Operations
Forum, Electronic Directory Assistance Group and COMPTEL (Competitive
Telecommunications Association).
Carmelo Catalano has served as a Director of the Company since January 1992.
Since 1982, Mr. Catalano has been President of Comtech Video Engineering,
S.P.A., a distributor of broadcast television and communications equipment
located in Milan, Italy.
Christopher S. Gaffney has served as a Director of the Company since
November 1996. Mr. Gaffney has been associated with Media/Communications
Partners, a venture capital firm, since 1986 and has served as a partner since
1992. Mr. Gaffney also serves as Chairman of the Board of Adams Business
Media, Inc., a business-to-business publishing company, and also as a director
of Medical World Communications, Inc., a medical information company;
Financial Communications Corporation, a financial information publishing and
services company; Haights Cross Communications, LLC, a provider of
professional continuing education programs and supplemental educational
materials; Marks-Farber Communications, Inc., a community newspaper publisher;
Sunburst Radio LLC, a radio broadcaster; Tarver Holdings, Inc., a computer
services company; and several other privately held companies.
John G. Hayes has served as Director of the Company since November 1996. Mr.
Hayes has been associated with Media/Communications Partners, a venture
capital investment firm, since 1989 and has served as a partner since 1993.
Mr. Hayes also serves as Chairman of Horizon Telecom International, L.L.C., a
cable television operator focused on developing cable television systems in
Brazil. Mr. Hayes serves as a director of Outdoor Communications, Inc., an
outdoor advertising company; Voyager Information Networks, Inc., an internet
service provider; Language for Industry Worldwide, Inc., a consolidator of
business translation services companies; and several other privately held
companies.
George C. Huff, Jr. has served as a Director of the Company since March
1996. Mr. Huff is also Chairman and Chief Executive Officer of NSC
Communications Corporation ("NSC"), a telecommunications services and
independent pay telephone operator. In 1987, Mr. Huff co-founded GFA Capital
Corporation and formed four pay telephone investment funds operated by GFA
Capital Corporation as the general partner. Such funds were acquired by NSC in
September 1997.
Alan W. Saltzman has served as President and a Director of Billing Concepts,
Inc., a billing and collection company, since May 1996. From May 1993 until
August 1996, Mr. Saltzman also served as Executive Vice President-Operations,
Billing of US Long Distance, a telecommunications company. Mr. Saltzman is
also an advisory director of Tanisys Technology, Inc.
47
<PAGE>
OTHER KEY EMPLOYEES
Other key employees of the Company include the following individuals:
Deborah M. Barrett is the Company's Vice President, Regulatory Affairs. Ms.
Barrett joined Teltrust in January 1997 to oversee all of the company's
regulatory affairs and to assure FCC compliance in all telecommunications
areas. Prior to joining Teltrust, Ms. Barrett held several positions with One
Call Communications, Inc. and its division, Opticom, Inc, including her most
recent position as Vice President of Regulatory Compliance. Ms. Barrett has
served on various committees of COMPTEL, and she is currently Vice President
of ACTA (America's Carriers Telecommunication Association).
Michael L. Bird serves as the Company's Vice President, Sales. Mr. Bird
joined Teltrust in 1992 with more than 22 years of communications and high
technology industry experience. Mr. Bird oversees the nationwide sales
activities for many of the Company's call completion services and took an
active role in the development of the Company's national directory assistance
service. Mr. Bird's extensive background in sales includes management
positions with Fone America, Pamtel Long Distance and Cascade
Telecommunications, a distribution arm of Rolm Communications. Mr. Bird has
also held high-level sales positions with Ashton-Tate, Xerox and Lotus
Development.
Richard J. Dewitt serves as President of the Company's Quest subsidiary. Mr.
Dewitt founded Quest Group International in 1991 and assumed the position of
President for the Company's calling card services subsidiary coincident with
the acquisition of Quest by the Company. Mr. Dewitt is active in industry
associations. He has previously served as Chairman of the American Public
Communications Council and is currently serving on the board of directors of
the United States Telecard Association. Mr. Dewitt holds a juris doctorate
degree.
Mark D. McNeill is the Company's Vice President, Operator and Directory
Services. Mr. McNeill joined the Company in September 1997 to assume
responsibility for the management, planning, product development and expansion
of Teltrust's call processing and national directory assistance services.
Prior to joining Teltrust, Mr. McNeill held the position of Product Group
Director at Ameritech Corporation, where he was responsible for operator
services, national and international directory assistance services and
teleconferencing. Prior to joining Ameritech, Mr. McNeill served for 10 years
at AT&T, where he was involved in product management, market research,
corporate strategy and directory assistance marketing.
Martin Senn is the Company's Vice President, Sales and Marketing for Third-
Party Verification. Mr. Senn joined Teltrust in July 1995 as a co-director of
Sales and Marketing for Teltrust's third-party verification products. In his
current position, Mr. Senn directs the strategic sales and marketing efforts
for this product line. Prior to joining Teltrust, Mr. Senn was with On-line
Reservations Systems, where he directed the company's wholesale and retail
travel operations. Mr. Senn is fluent in German, French and Italian and has
held positions with several other travel and market research organizations.
Eric Stein is the Company's Vice President, Business Development for Third-
Party Verification. Mr. Stein joined Teltrust in July 1995 as a co-director of
Sales and Marketing for Teltrust's third-party verification services. In his
current position, Mr. Stein directs the technical and operational activities
for this product line, as well as the formulation of new business development.
Prior to joining Teltrust, Mr. Stein held positions with Marketwise
Communications, where he directed the company's telecommunications and
operational inbound/outbound call activities.
Steven E. Swenson is the Company's Vice President and Corporate Counsel. Mr.
Swenson joined Teltrust as Corporate Counsel in 1994. Prior to joining the
company, Mr. Swenson was in private practice in Washington, D.C., where he
specialized in telecommunications law. He has a broad background in FCC
regulatory matters and transactions involving telecommunications companies.
Mr. Swenson received his juris doctorate degree from Georgetown University.
48
<PAGE>
BOARD OF DIRECTORS
The number of Directors of the Company is currently fixed at seven.
Following this offering, the number of Directors will be fixed at eight, and
the Board of Directors will be divided into three classes, with the members of
each class of directors serving for staggered three-year terms. The Board will
consist of three Class I Directors (Messrs. Catalano, Keys and Huff), two
Class II Directors (Messrs. Romney and Gaffney) and three Class III Directors
(Messrs. Cohen, Hayes and Saltzman), whose initial terms will expire at the
1999, 2000 and 2001 annual meetings of stockholders, respectively.
Messrs. Gaffney and Hayes were elected to the Board of Directors as
designees of the holders of Series A Preferred Stock in accordance with the
Company's Certificate of Incorporation in effect prior to the Offering. These
voting rights will terminate in accordance with their terms upon the
consummation of the Offering.
The Board of Directors has established an Audit Committee (the "Audit
Committee") and a Compensation Committee (the "Compensation Committee"). The
Audit Committee recommends the firm to be appointed as independent public
accountants to audit financial statements and to perform services related to
the audit, reviews the scope and results of the audit with the independent
public accountants, reviews with management and the independent public
accountants the Company's annual operating results, considers the adequacy of
the internal accounting procedures and considers the effect of such procedures
on the public accountants' independence. Following the completion of this
offering, the Audit Committee will consist of Messrs. Hayes, Gaffney and
Saltzman, none of whom is an officer nor an employee of the Company. The
Compensation Committee reviews and recommends the compensation arrangements
for officers and other senior level employees, reviews general compensation
levels for other employees as a group, generally determines the options or
stock to be granted to eligible persons under the 1993 Stock Option Plan and
the 1998 Stock Option Plan and takes such other action as may be required in
connection with the Company's compensation and incentive plans. The
Compensation Committee consists of Messrs. Gaffney, Hayes and Keys.
Non-employee directors (the "Independent Directors") each receive a fee of
$1,000 for each meeting of the Board of Directors they attend and $300 for
each meeting of the Board of Directors in which they participate by telephone.
Independent Directors will receive $500 for each meeting of a Board committee
they attend and $200 for each meeting of a Board committee in which they
participate by telephone. Further, each Director is reimbursed for reasonable
travel and other expenses incurred in attending meetings and is eligible to
participate in the Company's Stock Option Plan. See "--Stock Option Plans."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth information concerning
compensation for services rendered in all capacities awarded to, earned by or
paid to the Chief Executive Officer and the other three (3) executive officers
of the Company whose aggregate annual base salary and bonus for 1997 exceeded
$100,000 (the "Named Executive Officers"). No other executive officers of the
Company earned in excess of $100,000 during the year ended December 31, 1997.
<TABLE>
<CAPTION>
1997
----------------------------
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
--------------- ------------
SECURITIES
UNDERLYING
OPTIONS
SALARY BONUS (IN SHARES)
-------- ------ ------------
<S> <C> <C> <C>
NAME AND PRINCIPAL POSITION
- ---------------------------
Marc B. Cohen
President and Chief Executive Officer............. $170,908 $ -- 120,000
Lyle O. Keys
Chairman and former Chief Executive Officer....... 118,589 19,200 --
Vicki S. Pearson
Senior Vice President, Business Operations........ 142,495 -- 37,500
Jerry E. Romney, Jr.
Vice Chairman..................................... 173,645 -- --
</TABLE>
49
<PAGE>
OPTION GRANTS. The following table provides information on option grants
made during the fiscal year ended December 31, 1997 to the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM(1)
UNDERLYING EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME OPTIONS GRANTED FISCAL YEAR SHARE(2) DATE(3) 5% 10%
---- --------------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Marc B. Cohen........... 70,000 10.7% $8.00 12/10/07 $352,181 $892,496
........................ 50,000 7.6 6.00 03/01/07 188,668 478,123
Lyle O. Keys............ -- -- -- -- -- --
Vicki S. Pearson........ 20,000 3.1 8.00 12/10/07 100,623 254,999
........................ 17,500 2.7 6.00 03/01/07 66,034 167,343
Jerry E. Romney, Jr. ... -- -- -- -- -- --
</TABLE>
- ---------------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed rates of share price appreciation set by the
Securities and Exchange Commission of 5% and 10% compounded annually from
the date the respective options were granted to their expiration date. The
gains shown are net of the option exercise price but do not include
deductions for taxes or other expenses associated with the exercise.
Actual gains, if any, are dependent on the performance of the Common Stock
and the date on which the option is exercised. There can be no assurance
that the amounts reflected will be achieved.
(2) The exercise price equals the fair market value of the Common Stock on the
date of grant as determined by the Company's Board of Directors.
(3) Such options vest in equal installments over the five-year period
following the date of grant and terminate on the tenth anniversary of the
date of grant.
AGGREGATE 1997 YEAR-END OPTION VALUES. The following table sets forth
certain information with respect to exercisable and unexercisable stock
options as of December 31, 1997 for each of the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT 12/31/97 12/31/97(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Marc B. Cohen.............. 28,500 187,000 $ 60,000 $115,000
Lyle O. Keys............... -- -- -- --
Vicki S. Pearson........... 39,000 81,000 121,200 12,000
Jerry E. Romney, Jr........ 20,500 77,000 42,000 170,400
</TABLE>
- ---------------------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1997 of $6.00 per share, as determined by the
Board of Directors, minus the per share exercise price.
STOCK OPTION PLANS
1993 STOCK OPTION PLAN. The 1993 Stock Option Plan permits the grant of (i)
options to purchase shares of Common Stock intended to qualify as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as
amended, and (ii) options that do not so qualify. The 1993 Stock Option Plan
is designed and intended as a performance incentive for key employees,
including officers, of the Company to encourage such persons to acquire or
increase a proprietary interest in the success of the Company. The
Compensation Committee administers the 1993 Stock Option Plan and grants
options to eligible employees in its discretion
50
<PAGE>
3subject to certain limits in the 1993 Plan. As of April 1, 1998, options to
purchase 1,183,799 shares of Common Stock were outstanding and an additional
64,201 shares of Common Stock were available for issuance under the 1993 Stock
Option Plan.
1998 STOCK OPTION PLAN. In April 1998, the Board of Directors adopted, and
the stockholders of the Company approved, the 1998 Stock Option Plan, which
authorizes the issuance of up to 800,000 shares of Common Stock. The 1998
Stock Option Plan permits the grant of (i) options to purchase shares of
Common Stock intended to qualify as incentive stock options under Section 422
of the Internal Revenue Code of 1986, as amended, (the "Code"), (ii) options
that do not so qualify, (iii) stock appreciation rights and (iv) restricted
and unrestricted stock awards.
The 1998 Stock Option Plan is designed and intended as a performance
incentive for officers, directors, employees, consultants and other key
persons performing services for the Company to encourage such persons to
acquire or increase a proprietary interest in the success of the Company. The
1998 Stock Option Plan provides that it shall be administered by the
Compensation Committee appointed by the Board of Directors from time to time,
the majority of whom shall be non-employee directors. With respect to option
grants or other awards to executive officers of the Company under the 1998
Stock Option Plan, such grants and awards shall be subject to the approval of
the entire Board of Directors. The Compensation Committee determines the terms
of each individual stock option and stock award, subject to the terms of the
1998 Stock Option Plan, including the exercise price or purchase price of such
awards. The exercise price for incentive stock options must be equal to the
fair market value of the Common Stock on the date of grant. The exercise price
for non-qualified stock options and the purchase price for Common Stock awards
is determined at the discretion of the Compensation Committee. As of April 1,
1998, no options were outstanding under the 1998 Stock Option Plan and 800,000
shares of Common Stock were available for issuance under the 1998 Stock Option
Plan.
EMPLOYMENT AGREEMENTS
The Company has entered into noncompetition agreements with most of its
executive officers and other key employees which provide that, during the 182-
day period following any such employee's termination of employment, such
person shall refrain from engaging in any competitive activities with the
Company. The Company has the right to extend the initial 182-day period for up
to five additional 182-day periods. Teltrust, in turn, is obligated to pay to
such employee an amount equal to 100% of such employee's highest base salary
during the ninety-day period prior to his or her termination of employment
during each 182-day period during which such employee's noncompetition
agreement is in effect.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company formed its Compensation Committee in April 1998. Previously,
compensation decisions were made by the entire Board of Directors. Messrs.
Gaffney, Hayes and Keys comprise the Company's Compensation Committee. Mr.
Keys serves on the compensation committee of the board of directors of Fi-Foil
Company, Inc. No executive officer of such company has served as a Director of
Teltrust. Mr. Hayes serves on the compensation committee of the board of
directors of Outdoor Communications, Inc. No executive officer of such company
has served as a Director of Teltrust.
51
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Lyle O. Keys, Jerry E. Romney, Jr. and Marc B. Cohen, each an
executive officer and Director of the Company, Carmelo Catalano, a Director of
the Company, and entities affiliated with Media/Communications Partners, of
which Christopher S. Gaffney and John G. Hayes, Directors of the Company,
serve as partners, collectively own 56.2% of the common stock of dot.One,
Inc., a Utah corporation ("dot.One"). Teltrust and Premier Messaging
Integrators, Inc. ("PMI") own shares of nonconvertible preferred stock of
dot.One. Messrs. Keys, Romney and Cohen also serve on the Board of Directors
of dot.One. The Company has extended credit and currently sells services and
leases office space to dot.One. The Board of Directors of the Company has
reviewed and approved the Company's arrangements with dot.One and determined
that it is in the Company's best interests to continue its relationship with
dot.One.
Pursuant to a Stock Redemption Agreement dated November 22, 1996 and
effective January 2, 1997, the Company purchased 536,481 shares of Common
Stock held by Lyle O. Keys, an executive officer and Director of the Company,
for $2.5 million less Mr. Keys' share of an investment banking firm
commission.
On March 28, 1997 and May 12, 1997, the Company made two loans at interest
rates of 7% and 10%, respectively, in the principal amounts of $110,000 and
$93,552, respectively, to Jerry E. Romney, Jr., an officer of the Company.
Such loans are secured by 70,750 shares of Common Stock owned by Mr. Romney.
During 1997, the Company loaned $80,400 to Jerry E. Romney, Jr. and $145,200
to Marc B. Cohen, each officers of the Company, to enable them to purchase
85,000 and 67,000 shares of Common Stock, respectively, upon the exercise of
vested stock options. The obligations of Messrs. Romney and Cohen to repay the
borrowed funds to the Company are evidenced by promissory notes that bear
interest at the prime interest rate and mature two years from date of issue.
The notes are secured by the underlying shares of Common Stock and other
assets of Messrs. Romney and Cohen.
On April 9, 1997, the Board of Directors appointed Alan W. Saltzman to a
vacancy on the Company's Board of Directors subject to the consummation of the
Offering. Mr. Saltzman is currently President of Billing Information Concepts,
Inc. ("BIC"). BIC has been the Company's billing clearinghouse for
approximately the last five years and is a major vendor to the Company. In the
fiscal year ended December 31, 1997, the Company paid BIC $2.7 million in the
aggregate for services provided to the Company during such year.
In December 1997, the Company paid to M/C III, L.L.C. (general partner of
Media/Communications Partners III, L.P., a stockholder of the Company) a
$75,000 fee for assisting the Company to secure the Credit Facility.
Christopher S. Gaffney and John G. Hayes, Directors of the Company, are
members of M/C III, L.L.C. See "Principal and Selling Stockholders."
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information as to the beneficial ownership of
the Company's Common Stock as of April 20, 1998 and as adjusted to reflect the
sale of the shares of Common Stock offered hereby of (i) each person known by
the Company to own beneficially five percent or more of the outstanding shares
of Common Stock, (ii) each Director and Named Executive Officer of the
Company, (iii) each stockholder of the Company selling Common Stock in the
Offering (the "Selling Stockholders") and (iv) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
NAME AND ADDRESS(1) THE OFFERING NUMBER OF THE OFFERING
- ------------------- ----------------------- SHARES -----------------------
NUMBER PERCENT(2)(3) OFFERED NUMBER PERCENT(2)(3)
--------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Lyle O. Keys(4)......... 3,251,993 31.9% 231,200 3,020,793 23.8%
Entities affiliated with
Media/Communications
Partners(5)............ 3,218,884 31.6 228,600 2,990,284 23.6
Media/Communications
Partners III Limited
Partnership(5)....... 3,090,129 30.0 219,500 2,870,629 22.6
M/C Investors
L.L.C.(5)............ 128,755 1.3 9,100 119,655 *
Carmelo Catalano........ 1,608,000 15.8 114,500 1,493,500 11.8
Richard J. Dewitt(6).... 581,404 5.7 41,500 539,904 4.3
Jerry E. Romney, Jr. ... 255,500 2.5 -- 255,500 2.0
Marc B. Cohen........... 87,500 * -- 87,500 *
Vicki S. Pearson........ 39,000 * -- 39,000 *
Christopher S. Gaff-
ney(5)................. 3,218,884 31.6 228,600 2,990,284 22.6
John G. Hayes(5)........ 3,218,884 31.6 228,600 2,990,284 22.6
George C. Huff, Jr.(7).. 360,000 3.5 25,600 334,400 2.6
Alan W. Saltzman........ -- * -- -- *
All directors and execu-
tive officers 8,820,877 85.8 599,900 8,220,977 64.3
as a group (11 per-
sons)..................
ADDITIONAL SELLING
STOCKHOLDERS
GFA Capital
Corporation............ 270,000 2.6 19,200 250,800 2.0
Jerry E. Romney, Sr. ... 212,046 2.1 15,100 196,946 1.6
Sirrom Investments,
Inc.(8)................ 175,677 1.7 12,500 163,176 1.3
Jerry Duling(9)......... 102,601 1.0 7,300 95,301 *
M. Sean Venezia......... 90,000 * 6,400 83,600 *
Kerry Patrick Keys
Trust.................. 100,000 1.0 7,100 92,900 *
Keys Grandchildren
Trust.................. 100,000 1.0 7,100 92,900 *
Bruce Lowthers(10)...... 29,200 * 2,100 27,100 *
IBA Trust............... 100,000 1.0 7,100 92,900 *
Steve Covington(11)..... 6,716 * 500 6,216 *
Legacy Securities
Corp. ................. 4,402 * 500 3,902 *
</TABLE>
- ---------------------
* Represents less than 1% of the outstanding shares
53
<PAGE>
(1) The address for Lyle O. Keys is c/o of the Company, 6322 South 3000 East,
Salt Lake City, Utah 84121. The address for Media/Communications Partners
is 75 State Street, Boston, Massachusetts 02109. The address for Carmelo
Catelano is c/o C.V.E., S.P.A., Via Eupili, 6, 20038 Seregno, MI, Italy.
The address for Richard J. Dewitt is c/o the Company, 242 Falcon Drive,
Forest Park, Georgia 30297.
(2) Each stockholder possesses sole voting and investment power with respect
to the shares listed, except as otherwise indicated. In accordance with
the rules of the Commission, each stockholder is deemed to beneficially
own any shares subject to stock options which are currently exercisable or
which become exercisable within 60 days after April 20, 1998. Any
reference in these footnotes to shares subject to stock options held by
the person or entity in question refers to stock options which are
currently exercisable or which become exercisable within 60 days after
April 20, 1998. The inclusion herein of shares listed as beneficially
owned does not constitute an admission of beneficial ownership.
(3) Number of shares deemed outstanding includes any shares subject to stock
options held by the person or entity in question that are currently
exercisable or exercisable within 60 days following April 1, 1998. Number
of shares deemed outstanding after this offering includes the additional
2,500,000 shares of Common Stock which are being offered by the Company
hereby.
(4) Includes 100,000 shares of Common Stock held in a trust of which Mr. Keys'
wife is the beneficiary. Mr. Keys disclaims beneficial ownership of such
shares.
(5) Includes (i) 3,090,129 shares of Common Stock held by Media/Communications
Partners III Limited Partnership ("M/C III") and (ii) 128,755 shares of
Common Stock held by M/C Investors L.L.C. ("M/C Investors"). Messrs.
Gaffney and Hayes are members of the general partner of each of M/C III
and M/C Investors. Each of Messrs. Gaffney and Hayes disclaim beneficial
ownership of shares held by M/C III and M/C Investors.
(6) Includes 59,640 shares of Common Stock held by Zions First National Bank
as escrow agent on behalf of the Company and Mr. Dewitt. Such shares are
held to secure certain indemnification obligations of Mr. Dewitt in
connection with Teltrust's acquisition of Quest.
(7) Includes 270,000 shares of Common Stock held by GFA Capital Corporation of
which Mr. Huff serves as Chairman. Mr. Huff disclaims beneficial ownership
of such shares.
(8) Includes 17,568 shares of Common Stock held by Zions First National Bank
as escrow agent on behalf of the Company and Sirrom Investments, Inc.
("Sirrom"). Such shares are held to secure certain indemnification
obligations of Sirrom in connection with Teltrust's acquisition of Quest.
(9) Includes 8,760 shares of Common Stock held by Zions First National Bank as
escrow agent on behalf of the Company and Mr. Duling. Such shares are held
to secure certain indemnification obligations of Mr. Duling in connection
with Teltrust's acquisition of Quest.
(10) Includes 2,920 shares of Common Stock held by Zions First National Bank
as escrow agent on behalf of the Company and Mr. Lowthers. Such shares
are held to secure certain indemnification obligations of Mr. Lowthers in
connection with Teltrust's acquisition of Quest.
(11) Includes 672 shares of Common Stock held by Zions First National Bank as
escrow agent on behalf of the Company and Mr. Covington. Such shares are
held to secure certain indemnification obligations of Mr. Covington in
connection with Teltrust's acquisition of Quest.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Upon completion of the Offering, the authorized capital stock of the Company
will consist of shares of Common Stock, of which 12,695,023 shares will be
issued and outstanding and 5,000,000 shares of undesignated preferred stock
issuable in one or more series by the Board of Directors ("Preferred Stock"),
of which no shares will be issued and outstanding.
COMMON STOCK. The holders of Common Stock are entitled to one vote per share
on all matters to be voted on by stockholders and are entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors from funds legally available therefor. Any issuance of Preferred
Stock with a dividend preference over Common Stock could adversely affect the
dividend rights of holders of Common Stock. The holders of Common Stock are
not entitled to cumulative voting rights. Therefore, the holders of a majority
of the shares voted in the election of directors can elect all of the
directors then standing for election, subject to any voting rights of the
holders of any then outstanding Preferred Stock. The holders of Common Stock
have no preemptive or other subscription rights, and there are no conversion
rights or redemption or sinking fund provisions with respect to the Common
Stock. All outstanding shares of Common Stock, including the shares offered
hereby, are, or will be upon completion of the offering, fully paid and non-
assessable.
The Company's By-laws, which will be effective upon completion of the
Offering, provide, subject to the rights of the holders of any Preferred Stock
then outstanding, that the number of directors shall be fixed by the
stockholders. The directors, other than those who may be elected by the
holders of any Preferred Stock, are divided into three classes, as nearly
equal in number as possible, with each class serving for a three-year term.
Subject to any rights of the holders of any Preferred Stock to elect
directors, and to remove any Director whom the holders of any Preferred Stock
had the right to elect, any Director of the Company may be removed from office
only with cause and by the affirmative vote of at least two-thirds of the
total votes which would be eligible to be cast by stockholders in the election
of such director.
UNDESIGNATED PREFERRED STOCK. The Board of Directors of the Company is
authorized, without further action of the stockholders, to issue up to
5,000,000 shares of Preferred Stock in one or more series and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series of preferred stock and any
qualifications, limitations and restrictions thereon as set forth in the
Company's Amended and Restated Certificate of Incorporation (the
"Certificate"). Any such Preferred Stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of
Common Stock.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a significant portion of the
outstanding Common Stock.
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS
A number of provisions of the Certificate and By-laws which will be
effective upon completion of the Offering concern matters of corporate
governance and the rights of stockholders. Certain of these provisions, as
well as the ability of the Board of Directors to issue shares of Preferred
Stock and to set the voting rights, preferences and other terms thereof, may
be deemed to have an anti-takeover effect and may discourage takeover attempts
not first approved by the Board of Directors, including takeovers which
stockholders may deem to be in their best interests. To the extent takeover
attempts are discouraged, temporary fluctuations in the market price of the
Common Stock, which may result from actual or rumored takeover attempts, may
be inhibited. These provisions, together with the classified Board of
Directors and the ability of the Board of Directors to issue Preferred Stock
without further stockholder action, also could delay or frustrate the removal
of incumbent directors or the assumption of control by stockholders, even if
such removal or assumption would be beneficial to stockholders of Company.
These provisions also could discourage or make more difficult a merger, tender
55
<PAGE>
offer or proxy contest, even if favorable to the interests of stockholders,
and could depress the market price of the Common Stock. The Board of Directors
believes that these provisions are appropriate to protect the interests of the
Company and all of its stockholders. The Board of Directors has no present
plans to adopt any other measures or devices which may be deemed to have an
"anti-takeover effect."
MEETINGS OF STOCKHOLDERS. The By-laws provide that a special meeting of
stockholders may be called only by the President or the Board of Directors
unless otherwise required by law. The By-laws provide that only those matters
set forth in the notice of a special meeting may be considered or acted upon
at such special meeting unless otherwise provided by law. In addition, the By-
laws set forth certain advance notice and informational requirements and time
limitations on any Director nomination or any new proposal which a stockholder
wishes to make at an annual meeting of stockholders.
INDEMNIFICATION AND LIMITATION OF LIABILITY. The By-laws provide that
directors and officers of the Company shall be, and in the discretion of the
Board of Directors non-officer employees may be, indemnified by the Company to
the fullest extent authorized by Delaware law, as it now exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company. The By-laws also
provide that the right of directors and officers to indemnification shall be a
contract right and shall not be exclusive of any other right now possessed or
hereafter acquired under any by-law, agreement, vote of stockholders or
otherwise. The Certificate contains a provision permitted by Delaware law that
generally eliminates the personal liability of a director for monetary damages
arising from a breach of his or her fiduciary duty, including a breach
involving negligence or gross negligence in business combinations, unless such
director has breached his or her duty of loyalty, failed to act in good faith,
engaged in intentional misconduct or a knowing violation of law, paid a
dividend or approved a stock repurchase in violation of the Delaware General
Corporation Law or obtained an improper personal benefit. This provision does
not alter a director's liability under the federal securities laws and does
not affect the availability of equitable remedies, such as an injunction or
rescission, for breach of fiduciary duty. The Company has also entered into
indemnification agreements with each of its directors reflecting the foregoing
and requiring the advancement of expenses in proceedings involving the
directors in most circumstances.
AMENDMENT OF THE CERTIFICATE. The Certificate provides that any amendment
thereof must first be approved by a majority of the Board of Directors and
(with certain exceptions) thereafter approved by a majority (or % in the case
of any proposed amendment to the provisions of the Certificate relating to the
composition of the Board or amendments of the Certificate) of the total votes
eligible to be cast by holders of voting stock with respect to such amendment.
AMENDMENT OF BY-LAWS. The Certificate provides that the By-laws may be
amended or repealed by the Board of Directors or by the stockholders. Such
action by the Board of Directors requires the affirmative vote of a majority
of the directors then in office. Such action by the stockholders requires the
affirmative vote of at least two-thirds of the total votes eligible to be cast
by holders of voting stock with respect to such amendment or repeal at an
annual meeting of stockholders or a special meeting called for such purpose
unless the Board of Directors recommends that the stockholders approve such
amendment or repeal at such meeting, in which case such amendment or repeal
shall only require the affirmative vote of a majority of the total votes
eligible to be cast by holders of voting stock with respect to such amendment
or repeal.
ABILITY TO ADOPT SHAREHOLDER RIGHTS PLAN. The Board of Directors may in the
future resolve to issue shares of Preferred Stock or rights to acquire such
shares to implement a shareholder rights plan. A shareholder rights plan
typically creates voting or other impediments or under which shares are
distributed to a third-party investor, to a group of investors or shareholders
or to an employee stock ownership plan, to discourage persons seeking to gain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise if such change in control is not in the best interest of the Company
and its stockholders. The Board of Directors has no
56
<PAGE>
present intention of adopting a shareholder rights plan and is not aware of
any attempt to obtain control of the Company.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from
the date that such person became an interested stockholder, unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the board of directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes it an interested stockholder
(excluding shares owned by persons who are both officers and directors of the
corporation, and shares held by certain employee stock ownership plans); or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and
by the holders of at least 66 2/3% of the corporation's outstanding voting
stock at an annual or special meeting, excluding shares owned by the
interested stockholder. Under Section 203, an "interested stockholder" is
defined (with certain limited exceptions) as any person that is (i) the owner
of 15% or more of the outstanding voting stock of the subject corporation or
(ii) an affiliate or associate of the subject corporation that was the owner
of 15% or more of the outstanding voting stock of the subject corporation at
any time within the three-year period immediately prior to the date on which
it is sought to be determined whether such person is an interested
stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action
of its stockholders to exempt itself from coverage, provided that such by-law
or charter amendment shall not become effective until 12 months after the date
it is adopted. Neither the Certificate nor the By-laws contains any such
exclusion.
TRANSFER AGENT AND REGISTRAR
The Company has selected as the transfer agent and registrar for the
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have a total of 12,695,023
shares of Common Stock outstanding. Of the 12,695,023 outstanding shares, the
3,200,000 shares registered in the Offering will be freely tradeable without
restriction under the Securities Act (except that any shares purchased in the
Offering by "affiliates" of the Company may generally be resold only in
compliance with applicable provisions of Rule 144, as described below).
Beginning 90 days after the date of this Prospectus, an additional
shares maybe resold under Rule 144 without restriction under the Securities
Act subject to the volume and manner limitations set forth in Rule 144 and an
additional shares may be resold under Rule 144 without such
restrictions (in each case, subject to the lock-up agreements described in
"Underwriting").
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year (including the holding period of any prior owner except
an affiliate), including persons who may be deemed "affiliates" of the
Company, is entitled to sell within any three-month period a number of shares
that does not exceed the greater of one percent of the number of shares of
Common Stock then outstanding (approximately 126,950 shares upon completion of
the offering) or the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of a Form 144 with respect to
such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements, and to the availability of current public
information about the Company. In addition, a
57
<PAGE>
person who is not deemed to have been an affiliate of the Company at the time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of
any prior owner except an affiliate), would be entitled to sell such shares
under Rule 144(k) without regard to the requirements described above. Rule 144
also provides that affiliates who are selling shares that are not Restricted
Shares must nonetheless comply with the same restrictions applicable to
Restricted Shares with the exception of the holding period requirement.
Rule 701 promulgated under the Securities Act provides that shares of Common
Stock acquired pursuant to the exercise of outstanding options or the grant of
Common Stock pursuant to written compensation plans or contracts prior to this
Offering may be resold by persons other than affiliates beginning 90 days
after the date of this Prospectus, subject only to the manner of sale
provisions of Rule 144, and by affiliates, beginning 90 days after the date of
this Prospectus, subject to all provisions of Rule 144 except its one-year
minimum holding period requirement.
Certain stockholders of the Company (who in the aggregate will hold
restricted shares of Common Stock upon completion of the Offering) have
agreed, for a period of 180 days after the date of this Prospectus (the "Lock-
up Period"), pursuant to lock-up agreements and subject to certain exceptions,
not to (i) offer for sale, sell, pledge or otherwise dispose of any shares of
Common Stock or securities convertible into or exchangeable for Common Stock
or (ii) enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks of
ownership of such shares of Common Stock. Such stockholders have also agreed
not to cause the Company to effect the registration of such shares of Common
Stock or securities convertible into or exchangeable for Common Stock during
the Lock-up Period. In addition, the Company has agreed that for a period of
180 days after the date of this Prospectus, subject to certain exceptions, it
will not, without the prior written consent of Lehman Brothers Inc., offer,
sell or otherwise dispose of any shares of Common Stock except for shares of
Common Stock offered hereby.
As of April 1, 1998, there were (i) 1,183,799 outstanding options to
purchase shares of Common Stock and 64,201 additional shares of Common Stock
reserved for issuance under the 1993 Stock Option Plan and (ii) no outstanding
options to purchase shares of Common Stock and 800,000 shares of Common Stock
reserved for issuance under the 1998 Stock Option Plan. The Company intends to
file a registration statement on Form S-8 under the Securities Act to register
all shares of Common Stock issuable pursuant to the 1993 Stock Option Plan and
the 1998 Stock Option Plan. The Company expects to file this registration
statement within 90 days following the date of this Prospectus, and such
registration statement will become effective upon filing. Shares covered by
this registration statement will thereupon be eligible for sale in the public
markets, subject to Rule 144 limitations applicable to affiliates and the
lock-up agreements described above.
In connection with the investment of M/C III in the Company, the Company
entered into a registration rights agreement with M/C III and M/C Investors
(collectively, "the M/C Holders"). Upon Closing of the Offering, the M/C
Holders will hold 2,990,284 shares of Common Stock (the "M/C Shares"). At such
time as the Company is eligible to file a registration statement on Form S-3,
the Company shall, except during the 180-day period following the Closing of
the Offering and subject to certain other exceptions, upon request of the M/C
Holders use its best efforts to effect a registration of the number M/C Shares
requested to be so registered by the M/C Holders. During the term of such
registration rights agreement, the Company is obligated to effect an unlimited
number of registrations to the extent such registrations may be effected on
Form S-3. If the Company for itself or any of its security holders shall at
any time after the Offering determine to register under the Securities Act any
shares of its capital stock or other securities, subject to certain
exceptions, the Company is obligated to use its best efforts to cause such
number of M/C Shares as is requested by the M/C Holders to be included in such
registration statement to the extent permissible under the Securities Act.
In connection with its acquisition of Quest, the Company entered into a
registration rights agreement with the former stockholders of Quest
(collectively, "the Quest Holders"). Upon Closing of the Offering, the Quest
Holders will hold 836,100 shares of Common Stock (the "Quest Shares"). At such
time as the Company is eligible to file a registration statement on Form S-3,
the Company shall, except during the 180-day period
58
<PAGE>
following the Closing of the Offering and subject to certain other exceptions,
upon the request of holders of more than 50% of the Quest Shares, use its best
efforts to effect a registration of all or a portion of the Quest Shares. The
Company is not obligated to effect more than one such registration during any
12-month period. If the Company for itself or any of its security holders
shall at any time after the Offering determine to register under the
Securities Act any shares of its capital stock or other securities, subject to
certain exceptions, the Company is obligated to use its best efforts to cause
such number of Quest Shares as is requested by any Quest Holder to be included
in such registration statement to the extent permissible under the Securities
Act.
Prior to this offering, there has been no public market for the Common Stock
and no prediction can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts
of such shares in the public market, or the perception that such sales could
occur, could materially and adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities.
59
<PAGE>
UNDERWRITING
The underwriters of the Offering named below (the "Underwriters"), for whom
Lehman Brothers Inc. and Wheat First Union, a division of Wheat First
Securities, Inc., are acting as representatives (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement of which the Prospectus is a part, to purchase from the Company the
aggregate number of shares of Common Stock set forth opposite their respective
names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc..............................................
Wheat First Securities, Inc......................................
---
Total........................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby
are subject to approval of certain legal matters by counsel and to certain
other conditions, as well as the requirement that, if any of the foregoing
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all of the shares of Common Stock agreed to be
purchased by the Underwriters pursuant to the Underwriting Agreement (other
than those covered by the over-allotment option described below), must be so
purchased.
The Company and the Selling Stockholders have granted to the Underwriters an
option to purchase up to an additional 480,000 shares of Common Stock at the
public offering price, less the aggregate underwriting discounts and
commissions shown on the cover page of the Prospectus, solely to cover over-
allotments, if any. The option may be exercised at any time up to 30 days
after the date of the Underwriting Agreement. To the extent that the
Underwriters exercise such an option, each of the Underwriters will be
committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.
Each of the Company and its executive officers and directors, and certain of
the Company's stockholders (including the Selling Stockholders) and option
holders, has agreed, for a period of 180 days after the date of this
Prospectus (the "Lock-up Period"), not to, directly or indirectly and subject
to certain exceptions, (i) offer for sale, sell, pledge, or otherwise dispose
of (or enter into any transaction or device that is designed to, or could be
expected to, result in the disposition by any person at any time in the future
of) any shares of Common Stock or securities convertible into or exchangeable
for Common Stock or (ii) enter into any swap or other derivatives transaction
that transfers to another, in whole or in part, any of the economic benefits
or risks of ownership of such shares of Common Stock. In addition, during the
Lock-up Period, the Company has agreed not to cause the registration of any
shares of such Common Stock or securities convertible into or exchangeable for
Common Stock.
Prior to the Offering, there has been no public market for the shares of
Common Stock. There can be no assurance that an active trading market will
develop for shares of the Common Stock or as to the price at which shares of
the Common Stock may trade in the public market from time to time subsequent
to the Offering. The initial public offering price will be negotiated between
the Company and the Representatives. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
capital structure, estimates of the business potential and earnings prospects
of the Company and its industry in general, an overall assessment of the
Company, an assessment of the Company's management and the market price of
securities of companies engaged in businesses similar to that of the Company.
The initial price per share to the public set forth on the cover page of this
Prospectus should not, however, be considered an indication of the actual
value of the Common Stock. Such price is subject to change as a result of
market conditions and other factors.
Application has been made to list the Common Stock on the Nasdaq National
Market under the symbol "TTST."
60
<PAGE>
Other than in the United States, no action has been taken in any
jurisdiction by the Company, the Selling Stockholders or the Underwriters that
would permit a public offering of the shares of Common Stock offered hereby in
any jurisdiction where action for that purpose is required. The shares of
Common Stock offered hereby may not be offered or sold, directly or
indirectly, nor may this Prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
Common Stock be distributed or published in any such jurisdiction, except
under circumstances that will result in compliance with the applicable rules
and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock offered hereby in any jurisdiction in
which such an offer or a solicitation is unlawful.
If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described herein.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security by purchasers in an offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
Purchasers of the Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.
The Representatives have informed the Company that they do not intend to
confirm sales of shares of Common Stock offered hereby to any accounts over
which they exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
Certain legal matters related to the Offering will be passed upon for the
Underwriters by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York.
EXPERTS
The consolidated financial statements and schedule of Teltrust, Inc. and
subsidiaries included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
61
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered by the Company has been filed with the Securities
and Exchange Commission (the "Commission"), Washington, D.C. 20549. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules filed thereto.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or document filed as
an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. A copy of the
Registration Statement may be inspected without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part thereof
may be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, the New York Regional Office located at
Seven World Trade Center, New York, New York 10048, and the Chicago Regional
Office located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, upon payment of certain fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's World Wide Web site is http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by its independent public
accountants.
62
<PAGE>
GLOSSARY
CLEC (Competitive Local Exchange Carrier): A LEC that provides switched
local services in competition with the incumbent LEC (typically, an RBOC), as
an alternative for local transport of private line, special access and
interstate transport of switched access telecommunications services.
Common Carrier: A government-regulated, private company that furnishes the
general public with telecommunications services and facilities (such as a
telephone or telegraph company).
FCC: Federal Communications Commission.
Hub: A collection center located centrally in an area where
telecommunications traffic can be aggregated at a central point for transport
and distribution.
InterLATA Service: Telecommunications between a point located in a local
access and transport area and a point located outside such area.
IntraLATA Service: Calls are those calls that originate and terminate within
the same LATA, but are outside the local calling area.
IXC (Inter-Exchange Carriers): Usually referred to as long distance
providers. There are many facilities-based IXCs including AT&T, MCI, WorldCom
and Sprint, as well as numerous CLECs.
LATA (Local Access Transport Area): The approximately 164 geographic areas
which define the regions in which each RBOC is authorized to provide service.
LATAs roughly reflect the population density of their respective states
(California has 11 LATAs while Wyoming has only one). The RBOCs are generally
prohibited from providing long distance service between LATAs in their
territory (i.e., interLATA services).
LEC (Local Exchange Carrier): A company providing local telephone services,
including the RBOCs, GTE and more than 1,000 other independents. The term
includes incumbent LECs and CLECs.
Local Exchange Services: Generally refers to all services provided by a LEC
or CLEC including local dial tone, the provision of telephone numbers, calling
within the local exchange area and long distance access services.
Long Distance Carrier: A company providing interLATA or long distance
services between local exchanges on an intrastate or interstate basis. Long
distance carriers may also be long distance reseller companies. A long
distance carrier may offer services over its own or another carrier's
facilities. Major long distance carriers include AT&T, MCI, Sprint and
WorldCom and may also include resellers of long distance capacity.
Network: Any system designed to provide one or more access paths for
communications between users at different geographic locations. Communications
networks may be designed for voice, text, data, facsimile image and/or video.
They may feature limited access (private networks) or open access (public
networks) and will employ whatever switching and transmission technologies are
appropriate.
Paystation: A publicly accessible pay telephone.
Platform: The Harris 2020 tandem switching system, Harris Protocall
automated operator system and, at some sites, a proprietary voice call
distribution system.
PUC (Public Utility Commission): A state regulatory body, established in
most states, which regulates utilities, including telephone companies,
providing intrastate services.
63
<PAGE>
RBOC (Regional Bell Operating Company): One of the regional companies
created by the AT&T divestiture and their operating subsidiary companies. They
are Ameritech, Bell Atlantic, BellSouth, SBC Corporation (formerly
Southwestern Bell) and US WEST. The RBOCs have numerous unregulated
subsidiaries engaged in variety of communications-related and non-
communications businesses. The divestiture agreement barred RBOCs from
providing interLATA services within their service areas and from manufacturing
telecommunications equipment and certain other business activities, such as
providing long distance service, but provided mechanisms for review, waiver,
modification or removal of the prohibitions.
Redundancy: The capability of telecommunications facility to use two
separate electronic devices to transmit a telecommunications signal so that if
one device malfunctions, the signal may continue without interruption.
Reseller: A carrier that does not operate its own transmission facilities
(although it may own its own switches or other equipment) but obtains
communications services from another carrier for resale to the public for
profit.
Slamming: The practice of unlawfully switching a customer's telephone
service provider without the consent of the affected consumer.
SS7 (Signaling System 7): A sophisticated network signaling system that
utilizes out-of-band signaling where signaling information is sent over a
separate channel from the call itself. SS7 improves call processing set-up
times and frees circuits for voice, data and video transmissions.
Switch: A mechanical or electronic device that opens or closes circuits or
selects the paths or circuits to be used for the transmission of information.
Switching is a process of interconnecting different circuits to create a
temporary transmission path between users. In operation, a switch may be a
sophisticated computer that accepts instructions from a caller in the form of
a telephone number. Like an address on an envelope, the numbers tell the
switch where to route the call. The switch opens or closes circuits or selects
the paths or circuits to be used for transmission of information. Switches
allow local telecommunications service providers to connect calls directly to
their destination while providing advanced features and recording connection
information for future billing.
Telecommunications Act of 1996: Federal telecommunications legislation
passed in February 1996 which was to provide for a pro-competitive,
deregulatory national policy framework designed to accelerate rapidly private
sector deployment of advanced telecommunications and information technologies
and services in the United States by opening all telecommunications markets to
competition.
Third-Party Verification: The process by which an independent third party
verifies a consumer's decision to change his or her selected IXC, CLEC or
other service provider.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of independent public accountants.................................. F-2
Consolidated balance sheets as of December 31, 1996 and 1997.............. F-3
Consolidated statements of operations for the years ended December 31,
1995, 1996 and 1997...................................................... F-4
Consolidated statements of stockholders' equity (deficit) for the years
ended December 31, 1995, 1996 and 1997................................... F-5
Consolidated statements of cash flows for the years ended December 31,
1995, 1996 and 1997...................................................... F-6
Notes to consolidated financial statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Teltrust, Inc.:
We have audited the accompanying consolidated balance sheets of Teltrust,
Inc. (a Delaware corporation) and subsidiaries (collectively, the "Company")
as of December 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Teltrust,
Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 6, 1998 (except with respect to the matters discussed in the first
paragraph of Note 1 and Note 15, as to which the date is April 22, 1998)
F-2
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1996 1997
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 1,574,511 $ 526,495
Accounts receivable:
Third party billings, net of estimated clearing
costs of $1,118,500 and $1,430,000,
respectively................................... 783,777 1,945,089
Other, net of allowance for doubtful accounts of
$1,104,100 and $1,030,600, respectively........ 5,653,213 8,115,226
Other current assets.............................. 442,584 542,800
----------- ------------
Total current assets.......................... 8,454,085 11,129,610
Restricted cash..................................... 6,900,000 --
Property and equipment, net of accumulated
depreciation and amortization...................... 4,301,951 9,847,290
Equipment held under capital lease obligations, net
of accumulated amortization........................ 2,862,149 3,470,152
Notes receivable from related parties............... 936,423 266,667
Other assets, net of accumulated amortization....... 1,212,679 1,204,677
----------- ------------
Total assets.................................. $24,667,287 $ 25,918,396
=========== ============
Current liabilities:
Current portion of notes payable.................. $ 355,452 $ 121,435
Current portion of capital lease obligations...... 627,490 1,082,979
Subordinated note payable to stockholder.......... 400,649 --
Current portion of subordinated revolving credit
agreements....................................... 48,378 --
Accounts payable.................................. 5,564,124 10,728,966
Accrued liabilities............................... 2,126,481 3,569,255
Customer deposits................................. 242,966 960,579
Accrued payroll................................... 788,025 707,010
----------- ------------
Total current liabilities..................... 10,153,565 17,170,224
Revolving line of credit............................ -- 12,100,000
Notes payable, net of current portion............... 3,049,855 523,663
Capital lease obligations, net of current portion... 1,873,097 1,783,101
Subordinated revolving credit agreements, net of
current portion.................................... 449,883 --
----------- ------------
Total liabilities............................. 15,526,400 31,576,988
----------- ------------
Commitments and contingencies (Notes 4, 5, 6, 8 and
15)
Stockholders' equity (deficit):
Preferred stock, $.01 par value; 5,000,000 shares
authorized, 3,218,884 shares outstanding
(aggregate liquidation preference of $15,131,507
and $16,331,507, respectively)................... 14,510,951 14,510,951
Common stock, $.01 par value: 20,000,000 shares
authorized, 4,641,999 and 6,974,039 shares
outstanding, respectively........................ 46,420 69,740
Additional paid-in capital........................ 3,149,080 3,616,254
Common stock warrants............................. 425,000 --
Stockholder receivables........................... -- (275,178)
Accumulated deficit............................... (8,990,564) (23,580,359)
----------- ------------
Total stockholders' equity (deficit).......... 9,140,887 (5,658,592)
----------- ------------
Total liabilities and stockholders' equity
(deficit).................................... $24,667,287 $ 25,918,396
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING REVENUES:
Call processing services............ $29,289,773 $33,884,925 $ 46,221,645
Calling card services............... 4,571,623 7,216,500 10,782,439
----------- ----------- ------------
Total operating revenues.......... 33,861,396 41,101,425 57,004,084
Costs of operating revenues........... 23,485,855 29,300,800 45,472,816
----------- ----------- ------------
Gross profit........................ 10,375,541 11,800,625 11,531,268
----------- ----------- ------------
OPERATING EXPENSES:
Selling, general and
administrative..................... 12,647,572 12,147,893 21,721,240
Depreciation and amortization....... 1,353,665 1,467,161 1,990,555
----------- ----------- ------------
Total operating expenses.......... 14,001,237 13,615,054 23,711,795
----------- ----------- ------------
Operating loss........................ (3,625,696) (1,814,429) (12,180,527)
----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest income..................... 26,276 187,597 351,263
Other income........................ 38,952 7,590 54,102
Interest expense.................... (694,393) (928,027) (1,442,377)
----------- ----------- ------------
Total other expense, net.......... (629,165) (732,840) (1,037,012)
----------- ----------- ------------
Loss from continuing operations before
benefit from (provision for) income
taxes................................ (4,254,861) (2,547,269) (13,217,539)
Benefit from (provision for) income
taxes.............................. 783,382 20,419 (5,218)
----------- ----------- ------------
Loss from continuing operations....... (3,471,479) (2,526,850) (13,222,757)
DISCONTINUED OPERATIONS:
Operating income, less applicable
income taxes of $233,599........... 392,671 -- --
Gain from disposal, less applicable
income taxes of $587,688........... 987,882 -- --
----------- ----------- ------------
Net loss.............................. $(2,090,926) $(2,526,850) $(13,222,757)
=========== =========== ============
BASIC AND DILUTED LOSS PER COMMON
SHARE (NOTE 2):
Loss from continuing operations..... $ (0.80) $ (0.57) $ (2.47)
Discontinued operations............. 0.32 -- --
----------- ----------- ------------
Net loss............................ $ (0.48) $ (0.57) $ (2.47)
=========== =========== ============
Weighted average common shares
outstanding.......................... 4,339,117 4,641,999 5,843,313
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL COMMON
------------------ --------------------- PAID-IN STOCK STOCKHOLDER ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS RECEIVABLES DEFICIT TOTAL
--------- ------- --------- ----------- ---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1994......... 3,578,999 $35,790 -- $ -- $1,033,710 $ -- $ -- $ (4,372,788) $(3,303,288)
Conversion of
subordinated
notes payable to
stockholders into
1,063,000 shares
of common stock
at $2.00 per
share............ 1,063,000 10,630 2,115,370 2,126,000
Issuance of
warrants to
senior debt
holders.......... 125,000 125,000
Net loss.......... (2,090,926) (2,090,926)
--------- ------- --------- ----------- ---------- -------- --------- ------------ -----------
Balance, December
31, 1995......... 4,641,999 46,420 -- -- 3,149,080 125,000 -- (6,463,714) (3,143,214)
--------- ------- --------- ----------- ---------- -------- --------- ------------ -----------
Issuance of
preferred shares
at $4.66 per
share, net of
offering costs of
$489,049......... 3,218,884 14,510,951 14,510,951
Warrants issued in
connection with
subordinated
revolving credit
agreements....... 50,000 50,000
Warrants issued in
connection with
subordinated
notes payable to
stockholders..... 100,000 100,000
Issuance of
warrants to
senior debt
holders.......... 150,000 150,000
Net loss.......... (2,526,850) (2,526,850)
--------- ------- --------- ----------- ---------- -------- --------- ------------ -----------
Balance, December
31, 1996......... 4,641,999 46,420 3,218,884 14,510,951 3,149,080 425,000 -- (8,990,564) 9,140,887
--------- ------- --------- ----------- ---------- -------- --------- ------------ -----------
Repurchase and
retirement of
536,481 shares of
common stock at
$4.55 per share.. (536,481) (5,365) (1,067,597) (1,367,038) (2,440,000)
Exercise of
warrants by
stockholders at
$0.167 per
share............ 2,000,520 20,005 413,421 (100,000) 333,426
Issuance of common
stock warrants to
senior debts
holders.......... 28,649 28,649
Exercise of
warrants by
subordinated debt
holders at $1.00
per share........ 500,000 5,000 545,000 (50,000) 500,000
Exercise of
warrants by
senior debt
holders at $0.01
per share........ 180,084 1,801 303,051 (303,649) 1,203
Exercise of stock
options at a
weighted average
price of $1.46
per share........ 187,917 1,879 273,299 (275,178)
Net loss.......... (13,222,757) (13,222,757)
--------- ------- --------- ----------- ---------- -------- --------- ------------ -----------
Balance, December
31, 1997......... 6,974,039 $69,740 3,218,884 $14,510,951 $3,616,254 $ -- $(275,178) $(23,580,359) $(5,658,592)
========= ======= ========= =========== ========== ======== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................. $(2,090,926) $(2,526,850) $(13,222,757)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization......... 1,353,665 1,467,161 1,990,555
Provision for doubtful accounts
receivable........................... 531,010 785,764 3,649,974
Loss on writedown of investment in
joint venture........................ -- -- 831,991
Gain on disposal of discontinued
operations........................... (1,575,570) -- --
Noncash interest expense.............. 248,231 365,989 478,441
Changes in assets and liabilities:
Decrease (increase) in:
Third party billings receivable...... 439,140 433,915 (1,161,312)
Other accounts receivable, net....... (1,670,203) (3,257,930) (5,460,935)
Other current assets................. (76,970) (259,337) (100,216)
Notes receivable from related
parties............................. (575,512) (595,311) 18,710
Other assets......................... (355,719) (95,934) (1,008,588)
Increase (decrease) in:
Accounts payable..................... (2,061,343) 3,858 5,164,842
Accrued liabilities.................. (116,619) 154,225 1,442,774
Customer deposits.................... 242,763 203 717,613
Accrued payroll...................... 410,467 174,654 (81,015)
----------- ----------- ------------
Net cash used in operating activities.. (5,297,586) (3,349,593) (6,739,923)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.... (1,136,940) (1,706,551) (7,163,897)
Proceeds from disposal of discontinued
operations........................... 3,664,889 -- --
(Increase) decrease in restricted
cash................................. -- (4,000,000) 4,000,000
----------- ----------- ------------
Net cash provided by (used in)
investing activities.................. 2,527,949 (5,706,551) (3,163,897)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of:
Subordinated notes payable to
stockholders......................... 1,200,000 500,000 --
Revolving line of credit.............. -- -- 12,100,000
Notes payable......................... 3,695,363 1,500,000 101,623
Principal payments on:
Notes payable......................... (1,556,190) (1,356,162) (3,109,498)
Capital lease obligations............. (353,746) (296,666) (614,507)
Subordinated revolving credit
agreements........................... -- -- (538,886)
Subordinated notes payable to
stockholders......................... -- (1,769,967) (338,700)
Payments made to repurchase common
stock................................ -- -- (2,440,000)
Proceeds from the exercise of
warrants............................. -- -- 795,772
Net proceeds from the sale of
preferred stock...................... -- 14,510,951 --
(Increase) decrease in restricted
cash................................. -- (2,900,000) 2,900,000
----------- ----------- ------------
Net cash provided by financing
activities............................ 2,985,427 10,188,156 8,855,804
----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents...................... 215,790 1,132,012 (1,048,016)
Cash and cash equivalents at beginning
of the year........................... 226,709 442,499 1,574,511
----------- ----------- ------------
Cash and cash equivalents at end of the
year.................................. $ 442,499 $ 1,574,511 $ 526,495
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest.............................. $ 446,162 $ 562,038 $ 993,079
Income taxes.......................... -- 35,100 --
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred
during the year for the acquisition
of equipment......................... 513,383 1,818,930 980,000
Issuance of 1,063,000 shares of common
stock to stockholders in exchange for
reduction in subordinated notes
payable.............................. 2,126,000 -- --
Issuance of warrants to purchase
500,000 shares of common stock....... -- 50,000 --
Issuance of warrants to purchase
2,000,520 shares of common stock..... -- 100,000 --
Issuance of warrants to purchase
64,889, 69,227 and 45,968 shares of
common stock, respectively........... 125,000 150,000 28,649
Exercise of options in exchange for
notes receivable from stockholders... -- -- 275,178
Exercise of 404,992 common stock
warrants in exchange for reduction in
subordinated notes payable to
stockholder.......................... -- -- 67,500
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS AND REORGANIZATION
Teltrust, Inc. (formerly known as TTST Holdings, Inc.) was incorporated in
Delaware on April 8, 1998 to acquire all of the outstanding capital stock of
Teltrust Holdings, Inc., a Utah corporation (formerly known as Teltrust,
Inc.), through a corporate reorganization under the laws of Delaware and Utah.
This corporate reorganization was completed on April 22, 1998 (see Note 15).
The capital accounts presented in the accompanying consolidated balance sheets
reflect the authorized common and preferred stock of Teltrust, Inc., organized
on April 8, 1998. Teltrust and its subsidiaries (collectively referred to as
"the Company") provide a broad range of enhanced call processing and calling
card services to the domestic telecommunications industry. The Company
provides a broad range of enhanced call processing services, including call
completion, national directory assistance and third party verification
services, in addition to calling card services. Services are delivered through
the use of state-of-the-art technology, switch-based call processing platforms
and more than 1,000 employees. Telecommunications service providers contract
with the Company to provide enhanced call-processing services to their end
user business and consumer customers. The Company's customers include
interexchange carriers ("IXCs"), regional Bell operating companies ("RBOCs"),
other local exchange carriers ("LECs") and competitive local exchange carriers
("CLECs"), wireless providers, pay telephone and hospitality service
providers, calling card service providers, and international
telecommunications carriers. Customers access the Company's telecommunications
platforms and services through a multi-state leased line network served by
fourteen tandem and operator switches in eleven locations in Salt Lake City,
Atlanta, Los Angeles, Miami and New York City.
During 1994, the Company launched new strategies and products designed to
position itself as a premier provider of enhanced call processing services to
take advantage of emerging markets in telecommunications. The continued
increase in telecommunications competition, fostered by the Telecommunications
Act of 1996 and subsequent entry of new providers created additional
opportunity for the Company to penetrate newly established markets with its
products. The Company further expanded its calling card services through the
acquisition of Quest Group International, Inc. and its affiliates
(collectively, "Quest") in December 1997 (see Note 3).
The Company's sales have been, and the Company expects that its sales will
continue to be, somewhat seasonal, due to the nature of call traffic from
independent and LEC-owned pay telephones and the use of prepaid and other
calling cards. Traditional agent-assisted long distance services produce peak
revenues during the summer months, coincident with domestic travel and
vacation patterns. To a lesser degree, national directory assistance, prepaid
and other calling cards and third-party verification services are also
affected by seasonal demand fluctuations with demand peaking in the spring and
summer months.
DISCONTINUED OPERATIONS
Effective November 1, 1995, the Company entered into an agreement with
Cherokee Communications, Inc. for the sale of substantially all of the assets
of Teltrust Phones, Inc., a wholly-owned subsidiary of Teltrust, for
$3,664,889 in cash. Additionally, the Company is bound by a covenant not to
compete by operating or managing pay telephones for five years subsequent to
the effective date of the sale. A gain on the disposal of the subsidiary's
operations of $1,575,570 (before related income taxes of $587,688) has been
reflected in the accompanying 1995 consolidated statement of operations.
Revenue from discontinued operations was $3,275,781 for the period from
January 1, 1995 through October 31, 1995. Operating income and gain from
disposal of discontinued operations have been presented as separate captions
in the 1995 statement of operations.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Teltrust and its wholly owned subsidiaries Teltrust Communication Services,
Inc. ("TCS"), Teltrust Phones, Inc. ("Phones", now inactive), Teltrust
Teleservices, Inc. ("Teleservices"), Quest Group International, Inc. and Quest
Real Estate, Inc. All significant intercompany transactions and accounts have
been eliminated in consolidation.
F-7
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with maturities of three months or less to
be cash equivalents.
RESTRICTED CASH
As of December 31, 1996, $6,900,000 of the Company's cash and cash
equivalents were restricted to repayment of an approximately $400,000
subordinated note payable to a stockholder, $2,500,000 to repurchase common
stock and $4,000,000 for capital expenditures. No such restriction existed as
of December 31, 1997.
REVENUE RECOGNITION
The Company's business is primarily transaction based, and accordingly,
revenues are recognized as services are performed.
CALL PROCESSING SERVICES
Depending upon the nature of the relationship with its customer, the Company
may recognize revenue on a "wholesale basis" or a "retail basis". Wholesale
revenues consist of relationships where the Company provides a service to
another entity servicing the end-user. In a wholesale-type relationship, the
Company does not assume the credit risk from the end-user. Retail revenues
consist of relationships where the Company assumes ownership of the entire
call transaction and recognizes the gross call billing to the end-user as
revenue. In a retail-type relationship, the Company does assume the credit
risk related to the end-user. The following describes the nature of the
services and revenue earning process for each of the Company's call processing
services.
. Call Completion Services--These services consist of automated or live
agent assisted calling card calling, collect calling and third-party
billed calling. The Company earns revenues from its call completion
services on a per-completed call, pre-call attempt or per-minute-of-use-
basis. These services are performed on both a wholesale and retail
basis.
. National Directory Assistance--These services consist of national
directory assistance covering the 50 United States, the District of
Columbia, Puerto Rico and the United States Virgin Islands. The Company
generally earns revenues from this service on a wholesale, per-inquiry
basis.
. Third-Party Verification Services--Third-party verification is an FCC
requirement designed to protect consumers from unauthorized switching of
an end-user's IXC, LEC or public utility provider without first
obtaining the consent of the end-user. In providing this service, the
Company acts as an independent third-party to verify an end-user's order
to change its IXC, LEC or public utility provider. The Company generally
earns fees from its third-party verification operations on a wholesale,
per-call or hourly basis.
CALLING CARD SERVICES
The Company's calling card services are provided through two applications:
wholesale applications and co-branded retail applications. In wholesale
service applications, customers purchase network and platform services from
the Company on a per-minute-of-use basis. Revenue is recognized as services
are provided. In co-branded retail service applications, customers purchase
calling cards from the Company at a discount from the retail value. The
Company receives cash upon the sale of prepaid calling cards, net of the
discount given to the co-branded services retail customer. The Company
recognizes revenue as the calling card is utilized by the end-user. Cash
received is recorded as unearned revenue in the accompanying consolidated
balance sheets.
F-8
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book value of the Company's financial instruments approximates fair
value. The estimated fair values have been determined using appropriate market
information and valuation methodologies.
THIRD-PARTY BILLINGS RECEIVABLE
The Company bills the majority of its accounts receivable under an agreement
with a third-party billing provider. This agreement allows the Company to
submit call detail records to the third-party billing provider, which in turn
forwards these records to LECs to be billed. The third-party billing provider
collects the funds from the LEC and then remits the funds, net of clearing
costs, to the Company. Because this collection process can take up to 90 days
to complete, the Company participates in an advance funding program offered by
the third-party billing provider whereby certain call records are purchased
for 80 percent of their value within five days of presentment. The remaining
20 percent of the value of the call records is remitted to the Company, net of
interest and clearing costs, as the third-party billing provider collects the
funds from the LECs. The allowance for clearing costs includes the Company's
estimate of uncollectible calls at December 31, 1996 and 1997. The Company's
customers are responsible for any amounts that ultimately are not collectible;
however, the Company is subject to the credit risks associated with collecting
these amounts from its customers. As of December 31, 1996 and 1997, the
Company has established reserves (estimated clearing costs) which management
believes are sufficient for potential charge backs.
As a component of this agreement, the Company is charged interest on the 80
percent of the call record value which is advanced to the Company at the prime
lending rate as quoted in the Wall Street Journal (8.5 percent at December 31,
1997) plus two percent. The Company, in turn, charges its customers for
interest on these amounts at the same rate.
The Financial Accounting Standards Board ("FASB") issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" in June 1996. This statement provides
accounting and reporting standards for, among other things, the transfer and
servicing of financial assets, such as factoring receivables with recourse.
The statement is effective for transfers and servicing of financial assets
occurring after December 31, 1996 and requires prospective application. In
December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of SFAS No. 125." SFAS No. 127 amended the effective
date for certain provisions of SFAS No. 125 to December 31, 1997. The adoption
of these statements did not have a material impact on the financial position
or results of operations of the Company.
As of December 31, 1996 and 1997, third-party billings receivables include
approximately $775,000 and $724,000, respectively, of gross billings for which
advance funding has not been received.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets. Upon sale or other disposition of property and equipment, the
cost and related accumulated depreciation or amortization is removed from the
accounts and any gain or loss is included in the determination of net income
or loss.
Expenditures for maintenance and repairs are charged to expense as incurred.
Direct installation costs and major improvements are capitalized.
F-9
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and equipment as of December 31, 1996 and 1997, are summarized as
follows:
<TABLE>
<CAPTION>
USEFUL LIVES 1996 1997
------------ ----------- ----------
<S> <C> <C> <C>
Switch equipment......................... 10 years $ 2,187,641 $4,366,383
Computer equipment....................... 5 years 1,795,014 3,476,272
Software................................. 3 years 462,771 1,961,577
Operator stations........................ 5 years 813,041 1,517,875
Leasehold improvements................... 7 years 908,763 1,385,524
Office furniture and equipment........... 7 years 592,525 1,002,522
Building................................. 30 years 428,433 428,433
Other.................................... 3 to 7 years 266,804 521,408
Land..................................... 95,330 95,330
----------- ----------
Total property and equipment........... 7,550,322 14,755,324
Less accumulated depreciation and amorti-
zation.................................. (3,248,371) (4,908,034)
----------- ----------
Property and equipment, net of accumu-
lated depreciation and amortization... $ 4,301,951 $9,847,290
=========== ==========
</TABLE>
EQUIPMENT HELD UNDER CAPITAL LEASE OBLIGATIONS
Equipment held under capital lease obligations as of December 31, 1996 and
1997, is summarized as follows:
<TABLE>
<CAPTION>
USEFUL LIVES 1996 1997
------------ ---------- -----------
<S> <C> <C> <C>
Switch equipment.......................... 10 years $3,632,955 $ 4,617,612
Computer equipment........................ 5 years 72,817 68,161
---------- -----------
Total equipment held under capital
lease obligations.................... 3,705,772 4,685,773
Less accumulated amortization............. (843,623) (1,215,621)
---------- -----------
Equipment held under capital lease
obligations, net of accumulated
amortization......................... $2,862,149 $ 3,470,152
========== ===========
</TABLE>
OTHER ASSETS
Other assets as of December 31, 1996 and 1997, are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Loan origination fees................................... $ 248,164 $ 503,865
Deposits................................................ 188,023 272,482
Notes receivable........................................ 255,996 443,693
Investment in joint venture............................. 564,499 --
Other................................................... 170,716 --
---------- ----------
Total other assets.................................... 1,427,398 1,220,040
Less accumulated amortization........................... (214,719) (15,363)
---------- ----------
Other assets, net of accumulated amortization......... $1,212,679 $1,204,677
========== ==========
</TABLE>
Loan origination fees are amortized over the five-year life of the debt
agreement.
F-10
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1996 and 1997, are summarized as
follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Accrued expenses....................................... $ 690,987 $1,136,099
Unearned revenue....................................... 412,292 512,292
Accrued legal fees..................................... 60,000 481,833
Accrued vacation....................................... 208,821 330,183
Other.................................................. 754,381 1,108,848
---------- ----------
$2,126,481 $3,569,255
========== ==========
</TABLE>
INCOME TAXES
The Company recognizes liabilities or assets for the deferred tax
consequences of all temporary differences between the tax bases of assets or
liabilities and their reported amounts in the financial statements. These
temporary differences will result in taxable or deductible amounts in future
years when the reported amounts of the assets or liabilities are recovered or
settled. The deferred tax assets are reviewed for recoverability and valuation
allowances are provided as necessary.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures About Segments
for an Enterprise and Related Information". The statement establishes new
standards for public companies to report information about operating segments,
products and services, geographic areas and major customers. This statement is
effective for periods beginning after December 15, 1997. The Company
anticipates it will have two reporting segments; namely, call processing
services and calling card services.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-up
Activities." SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred and is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company currently expenses
such costs and therefore, the implementation of this pronouncement is not
expected to have any impact on the Company's financial position or results of
operations.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. The use of estimates and assumptions may affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
The Company manages its credit, theft and fraud risks through its internal
controls, monitoring and blocking systems. The Company also maintains reserves
which it deems adequate for such risks. However, past experience in estimating
and establishing reserves and the Company's historical losses may not
necessarily be accurate indications of the future. The Company believes that
its risk management and bad debt reserve practices are adequate; however the
actual losses resulting from unauthorized or returned transactions or thefts
of services could be different from those estimates.
NET LOSS PER COMMON SHARE
In accordance with SFAS No. 128, "Earnings per Share," basic net income per
common share ("Basic EPS") excludes the effects of all common stock
equivalents and convertible securities and is computed by
F-11
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
dividing net income by the weighted-average number of common shares
outstanding during the year. Diluted net income per common share ("Diluted
EPS") reflects the potential dilution that could occur if common stock
equivalents and convertible securities were exercised or converted into common
stock. The computation of Diluted EPS does not assume exercise or conversion
of securities that would have an anti-dilutive effect on net income (loss) per
common share. The Company has incurred net losses for all years presented and
therefore, all common stock equivalents were excluded from the calculation of
diluted loss per common share for the years ended December 31, 1995, 1996 and
1997 because they would have been anti-dilutive, thereby decreasing the net
loss per common share.
At December 31, 1995, 1996 and 1997, there were outstanding options to
purchase 589,000, 873,648 and 1,183,799 shares, respectively, of common stock.
In accordance with SFAS No. 128, in determining the net loss attributable to
common stockholders, the Company has increased the net loss by undeclared
dividends on preferred stock of $131,507 and $1,200,000 for the years ended
December 31, 1996 and 1997, respectively. There were no undeclared preferred
stock dividends for the year ended December 31, 1995. The calculation of basic
and dilutive net loss per common share is as follows for 1995, 1996 and 1997:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------
1995 1996 1997
--------------------------------- --------------------------------- ----------------------------------
PER- PER- PER-
LOSS SHARES SHARE LOSS SHARES SHARE LOSS SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------ ------------ ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loss from
continuing
operations..... $(3,471,479) $(2,526,850) $(13,222,757)
Add: undeclared
preferred stock
dividends...... -- (131,507) (1,200,000)
----------- ----------- ------------
BASIC AND
DILUTED
Loss from
continuing
operations
attributable to
common
stockholders... (3,471,479) 4,339,117 $(0.80) (2,658,357) 4,641,999 $(0.57) (14,422,757) 5,843,313 $(2.47)
Income from
discontinued
operations..... 1,380,553 4,339,117 0.32 -- -- -- -- -- --
----------- --------- ------ ----------- --------- ------ ------------ --------- ------
Net loss
attributable to
common
stockholders... $(2,090,926) 4,339,117 $(0.48) $(2,658,357) 4,641,999 $(0.57) $(14,422,757) 5,843,313 $(2.47)
=========== ========= ====== =========== ========= ====== ============ ========= ======
</TABLE>
SIGNIFICANT CUSTOMERS
Three contracts with two independent affiliates of one RBOC accounted for
approximately 2.7%, 11.9% and 1.6% of the Company's 1997 consolidated
revenues. There were no other customers that accounted for more than 10% of
the Company's consolidated revenues during 1995, 1996 and 1997. The Company's
five largest customers accounted for 20.4%, 27.3% and 39.7% of total operating
revenues for the years ended December 31, 1995, 1996 and 1997, respectively.
The Company expects that revenues attributable to a relatively small number of
customers will continue to represent a significant percentage of its total
revenues for the foreseeable future. The terms of the contracts with its most
significant customers have terms varying from one to three years. Although the
Company believes that it has good relationships with its customers, there can
be no assurance that the Company's customers, including its significant
customers, will continue to use the Company's services in amounts greater than
or similar to previous years, or at all. The loss or significant reduction of
revenues from its significant customers could have a material adverse effect
on the Company's results of operations and financial condition.
At December 31, 1997, the customers with the four highest accounts
receivable balances totaled $6,857,289, or 55%, of gross accounts receivable.
At December 31, 1997, the outstanding accounts receivable balance from one
customer was $3,975,649, or 31%, of gross accounts receivable. If any one or a
group of these customers' receivable balances should be uncollectible, it
would have a material adverse effect on the Company's results of operations
and financial condition.
F-12
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ADVERTISING
In accordance with Statement of Position 93-7, "Reporting on Advertising
Costs," costs for advertising are expensed as incurred within the fiscal year.
If it is determined that the advertising costs will provide a future economic
benefit, the costs are capitalized and amortized over the period of benefit,
not to exceed one year. For the years ended December 31, 1995, 1996 and 1997,
advertising expenses were $578,434, $1,051,480 and $1,025,838, respectively.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for impairment of long-lived assets in accordance with
SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that
long-lived assets be reviewed for impairment when events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
The Company evaluates, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment. In accordance
with SFAS No. 121, the Company uses an estimate of future undiscounted net
cash flows of the related asset over the remaining life in measuring whether
assets are recoverable. As of December 31, 1997, the Company has determined
that none of its long-lived assets have been impaired.
NOTE 3 MERGER
On December 31, 1997, the Company merged with Quest Group International,
Inc. and Quest Real Estate, Inc. (collectively, "Quest") in a stock-for-stock
transaction that resulted in Quest becoming a wholly owned subsidiary of
Teltrust, Inc. Under the terms of the agreement, Quest stockholders received
1.6516 shares of Teltrust common stock for each Quest share. Accordingly, the
Company issued 900,000 shares of common stock for all outstanding shares of
Quest common stock.
The merger qualified as a tax-free reorganization and was accounted for as a
pooling-of-interests. Accordingly, the Company's financial statements have
been restated to include the accounts and operations of Quest for all periods
presented as though the two companies had always been a combined entity.
Consolidated and separate results of Teltrust, Inc. and Quest during the
periods preceding the merger were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Teltrust, Inc........................... $ 28,128 $ 34,551 $ 52,410
Quest................................... 5,733 6,720 4,594
Elimination of intercompany
transactions........................... -- (170) --
---------- ---------- -----------
Consolidated.......................... $ 33,861 $ 41,101 $ 57,004
========== ========== ===========
NET LOSS:
Teltrust, Inc........................... $ (161) $ (975) $ (10,394)
Quest................................... (1,930) (1,552) (2,829)
---------- ---------- -----------
Consolidated.......................... $ (2,091) $ (2,527) $ (13,223)
========== ========== ===========
</TABLE>
No adjustments were necessary to the consolidated financial results
presented above to conform the accounting policies of the two companies, other
than certain revenue and expense reclassifications.
In connection with the merger, at any time after 180 days following the
Company's registered initial public offering of equity securities, upon
written request, the holders of more than fifty percent of the registrable
securities issued pursuant to the merger may demand a registration statement
to be filed for which the Company would bear the cost of filing such
registration statement (except the stockholders' underwriting discounts,
commissions and legal fees).
F-13
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4 REVOLVING LINE OF CREDIT
In November 1997, the Company entered into a five-year Reducing Revolving
Credit Facility ("Credit Facility") with a bank in the amount of $15,000,000
(see Note 15). Up to the full amount of the Credit Facility may be borrowed,
repaid and reborrowed subject to quarterly reductions in the commitment amount
beginning on March 31, 1999, as follows:
<TABLE>
<CAPTION>
QUARTERLY QUARTERLY
REDUCTION REDUCTION
PERCENTAGE AMOUNT
QUARTERLY BEGINNING MARCH 31, ---------- ----------
<S> <C> <C>
1999................................................ 3.000% $ 450,000
2000................................................ 5.625 843,750
2001................................................ 9.000 1,350,000
2002................................................ 9.833 1,474,950
</TABLE>
The Credit Facility's final maturity is September 30, 2002 and provides for
either Base Rate or LIBOR Rate advances at the Company's discretion. Base Rate
advances are at the bank's base rate plus 1.5% ("margin") and LIBOR Rate
advances are at the LIBOR rate plus 2.75% ("margin"). Beginning after March
31, 1998, the margin for the Credit Facility will be determined based upon the
ratio of total funded debt (the current outstanding balance of the Credit
Facility) to EBITDA (earnings before interest, taxes, depreciation and
amortization) (the "Ratio"). As the Ratio improves, the margin added to the
Base rate and the LIBOR rate declines. Among others, the financial covenants
include a requirement for a maximum ratio of 3.75 to 1.00 during 1998, 2.50 to
1.00 during 1999 and 1.50 to 1.00 thereafter.
The Credit Facility is secured by a first priority perfected security
interest in all assets of the Company, including a pledge of all capital stock
of its subsidiaries. The Company pays maintenance fees of $25,000 per quarter
to continue the Credit Facility. Additionally, the Credit Facility contains
financial covenant requirements such as a maximum leverage ratio; minimum
interest, debt and fixed charge service coverage ratios; limitations on
additional debt; minimum EBITDA of $7,000,000 in 1998; and limits on capital
expenditures of $8,250,000 in 1998 and $5,000,000 in 1999 and subsequent
years.
As of December 31, 1997, advances under the Credit Facility totaled
$12,100,000. These were LIBOR advances with an effective interest rate of 8.8
percent.
NOTE 5 NOTES PAYABLE
NOTES PAYABLE
As of December 31, 1996 and 1997, notes payable consisted of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Note payable to a bank, interest at the bank's prime
rate (8.5 percent at December 31, 1997) plus 2.5
percent, secured by real estate, due in equal monthly
installments of $4,912 through August 2018............. $ 486,845 $ 480,142
Note payable to a bank, interest at 6.7 percent, secured
by equipment, due in equal monthly installments of
$8,351 through November 1998........................... -- 96,652
Note payable to a bank, interest at 8.25 percent,
secured by real estate, due in equal monthly
installments of $589 through July 2010................. 55,143 52,592
Notes payable to a venture capital firm, paid in full in
December 1997.......................................... 2,750,000 --
Other................................................... 113,319 15,712
---------- ---------
Total notes payable.................................... 3,405,307 645,098
Less current portion.................................... (355,452) (121,435)
---------- ---------
Notes payable, net of current portion.................. $3,049,855 $ 523,663
========== =========
</TABLE>
F-14
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future maturities of long term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1998............................................................ $121,435
1999............................................................ 10,281
2000............................................................ 11,378
2001............................................................ 12,594
2002............................................................ 13,943
Thereafter...................................................... 475,467
--------
Total......................................................... $645,098
========
</TABLE>
SUBORDINATED REVOLVING CREDIT AGREEMENTS
As of December 31, 1996 and 1997, subordinated revolving credit agreements
consisted of the following:
<TABLE>
<CAPTION>
1996 1997
-------- -----
<S> <C> <C>
Subordinated revolving credit agreement with an independent
investor,
interest at 12 percent......................................... $399,136 $ --
Subordinated revolving credit agreement with an independent
investor,
interest at 12 percent......................................... 99,125 --
-------- -----
Total subordinated revolving credit agreements.............. 498,261 --
Less current portion............................................ (48,378) --
-------- -----
Subordinated revolving credit agreements, net of current
portion.................................................... $449,883 $ --
======== =====
</TABLE>
In conjunction with these revolving credit agreements, the Company issued
warrants to purchase 400,000 and 100,000 shares of the Company's common stock
(one warrant for each $1.00 loaned), respectively. These warrants were
exercisable based upon a graduating exercise price and were exercised in
September 1997 at $1.00 per share. In connection with their issuance, the
Company valued these warrants at $50,000. The debt was originally recorded at
$450,000 and the principal balance was accreted through additional interest
expense up to the amount due when it was repaid.
NOTE 6 LEASE OBLIGATIONS
OPERATING LEASES
The Company leases office space and certain telecommunications equipment
under non-cancelable operating lease agreements. Rent expense under these
leases for the years ended December 31, 1995, 1996 and 1997 was $631,575,
$789,813 and $1,359,432, respectively.
F-15
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments by year under these leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1998......................................................... $1,747,014
1999......................................................... 1,239,123
2000......................................................... 1,162,841
2001......................................................... 1,136,098
2002......................................................... 586,450
Thereafter................................................... 2,053,156
----------
Total future minimum lease payments........................ $7,924,682
==========
</TABLE>
CAPITAL LEASES
The Company leases various computer and telecommunications equipment under
capital lease agreements. The following is a schedule by year of future
minimum lease payments under capital lease obligations together with the
present value of the future net minimum lease payments as of December 31,
1997:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1998........................................................ $ 1,296,343
1999........................................................ 1,132,315
2000........................................................ 674,097
2001........................................................ 145,289
-----------
Total future minimum lease payments....................... 3,248,044
Less amount representing interest........................... (381,964)
-----------
Present value of net minimum lease payments............... 2,866,080
Less current portion........................................ (1,082,979)
-----------
Capital lease obligations, net of current portion......... $ 1,783,101
===========
</TABLE>
NOTE 7 INCOME TAXES
The components of the benefit for federal and state income taxes are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal............................... $1,229,849 $ 938,547 $ 3,784,552
State................................. 188,185 144,519 576,232
---------- ----------- -----------
1,418,034 1,083,066 4,360,784
---------- ----------- -----------
Deferred:
Federal............................... 109,206 (80,635) 829,157
State................................. 17,666 (13,044) 134,129
Change in valuation allowance......... (761,524) (968,968) (5,329,288)
---------- ----------- -----------
(634,652) (1,062,647) (4,366,002)
---------- ----------- -----------
Benefit from (provision for) income
taxes on income from continuing
operations............................. $ 783,382 $ 20,419 $ (5,218)
========== =========== ===========
</TABLE>
F-16
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In applying the provisions of SFAS No. 109, "Accounting for Income Taxes",
the Company has determined that a valuation allowance should be provided
against all of its net deferred tax assets in the accompanying consolidated
balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward....... $ 1,423,495 $ 2,486,142 $ 6,852,144
Allowance for doubtful accounts and
valuation allowances................. 288,711 375,107 994,453
Unearned revenue...................... 30,791 162,855 202,355
Accrued liabilities................... 199,543 174,932 519,966
Other................................. 158,650 100,511 90,826
----------- ----------- -----------
2,101,190 3,299,547 8,659,744
Valuation allowance................... (1,912,877) (2,881,845) (8,211,133)
----------- ----------- -----------
Deferred tax assets, net of valuation
allowance.............................. 188,313 417,702 448,611
Deferred tax liabilities:
Excess tax depreciation over book..... (188,313) (417,702) (448,611)
----------- ----------- -----------
Net deferred tax assets................. $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The Company's effective income tax rate on income from continuing operations
was different from the statutory federal income tax rate for the following
reasons:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER
31,
-------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate........................ 35.0% 35.0% 35.0%
State income tax, net of federal benefit............... 4.5 4.5 4.5
Non-deductible items................................... (1.9) (1.1) (0.7)
Change in valuation allowance............................ (19.2) (37.6) (38.8)
----- ----- -----
Effective income tax rate on income from continuing oper-
ations.................................................. 18.4% 0.8% -- %
===== ===== =====
</TABLE>
As a result of incurring taxable losses, the Company had no regular federal
income tax provision in 1995, 1996 and 1997. However, the Company is subject
to approximately $37,905, $6,577 and $5,218 of federal alternative minimum tax
and state income tax for the years ended December 31, 1995, 1996 and 1997,
respectively.
For tax reporting purposes, the Company has consolidated net operating loss
carryforwards of approximately $17,347,000 at December 31, 1997 available to
offset future taxable income. Approximately $5,010,000 of the consolidated net
operating loss carryforwards can only be used by Quest, as those net operating
losses were generated by Quest prior to its merger with Teltrust. The Tax
Reform Act of 1986 contains provisions which limit net operating loss
carryforwards available based upon certain changes in ownership. In January
1997, changes in the ownership of Teltrust resulted in limitations on all pre-
existing net operating loss carryforwards of Teltrust. As a result, at
December 31, 1997, management estimates that $4,447,000 of the Company's net
operating loss carryforwards are limited to utilization of approximately
$1,692,000 per year. In December 1997, changes in the ownership of Quest
resulted in limitations on all pre-existing net operating loss carryforwards
of Quest. As a result, at December 31, 1997, management estimates that all of
the Quest net operating loss carryforwards are limited to utilization of
approximately $250,000 per year. If the annual limited amount is unutilized in
any particular year, it remains available on a cumulative basis through the
expiration date (15 years from the net operating loss inception date).
F-17
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following summarizes the tax net operating loss carryforwards and their
respective expiration dates as of December 31, 1997:
<TABLE>
<S> <C>
2004........................................................ $ 275,000
2005........................................................ 819,000
2006........................................................ 1,146,000
2009........................................................ 664,000
2010........................................................ 1,700,000
2011........................................................ 2,690,000
2012........................................................ 10,053,000
-----------
Total net operating loss carryforwards.................. $17,347,000
===========
</TABLE>
NOTE 8 COMMITMENTS AND CONTINGENCIES AND FINANCING NEEDS
CLAIMS AND LEGAL ACTIONS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position or results of
operations. However, due to the inherent uncertainty of litigation, there can
be no assurance that new developments or the resolution of any particular
claim or proceeding would not have an adverse effect on the Company's results
of operations for the period in which such new developments or resolution
occurred.
EMPLOYMENT AGREEMENTS
The Company has entered into noncompetition agreements with each of its
executive officers and other key employees which provide that, during the six-
month period following any such employee's termination of employment, the
employee shall refrain from engaging in any activities competitive with the
Company. The Company has the right to extend the initial six-month period for
up to five additional six-month periods. The Company, in turn, is obligated to
pay to such employee an amount equal to 100% of such employee's highest base
salary during the ninety-day period prior to his or her termination of
employment during each six-month period during which such employee's
noncompetition agreement is in effect.
MINIMUM USAGE CHARGES
The Company is obligated to pay approximately $3,000,000 during 1998 for
minimum usage (network) charges under agreements with certain providers of
network services. As of December 31, 1997, the Company had not entered into
any commitments beyond December 31, 1998 and believes that its existing
commitment will be used through the normal course of business in 1998 (See
Note 15).
FINANCING NEEDS
Primarily as a result of expenses associated with the expansion of its
business and certain infrastructure and capital equipment upgrades, the
Company has incurred significant net losses and negative cash flows from
operating activities during the years ended December 31, 1995, 1996 and 1997.
In addition, as of December 31, 1997, the Company has negative working capital
and a stockholders' deficit of $6,040,614 and $5,658,592, respectively. The
Company expects to incur significant expenditures in the future in connection
with the development and expansion of its call centers, network, services and
customer base. The ability of the Company to pursue its strategy and make
these expenditures is dependent, in part, upon the Company raising substantial
additional financing. There can be no assurance that the Company will achieve
or sustain profitability or generate positive cash flows in the future.
However, management believes that the availability under the Company's
revolving credit agreement and other available sources of financing will be
sufficient to fund the Company's working capital needs and required capital
expenditures through at least December 31, 1998.
F-18
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9 CAPITAL STOCK AND EQUITY TRANSACTIONS
SERIES A CONVERTIBLE PREFERRED STOCK
The Company's Series A Convertible Preferred Stock consists of 3,218,884
preferred shares and were issued on November 21, 1996 in exchange for
$15,000,000 of cash (before offering costs of $489,049). The holders of Series
A Convertible Preferred Stock, in preference to the holders of the Company's
common shares, are entitled to receive cumulative dividends at the rate of 8
percent per annum if, as and when declared by the Company's board of
directors. Undeclared or unpaid dividends are added to the liquidation
preference of the Series A Convertible Preferred Stock. In addition, the
holders of Series A Convertible Preferred Stock vote together with the shares
of the Company's common stock in the same manner as the Company's common
stock. Holders of Series A Convertible Preferred Stock are entitled, at their
option, to convert preferred shares (but not undeclared or unpaid dividends)
to common shares a conversion price of $4.66 per share. All of the Series A
Preferred Stock will convert to Common Stock in connection with the proposed
initial public offering discussed in Note 15.
The affirmative vote of a majority of the then outstanding shares of Series
A Convertible Preferred Stock is required to affect any of the following
actions on behalf of the Company and its subsidiaries:
. Increasing the number of outstanding common or preferred shares.
. Increasing the Company's indebtedness beyond $3,000,000 in aggregate.
. Amending the Company's articles of incorporation and bylaws.
. Purchasing or selling of material assets.
. Merging, consolidating, liquidating, dissolving or winding up of
business activities.
. Initiating new business activities outside the telecommunications
sector.
. Executing any material contract or agreement which is outside of the
ordinary course of business.
. Hiring or changing compensation, other than normal base salary
adjustments to reflect cost-of-living increases, related to senior
management personnel.
The holders of Series A Convertible Preferred Stock have certain
registration rights which allow them to demand a registration statement to be
filed for which the Company would bear the cost of filing (except for
underwriters' discounts, commissions and legal counsel for selling
stockholders). Holders of Series A Convertible Preferred Stock may also
"piggyback' registration rights on registrations filed by the Company.
The Company is required to keep available out of its authorized but unissued
shares of common stock such number of shares of common stock as are issuable
upon the conversion of all outstanding Series A Convertible Preferred Stock.
As of December 31, 1997, the Company has reserved 3,218,884 shares for such
purpose.
COMMON STOCK WARRANTS
During 1992, the Company issued warrants to purchase 2,000,520 shares of
common stock. The warrants were issued to stockholders in connection with the
issuance of subordinated notes payable from the Company. Each warrant was
exercisable at $0.167 per share, which was the estimated fair market value on
the date of grant. The Company valued these warrants at $100,000. The related
subordinated notes payable were recorded net of this amount and the principal
balance was accreted through additional interest expense to the amount due
when the debt was repaid. The warrants provided the stockholders with the
option to pay for the common stock with cash or by reducing the amount of
their subordinated notes by the equivalent amount. On March 31, 1997, all of
these warrants were exercised.
F-19
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1995, 1996 and 1997 the Company issued warrants to purchase 64,889,
69,227 and 45,968 shares of common stock, respectively. In connection with the
issuance of these warrants, the Company valued these warrants at $125,000,
$150,000 and $28,649, respectively. The warrants were issued to a venture
capital firm that entered into notes payable agreements with the Company (see
Note 5). The related notes payable were recorded net of this amount and the
principal balance was accreted through additional interest expense to the
amount due when the debt was repaid.
During 1996, the Company issued warrants to purchase 400,000 and 100,000
shares of common stock. The warrants were issued to independent investors that
entered into subordinated revolving credit agreements with the Company (see
Note 5). In connection with their issuance, the Company valued these warrants
at $50,000. These warrants were exercised in 1997.
COMMON STOCK OPTIONS
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plan (as described below).
Accordingly, no compensation costs have been recognized for options granted
under its stock option plan to employees and directors. Had compensation costs
for the Company's stock-based compensation plan been determined based on the
fair value of the option at the grant dates for awards under the plan
consistent with statement of SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
NET LOSS:
As reported...................... $(2,090,926) $(2,526,850) $(13,222,757)
Pro forma........................ $(2,143,053) $(2,684,200) $(13,563,795)
BASIC AND DILUTED NET LOSS PER
COMMON SHARE OUTSTANDING:
As reported...................... $ (0.48) $ (0.57) $ (2.47)
Pro forma........................ $ (0.49) $ (0.60) $ (2.53)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, and due to the nature and timing of
option grants, the resulting pro forma compensation costs may not be
indicative of future years.
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1995, 1996 and 1997, in calculating
compensation costs:
. Risk-free interest rate of 6.10 percent, 6.95 percent and 6.30 percent
for 1995, 1996 and 1997, respectively.
. Expected life of seven years for 1995, 1996 and 1997.
. No dividends and a volatility factor of zero.
Effective September 27, 1994, the Company's stockholders approved the 1993
Employee Stock Option Plan (the "1993 Plan") by unanimous written consent. The
purpose of the 1993 Plan is to enable the Company to attract and retain
experienced and able officers, directors and other key employees. The 1993
Plan is administered by a committee, consisting of at least three members of
the board of directors (the "Committee"). Subject to the terms of the 1993
Plan, the Committee determines the persons who are to receive options, the
number of shares subject to each option and the terms and conditions of each
option. The Committee has the authority to construe and interpret any
provisions of the 1993 Plan or any options granted thereunder.
F-20
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In November 1996, an amendment to the 1993 Plan was adopted by the Company,
which increased the maximum number of shares of common stock that may be
issued pursuant to the 1993 Plan from 600,000 to 1,100,000. In December, an
amendment to the 1993 Plan was adopted by the Company, which increased the
maximum number of shares of common stock that may be issued pursuant to the
1993 Plan from 1,100,000 to 1,400,000.
The 1993 Plan permits the granting of options that are intended to qualify
either as Incentive Stock Options ("ISO's") or Non-qualified Stock Options
("NQSO's"). The option exercise price for each ISO must be no less that 100
percent of the "fair market value' (as defined in the 1993 Plan) of a share of
common stock at the time such option is granted. Except in the case of a 10
percent or greater stockholder, in which case the exercise price must be no
less than 110 percent of fair market value. The Committee determines the
exercise price for each NQSO option at the time of grant. Both types of
options are exercisable for the period defined by the Committee on the date of
grant. However, no stock option will be exercisable before six months have
elapsed from the date it is granted and no incentive stock option shall be
exercisable after ten years from the date of grant.
The following summarizes the stock option activity for the years ended
December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE FAIR MARKET
NUMBER OF PRICE PER VALUE OF OPTIONS
EXPIRATION DATE OPTIONS SHARE GRANTED
----------------- --------- --------- ----------------
<S> <C> <C> <C> <C>
Outstanding at December
31, 1994............... 248,000 $0.60
Granted............... April 15, 2005 341,000 2.00 $0.76
---------
Outstanding at December
31, 1995............... 589,000 1.41
Granted............... November 21, 2006 310,148 5.75 0.72
Forfeited............. (25,500) 0.74
---------
Outstanding at December
31, 1996............... 873,648 2.97
Granted............... Various, 2007 655,068 6.63 1.59
Exercised............. (187,917) 1.46
Forfeited............. (157,000) 2.85
---------
Outstanding at December
31, 1997............... 1,183,799 $5.24
=========
</TABLE>
The options granted during the years ended December 31, 1995, 1996 and 1997
vest at a rate of 20 percent per year and are fully exercisable five years
after the date of grant. As of December 31, 1997, options for the purchase of
148,397 shares of common stock were exercisable at a weighted average exercise
price of $2.53 per share. These options have a weighted average remaining
contractual life of 8.4 years. Of the options outstanding at December 31,
1997, 589,000 have a weighted average exercise price of $1.41 per share and
594,799 have a weighted average exercise price of $6.33 per share.
NOTE 10 REGULATORY MATTERS
FEDERAL REGULATION OF LONG DISTANCE AND CALL PROCESSING SERVICES
The Company, as a provider of call processing and calling card services, is
subject to substantial federal regulation. Under the Telephone Operator
Consumer Services Improvement Act of 1990 and implementing rules promulgated
by the FCC thereunder, interstate call processing services providers are
required to file "informational' tariffs, in order to ensure that their
aggregator customers unblock access to other providers of call processing
services, and to identify their services prior to the initiation of charges,
through both an audible
F-21
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"brand' and the posting of consumer information near pay telephones and other
aggregator telephones. In addition, long distance companies are required to
obtain authority under Section 214 of the Communications Act of 1934 (as
amended) prior to providing international service and to file tariffs setting
forth their international rates and charges with the FCC.
Providers of interstate long distance, operator services and calling card
services are considered nondominant interstate service providers by the FCC
and, as such, have for many years been subject to an FCC policy, known as
"forbearance," pursuant to which rates and charges for such services are not
reviewed or affirmatively regulated by the FCC and, except for the requirement
to file informational tariffs for call processing services, tariff filings
were optional. However, a Supreme Court decision in 1994 reinstated the
requirement that all carriers file tariffs for all interstate communications
services. Under the Telecommunications Act of 1996, the FCC has proposed
extending the forbearance doctrine by requiring mandatory detariffing of all
interstate, nondominant interexchange services. Under this proposal, which has
been stayed pending legal challenges, long distance services--including
traditional 1+ long distance services, travel and calling card services and
prepaid calling card services and call processing services available to
presubscribed customers--would be provided as a non-tariff offerings. Call
processing services provided at aggregator locations, such as hotels,
hospitals, prisons, public and private pay telephones, etc., would not be
detariffed.
The FCC's forbearance doctrine continues its traditional policy favoring
competition in the marketplace as the principal means of ensuring just and
reasonable interstate rates for telephone end-users. It nonetheless requires
that long distance companies implement methods, other than tariffs, for
setting rates, terms and other conditions of their relationship with end-
users. The FCC suggests that a legal relationship, known as an "implied-in-
fact' contract, may be established when the caller provides billing or payment
information and completes use of the telecommunications service.
BILLED PARTY PREFERENCE
Since 1992, the FCC has been considering proposals for adoption of a billed
party preference system for interstate 0 + operator-assisted calls. A billed
party preference system is an access plan pursuant to which 0 + calls from
aggregator locations, including call processing services and calls placed with
calling cards, would be routed to the carrier chosen by the billed party,
rather than the presubscribed provider of call processing services, thus
eliminating the need for the caller to input an access code to "dial around'
the presubscribed carrier.
In June 1994, the FCC had proposed that a billed party preference system
should apply to all interstate operator assisted 0 + calls. This proposal
conclusion was widely criticized by various IXCs, RBOCs, LECS, call processing
services providers and others as excessively costly and not in the public
interest. Trade associations representing both pay telephone providers and
competitive long distance companies had submitted alternative proposals for
rate "ceilings' on interstate call processing services as an alternative to a
billed party preference system. These rate ceiling proposals, with
modification, were tentatively endorsed by the FCC in a proposal to establish
benchmarks for call processing services rates at the average charges of AT&T,
MCI and Sprint, the three largest providers of interstate call processing
services. The FCC, in a June 1996 Notice of Proposed Rulemaking, proposed to
require call processing services providers that charge rates above the
benchmark to disclose the applicable charges to consumers orally before
completing a call. Although the FCC did not formally withdraw its earlier
proposal for implementation of a billed party preference system, it noted the
cost and widespread opposition to the billed party preference plan and sought
comment on the efficacy of rate benchmarks as an alternative to a billed party
preference system.
In May 1997, the FCC adopted changes to its system of interstate access
charges to make them compatible with the pro-competitive, deregulatory
framework established by the Telecommunications Act of 1996. The FCC's access
reform order adopts various reforms to the existing rate structure for
interstate access that are
F-22
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
designed to move access charges, over time, to more economically efficient
levels and rate structures. The FCC's access reform order also imposes the
phase-in of replacing usage-based carrier common line charges with a
line-based flat fee to be assesssed upon all telecommunications carriers
beginning on January 1, 1998. In addition, the FCC's access order requires
LECs to reduce their access revenue requirements by reducing interconnection
access charges to telecommunications carriers.
In 1998, the FCC took action on the billed party preference issue. In its
order, the FCC addressed what it views as widespread consumer dissatisfaction
concerning high charges by many IXCs and call processing services providers
for calls from public phones and other aggregator locations such as pay
telephones, hospitals, hospitality locations and educational institutions.
Rather than implement its billed party preference system or any of the other
alternatives proposed by participants in the telecommunications industry, the
FCC has ordered all call processing services providers and IXCs providing call
processing services to orally disclose to "away from home callers' how to
obtain the total cost of a 0 + interstate domestic call, before the call is
connected. The FCC required that such consumer disclosure must be done without
the consumer having to dial a separate telephone number or hang up and dial a
separate telephone number and must be accomplished by dialing no more than two
keys. The FCC mandated that the rate notification apply to all domestic 0 +
interstate calls. While the Company is unable to predict whether this
regulation will have a material adverse effect on the Company, it is a far
more favorable proposal to the Company than the original billed party
preference system proposal and other alternatives considered by the Company.
FEDERAL REGULATION OF PREPAID CALLING CARD SERVICES
As noted above, prepaid calling card services are considered interstate
services, subject to the FCC's "forbearance' doctrine and mandatory
detariffing. Currently, providers of these services are required to file
tariffs with the FCC disclosing the rates, terms and condition of their
services. The FCC has proposed to abolish this tariff requirement, but its
order has been stayed pending current review.
PAYPHONE COMPENSATION
The Telecommunications Act of 1996 mandated that the FCC promulgate rules to
establish a per call compensation plan to insure that all pay telephone
providers are fairly compensated for each completed intrastate and interstate
pay telephone initiated call, including calls for which pay telephone
providers had not heretofore received compensation. The FCC has established a
two year "default' compensation rate, effective October 7, 1997, of $0.284 per
pay telephone originated toll free or access code call. At the end of the two
year interim period, the per call pay telephone-compensation rate will be the
deregulated market-based local coin rate less $0.066. This amount is payable
by all IXCs and may be passed through to nonfacilities based resellers. The
revised FCC rules continue to be subject to regulatory and legal challenges.
While prepaid calling cards are one of the types of so-called "dial-around'
calling for which compensation to pay telephone service providers is due under
the Telecommunications Act of 1996, the FCC has not fully addressed the unique
technical and competitive impact of per-call pay telephone compensation on
prepaid card services. Comments submitted by the International Telecard
Association, a prepaid card trade group, urged the FCC to limit pay telephone
compensation to calls completed to the end-user (i.e., the called party),
rather than calls that only reach the calling card "platform' switch via an
"800' toll-free access number. In a November 1996 order, the FCC accepted the
International Telecard Association's position and, in addition, ruled that pay
telephone compensation is to be implemented on a "carrier pays' basis, without
deciding how, if they choose to do so, facilities-based carriers may recover
such charges from their reseller customers.
STATE REGULATORY ISSUES
Long distance, call processing services and prepaid and calling card
services are also regulated at the state level through state PUCs. Such
regulation typically includes certification and/or registration requirements,
F-23
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
authorizations for changes in corporate control, filing and approval of
tariffs for in-state calls, and special consumer protection rules applicable
to call processing services and calling card services. Certification can
generally be conditioned, modified, canceled, terminated or revoked by state
regulatory agencies for failure to comply with state law and/or the rules,
regulations and policies of the state regulatory authorities. Penalties, fines
and other sanctions, such as refund of monies collected from residents of a
state, may be imposed for violations such as overcharging, billing errors, or
noncompliance with certain requirements of intrastate services. In extreme
cases, PUCs have the authority to revoke a carrier's right to offer in-state
services within a state.
In connection with the Company's provision of intrastate call processing
services and calling and prepaid calling card services, the Company's
subsidiary, Teltrust Communication Services, Inc., must maintain certificates
of public convenience and necessity from state regulatory authorities and is
generally required to file tariffs with such authorities. In connection with
the Company's prepaid calling card services, the Company's subsidiary, Quest
International, Inc., must maintain certificates of public convenience and
necessity from state regulatory authorities and is generally required to file
tariffs with such authorities.
INTERNATIONAL REGULATORY ISSUES
International common carriers, such as the Company and its regulated
subsidiaries, are required to obtain authority under Section 214 of the
Communications Act of 1934 (as amended) and file a tariff containing the
rates, terms and conditions applicable to their services prior to initiating
their international value-added telecommunications services. The Company has
obtained all required authorizations from the FCC to use, on a facilities and
resale basis, various transmission media for the provision of international
switched services and international private line services.
NOTE 11 INVESTMENTS IN JOINT VENTURES
FYI NATIONAL DIRECTORY ASSISTANCE
In 1994, the Company entered into a joint venture general partnership
agreement with Metromail, Inc. to jointly market its directory assistance
service under the name of FYI National Directory Assistance ("NDA"). Each
party owned 50 percent of the joint venture. During 1995, the Company
contributed $25,000 as its initial investment in NDA. Metromail, Inc.'s
contribution to NDA was in the form of operator stations, software and the
directory data base. The Company accounted for this joint venture under the
equity method of accounting.
On July 1, 1997, Teltrust and Metromail entered into a three-year Reseller
Agreement (the "Agreement") for the resale of national directory assistance
data from Metromail to Teltrust, thereby terminating the joint venture. The
Agreement includes minimum volume commitments aggregating 67,500,000 data
queries during the term of the Agreement in exchange for "most favored
customer' per data query pricing.
DOT.ONE (FORMERLY TELTRUST DATA SERVICES, LLC D.B.A., TELTRUST.COM)
In October 1994, the Company entered into a joint venture with Premier
Messaging Integrators, Inc. to jointly market its experience and expertise in
workgroup and messaging solutions to the greater Novell market place. The
joint venture was operated as a limited liability company under the laws of
the State of Utah. The Company's initial capital contribution was $100,000 for
its common ownership interest. The Company accounted for this joint venture
under the equity method of accounting.
The Company advanced additional funds to dot.One in the form of loans in the
amount of $200,994, $574,016 and $581,576 during the years ended December 31,
1994, 1995 and 1996, respectively. These loans were generally interest bearing
and provided for repayment as cash (if any) became available from the profits
of dot.One.
F-24
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dot.One's operating agreement provided for the conversion of outstanding
loans, except for the original $100,000 start-up loan, into shares of capital
stock of dot.One. The exercise of this conversion option was at the sole
discretion of the Company. As of August 31, 1997, no outstanding debt of
dot.One had been converted to shares of capital stock.
Effective August 31, 1997, the Company exchanged its common stock
investment, loans and accounts receivable for a preferred stock investment,
subordinated interest bearing loan (at 12 percent) and accounts receivable. As
of August 31, 1997, the Company commenced accounting for its investment in
dot.One under the cost method.
During 1997, the Company determined that the realizability of its investment
($831,991 at December 31, 1997), the collectibility of its outstanding loans
($651,052 at December 31, 1997) and the collectibility of its outstanding
accounts receivable ($448,274 at December 31, 1997) were doubtful.
Accordingly, the Company established reserves during 1997 totaling $1,931,317
reflecting the write-down of its investment, subordinated loans and accounts
receivable related to dot.One. During the years ended December 31, 1995, 1996
and 1997, the Company billed dot.One approximately $775,000, $886,000 and
$774,000, respectively, for network services.
NOTE 12 RELATED-PARTY TRANSACTIONS
During the years ended December 31, 1995, 1996 and 1997, the Company paid
approximately $60,000, $79,000 and $96,000, respectively, of insurance
premiums to an insurance company for which a former member of the board of
directors of the Company was an agent for the insurance company. The Company
believes these services were obtained at prices no less favorable than could
have been obtained from an independent party.
At December 31, 1996 and 1997, the Company's notes receivable from related
parties on the consolidated balance sheet includes notes receivable from a
stockholder and officer of the Company. These notes bear interest at rates
ranging from 7 to 10 percent and mature at various times through December
1998.
At December 31, 1996, the Company owed $251,434 to a related party. These
net payable amounts are the result of both receivable and payable transactions
arising from the day-to-day activities of the Company's NDA joint venture.
(see Note 11)
During 1997, and in connection with the exercise of options to purchase
common stock, the Company loaned $145,200 to its CEO and President and $80,400
to its Vice Chairman. The notes receivable bear interest at prime (8.5 percent
at December 31, 1997) and are secured by the underlying common stock and other
personal assets of the officers. The notes receivable mature during 1999. The
notes receivable have been included in stockholder receivables, as an offset
to stockholders' equity, in the accompanying 1997 consolidated balance sheet.
In December 1997, the Company paid to M/C III, L.L.C. a $75,000 fee for its
assistance in helping the Company to obtain its revolving line of credit. Two
members of the Company's board of directors are members of M/C III, L.L.C. M/C
III, L.L.C. is the general partner of Media/Communications Partners III,
Limited Partnership, a stockholder of the Company. The Company believes this
service was obtained at a price no less favorable than could have been
obtained from an independent party.
NOTE 13 EMPLOYEE BENEFIT PLAN
During 1997, the Company established a contributory 401(k) savings and
profit sharing plan covering all eligible full-time employees. The Company's
contribution amount is determined at the discretion of the board of directors.
During the year ended December 31, 1997, the Company made no contributions to
the plan.
F-25
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14 SEGMENT INFORMATION
The following summarizes the Company's operations and identifiable assets as
of and for the years ended December 31, 1995, 1996 and 1997 relating to its
call processing and calling card segments:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING REVENUES:
Calling processing services............. $ 29,290 $ 33,885 $ 46,222
Calling card services................... 4,571 7,216 10,782
---------- ---------- ----------
Total operating revenues.............. 33,861 41,101 57,004
LOSS FROM CONTINUING OPERATIONS BEFORE
BENEFIT FROM (PROVISION FOR) INCOME
TAXES:
Call processing services................ (2,689) (1,774) (10,153)
Calling card services................... (1,566) (773) (3,065)
---------- ---------- ----------
Total................................. (4,255) (2,547) (13,218)
DEPRECIATION AND AMORTIZATION:
Calling processing services............. 1,274 1,219 1,812
Calling card services................... 80 248 179
---------- ---------- ----------
Total................................. 1,354 1,467 1,991
PURCHASES OF PROPERTY AND EQUIPMENT:
Calling processing services............. 930 1,435 6,337
Calling card services................... 207 272 827
---------- ---------- ----------
Total................................. 1,137 1,707 7,164
IDENTIFIABLE ASSETS AT YEAR END:
Call processing services................ 9,210 21,789 23,056
Call card services...................... 2,378 2,878 2,862
---------- ---------- ----------
Total................................. 11,588 24,667 25,918
</TABLE>
NOTE 15 SUBSEQUENT EVENTS
CORPORATE REORGANIZATION
In connection with the corporate reorganization completed on April 22, 1998
(see Note 1), the Board of Directors authorized the assumption of the Teltrust
Holdings, Inc. 1993 Employee Stock Option Plan by Teltrust, Inc. All option
agreements were amended such that shares of Teltrust, Inc. common stock are to
be substituted for shares of common stock of Teltrust Holdings, Inc. to be
issued upon the proper exercise of the outstanding options. In addition, the
Board of Directors authorized the Company's registration rights agreements
with certain stockholders to be amended to reflect the reorganization. The
Board of Directors approved the Company becoming a guarantor of Teltrust
Holdings, Inc.'s obligations under the revolving line of credit. The common
stock of Teltrust Holdings, Inc. has been added as collateral to the Company's
revolving line of credit.
AMENDMENT OF REVOLVING LINE OF CREDIT
The Company entered into an Amended and Restated Revolving Credit Note and
the First Amendment to the Credit Agreement (the "Amended Agreement")
effective April 10, 1998. In connection with the Amended
F-26
<PAGE>
TELTRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Agreement, the revolving line of credit was increased to $20,000,000. In
addition, the Amended Agreement requires the Company to deliver to the bank by
May 31, 1998 collateral assignments of policies insuring the lives of the
Company's CEO and President and Vice Chairman in the amount of not less than
$3,000,000 for the CEO and President and $2,000,000 for the Vice Chairman. The
Amended Agreement requires the Company to deliver, by December 31, 1998, a
written notice of the Company's actions taken to assure that its computer-
based systems are able to effectively process data, including dates, on and
after January 1, 2000.
OTHER MATTERS
On April 9, 1998, the Board of Directors of the Company approved the
following:
. An initial public offering of the Company's common stock for up to
$90,000,000 in aggregate gross proceeds to be allocated between the Company
and certain selling stockholders.
. Adoption of the 1998 Teltrust, Inc. Stock Option and Grant Plan (the "1998
Plan") with 800,000 shares of common stock reserved for issuance
thereunder. The Compensation Committee of the Board of Directors will
administer the 1998 Plan. The shares issuable under the 1998 Plan, as well
as shares issuable under the 1993 Plan, are to be registered under the
Securities Act of 1933 subsequent to the Company's initial public offering
of common stock.
. Subject to the completion of the Company's initial public offering, the
Board of Directors approved the appointment of the President of Billing
Information Concepts, Inc. ("BIC") as a director of the Company. BIC has
been the Company's third-party billing provider for approximately the last
five years and is a major vendor to the Company. During the years ended
December 31, 1995, 1996 and 1997, the Company paid BIC approximately
$2,916,000, $2,379,000 and $2,245,000, respectively, for services provided
to the Company.
Effective March 27, 1998, the Company entered into an agreement to purchase
network services. The agreement requires the Company to purchase minimum
services of $500,000 per month over a two-year period for an aggregate minimum
commitment of $24,000,000. The Company believes that this commitment will be
fulfilled through the normal course of business during the commitment period.
F-27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION 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 PROSPEC-
TUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
THE SHARES BY ANYONE TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY 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....................................................... 3
Summary Financial and Operating Data..................................... 6
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Cash and Capitalization.................................................. 19
Dilution................................................................. 20
Selected Financial and Operating Information............................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 29
Management............................................................... 46
Certain Relationships and Related Transactions........................... 52
Principal and Selling Stockholders....................................... 53
Description of Capital Stock............................................. 55
Shares Eligible for Future Sale.......................................... 57
Underwriting............................................................. 60
Legal Matters............................................................ 61
Experts.................................................................. 61
Additional Information................................................... 62
Glossary................................................................. 63
Index to Financial Statements............................................ F-1
</TABLE>
--------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY RE-
QUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,200,000 SHARES
LOGO
COMMON STOCK
--------------------
PROSPECTUS
, 1998
--------------------
LEHMAN BROTHERS
WHEAT FIRST UNION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)
The following table sets forth the estimated expenses payable by the Company
in connection with this offering (excluding underwriting discounts and
commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- --------
<S> <C>
SEC Registration Fee............................................. $ 18,455
NASD Filing Fee.................................................. 7,695
Nasdaq Listing Fee............................................... *
Accounting Fees and Expenses..................................... *
Legal Fees and Expenses.......................................... *
Printing Expenses................................................ *
Blue Sky Qualification Fees and Expenses......................... *
Transfer Agent's Fee............................................. *
Director and Officer Insurance Premiums.......................... *
Miscellaneous.................................................... *
--------
Total.......................................................... $900,000
========
</TABLE>
- ---------------------
(1) The amounts set forth above, except for the SEC, NASD and Nasdaq fees, are
in each case estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the General Corporation Law of the State
of Delaware, Article VII of the Company's Certificate, provides that no
Director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except for liability (i) for any breach of the Director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
in respect of certain unlawful dividend payments or stock redemptions or
repurchases, or (iv) for any transaction from which the Director derived an
improper personal benefit. In addition, the Certificate provides that if the
Delaware General Corporation Law is amended to authorize the further
elimination or limitation of the liability of Directors, then the liability of
a Director of the Company shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Reference is made to Article V of the Amended and Restated By-laws of the
Company which provides for indemnification by the Company of its directors and
officers under certain circumstances against expenses (including attorneys'
fees, judgments, fines and amounts paid in settlement) actually and reasonably
incurred in connection with the defense or settlement of any threatened,
pending or completed legal proceeding in which any such person is involved by
reason of the fact that such person is or was a director or officer of the
Company if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to criminal actions or proceedings, if such person
had no reasonable cause to believe that his or her conduct was unlawful.
Reference is made to the form of Underwriters Agreement (to be attached as
Exhibit 1 to this Registration Statement) which provides for indemnification
by the Underwriters of the directors and officers of the Company signing the
Registration Statement and certain controlling persons of the Company against
certain liabilities, including those arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued unregistered securities
to a limited number of persons, as described below. No underwriters or
underwriting discounts or commissions were involved. There was no public
offering in any such transaction, and the Company believes that each
transaction, unless otherwise noted,
II-1
<PAGE>
was exempt from registration requirements of the Securities Act of 1933 as
amended (the "Securities Act"), by reason of Section 4(2) thereof, based on
the private nature of the transactions and the financial sophistication of the
purchasers, all of whom had access to complete information concerning the
Company and acquired the securities for investment and not with a view to the
distribution thereof.
On April 14, 1995, Lyle O. Keys and Carmelo Catalano purchased an aggregate
of 1,063,000 shares of Common Stock at a purchase price of $2,126,000.
On November 21, 1996, Media/Communications Partners III Limited Partnership
and M/C Investors L.L.C. purchased an aggregate of 3,218,884 shares of Series
A Preferred Stock at an aggregate purchase price of $14,510,951 (net of
issuance costs of $489,049).
On March 31, 1997, Lyle O. Keys, Carmelo Catalano and Jerry E. Romney, Sr.
acquired 1,570,974, 405,000 and 24,546 shares of Common Stock, respectively,
upon the exercise of warrants for an aggregate purchase price of $333,426.
On October 3, 1997, GFA Capital Corporation acquired 400,000 shares of
Common Stock upon the exercise of warrants for an exercise price of $400,000.
On October 3, 1997, NuCom Company, LLC acquired 100,000 shares of Common
Stock upon the exercise of warrants for an exercise price of $100,000.
On December 31, 1997, the Company issued 900,000 shares of Common Stock to
the stockholders of Quest International Group, Inc. and its affiliates
("Quest") in connection with the Company's acquisition of all of the
outstanding capital stock of Quest.
Between April 15, 1995 and April 20, 1998, the Company issued options to
purchase 1,308,216 shares of Common Stock to employees of the Company pursuant
to the Company's 1993 Stock Option Plan and the Quest Stock Option Plan.
During such period, 190,017 shares of Common Stock were issued to option
holders upon exercise of options granted pursuant to the 1993 Stock Option
Plan and the Quest Stock Option Plan. The Company believes that the
transactions described in this paragraph are exempt from the registration
requirements of the Securities Act by reason of Rule 701 promulgated
thereunder because the issuance of the options described was pursuant to a
written compensatory benefit plan of the Company, a copy of which was given to
each participant in the plan, and the aggregate offering price did not exceed
the limit prescribed by Rule 701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*1 Form of Underwriting Agreement among the Underwriters named therein
and Teltrust, Inc.
**3.1 Certificate of Incorporation of Teltrust, Inc.
*3.2 Form of Amended and Restated Certificate of Incorporation of Teltrust,
Inc.
*3.3 Amended and Restated By-laws of Teltrust, Inc.
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
shares of the Common Stock of Teltrust, Inc.
**10.1 Teltrust, Inc. 1993 Employee Stock Option Plan
*10.2 Teltrust, Inc. 1998 Stock Option and Grant Plan
**10.3 Lease of Real Property located at 6350 South 3000 East, Salt Lake
City, Utah between Holladay Building L.L.C. and Teltrust, Inc. dated
March 24, 1997, as subsequently amended
**10.4 Lease of Real Property located at 5520 West Harold Gatty Drive, Salt
Lake City, Utah between Big N Investment Co., L.L.C. and Teltrust,
Inc. dated May 1, 1994, as subsequently amended
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
**10.5 Lease of Real Property located at 375 O South State Street,
Clearfield, Utah between The Kier Corporation and Teltrust, Inc. dated
February 26, 1997, as subsequently amended
**10.6 Lease of Real Property located at 401 North Eddie Rickenbacker Drive,
Salt Lake City, Utah between PWK Investment, LLC and Teltrust, Inc.
dated August 8, 1997
+10.7 Operator and Network Services Agreement between Teltrust
Communications Services, Inc. and BellSouth Long Distance, Inc. dated
November 21, 1996, as subsequently amended
+10.8 InterLATA Operator and Network Services Agreement between Teltrust
Communications Services, Inc. and BellSouth Public Communications,
Inc. dated February 24, 1997, as amended
+10.9 Calling Platform and Network Agency Agreement between Teltrust
Communications Services, Inc. and BellSouth Long Distance, Inc. dated
October 15, 1997
+10.10 Services Agreement between Quest Group International, Inc. and
Ameritech Communications, Inc. dated September 30, 1997, as
subsequently amended
+10.11 Agreement for Services between Ameritech Services, Inc. and Teltrust
Communications Services, Inc. dated February 5, 1998
*10.12 Credit Agreement between Teltrust, Inc., Fleet National Bank and
Certain Other Parties dated as of November 7, 1997
**10.13 Registration Rights Agreement between Teltrust, Inc. and Holders of
Series A Convertible Preferred Stock of Teltrust, Inc. dated November
22, 1996
**10.14 Registration Rights Agreement between Teltrust, Inc. and Certain
Holders of Common Stock of Teltrust, Inc. dated December 31, 1997
**21.1 Subsidiaries of the Company
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in their opinion
filed as Exhibit 5 hereto)
23.2 Consent of Arthur Andersen LLP
**24 Power of Attorney (included on signature page of Registration
Statement as filed)
**27 Financial Data Schedule
**99.1 Consent of Alan W. Saltzman
</TABLE>
- ---------------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested with respect to portions of this exhibit.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than 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)
II-3
<PAGE>
is asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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 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, 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, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN SALT LAKE CITY, UTAH
ON THE 6TH DAY OF MAY, 1998.
Teltrust, Inc.
/s/ Marc B. Cohen
By:___________________________________
MARC B. COHEN
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF
OF THE REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ Marc B. Cohen Director, Chief May 6, 1998
- ------------------------------------ Executive Officer
MARC B. COHEN and President
(Principal Executive
Officer)
* Vice President- May 6, 1998
- ------------------------------------ Finance, Chief
MARTIN J. HUEBSCHMAN Financial Officer
and Secretary
(Principal Financial
and Accounting
Officer)
* Director, Chairman of May 6, 1998
- ------------------------------------ the Board of
LYLE O. KEYS Directors
* Director, Vice May 6, 1998
- ------------------------------------ Chairman of the
JERRY E. ROMNEY, JR. Board of Directors
* Director May 6, 1998
- ------------------------------------
CARMELO CATALANO
* Director May 6, 1998
- ------------------------------------
CHRISTOPHER S. GAFFNEY
* Director May 6, 1998
- ------------------------------------
JOHN G. HAYES
Director
- ------------------------------------
GEORGE C. HUFF, JR.
/s/ Marc B. Cohen
--------------------------------
*By:
Marc B. Cohen
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Teltrust, Inc. and subsidiaries
included in this registration statement and have issued our report thereon
dated March 6, 1998 (except with respect to the matters discussed in the first
paragraph of Note 1 and Note 15, as to which the date is April 22, 1998). Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule II is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This Schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 6, 1998
S-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- ----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1995:
Allowance for doubtful
accounts............... $ 534,880 $ 531,010 $-- $ 239,979 $ 825,911
========== ========== ==== ========== ==========
Allowance for clearing
costs.................. $1,576,157 $1,002,890 $-- $1,009,887 $1,569,250
========== ========== ==== ========== ==========
FOR THE YEAR ENDED
DECEMBER 31, 1996:
Allowance for doubtful
accounts............... $ 825,911 $ 785,764 $-- $ 507,537 $1,104,138
========== ========== ==== ========== ==========
Allowance for clearing
costs.................. $1,569,250 $1,800,278 $-- $2,251,017 $1,118,511
========== ========== ==== ========== ==========
FOR THE YEAR ENDED
DECEMBER 31, 1997:
Allowance for doubtful
accounts............... $1,104,138 $3,649,974 $-- $3,723,539 $1,030,573
========== ========== ==== ========== ==========
Allowance for clearing
costs.................. $1,118,511 $3,102,598 $-- $2,791,135 $1,429,974
========== ========== ==== ========== ==========
Allowance against
investments in
unconsolidated joint
venture................ $ -- $ 831,991 $-- $ -- $ 831,991
========== ========== ==== ========== ==========
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------
<C> <S>
*1 Form of Underwriting Agreement among the Underwriters named
therein and Teltrust, Inc.
**3.1 Certificate of Incorporation of Teltrust, Inc.
*3.2 Form of Amended and Restated Certificate of Incorporation of
Teltrust, Inc.
*3.3 Amended and Restated By-laws of Teltrust, Inc.
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
shares of the Common Stock of Teltrust, Inc.
**10.1 Teltrust, Inc. 1993 Employee Stock Option Plan
*10.2 Teltrust, Inc. 1998 Stock Option and Grant Plan
**10.3 Lease of Real Property located at 6350 South 3000 East, Salt Lake
City, Utah between Holladay Building L.L.C. and Teltrust, Inc.
dated March 24, 1997, as subsequently amended
**10.4 Lease of Real Property located at 5520 West Harold Gatty Drive,
Salt Lake City, Utah between Big N Investment Co., L.L.C. and
Teltrust, Inc. dated May 1, 1994, as subsequently amended
**10.5 Lease of Real Property located at 375O South State Street,
Clearfield, Utah between The Kier Corporation and Teltrust, Inc.
dated February 26, 1997, as subsequently amended
**10.6 Lease of Real Property located at 401 North Eddie Rickenbacker
Drive, Salt Lake City, Utah between PWK Investment, LLC and
Teltrust, Inc. dated August 8, 1997
+10.7 Operator and Network Services Agreement between Teltrust
Communications Services, Inc. and BellSouth Long Distance, Inc.
dated November 21, 1996, as subsequently amended
+10.8 InterLATA Operator and Network Services Agreement between Teltrust
Communications Services, Inc. and BellSouth Public Communications,
Inc. dated February 24, 1997, as amended
+10.9 Calling Platform and Network Agency Agreement between Teltrust
Communications Services, Inc. and BellSouth Long Distance, Inc.
dated October 15, 1997
+10.10 Services Agreement between Quest Group International, Inc. and
Ameritech Communications, Inc. dated September 30, 1997, as
subsequently amended
+10.11 Agreement for Services between Ameritech Services, Inc. and
Teltrust Communications Services, Inc. dated February 5, 1998
*10.12 Credit Agreement between Teltrust, Inc., Fleet National Bank and
Certain Other Parties dated as of November 7, 1997
**10.13 Registration Rights Agreement between Teltrust, Inc. and Holders
of Series A Convertible Preferred Stock of Teltrust, Inc. dated
November 22, 1996
**10.14 Registration Rights Agreement between Teltrust, Inc. and Certain
Holders of Common Stock of Teltrust, Inc. dated October 1, 1997
**21.1 Subsidiaries of the Company
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in their opinion
filed as Exhibit 5 hereto)
23.2 Consent of Arthur Andersen LLP
**24 Power of Attorney (included on signature page of Registration
Statement as filed)
**27 Financial Data Schedule
**99.1 Consent of Alan W. Saltzman
</TABLE>
- ---------------------
*To be filed by amendment.
**Previously filed.
+Confidential treatment requested with respect to portions of this exhibit.
<PAGE>
Exhibit 10.7
OPERATOR AND NETWORK SERVICES AGREEMENT
-----------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION I.
CONTRACT DEFINITIONS............................................ PAGE 1
SECTION II.
COMPUTATION AND REMITTANCE OF COMMISSION DUE BSPC............... PAGE 4
SECTION III.
OPERATOR SERVICES............................................... PAGE 5
SECTION IV.
ADDITIONAL SERVICES............................................. PAGE 7
SECTION V.
PROVISION AND MAINTENANCE OF ANI DATABASES...................... PAGE 7
SECTION VI.
VALIDATION, SWITCHING AND NETWORK FACILITIES.................... PAGE 8
SECTION VII.
REPORTING, SETTLEMENT AND REMITTANCE OF FUNDS................... PAGE 13
SECTION VIII.
SERVICE IMPLEMENTATION.......................................... PAGE 15
SECTION IX.
MINIMUM LIVE OPERATOR SETTLEMENTS............................... PAGE 16
SECTION X.
TERM/EXCLUSIVITY................................................ PAGE 17
SECTION XI.
TERMINATION OF AGREEMENT........................................ PAGE 18
SECTION XII.
BRANDING AND REGULATORY ISSUES.................................. PAGE 18
SECTION XIII.
CONFIDENTIALITY AND NON-DISCLOSURE.............................. PAGE 19
SECTION XIV.
INDEMNIFICATION AND LIMITATION OF LIABILITY..................... PAGE 21
SECTION XV.
DISPUTE RESOLUTION.............................................. PAGE 21
SECTION XVI.
TAXES........................................................... PAGE 22
SECTION XVII.
MISCELLANEOUS................................................... PAGE 22
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OPERATOR AND NETWORK SERVICES AGREEMENT
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION XVII.
TAXES ............................................................. PAGE 25
SECTION XVIII.
MISCELLANEOUS ..................................................... PAGE 26
EXHIBIT I.
CHARGES FOR SERVICES
EXHIBIT II.
VOLUME PROJECTIONS
EXHIBIT III.
CDR SAMPLE
EXHIBIT V.
CALL RATING COMPONENTS DATABASE STRUCTURE/COMPONENT DEFINITIONS
EXHIBIT VI.
OSO ORDER FORM
EXHIBIT VII.
ACD FORM
EXHIBIT VIII.
DESCRIPTION OF MANAGEMENT REPORTS
EXHIBIT IX.
TELTRUST DATABASE CONFLICT POLICY
EXHIBIT X.
SAMPLE PREPAID CALLING REPORTS
EXHIBIT XI.
FRAUD SYSTEM GUIDELINES
EXHIBIT XII.
EMERGENCY CALL HANDLING PROCEDURES
EXHIBIT XIII.
NETWORK CONFIGURATION DIAGRAMS
EXHIBIT XIV.
SERVICE LEVEL AGREEMENTS FOR PROVISION OF DAILY CDR
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TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
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<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
THIS AGREEMENT is entered into this 21st day of November, 1996 ("Effective
Date") by and between TELTRUST COMMUNICATIONS SERVICES, INC. ("TELTRUST"), a
Utah corporation with its principal place of business at 221 North Charles
Lindbergh Drive, Salt Lake City, Utah 84116 and BELLSOUTH LONG DISTANCE, INC.
("BSLD"), a Delaware corporation with its principal place of business at 32
Perimeter Center East, Atlanta, GA 30346 (hereinafter collectively referred to
as the "Parties").
R E C I T A L S:
WHEREAS, TELTRUST offers live operator services, automated platform services,
directory assistance services and related telecommunications services; and
WHEREAS, BSLD desires to obtain TELTRUST's live operator, automated call
processing, directory assistance and other related telecommunications services,
detailed below, in connection with its business objectives, that is, to offer a
full contingent of telecommunications services to its targeted customer base
which includes, but is not limited to, Affiliates of BSLD; and
WHEREAS, based upon the specific mutual obligations and commitments as set
forth below, the Parties desire to enter into a business relationship in which
BSLD will purchase from TELTRUST certain call processing services to complement
and facilitate its service offerings to End User Customers directly or through
various agency and sales channels that may include BSLD Affiliates, or both.
NOW, THEREFORE, in consideration of mutual covenants herein and other good
and valuable consideration, receipt of which is hereby acknowledged, the Parties
hereto agree as follows:
SECTION I. CONTRACT DEFINITIONS.
1.1 AFFILIATE: A company or entity in which BellSouth Corporation holds an
equity or equivalent financial interest, e.g. BellSouth Cellular, BellSouth
Telecommunications, etc.
1.2 ANI: Automatic Number Identification, e.g., a telephone number.
1.3 AUTOMATED CALL PROCESSING: Services provided through TELTRUST's automated
switching platform.
1.4 AUTOMATED COLLECT CALL: A collect call that is placed through a switching
platform that performs the same functions as a live operator, i.e. obtaining
the caller's name, acceptance of charges by the bill to party, etc., through a
computerized mechanism.
1.5 BELLSOUTH REGION: The nine state area currently served by BellSouth
Telecommunications, consisting of Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina, and Tennessee.
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1.6 BILLING TELEPHONE NUMBER ("BTN"): The number associated with a specific
account which carries all pertinent billing information to which a completed
operator or network platform services call will be billed.
1.7 BONG TONE: The tone heard by an End User after having reached TELTRUST
automated platforms.
1.8 BRANDING: The association of the BellSouth name with a BellSouth service
by a TELTRUST live operator or automated platform.
1.9 CALL ATTEMPT: An attempt made by an End User to place any call type
contemplated in this Agreement. A call attempt may result in either a
Completed Call or an Incomplete Call.
1.10 CLEARING HOUSE: The provider of bill clearing services whereby Call
Records are submitted to the LEC for billing and collections via the LEC
billing system.
1.11 CALL RATING SERVICE: Service whereby TELTRUST rates calls using its
software and according to rating instruction provided by BSLD. See EXHIBIT V,
"Call Rating Components."
1.12 CALL RECORDS: Records relating to individual telephone calls originated
by BSLD's or its Affiliates' End Users.
1.13 CALLING CARD: A non-proprietary card issued to End Users, generally by
Local Exchange Carriers, that can be used to bill completed calls. Calling
card databases are maintained via LIDB in order that calling card numbers can
be validated prior to placing and billing a call.
1.14 CASUAL CALLING-DIALING: A call placed by an End User Customer, initiated
by first dialing a carrier identification code, e.g. 10377, followed by 0 and
the number to which the End User Customer wishes to be connected. As
referenced by this Agreement, casual calling will originate over circuits
provided to BSLD by its contracted ingress transport provider ("IXC"). Casual-
Calling will be permitted to originate within the nine state territory of
BellSouth Telecommunications.
1.15 COMMENCEMENT DATE: For the purposes of measuring the Initial Contract
Term of this Agreement, the Commencement Date shall be the earlier of January
1, 1998 or two months after Market Entry Date.
1.16 COMPLETED CALL: A call attempt that reaches the TELTRUST platform or a
TELTRUST live operator, that results in successful connection between the
calling and called party.
1.17 CREDIT CARD: A card issued to End Users by banking institutions, e.g.
MasterCard, VISA, American Express, that is used to bill completed calls.
1.18 DIRECTORY ASSISTANCE: Service whereby a TELTRUST live operator attempts
to locate a telephone number listing or an address listing, or both, to a BSLD
or Affiliate End User who has dialed 1+NPA+555+1212. Service may also be
provided to End Users who have dialed 0+NPA+555+1212 as an operator services
call. In the event of such a call, both rate elements for Operator Services
and Directory Assistance, as outlined in EXHIBIT I, "Charges For Services,"
shall apply.
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1.19 DIRECTORY ASSISTANCE - CALL COMPLETION: Automated system providing an End
User of Directory Assistance the ability to complete a call to the number for
which the End User sought a telephone number listing or an address listing, or
both, without having to hang up and initiate a new call.
1.20 END USER CUSTOMER: A consumer, who may or may not be a subscriber to BSLD
or its Affiliates, who places, or attempts to place, any type of telephone call
as described in this Agreement. Also referred to as End User.
1.21 ENHANCED SERVICES: Optional Information Services, i.e. News, Weather,
Sports, Stock Market, that is available to Prepaid Calling Card Customers by
selecting a menu option given by the Prepaid Calling Platform.
1.22 FULLY AUTOMATED CALLING CARD CALL: A call placed by dialing 0 plus the
destination number followed by entering a calling card number at the bong tone,
and no operator intervention is required.
1.23 INCOMPLETE CALL: A call attempt that reaches the TELTRUST platform or a
TELTRUST live operator that does not result in a connection between the calling
and called party.
1.24 INITIAL MARKET ENTRY DATE: The first day of the month following the date
upon which BSLD obtains all necessary legal authority, including any authority
required under 47 U.S.C. Section 271 (d) to provide non incidental originating
interLATA telecommunications service in a BellSouth Region state.
1.25 INTERNATIONAL CALL: A call attempt to a destination other than the United
States and its outlying territories. May include calls placed by dialing 011
or 01 plus the applicable country and city code, or calls placed to other
countries utilizing the North American Numbering Plan.
1.26 IXC: lnterexchange Carrier: A provider of long distance transport
services to BSLD.
1.27 LINE INFORMATION DATABASE ("LIDB"): Database utilized for validation of
billing methods; maintained by Local Exchange Carriers and containing BTNs that
accept billing of 0+ or 0- calls, or both.
1.28 LIVE OPERATOR SERVICES: All services provided by TELTRUST which require
the intervention and assistance of a live operator.
1.29 MARKET ENTRY DATE: Also referred to as Full Market Entry, the first day
of the month following the date upon which BSLD obtains all necessary legal
authority, including any authority required under 47 U.S.C. Section 271 (d) to
provide non incidental originating interLATA telecommunications service in all
states in the BellSouth Region.
1.30 NORTH AMERICAN NUMBERING PLAN: The series of 10 digits (preceded by 1 or
0) dialed to reach a destination in North America, e.g., 0+NPA+NXX+XXXX.
1.31 OPERATOR ASSISTED CALLING CARD CALL: A call billed to a calling card with
the assistance of a live operator.
1.32 OPERATOR ASSISTED CREDIT CARD CALL: A call billed to a credit card with
the assistance of a live operator.
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1.33 OPERATOR ASSISTED COLLECT CALL: A call billed to the called to party with
the assistance of a live operator.
1.34 OPERATOR ASSISTED THIRD-PARTY BILLED CALL: A call billed to a third-party
with the assistance of a live operator.
1.35 OPERATOR ASSISTED GENERAL ASSISTANCE CALL: A call placed to a live
operator by an End User or caller requesting rate information, refund & repair
information, time of day information, and other like information and which does
not result in a call being placed by TELTRUST's operator.
1.36 OPERATOR ASSISTED SENT-PAID CALLS: A call attempt placed by an End User
who reaches a live operator and requests connection to a destination and also
requests that the call be billed to the originating ANI. Operator assisted
sent-paid calls will be available only to BSLD Affiliate End User Customers as
specifically designated by BSLD.
1.37 OUTCLEARING SERVICES: Service whereby TELTRUST sends appropriately rated
Call Records to its Clearinghouse in order to bill the responsible (billed)
party for a completed call.
1.38 PERSON-TO-PERSON CALL: An operator-assisted call in which the caller
requests to speak with a particular person. Charges on a Person-to-Person Call
may be billed to the called party or via an alternative billing method, i.e.
credit card, calling card, third-party.
1.39 PREPAID CALLING CARD CALL: A call placed using a calling card established
with a predetermined value (such as dollars, minutes or units) that decreases
as it is used and which is paid for in advance by the End User.
1.40 PROPRIETARY CALLING CARD CALL: A call placed using a proprietary card
issued by a carrier (i.e. BSLD) for use by its customers. The proprietary
nature of the card requires that a unique access code, e.g. 1-800 or 1-888, be
dialed by a cardholder to access the carrier's network in order to place a call
using the proprietary card as the method of payment for the call.
1.41 RAMP UP PERIOD: The period of time beginning one month after the date
this Agreement is executed and ending on the Commencement Date.
1.42 STATION-TO-STATION CALL: Any operator assisted call in which the calling
party does not specify a party with whom he/she must be connected (e.g. person-
to-person), and for which billing will occur once answer supervision is
received as a result of the called number answering.
1.43 VALIDATION: Process by which a BTN is determined to be authorized and in
good standing by the issuer.
1.44 0+/- CALL ATTEMPT: Call placed when an End User dials zero ("0"), plus
the destination number.
1.45 0- CALL ATTEMPT: Call placed when End User dials zero ("0") or zero-zero
("00"), but no destination number or billing method. Destination and billing
information must be requested by an operator and must be manually keyed by the
operator to process the call attempt.
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SECTION II. OPERATOR SERVICES.
2.1 LIVE OPERATOR SERVICES.
2.1.1 LIVE OPERATOR SERVICES. TELTRUST shall provide BSLD with trained
bilingual (English and Spanish) live call assistance operators twenty
four hours a day, seven days a week. Live operator service shall begin
at the time of operator answer and end at the time the operator releases
the call. Live operator services shall be supplied, and billed to BSLD,
for all call attempts, whether completed or incomplete. Charges to BSLD
for live operator services are attached hereto as EXHIBIT I, "Charges
For Services." Live call assistance operators shall provide live
operator services for the following types of calls:
(1) Operator Assisted Calling or Credit Card Calls:
(2) Operator Assisted Collect Calls; and
(3) Operator Assisted Third-Party Billed Calls;
(4) Operator Assisted General Assistance Calls; and
(5) Operator Assisted Sent-Paid Calls.
These services may be provided on a station-to-station or person-to-
person basis. TELTRUST shall not process International Collect Calls,
except to those countries where proper billing arrangements have been
set by BSLD or its designated clearinghouse, and that also make those
numbers available for validation.
2.2 AUTOMATED CALL PROCESSING.
2.2.1 AUTOMATED CALL PROCESSING SERVICES. TELTRUST shall provide BSLD
with switching and software platforms for the following:
(1) Automated Collect Calls;
(2) Fully Automated 0+ Dialed Calling Card Calls.
Charges to BSLD for Automated Call Processing are attached hereto as
EXHIBIT I, "Charges For Services." Automated Call Processing services
shall be supplied, and billed to BSLD, for all automated call attempts,
whether completed or incomplete except those call attempts defaulting to
a live operator.
2.2.2 BSLD SWITCH INSTALLATION. BSLD may install its own switch to
handle Automated Call Processing Services itself at some point during
the term of this Agreement. The Parties contemplate that BSLD shall use
TELTRUST facilities for Automated Call Processing Services until June
30, 1998; however, BSLD shall not be restricted from use of TELTRUST
facilities for Automated Call Processing past this date. BSLD agrees to
provide TELTRUST with a minimum of ninety (90) days written notice of
its intent to no longer utilize TELTRUST for Automated Call Processing
Services.
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2.3 VALIDATION SERVICES.
[***]
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* Portions of this Agreement have been redacted to preserve the
Company's confidential information.
<PAGE>
[***]
2.4 CALL RATING.
2.4.1 TELTRUST shall provide software & other appropriate systems to format
and rate calls, in industry standard EMI format, in order that Call Records
will be submitted either: (1) directly to a Clearing House pursuant to
SECTION 2.5. below, and subject to BSLD's approval and direction; or (2) to
a specific location as directed by BSLD in writing. Charges to BSLD for Call
Rating Services are attached hereto as EXHIBIT I, "Charges For Services."
2.4.2 BSLD shall be responsible for selecting the rate schedules containing
the rates to be charged to End User Customers of BSLD or its Affiliates.
BSLD shall forward all rating instructions in writing, signed by BSLD's
authorized employee, to BSLD's designated representative at TELTRUST.
TELTRUST shall implement call rating information on BSLD's requested
implementation date, effective at 12:00 a.m. eastern time, provided that the
requested implementation date is at no fewer than two (2) business days from
receipt. TELTRUST will confirm those changes in writing to BSLD within one
(1) business day of implementation. TELTRUST shall not be responsible for
calculation and application of, or any liability associated with, any
applicable taxes related to calls processed and submitted for billing and
collection. BSLD shall have fourteen (14) days from receipt of confirmation
by TELTRUST that BSLD's call rating information has been implemented to
correct rating information that is confirmed in error. Thereafter, TELTRUST
shall not be liable to BSLD or its Affiliates for any damages whatsoever
resulting from incorrect rates, absent system errors, being charged by
TELTRUST software on behalf of BSLD. Components to be rated in a Call Record
that is to be billed to an End User Customer are detailed in EXHIBIT V.
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* Portions of this Agreement have been redacted to preserve the
Company's confidential information.
<PAGE>
2.5 OUTCLEARING SERVICES.
2.5.1 LEC OUTCLEARING SERVICES. If requested by BSLD, TELTRUST may supply
billing and collection services to BSLD under the terms and conditions of
TELTRUST's billing agreements with its Clearing House. Outclearing charges
will apply only when and if BSLD requests that TELTRUST supply these
outclearing services through TELTRUST's billing agreements. BSLD shall
provide TELTRUST at least thirty (30) days written notice detailing whether
it desires Call Records be cleared via TELTRUST's Clearing House or submitted
directly to BSLD, or a location specified by BSLD. In addition to any
TELTRUST per call clearing fees detailed in EXHIBIT I, BSLD shall be
responsible for all LEC and Clearing House fees as well as all costs or
charges for Bad Debt, Unbillable Call Records, True-ups, Customer Service
Adjustments, and any applicable LEC and Clearing House imposed fees (the
"Clearing Costs"). These Clearing Costs shall be passed-through to BSLD at
TELTRUST's cost.
2.5.2 MERCHANT OUTCLEARING SERVICES. If requested by BSLD, TELTRUST may
supply billing and collection services to BSLD under the terms and conditions
of TELTRUST's merchant billing agreements, in which case Outclearing Charges
will apply. BSLD shall provide TELTRUST at least thirty (30) days written
notice detailing whether it desires Call Records be cleared via TELTRUST's
Merchant Clearing House or submitted directly to BSLD, or a location
specified by BSLD. In addition to any TELTRUST per call clearing fees
detailed in EXHIBIT I, BSLD shall be responsible for all Merchant and
Clearing House fees as well as all costs or charges for Bad Debt, Unbillable
Call Records, True-ups, Customer Service Adjustments, and any applicable
Merchant or Clearing House imposed fees (the "Clearing Costs"). These
Clearing Costs shall be passed-through to BSLD at TELTRUST's cost. TELTRUST
will provide information to BSLD related to merchant outclearing in a form
consistent with information received directly from the Merchant Clearing
House. TELTRUST will advise BSLD of any changes in credit cards available
for billing (i.e. MasterCard, American Express, Diner's Club) as those
changes occur.
2.5.3 TELTRUST shall transmit by the end of each business day completed call
records for the previous day's (or days') applicable call activity, in EMI
format, to BSLD's designated location, pursuant to SECTION 2.4.1 above.
Should TELTRUST experience system difficulties such that a delay of more than
24 hours would occur, it will advise in writing of the situation to a BSLD
representative designated by BSLD as the primary point of contact for billing
and collection activity. In no event, however, shall any system difficulties
cause any call records to be rendered unbillable due to age of toll
restrictions imposed by the billing LEC.
2.6 CASUAL OPERATOR SERVICE CALLING.
2.6.1 Casual operator services calling initiated by BSLD's, or its
Affiliates', End User Customers, and originating within the BellSouth region,
shall be processed by TELTRUST. Calls may originate from ANIs that may or
may not be resident in ANI databases maintained by TELTRUST for BSLD and its
Affiliates' sites or subscribers. Calls shall be rated, pursuant to SECTION
2.4.2 above, in accordance with rates determined by BSLD for such calls.
Billing methods available for such calls are as outlined in SECTIONS 2.1 and
2.2 above. In the event that a casual dialed operator service call
originates from an ANI in TELTRUST's databases, e.g. a BSLD or Affiliate
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subscriber, rates assigned to that location prevail over any rates resident
in TELTRUST databases that are designated for casual operator service
calling. Casual Operator Service Calls shall be subject to validation and
will be rated and outcleared for billing and collection in accordance with
the terms described in this SECTION 2.
2.6.2 It shall be the responsibility of BSLD to deliver casual operator
services calls to TELTRUST switching sites as determined by the Parties to be
most advantageous based on network efficiencies.
2.7 QUALITY OF SERVICES. TELTRUST shall provide the services described in
SECTION 2 in conformance with the appropriate industry standards for like
services and as detailed in EXHIBIT III. The Parties agree to meet quarterly,
or sooner if necessary, to review performance and related issues.
SECTION III. PROPRIETARY CALLING PLATFORM SERVICES.
3.1 BSLD or its Affiliates may issue proprietary calling cards or proprietary
calling access numbers, or both, to its customers. TELTRUST will provide
platform services, as described in this SECTION 3, for calls placed utilizing
BSLD or Affiliate Proprietary access codes. Charges for services are outlined
in EXHIBIT I, "Charges For Services," attached hereto.
3.2 Call processing will be as follows: End User Customers will place calls by
dialing a proprietary 800 or 888 access number, which will be routed by BSLD or
its IXC to TELTRUST's switching and operator service platforms. BSLD will
manually supply to TELTRUST the prompts and menu selections it wishes to make
available to its customers, and TELTRUST will implement such prompts and menu
selections, consistent with the features and functionality of its platforms,
within fifteen (15) business days.
3.3 TELTRUST shall not be responsible for costs associated with inbound or
outbound network facility to deliver calls to TELTRUST's switch(es) or costs to
facilitate the interconnection from TELTRUST switch(es) to BSLD-contracted
termination providers.
3.4 Calls may be billed, as directed by the End User Customer, as an operator
services call, subject to the provisions of SECTION 2 above, or to certain
proprietary cards issued by BSLD or its Affiliates to its customers; such card
numbers shall be in a fourteen (14) digit format consistent with TELTRUST
validation database structures, and shall be supplied to TELTRUST in a mutually
acceptable electronic format for input into TELTRUST validation databases. The
Parties will work together to determine parameters governing the timing and
mechanisms of card number activation consistent with the capabilities and
mutual objectives of the Parties.
3.5 Call records charged via proprietary card numbers that are to be billed to
BSLD or Affiliate customers will be submitted, with all necessary information,
to BSLD in order that billing may be effected. Call records will be submitted
in a format as described in EXHIBIT IV once each business day, unless otherwise
agreed to in writing, for the previous day's (or days') applicable call
activity to BSLD's designated location. The method of data transfer shall be
mutually agreed upon by the Parties.
3.6 Completed Calls may be billed to Calling Cards, Credit Cards, Collect, or
Third Party, subject to LIDB validation measures, per SECTION 2.3 above. Such
calls shall be rated in accordance with rates set forth by BSLD for calls
originating via proprietary access numbers, and shall be submitted for billing
and collection pursuant to SECTION 2.5 above.
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3.7 CALL RATING.
3.7.1 TELTRUST shall provide software & other appropriate systems to format
and rate calls, in industry standard EMI format, in order that Call Records
will be submitted either: (1) directly to a Clearing House pursuant to SECTION
2.5. above, and subject to BSLD's approval and direction; or (2) to a specific
location as directed by BSLD in writing. Charges to BSLD for Call Rating
Services are attached hereto as EXHIBIT I, "Charges For Services."
3.7.2 BSLD shall be responsible for selecting the rate schedules containing
the rates to be charged to End User Customers of BSLD or its Affiliates. BSLD
shall forward all rating instructions in writing, signed by BSLD's authorized
employee, to BSLD's designated representative at TELTRUST. TELTRUST shall
implement call rating information on BSLD's requested implementation date,
effective at 12:00 a.m. eastern time, provided that the requested
implementation date is no fewer than two (2) business days from receipt.
TELTRUST will confirm those changes in writing to BSLD within one (1) business
day of implementation. TELTRUST shall not be responsible for calculation and
application of, or any liability associated with, any applicable taxes related
to calls processed and submitted for billing and collection. BSLD shall have
14 days from receipt of confirmation by TELTRUST that BSLD's call rating
information has been implemented to correct rating information that is
confirmed in error. Thereafter, TELTRUST shall not be liable to BSLD or its
Affiliates for any damages whatsoever resulting from incorrect rates, absent
system errors, being charged by TELTRUST software on behalf of BSLD.
Components to be rated in a Call Record that is to be billed to an End User
Customer are detailed in EXHIBIT V.
3.8 Proprietary card numbers will be validated utilizing TELTRUST negative
databases. Card numbers will be maintained by TELTRUST, and marked as valid
for billing in the negative database. Methods and Procedures for database
maintenance may be amended from time to time, and may include maintenance
responsibility shifting from TELTRUST to BSLD, or a third party as directed by
BSLD. BSLD shall provide TELTRUST at least thirty (30) days written notice
detailing any such change in such Methods and Procedures. TELTRUST shall not
allow a call to be completed in which the proprietary card number has not been
validated under the previously described procedures.
3.9 If TELTRUST maintains proprietary card number databases on behalf of BSLD,
it shall maintain information in a strictly confidential manner, and will not
allow use of the database by any party other than BSLD or its Affiliates, as
directed by BSLD.
3.10 QUALITY OF SERVICES. TELTRUST shall provide the services described in
SECTION 3 in conformance with the appropriate industry standards for like
services and as detailed in EXHIBIT III. The Parties agree to meet quarterly,
or sooner if necessary, to review performance and related issues.
SECTION IV. PREPAID CALLING SERVICES.
4.1. TELTRUST will provide call processing services for BSLD's or its
Affiliates' End User Customers who have purchased prepaid calling cards sold by
BSLD or its Affiliates. Charges for services are outlined in EXHIBIT I,
"Charges For Services," attached hereto. BSLD will manually supply to TELTRUST
the prompts and menu selections it wishes to make available to its customers.
TELTRUST will implement such prompts and menu selections consistent with the
features and functionality of its platforms within five (5) business days of
receipt of prompt and menu selection requests from BSLD.
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4.2. TELTRUST shall not be responsible for any costs associated with inbound
or outbound network facility to deliver calls to TELTRUST's switch(es) or any
costs to facilitate the interconnection from TELTRUST switches to BSLD-
contracted termination providers.
4.3. Card numbers issued for use will be in a 12 digit format. Card numbers
will be issued by TELTRUST in minimum quantities of 10,000 per batch. Card
numbers will be issued to BSLD and will be available for use upon receipt of
numbers by BSLD.
4.4. Each card will carry an expiration date of no later than one year from
the date of activation.
4.5. At its option, BSLD may submit to TELTRUST a request for bid for card
production. Any such request for bid shall be in writing, and will include the
following: number of cards to be produced, mechanical specifications (i.e.
size, color, etc.), requested delivery date and drop ship information.
TELTRUST will respond to any BSLD request for bid no later than five (5)
business days from date of receipt. BSLD shall be responsible for all design
layout and camera ready artwork. TELTRUST reserves the right to review card
use instructions as they relate to TELTRUST platform capabilities.
4.6. TELTRUST will offer to BSLD or its Affiliates' End User customers the
ability to recredit previously purchased prepaid calling cards. The End User
can elect to utilize automated recredit menu selection, or can recredit through
a TELTRUST provided Customer Service Representative. In addition to the
charges for recrediting, in the event that a live Customer Service
Representative processes a customer's recredit request, the Customer Service
rate element, as outlined in EXHIBIT I, "Charges For Services," will apply.
TELTRUST will report to BSLD recredit activity on a serial number basis.
Recrediting (i.e. "refreshing" or "recharging") is available by charging the
amount of End User requested recredit to a commercial credit card, subject to
the terms and conditions of SECTION 2.5.2 above.
4.7. All reports for prepaid calling information are serial number based.
Reports available are attached as EXHIBIT X.
4.8 CALL RATING. TELTRUST shall provide software & other appropriate systems
to format and rate calls. Charges to BSLD for Call Rating Services are attached
hereto as EXHIBIT I, "Charges For Services." BSLD shall be responsible for
selecting the rate schedules containing the rates to be charged to End User
Customers of BSLD or its Affiliates. Rate schedules will be in accordance with
any BSLD tariffs applicable, and implemented within the parameters of rating
capabilities of TELTRUST prepaid calling platforms. BSLD shall forward all
rating instructions in writing, signed by BSLD's authorized employee, to BSLD's
designated representative at TELTRUST. TELTRUST shall implement call rating
information on BSLD's requested implementation date, effective at 12:00 a.m.
eastern time, provided that the requested implementation date is at no fewer
than two (2) business days from receipt. TELTRUST will confirm those changes in
writing to BSLD within one (1) business day of implementation. TELTRUST shall
not be responsible for calculation and application of, or any liability
associated with, any applicable taxes related to calls processed. BSLD shall
have fourteen (14) days from receipt of confirmation by TELTRUST that BSLD's
call rating information has been implemented to correct rating information that
is confirmed in error. Thereafter, TELTRUST shall not be liable to BSLD or its
Affiliates for any damages whatsoever resulting from incorrect rates, absent
system errors, being charged by TELTRUST software on behalf of BSLD.
4.9 Funds due BSLD or its Affiliates from recredits shall be credited against
monthly TELTRUST invoices to BSLD for services rendered pursuant to this
Agreement.
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4.10. TELTRUST shall provide trained, bilingual (English and Spanish) Prepaid
Calling Card Customer Service Representatives ("CSRs") from 4:00 a.m. to 12:00
a.m. MST, seven days per week. During hours which live customer service
operators are not available, automated recrediting and the ability for users to
leave messages will be available.
4.11 Access to Enhanced Services will be made available, at BSLD's or
Affiliates' request, to prepaid calling card holders. Services are provided by a
third party, and may be accessed from TELTRUST's platforms via menu selection.
Examples of services available include access to: news, weather and sports
information. Additional services may be or become available throughout the term
of the Agreement, and TELTRUST will advise BSLD of any such changes as received
from its supplier(s).
4.12 Prepaid Card holders will be restricted from using prepaid cards for
access to 700, 800, 900, 950 and like numbers.
4.13 QUALITY OF SERVICES. TELTRUST shall provide the services described in
SECTION 4 in conformance with the appropriate industry standards for like
services and as detailed in EXHIBIT III. The Parties agree to meet quarterly,
or sooner if necessary, to review performance and related issues.
SECTION V. DIRECTORY ASSISTANCE SERVICES.
5.1 DIRECTORY ASSISTANCE. TELTRUST shall provide trained directory assistance
operators, access to its national database and call completion service for
United States listings twenty four (24) hours a day, seven (7) days a week.
TELTRUST shall provide directory assistance and call completion services for ten
digit dialed inquiries, e.g., 1+ NPA + 555 + 1212. Charges for services are
outlined in EXHIBIT I, "Charges For Services," attached hereto. Directory
Assistance service shall also be supplied for calls dialed 0+NPA+555+1212. Such
calls shall be considered operator services calls, and applicable rate elements,
per EXHIBIT I, for operator services shall apply in addition to the charges
applicable for Directory Assistance.
5.2 CALL COMPLETION. Services are provided as follows:
5.2.1 A directory assistance query arrives at the TELTRUST operator
station as a traditional directory assistance call (e.g. BSLD or Affiliate
End User Customer dials 1+NPA+555+1212).
5.2.2 After finding the requested information, the TELTRUST operator
releases the call to the Automated Response Unit (ARU).
5.2.3 The ARU prompts the caller with a BSLD brand and instructs the
caller that if he/she wants the telephone number only to press #1; or if
he/she desires both the telephone number and the call to be automatically
completed to press #2.
5.3 NETWORK CONNECTIVITY. It shall be the responsibility of BSLD to deliver
directory assistance calls to TELTRUST switching sites, as determined by the
Parties to be most advantageous based on network efficiencies. TELTRUST will be
responsible to route Directory Assistance queries received at its switching
sites to its directory assistance operators. For any directory assistance
queries utilizing call completion service, TELTRUST will deliver such calls to
BSLD or its IXC for call termination.
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SECTION VI. PROVISION AND MAINTENANCE OF ANI AND
PROPRIETARY NUMBER DATABASES.
6.1 BSLD shall be responsible to provide ANI and proprietary card number
information consistent with the requirements of the order form attached as
EXHIBIT VI. Any exception to the requirements outlined in the order form shall
be mutually agreed upon by the Parties.
6.2 TELTRUST shall be responsible to implement additions, deletions or changes
to BSLD's or its Affiliates' ANI or proprietary card number database(s). Any
such additions, deletions or changes shall be effective the second business day
following the receipt of order forms provided that such forms are 1) received
by 3:00 p.m. MST and 2) are complete with respect to required field inputs.
Any requests for additions, deletions or changes on the part of BSLD shall be
submitted in accordance with the "ACD Order" attached as EXHIBIT VII, or via
electronic transfer methods as mutually agreed upon by the Parties. All
changes implemented shall be confirmed to BSLD in writing (or electronically).
BSLD shall be responsible to review such confirmations and inform TELTRUST, in
writing (or electronically) of any errors discovered. Confirmations shall be
considered complete and accepted four business days after receipt by BSLD.
6.2.1 In the event change requests are received after 3:00 p.m. MST, such
requests will be considered to have been received on the next business
day, and therefore implemented two business days thereafter. In the event
of incomplete forms, error records or files being received, TELTRUST shall
notify BSLD within twenty four (24) hours which change requests have not
been accepted, and BSLD shall be responsible to correct and resubmit
changes.
6.3 BSLD shall be responsible for providing TELTRUST with all billing CIC,
entity code and sub-account information, i.e., property identifying which brands
apply to which ANIs, which will dictate the billing CIC attached to call records
from that ANI, or dedicated trunk group(s), in order that the appropriate
information is shown on End User bills and management reports provided by
TELTRUST.
[***]
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[***]
SECTION VII. SWITCHING AND NETWORK FACILITIES.
7.1 TELTRUST shall be responsible for all costs associated with the
acquisition, installation and maintenance of necessary switching equipment to
facilitate the call volumes projected by BSLD, as detailed in EXHIBIT II.
TELTRUST will install its switch(es) at a site(s) to be mutually agreed upon by
the Parties. TELTRUST shall be responsible for all costs covering the
facilities between TELTRUST's switch(es) in Atlanta (or other locations as
needed) and its operator center(s).
7.2 TELTRUST shall not be responsible for any costs associated with:
7.2.1 Inbound network facility to deliver calls, for any of the products
or services contemplated in the Agreement, to TELTRUST's switch(es),
7.2.2 Costs to facilitate the interconnection from TELTRUST switches to
BSLD-contracted termination providers.
7.2.3 Costs of origination or termination transport services.
7.3 The Parties agree to cooperate in determining the most appropriate method
for BSLD customers to access TELTRUST's switches, as determined by the Parties
to be most advantageous based on network efficiencies and applicable service
requirements. TELTRUST shall route and deliver calls to BSLD or its IXC for
transport and termination as directed by BSLD.
7.4 TELTRUST will implement the appropriate switch based software (i.e.
recorded announcement) to provide callers dialing "700" for carrier
verification with prompts notifying them of BellSouth as the carrier subscribed
to the originating line of such calls.
7.5 TELTRUST will comply with SS7 signaling requirements for network
interconnection with BSLD or BSLD's IXC(s), or both.
7.6 Switching and transport equipment utilized by TELTRUST to provide services
for BSLD or its Affiliates shall meet or exceed industry performance
requirements specified and as applicable in BellCore's Generic Requirements,
GR-929-Core, Issue 1, Revision 1, December 1995. If any unit does not meet
current requirements, TELTRUST will establish a Quality Council with the
manufacturer and initiate action to bring the product or products into
compliance.
7.7 TELTRUST will, within ninety (90) days after the Initial Market Entry
Date, operate no fewer than two call centers, each of which will be served by
distinct switch platforms.
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SECTION VIII. REPORTING, INVOICING AND PAYMENT FOR SERVICES.
8.1 REPORTING: TELTRUST will provide to BSLD on a daily basis, unless
otherwise mutually agreed, the following data files:
8.1.1 Daily CDR - Records included in this data set contain all detail
information on all call attempts for all products and services
contemplated in this Agreement. A CDR is generated for each call attempt
received by TELTRUST switch(es) delivered to it by BSLD or its IXC. An
example of this report, and file structure, is attached as EXHIBIT IV.
This report and file structure may be subject to change, with ninety (90)
days notice, only as agreed to by the Parties (see EXHIBIT XIV). This data
will provide support for charges billed by TELTRUST for the following rate
elements as outlined in EXHIBIT I:
[***]
8.1.2 Additional management reports, attached as EXHIBIT VIII, are
available to BSLD, as requested.
8.1.3 The Parties shall determine mutually acceptable methods and
procedures for data transfer, including procedures related to failed data
transmissions.
8.2 COSTS AND CHARGES. The charges for all services provided pursuant to this
Agreement by TELTRUST to BSLD are detailed in EXHIBIT I.
[***]
8.4 BILLING INVOICES. All charges for services provided to BSLD pursuant to
rate elements as outlined on EXHIBIT I will be invoiced no later than the fifth
business day of each month for the previous calendar month's activity. Invoices
shall be sent via facsimile to BSLD's designated representative, to be followed
with hard copy via U.S. Mail or courier delivery. All amounts stated on each
monthly invoice shall be due and payable no later than the fifth business day of
the following month. The cost of service provided is exclusive of any applicable
sales, use, excise, surcharges, and like taxes which, if
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applicable, will be separately stated and included in each monthly invoice. All
charges for services provided that remain unpaid by BSLD past the due date,
shall be subject to interest from the due date of the invoice at a rate of 1%
per month. In the event BSLD shall in good faith dispute TELTRUST's computation
of amounts due and owing by BSLD to TELTRUST hereunder, BSLD shall not be
relieved of any obligation to pay such undisputed amounts on or before the due
dates. If BSLD disputes amounts, BSLD must submit complete documentation of the
disputed amount(s) to TELTRUST's BSLD Customer Service Representative no later
than thirty (30) days after the invoice due date. Upon the discovery of a
billing error, BSLD shall have the right to dispute charges affected by the
error for no more than the previous three (3) months' invoices, nor shall
TELTRUST bill BSLD for services beyond three previous months. Each Party shall
use its respective best reasonable efforts to resolve any dispute as
expeditiously as possible.
[***]
SECTION IX. TERM.
9.1 RAMP UP PERIOD. The Ramp Up Period is the time period beginning on the
first day of the month after execution of this Agreement and continuing through
the Commencement Date.
9.2 INITIAL CONTRACT TERM. The Initial Contract Term of this Agreement shall
begin on the Commencement Date, as defined in SECTION 1.15, and end two (2)
years from the Commencement date, unless extended as outlined in SECTION 10.2.2.
This Agreement shall automatically renew for quarterly periods subsequent to the
expiration of the Initial Contract Term unless either Party notifies the other
of its intent to terminate the Agreement with written notice no less than 120
days prior to the expiration of the Initial Contract Term or any renewal period.
SECTION X. MINIMUM VOLUME COMMITMENTS.
[***]
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[***]
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[***]
10.2 Except as outlined immediately below, BSLD and its Affiliates shall
purchase services described in this Agreement on an exclusive basis from
TELTRUST through the Ramp Up Period and the Initial Contract Term, and any
extenstions pursuant only to SECTION 10.2.2 below. Exclusivity shall mean that
at least ninety percent (90%) of such services provided to BSLD will be provided
by TELTRUST.
[***]
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[***]
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[***]
SECTION XII. TERMINATION.
12.1 TERMINATION FOR CAUSE. TELTRUST may terminate this Agreement with
reasonable notice to BSLD in the event BSLD is in default of its payment
obligations under this Agreement, provided that BSLD has failed to cure such
non-payment within thirty (30) days of notification. BSLD may terminate this
Agreement at any time in the event TELTRUST is in breach of its performance
obligations under this Agreement, and provided TELTRUST fails to take all
commercially reasonable steps to cure such breach or default within sixty (60)
days after written notice of such default or breach is given to TELTRUST. In the
event BSLD terminates with cause pursuant to this SECTION 12.1, it shall be
relieved of its Term Commitment, per SECTION 10.2, and Minimum Live Operator
Charges, per SECTION 11.1 as of the date of termination of services. BSLD shall
not construe any potential negative effects on service levels due to exceeding
projections, as described in SECTION 11.1.2 as breach of TELTRUST performance
obligations.
12.2 TERMINATION PRIOR TO INITIAL MARKET ENTRY: BSLD may terminate this
Agreement at any time prior to Initial Market Entry in the event of an
indefinite legal or regulatory delay [***]. In the event of termination under
this SECTION 12.2, BSLD shall compensate TELTRUST for: a) all capital outlay, as
defined by generally accepted accounting principles, and; b) term contract
commitments made on BSLD's behalf (i.e. rental agreements) in connection with
TELTRUST's provisioning of operator and network services exclusively for BSLD as
contemplated in this Agreement.
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In the event that BSLD has remitted "FARR" payments to TELTRUST in accordance
with SECTION 10.1.1 such "FARR" payments shall be credited toward the amount of
compensation to which TELTRUST is entitled under this SECTION 12.2. BSLD shall
incur no other liability or minimum payout to TELTRUST other than, if
applicable, what is described IN SECTIONS 10.1.1.(2), 11.1 and 11.2
respectively. Any amounts due TELTRUST shall be remitted in accordance with
SECTION 8.4.
12.3 TERMINATION WITHOUT CAUSE ON OR AFTER INITIAL MARKET ENTRY: BSLD may
terminate this Agreement at any time on or after Initial Market Entry without
cause upon ninety (90) days prior written notice to TELTRUST and payment to
TELTRUST of the Early Termination Charge, as defined herein. BSLD acknowledges
and agrees that TELTRUST's willingness to provide equipment, switches, personnel
and the rates agreed to herein are based on BSLD's commitments outlined in
SECTION 10.2. It is difficult if not impossible to calculate TELTRUST's loss if
BSLD terminates the Agreement pursuant to this SECTION 12.3 prior to the end of
the term. [***]
SECTION XIII. BRANDING AND REGULATORY ISSUES.
13.1 BRANDING AND CALL RATING. To the extent that the services provided under
this Agreement are resold by BSLD or an Affiliate to an End User purchasing a
BellSouth service, TELRUST shall provide branding and call rating in accordance
with BSLD's federal and state tariffs, or in accordance with BSLD direction, in
which case BSLD warrants that any such direction would not be in conflict with
any local, state or federal regulation or law. Should BSLD seek to change or
alter its rating instructions, it shall inform TELTRUST of such changes in
writing and signed by BSLD's authorized representative. TELTRUST shall implement
such rating changes no later than two (2) business days from receipt of such
written notice, and shall confirm those changes in writing to BSLD within one
(1) business day of implementation.
13.2 EMERGENCY NUMBER DATA AND LIABILITY LIMITATION. BSLD shall provide
TELTRUST with all applicable emergency number information. BSLD acknowledges and
agrees that TELTRUST shall not be liable to BSLD or any third party for any
special, indirect, incidental, punitive or consequential damages, including
without limitation, claims for damages by BSLD or its Affiliates or End Users
arising from TELTRUST emergency call handling procedures or the integrity of
BSLD's emergency database, or similar claims by a BSLD or Affiliate or End User,
absent TELTRUST's failure to follow the procedures required, as defined in
EXHIBIT XII, and absent such failure being the cause of the damage.
13.3 TARIFFS AND REGULATORY REQUIREMENTS. BSLD represents that it (or one of
its Affiliates, as appropriate) has all necessary legal authority to charge and
collect the rates for services contemplated in this Agreement, and that BSLD (or
one of its Affiliates, as appropriate) complies with applicable regulatory
requirements incident to such rates. BSLD shall supply to TELTRUST, at its
request, copies of any applicable state and federal tariffs, certifications or
other documentation governing authority and rates, terms and conditions of BSLD
and Affiliates service provisioning.
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SECTION XIV. CONFIDENTIALITY AND NON-DISCLOSURE.
14.1 CONFIDENTIAL INFORMATION.
14.1.1 Information furnished or disclosed by one Party or its agent or
representative (the "Originating Party") to the other Party or its agent
or representative (the "Receiving Party") in connection with or in
contemplation of this Agreement, or relating to current or anticipated
voice and data telecommunications needs of BSLD or its Participating
Affiliates (including but not limited to proposals, contracts, tariff and
contract drafts, specifications, drawings, network designs and design
proposals, pricing information, strategic plans, computer programs,
software and documentation, and other technical or business information
related to current anticipated TELTRUST or BSLD products and services)
shall be "Confidential Information".
14.1.2 If such information is in written or other tangible form
(including, without limitation, information incorporated in computer
software or held in electronic storage media) when disclosed to the
Receiving Party, it shall be Confidential Information only if it is
identified by clear and conspicuous markings to be confidential and/or
proprietary information of the Originating Party; provided, however, that
all written proposals exchanged between the Parties regarding pricing of
the Services shall be Confidential Information, whether or not expressly
indicated by markings or statements to be confidential or proprietary.
14.1.3 If such information is not in writing or other tangible form when
disclosed to the Receiving Party, it shall be Confidential Information
only if: (1) the original disclosure of the information is accompanied by
a statement that the information is confidential or proprietary, or both;
and (2) the Originating Party provides a written description of the
information so disclosed, in detail reasonably sufficient to identify such
information, to the Receiving Party within thirty (30) days after such
original disclosure.
14.1.4 The terms and conditions of this Agreement shall be deemed
Confidential Information as to which each Party shall be both an
Originating Party and a Receiving Party.
14.1.5 Confidential Information shall be deemed the Property of the
Originating Party.
14.1.6 The following categories of information shall not be Confidential
Information:
(1) Known to the Receiving Party without restriction when
received, or thereafter developed independently by the Receiving
Party; or
(2) Lawfully obtained from a source other than the Originating
Party through no breach of confidence by the Receiving Party; or
(3) In the Public domain when received, or thereafter enters the
public domain through no fault of the Receiving Party; or
(4) Disclosed by the Originating Party to a third party without
restriction; or
(5) Lawfully in the possession of the Receiving Party at the
time of receipt from the Originating Party.
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14.1.7 Rights and obligations provided in this Section shall take
precedence over specific legends or statements associated with information
when received.
14.2 PROTECTION OF CONFIDENTIALITY. A Receiving Party shall hold all
Confidential Information in confidence during the Term of this Agreement and for
a period of three (3) years following the end of the Term or such other period
as the Parties may agree. During that period, the Receiving Party:
(a) shall use such Confidential Information solely in furtherance of the
matters contemplated by this Agreement and related to either Party's
performance of this Agreement;
(b) shall reproduce such Confidential Information only to the extent
necessary for such purposes;
(c) shall restrict disclosure of such Confidential Information to such of
its employees or its Affiliate's employees as have a need to know such
information for such purposes only;
(d) shall advise any employees and agents to whom such Confidential
Information is disclosed of the obligations assumed in this Agreement;
(e) shall not disclose any Confidential Information to any third Party
(not including disclosure to a BellSouth Subsidiary or persons identified
in SECTIONS 14.3 AND 14.5) without prior written approval of the
Originating Party except as expressly provided in this Agreement; and
(f) shall take such other reasonable measures as are necessary to prevent
the disclosure, unauthorized use or publication of Confidential
Information as a prudent business person would take to protect its own
similar confidential information, including, at a minimum, the same
measures it uses to prevent the disclosure, unauthorized use or
publication or its own similar proprietary or confidential information.
14.3. DISCLOSURE TO OR BY AFFILIATES, CONSULTANTS OR SUBCONTRACTORS. In the
absence of a contrary instruction by a Party, such Party's Affiliates,
consultants, subcontractors and agents performing work in connection with this
Agreement shall be deemed agents of such Party for purposes of receipt or
disclosure of Confidential Information. Accordingly, any receipt or disclosure
of Confidential Information by a Party's Affiliate, or its consultant or
subcontractor performing work in connection with this Agreement, shall be deemed
a receipt or disclosure by the Party.
14.4. RETURN OR DESTRUCTION OF CONFIDENTIAL INFORMATION.
14.4.1 Upon termination of this Agreement, or at an earlier time if the
information is no longer needed for the purposes described in SECTION
14.2(A), each Party shall cease use of Confidential Information received
from the other Party and shall use its best efforts to destroy all such
Confidential Information, including copies thereof, then in its possession
or control. Alternatively, or at the request of the Originating Party, the
Receiving Party shall use its best efforts to return all such Confidential
Information and copies to the Originating Party.
14.4.2 Any Confidential Information that is contained in databases or
mechanized systems in such a manner that it reasonably cannot be isolated
for destruction or return, shall continue to be held in confidence subject
to the provisions of this Agreement.
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14.4.3 The rights and obligations of the Parties under this Agreement
with respect to any Confidential Information return to the Originating
Party shall survive the return of the Confidential Information.
14.5 REQUIRED DISCLOSURE. A Receiving Party may disclose Confidential
Information if such disclosure is in response to an order or request from a
court, the FCC or other regulatory body provided, however, that before making
such disclosure, the Receiving Party shall first give the Originating Party
reasonable notice and opportunity to object to the order or request, or obtain a
protective order covering the Confidential Information to be disclosed, or both.
SECTION XV. INDEMNIFICATION AND LIMITATION OF LIABILITY.
15.1 INDEMNIFICATION. Each Party (as "Indemnitor") shall indemnify, defend
and hold harmless the other Party (as "Indemnitee") from and against any and all
liabilities, costs, damages, fines, assessments, penalties and expenses
(including reasonable attorney's fees) resulting from (a) breach of any
provision in this Agreement by the lndemnitor, its employees or operators, or
(b) any misrepresentation or illegal act of Indemnitor, its employees or
operators, arising out of the Indemnitor's performance hereunder.
15.2 LIMITATION OF LIABILITY. The liability of TELTRUST for damages resulting
in whole or in part from or arising in connection with the furnishing of service
under this Agreement, including but not limited to mistakes, omissions,
interruptions, delays, errors or other defects shall not exceed an amount equal
to the charges under this Agreement applicable to the specific call or service
that was affected. No other liability shall attach to TELTRUST including, but
not limited to, liability for special, indirect, or consequential damages
arising from or in connection with the furnishing of service or equipment
hereunder. This limitation shall not apply to instances of gross negligence or
willful misconduct on the part of TELTRUST.
15.3 WARRANTIES. THE WARRANTIES AND REMEDIES SET FORTH IN THIS AGREEMENT ARE
THE ONLY WARRANTIES AND REMEDIES WITH RESPECT TO THE SERVICES PROVIDED
HEREUNDER, AND ARE IN LIEU OF ANY OTHER WARRANTY, WRITTEN OR ORAL, STATUTORY,
EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
SECTION XVI. DISPUTE RESOLUTION.
16.1 MEDIATION. In the event of material breach of any of the terms or
conditions of this Agreement, the wronged Party shall inform the other Party of
such breach in writing, which writing shall serve as notice to cure or rectify
such breach. The other Party shall have sixty (60) days from receipt of such
notice to cure or rectify such breach, except for non payment, as described in
SECTION 12.1. If, however, after sixty (60) days the wronged Party has not
received a satisfactory remedy, the Parties shall agree to submit all disputes
for mediation in accordance with the rules of the Center for Public Resources.
The mediation, unless otherwise mutually agreed upon by the Parties, shall be
conducted in Atlanta, GA for any dispute submitted by TELTRUST, or in Salt Lake
City, Utah for any dispute submitted by BSLD. The Parties shall use their best
efforts to conclude any mediation initiated hereunder within forty-five (45)
days, unless otherwise agreed to in writing by the Parties, from the initiation
of such mediation.
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16.2 ARBITRATION. If after the initial time period referred to in SECTION 16.1
above expires without resolution of the outstanding dispute, either Party may
request that the dispute be settled by binding arbitration in accordance with
the rules of the Center for Public Resources. The arbitration shall be governed
by the United States Arbitration Act, 9 U.S.C. Sec 1, et seq., and judgment upon
the award rendered by the arbitrator(s) may be entered by any court with
jurisdiction.
SECTION XVII. TAXES
17.1 TAXES TO BE BILLED BY TELTRUST.
17.1.1 For purposes of this Agreement, the term "Taxes" shall include
but not be limited to Federal, State or local sales, use, excise, gross
receipts or other taxes or tax-like fees (including tariff surcharges)
imposed on or with respect to customer's services, excluding however, ad
valorem property taxes, state and local privilege and license taxes based
on gross revenue, taxes measured by net income, and any taxes or amounts
in lieu of the foregoing excluded items.
17.1.2 To the extent that TELTRUST's provision of services to BSLD is
subject to any Taxes, TELTRUST shall calculate, bill, collect and remit
such Taxes. TELTRUST shall collect such Taxes from BSLD in the same manner
it collects such Taxes from other customers in the ordinary course of
TELTRUST's business, but in no event prior to the time it invoices BSLD
for the Services for which such Taxes are levied. TELTRUST shall calculate
such Taxes for each TELTRUST service and not on the basis of the aggregate
amount billed on each invoice.
17.1.3 Should any Federal, State or local jurisdiction determine that
Taxes are due as a result of TELTRUST's provision of Services, TELTRUST
shall advise BSLD at least ten (10) days prior to the date by which a
response, protest or other appeal must be filed, but in no event later
than thirty (30) days after receipt of such assessment, proposed
assessment or claim. If BSLD disagrees with the determination that any
taxes are due by BSLD as a result of TELTRUST's provision of Services,
BSLD shall, at its option and expense, have the right to seek a ruling as
to the inapplicability of any such tax, to protest any assessment, to file
and participate in any legal challenge to such assessment or determination
or to file a claim for refund in its name or cause a claim for refund to
be filed in TELTRUST's name. TELTRUST shall cooperate fully by providing
records, testimony and such additional information or assistance as may
reasonably be necessary. In the event that all or any portion of an amount
sought to be collected or assessed must be paid in order to contest the
imposition of any such Taxes or to avoid the existence of a lien on the
assets of TELTRUST during the pendency of such contest, BSLD shall be
responsible for such payment and shall be entitled to the benefit of any
refund or recovery.
17.2 TAXES NOT TO BE BILLED BY TELTRUST.
17.2.1 To the extent that TELTRUST's provision of Services to BSLD is
exempt from Taxes in any jurisdiction, BSLD shall provide to TELTRUST for
each such jurisdiction a valid tax exemption certificate or such other
proof of tax-exempt status as may be required by the tax authorities in
such jurisdiction. TELTRUST shall not bill BSLD for such Taxes.
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Page 25
<PAGE>
17.2.2 BSLD or its Affiliates shall calculate, bill, collect and remit
any Taxes (and any related interest and penalties) which may apply as a
result of the provision of service by BSLD or its Affiliates to its
customers. TELTRUST shall not include such taxes in the Call Detail
Records furnished to BSLD.
17.2.3 BSLD shall pay any tax for which it is responsible in connection
with its receipt of TELTRUST Services that may be levied on or assessed
against BSLD directly.
17.3 EFFORTS TO MINIMIZE TAXES. TELTRUST shall cooperate reasonably with BSLD
to lawfully minimize any such taxes payable; such cooperation shall, if
requested, include changes in billing address or service reconfiguration,
subject to the terms of this Agreement governing such changes or
reconfigurations.
17.4 NEITHER PARTY LIABLE FOR OTHER'S INCOME TAXES. Neither Party shall be
liable for taxes on the other Party's net income.
SECTION XVIII. MISCELLANEOUS.
18.1 NOTICE. Unless otherwise agreed herein, all notices, requests, or other
communications shall be in writing, effective when received, to the following
unless subsequently changed in writing:
TELTRUST Communications Services, Inc. BellSouth Long Distance, Inc.
221 No. Charles Lindbergh Drive 32 Perimeter Center East
Salt Lake City, UT 84116 Atlanta, GA 30346
Attn.: Vice President & General Counsel Attn.: Sr. Director of Carrier
Relations
Phone: (801)535-2000 Phone: (770)352-3000
Facsimile: (801)535-2080 Facsimile: (770)352-3181
18.2 COMPLIANCE WITH APPLICABLE LAW. This Agreement is made subject to all
present and future orders, rules and regulations of any regulatory body having
jurisdiction over the subject matter hereof, and to the laws of the United
States of America or any of its states having jurisdiction over the Parties and
the subject matter contained herein (collectively, "Applicable Law"). In the
event this Agreement or any of its provisions shall be found contrary to, or in
conflict with, any such Applicable Law, this Agreement shall be deemed modified
to the extent necessary to comply with such Applicable Law, and shall be
modified in such a way as the Parties mutually agree is consistent with the
form, intent, and purpose of its surviving provisions.
18.3 AUDIT RIGHTS. BSLD shall have the right to perform audits as described
herein of the services provided to it by TELTRUST. The audit will be located at
a TELTRUST company location during normal business hours, and will be performed
only on information that reasonably may bear upon the provision of services
specified as part of this Agreement. Unless otherwise agreed, BSLD shall be
limited to one audit per calendar year. BSLD shall give notice of its intent to
perform an audit at least thirty (30) days prior to the proposed commencement
date. Such notice will include the specific objective of the audit, the proposed
commencement date, primary BSLD contact names, and to the best of BSLD's
ability, the information requested for review. TELTRUST will make reasonable
efforts to ensure that all information requested by BSLD and required to perform
an audit, subject to information deemed to be proprietary and confidential
information relating to other TELTRUST client or product activity, will be made
available by the audit commencement date. Within sixty (60) days after the
conclusion of an audit, BSLD will
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Page 26
<PAGE>
prepare a final written report, identifying any deficiencies found and
documenting any claims associated with the audit. Upon receipt of BSLD's final
report, TELTRUST will investigate all findings and claims, and provide a written
response to BSLD within thirty (30) days. Each Party will bear its own expenses
in connection with performing an audit.
18.4 GOVERNING LAW. With respect to any lawsuit or binding arbitration
involving this Agreement, the Parties hereto agree that the prevailing law
shall be that of the State of Utah.
18.5 COSTS OF ENFORCEMENT. In the event of litigation arising from the
enforcement of this Agreement the Parties hereto agree that all costs, including
reasonable attorney's fees of the prevailing Party shall be paid by the losing
Party, unless otherwise agreed.
18.6 NO AGENCY. Neither Party is authorized to act as an agent for, or legal
representative of, the other Party and neither Party shall have authority to
assume or create any obligation on behalf of, in the name of, or binding upon,
the other Party. Provision of services hereunder shall not create a partnership,
joint venture or other like relationship between the Parties. BSLD, or a BSLD
Affiliate for which BSLD is acting as agent, is the service provider with
respect to End Users. TELTRUST is a supplier to BSLD and its Affiliates and has
no relationship to BSLD End Users.
18.7. INTELLECTUAL PROPERTY.
18.7.1 Neither BSLD or TELTRUST shall use the others trade names, trademarks
or service marks ("Marks"), nor permit them to be displayed or used by third
parties, except as specifically provided in this Agreement or upon other prior
written approval of the other Party. Nothing in this Agreement creates in a
Party rights in the trade names, trademarks or service marks of the other
Party.
18.7.2 Except as otherwise specifically provided in this Agreement, neither
BSLD nor TELTRUST will: (a) use the other Party's corporate logos, trade
dress, or other symbols that serve to identify and distinguish such other
Party from its competitors (or use confusingly similar corporate logos, trade
dress or such other symbols); or (b) conduct business under the other Party's
corporate or trade names, logos, trademarks, service marks, trade dress, or
other symbols that serve to identify and distinguish such other Party from its
competitors (or under any confusingly similar corporate or trade names, logos,
trademarks, service marks, trade dress or such other symbols).
18.8 WAIVER OF BREACH. Failure of either Party to exercise any rights granted
to it hereunder upon any breach or default by such Party shall not be deemed a
waiver in the event of further breaches or defaults.
18.9 ASSIGNMENT. Neither this Agreement nor any right or obligation hereunder
may be assigned or delegated to any other entity, except for subsidiaries or
affiliates, without the prior written consent of the other Party, which consent
shall not be unreasonably withheld.
18.10 ENTIRE AGREEMENTS. This Agreement, together with the attached Exhibits,
represents the entire agreement of the Parties with respect to the subject
matter hereof and supersedes all other agreements between the Parties relating
to the services provided hereunder.
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Page 27
<PAGE>
18.11 FORCE MAJEURE. With the exception of BSLD's obligation to make payments
to TELTRUST as provided for herein, neither Party hereto shall be obliged to
perform its obligations or commitments hereunder if prevented therefrom by
reason of labor disputes, equipment or software failures, government
regulations, court injunctions, acts of nature, accidents, fires, floods or any
other occurrence beyond the control of the Party involved, including the failure
of third party providers, such as suppliers of telephone lines to deliver
adequate or timely services. In the event either Party curtails or suspends its
services or obligations as provided under this SUBSECTION 18.11, it shall incur
no liability to the other Party or to any other party or entity arising
therefrom. During any period of Force Majeure, BSLD shall be relieved, for that
period, of minimum volume commitments and related financial obligations.
18.12 MODIFICATION OF AGREEMENT. This Agreement, including its Exhibits, may
be amended, modified or supplemented only by a separate written document
executed by both Parties.
18.13 OTHER AGREEMENTS. The Parties agree to negotiate in good faith toward
the execution additional agreements, as may be necessary, to facilitate the
business objectives of the Parties.
18.14 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of either Party.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers.
BELLSOUTH LONG DISTANCE, INC. TELTRUST COMMUNICATIONS SERVICES, INC.
/s/ William F. Reddersen /s/ Lyle O. Keys
By:____________________________________ By:__________________________________
Name: William F. Reddersen Name: Lyle O. Keys
Title: Group President, Title: Chairman of the Board/C.E.O.
BellSouth Long Distance & Video Services
Date: 11/21/96 Date: 11/19/96
__________________________________ ________________________________
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Page 28
<PAGE>
AMENDMENT #1 TO THE OPERATOR AND NETWORK SERVICES AGREEMENT ("THE
AGREEMENT") OF NOVEMBER 21, 1996, BY AND BETWEEN TELTRUST COMMUNICATIONS
SERVICES, INC. ("TELTRUST") AND BELLSOUTH LONG DISTANCE, INC. ("BSLD").
THIS AMENDMENT #1 is entered into this 13th day of January, 1997
("Effective Date") by and between TELTRUST COMMUNICATIONS SERVICES, INC.
("TELTRUST"), a Utah corporation with its principal place of business at 221
North Charles Lindbergh Drive, Salt Lake City, Utah 84116 and BELLSOUTH LONG
DISTANCE, INC. ("BSLD"), a Delaware corporation with its principal place of
business at 32 Perimeter Center East, Atlanta, GA 30346 (hereinafter
collectively referred to as the "Parties").
This Amendment #1 shall be made an integral part of the Agreement. The
Parties hereto agree as follows:
SECTION I. REVISIONS. The Agreement is hereby amended to reflect the following
changes:
1.1 Section 10.2 of The Agreement shall be revised and replaced by the
following:
[***]
1.2 Section 10.2.1 if the Agreement shall be revised and replaced by the
following:
Except as outlined immediately below, BSLD and its Affiliates shall
purchase InterLATA services described in this Agreement on an
exclusive basis from TELTRUST through the Ramp Up Period and the
Initial Contract Term, and any extensions pursuant only to Section
10.2.2 below. Exclusivity shall mean that at least ninety percent
(90%) of such services provided to BSLD will be provided by
TELTRUST.
Subsections (1), (2), (3) and (4) of Section 10.2.1 of the Agreement
shall remain unchanged.
SECTION II. ADDITIONS. The Agreement is hereby amended to reflect the
following additional language:
2.1 The Agreement shall include a new Section 10.2.3 as follows:
[***]
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Amendment #1 Page 1
* Portions of this Agreement have been redacted to preserve the
Company's confidential information.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
executed by their duly authorized officers.
BELLSOUTH LONG DISTANCE, INC. TELTRUST COMMUNICATIONS
SERVICES, INC.
By: /s/ Richard S. Pontin By: /s/ Marc B. Cohen
------------------------------ ---------------------------------------
Name: Richard S. Pontin Name: Marc B. Cohen
Title: Executive Vice President, Title: Executive Vice President & C.F.O.
Business Operations
Date: 1/14/96 Date: 1/13/97
---------------------------- ------------------------------------
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Amendment #1 Page 2
<PAGE>
AMENDMENT #2 TO THE OPERATOR AND NETWORK SERVICES AGREEMENT ("THE AGREEMENT") OF
NOVEMBER 21, 1996, BY AND BETWEEN TELTRUST COMMUNICATIONS SERVICES, INC.
("TELTRUST") AND BELLSOUTH LONG DISTANCE, INC. ("BSLD")
THIS AMENDMENT #2 is entered into by and between TELTRUST COMMUNICATIONS
SERVICES, INC. ("TELTRUST"), a Utah corporation with its principal place of
business at 221 North Charles Lindbergh Drive, Salt Lake City, Utah 84116 and
BELLSOUTH LONG DISTANCE, inc. ("BSLD"), a Delaware corporation with its
principal place of business at 32 Perimeter Center East, Atlanta, GA 30346
(hereinafter collectively referred to as the "Parties").
This Amendment #2 shall be made an integral part of the Agreement. The
Effective Date of this Amendment #2 is April 1, 1997. The Parties agree as
follows:
SECTION I. ADDITIONS. The Agreement is hereby amended to reflect the following
changes:
1.1 Exhibit I of the Agreement shall include the following additional
Charges for Services:
[***]
* Minute of Use charges will be billed in six (6) second increments, or
in incremental charges as may be billed to Teltrust by its contracted
network facilities providers.
** LEC LIDB Tariff query rates are attached as Exhibit IC.
# Peak Charges shall apply from 8:00 A.M. through 5:00 P.M. Monday
through Friday; Off-Peak Charges shall apply from 5:00 P.M. through
8:00 A.M. Monday through Friday, and during all hours on Saturday and
Sunday.
## Management Fee applies only when BSLD elects to utilize TELTRUST's 800
Access (or any of TELTRUST's contracted network facilities providers)
or Domestic or International Call Termination services, or both.
* Portions of this Agreement have been redacted to preserve the
Company's confidential information.
<PAGE>
1.2 Exhibit IA, IB and IC are included as attachments to this Amendment
#2.
IN WITNESS WHEREOF, the Parties hereto caused this Amemdment to be executed
by their duly authorized officers.
BELLSOUTH LONG DISTANCE, INC. TELTRUST COMMUNICATION
SERVICES, INC.
By: /s/ Victor E. Jarvis By: /s/ Marc B. Cohen
------------------------- ------------------------
Name: Victor E. Jarvis Name: Marc B. Cohen
Title: Senior Vice President,-CFO Title: President/CEO
Date: 7/3/97 Date: 6/26/97
------------------------- ------------------------
<PAGE>
AMENDMENT #2 TO THE OPERATOR AND NETWORK SERVICES AGREEMENT
-------------------------------------------------------------------------
EXHIBIT IA
RATE ELEMENTS OUT OF REGION
AND
OVERFLOW IN REGION TERMINATION
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the
Company's confidential information.
[Prior to redaction of confidential information this Exhibit
comprised 4 pages.]
<PAGE>
AMENDMENT #2 TO THE OPERATOR AND NETWORK SERVICES AGREEMENT
-------------------------------------------------------------------
EXHIBIT 1B
RATE ELEMENTS
FOR INTERNATIONAL TERMINATION
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised
6 pages.]
<PAGE>
AMENDMENT #2 TO THE OPERATOR AND NETWORK SERVICES AGREEMENT
-------------------------------------------------------------------------
EXHIBIT IC
RATE ELEMENTS
FOR VALIDATION
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised
1 page.]
<PAGE>
AMENDMENT #3 TO THE OPERATOR AND NETWORK SERVICES AGREEMENT
("THE AGREEMENT") OF NOVEMBER 21, 1996, BY AND BETWEEN TELTRUST
COMMUNICATIONS SERVICES, INC. ("TELTRUST") AND BELLSOUTH LONG
DISTANCE, INC. ("BSLD")
THIS AMENDMENT #3 is entered into by and between TELTRUST COMMUNICATIONS
SERVICES, INC. ("TELTRUST"), a Utah corporation with its principal place of
business at 221 North Charles Lindbergh Drive, Salt, Lake City, Utah 84116 and
BELLSOUTH LONG DISTANCE, INC. ("BSLD"), a Delaware corporation with its
principal place of business at 32 Perimeter Center East, Atlanta GA 30346
(hereinafter collectively referred to as the "Parties").
This Amendment #3 shall be made an integral part of the Agreement. The
Effective Date of this Amendment #3 is October 15, 1997. The Parties agree as
follows:
SECTION I ADDITIONS. The Agreement is hereby amended to reflect the following
additional language:
1.1. SECTION 1 ("CONTRACT DEFINITIONS") shall include the following terms.
1.46 GENERAL ASSISTANCE: An automated service offering from the
proprietary platform that enables End User Customer to obtain
calling card information or other like information from
BellSouth, without requiring a call to be billed by TELTRUST.
1.47 SERVICE CONTROL POINT (SCP): A network element that provides
service specific information to a Service Switching Point (SSP).
The means to which queries against the BSLD proprietary database
may be made.
[***]
PROPRIETARY/CONFIDENTIAL
PAGE I
* Portions of this Agreement have been redacted to preserve the
Company's confidential information.
<PAGE>
[***]
1.3 The attached EXHIBIT XV, "BellSouth Long Distance Automated Script
Call Flow" is hereby added to the Agreement and is fully
incorporated therein by this reference.
SECTION II. REVISIONS. The Agreement is hereby amended to reflect the following
changes:
2.1 SECTION 2.3 ("VALIDATION SERVICES") shall be revised and replaced by
the following changes:
[***]
PROPRIETARY/CONFIDENTIAL
PAGE 2
* Portions of this Agreement have been redacted to preserve the
Company's confidential information.
<PAGE>
[***]
PROPRIETARY/CONFIDENTIAL
PAGE 3
* Portions of this Agreement have been redacted to preserve the
Company's confidential information.
<PAGE>
[***]
PROPRIETARY/CONFIDENTIAL
PAGE 4
* Portions of this Agreement have been redacted to preserve the
Company's confidential information.
<PAGE>
[***]
2.2 SECTION 3 ("PROPRIETARY CALLING PLATFORM SERVICES") shall be revised
and replaced by the following changes:
PROPRIETARY/CONFIDENTIAL
PAGE 5
* Portions of this Agreement have been redacted to preserve the
Company's confidential information.
<PAGE>
3.1 Card Issuance Procedures.
3.1.1 BSLD or its Affiliates may issue proprietary calling cards
or proprietary calling access numbers, or both, to its
customers. TELTRUST will provide platform services, as
described in this Section 3, for calls placed utilizing
BSLD, Affiliate or selected IXC proprietary access codes.
Charges for services are outlined in Exhibit I, "Charges For
Services", attached hereto.
3.1.2 Proprietary card numbers shall be issued in a fourteen (14)
digit format consistent with TELTRUST validation database
structures. The Parties will work together to determine
parameters governing the timing and mechanisms of card
number activation consistent with the capabilities and
mutual objectives of the Parties.
3.2 Proprietary Platform.
3.2.1 End User Customers will place calls by dialing a proprietary
800 or 888 access number, which will be routed by BSLD or
its selected IXC to TELTRUST's switching and operator
service platforms.
3.2.2 BSLD will manually supply to TELTRUST the prompts and menu
selections it wishes to make available to its customers on
the proprietary access platform, and TELTRUST will implement
such prompts and menu selections (including where requested,
voice recordings), consistent with the features and
functionality of the platforms, within fifteen (15) business
days.
3.2.3 BSLD or its selected IXC shall be responsible for costs
associated with inbound or outbound network facility to
deliver calls to TELTRUST's switch(es) or costs to
facilitate the interconnection from TELTRUST switch(es) to
BSLD-contracted termination providers.
3.3 Call Types.
The following types of calls will be permitted on the proprietary
platform, through End User-selected options at the platform menu:
3.3.1 Fully Automated Calling Card Calls. These call types shall
include BSLD proprietary cards, non-proprietary LEC calling
card calls, and credit card calls. They are allowed by End
User Customers entering a "1" at the platform menu.
3.3.2 Automated Collect Calls. These call types are allowed by End
User Customers entering a "2" at the platform menu.
3.3.3 Directory Assistance Calls. These call types are allowed
either by End User Customers entering a "3" at the platform
menu, or by End User
Proprietary/Confidential
Page 6
<PAGE>
Customers placing a fully automated calling card call with
Directory Assistance identified as the destination number.
3.3.3a) TELTRUST shall provide trained directory assistance
operators, access to its national database for
United States listings twenty-four (24) hours a day,
seven (7) days a week. TELTRUST shall provide
directory assistance services for End User Customer
inquiries who identify the city and state in which
the desired called party resides.
3.3.3 General Assistance and other Customer Service Calls. These
call types are allowed by End User Customers entering a "4"
at the platform menu.
3.3.4a) TELTRUST shall provide connection to BSLD's
designated customer care/fulfillment center when End
User Customers enter a "1" at the General Assistance
menu in order for End User Customers to order
BellSouth calling card calls. The telephone number
will be provided by BSLD.
3.3.4b) TELTRUST shall provide connection to BSLD's
designated fraud or customer service center when End
User Customers enter a "2" at the General Assistance
menu in order for End User Customers to gain calling
card assistance from BellSouth. BSLD will provide
dialing instructions to TELTRUST to complete these
calls.
3.3.4c) TELTRUST live operators will connect End User
Customers requesting card fulfillment services to
BSLD's designated center. TELTRUST live operators
will also connect End User Customers with customer
service or card troubles to BSLD's designated fraud
or customer service center via an unannounced
collect call to that center.
3.3.5 Live Operator Services. Access to a live operator for call
assistance will be provided by TELTRUST when an End User
Customer enters a "0" at the platform menu, when the End
User Customer does not successfully complete a call from
elsewhere on the platform menu, or when the End User
Customer does not enter a digit to complete the call
processing.
PROPRIETARY/CONFIDENTIAL
PAGE 7
<PAGE>
TELTRUST shall provide trained bilingual (English and
Spanish) live call assistance operators twenty-four (24)
hours a day, seven (7) days a week. Call assistance
operators shall provide live operator services for the
following types of calls (subject to AIN, LIDB or credit
card validation measures):
(1) Operator Assisted Calling Card Call
(2) Operator Assisted Credit Card Call
(3) Operator Assisted Collect Call
(4) Operator Assisted Third-Party Billed Call
These services may be provided on a station-to-station or
person-to-person basis.
3.3.6 Other call types or services may be added to the existing
proprietary platform as agreed upon in writing by the
Parties.
3.4 Call records charged via proprietary access means that are to be
billed to BSLD, Affiliate or selected IXC customers will be
submitted, with all necessary information, to BSLD in order that
billing may be effected. Call records will be submitted in a
format as described in EXHIBIT IV once each business day, unless
otherwise agreed to in writing, for the previous day's (or days')
applicable call activity to BSLD's designated location. The
method of data transfer shall be CONNECT:Direct.
3.5 SPANISH PLATFORM. TELTRUST will implement all features and
functionality described in SECTION 3.3 on a separate platform
operating in the Spanish language. Access will be by an End User
Customer pressing the "*" key upon reaching the proprietary menu.
All scripts, prompts and features available from that point
forward shall be provided in Spanish, including, when necessary,
defaults or selections to access a Spanish-speaking operator.
This platform shall be owned by BSLD in accordance with SECTION
19.
2.3 SECTION 10.1.1 shall be revised to include the following sections:
[***]
PROPRIETARY/CONFIDENTIAL
PAGE 8
* Portions of this Agreement have been redacted to preserve the
Company's confidential information.
<PAGE>
2.4 SECTION 10.1.3 shall be revised and replaced by the following section:
[***]
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
executed by their duly authorized officers.
BELLSOUTH LONG DISTANCE, INC. TELTRUST COMMUNICATIONS
SERVICES, INC.
By: /s/ William F. Reddersen By: /s/ Marc B. Cohen
------------------------ -----------------------
Name: William F. Reddersen Name: Marc B. Cohen
Title: Group President Title: President and C.E.O
Bellsouth Long Distance & Video Services
Date: 10/15/97 Date: 10/15/97
----------------------- ----------------------
* Portions of this Agreement have been redacted to preserve the
Company's confidential information.
<PAGE>
EXHIBIT XV
BSLD'S PROPRIETARY ACCESS PLATFORM
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 10
pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
----------------------------------------------
EXHIBIT I.
CHARGES FOR SERVICES
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 2 pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
---------------------------------------------------------
EXHIBIT II.
VOLUME PROJECTIONS
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
---------------------------------------------------------
EXHIBIT III.
PERFORMANCE STANDARDS
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 2 pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-----------------------------------------------------
EXHIBIT IV.
CDR SAMPLE
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 3 pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
------------------------------------------------------
EXHIBIT V.
CALL RATING COMPONENTS
DATABASE STRUCTURE/COMPONENT DEFINITIONS
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 8 pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
--------------------------------------------------
EXHIBIT VI.
OSO ORDER FORM
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 4 pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-----------------------------------------------------------
EXHIBIT VII.
ACD FORM
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
TELTRUST COMMUNICATIONS SERVICES, INC.
ADD, CHANGE OR DELETE FORM (ACD)
<TABLE>
Customer Number: ________________________ (Teltrust use only) Date:___________________________________
CLIENT NAME: ___________________________ CLIENT NUMBER: ______________________________________________
CHANGE REQUESTED BY: _________________________________________________________________________________
SITE NAME: ___________________________________________________________________________________________
SPECIAL INSTRUCTIONS FOR CHANGE (OPTIONAL) ___________________________________________________________
Any changes to dialing instructions require a NEW OSO
______________________________________________________________________________________________________
Select One: [_] ADD [_] CHANGE [_] DELETE [_] PICLINE
Select One: [_] ANI [_] AUTH [_] LOCATION [_] RATES [_] BLOCK 1+ [_] ALLOW 1+
<S> <C> <C> <C> <C> <C> <C>
ORIGINAL ANI NEW ANI NEW SITE NAME and/or RATES
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
(______) ____________________________(______) ________________________________________________________
______________________________________________________________________________________________________
Mail: Fax:
Teltrust Communications Services, Inc. (801) 535-2080
221 N. Charles Linbergh Dr.
Salt lake City, UT 84116
BY: _______________________________ For Client Services Call: (801) 535-2000
(Teltrust use only)
</TABLE>
[LOGO OF TELTRUST APPEARS HERE]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-----------------------------------------------------------
EXHIBIT VIII.
DESCRIPTION OF MANAGEMENT REPORTS
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 20
pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
---------------------------------------------------------
EXHIBIT IX.
TELTRUST DATABASE CONFLICT POLICY
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
TELTRUST DATABASE CONFLICT POLICY
A database conflict occurs in the event that a client submits an ANI for order
entry, either by OSO (Operator Services Order) form or by file transfer, which
already exists in the Teltrust Master Site Database under another client's
account.
In order to resolve the conflict, Letters of Agency (LOAs) or other appropriate
documentation (refer to the "Accepted Proof of Agency / Ownership" section
below) is requested via fax.
Both clients involved receive a written notice of the database conflict listing
the ANIs involved. Each client is given a twenty-four hour deadline to submit
proper documentation to Teltrust via fax. The twenty-four hour deadline insures
that Teltrust will provide a timely resolution to the database conflict.
If one client fails to submit the requested proof of ownership, the ANIs will,
by default, be assigned to the other client's account. If both parties fail to
provide proof of ownership, the ANI remains in the existing account.
ACCEPTED PROOF OF AGENCY / OWNERSHIP INCLUDES:
LOA:
----
Teltrust requires that FCC LOA guidelines are met. Refer to the sample FCC
approved LOA attached.
Phone Bill on a PAL (Public Access Line):
-----------------------------------------
The most recent bill available should be submitted. All associated ANIs
must be indicated on the bill with the proper Billing Name and Address
(BNA) listing the customer of record at the LEC level. The customer of
record on the bill should be Teltrust's client.
Contract or Notice of Acquisition:
----------------------------------
All associated ANIs must be listed. The effective date of the agreement and
signatures from both parties should be included. A contract or notice of
acquisition only applies if one Teltrust client contracts with or sells
phones to another Teltrust client.
In reviewing the documentation from each client, Teltrust will evaluate the
dates on each agreement and the ANIs listed on the document. The most recently
dated document will take priority. Teltrust will review signatures to insure
that the proper authority has been provided. Property managers and owners are
most commonly the authorized parties designated to choose long distance
providers / carriers. Teltrust reserves the right to contact the party whose
signature appears on the document to verify validity.
Both clients will receive a written notice of the database conflict resolution.
<PAGE>
LETTER OF AGENCY AND AUTHORITY
- --------------------------------------------------------------------------------
Company Name:___________________________________________________________________
Address:________________________________________________________________________
City:_________________________________________________State:__________Zip:______
Billing Name:_______________________________________Type:_______________________
Billing Address:________________________________________________________________
Street Address:_________________________________________________________________
City:_________________________________________________State:__________Zip:______
Contact Name:_______________________________________Title:______________________
Contact Phone Number:___________________________________________________________
Federal Tax ID or SS# of Site Provider:_________________________________________
The following (public, business, or residential) telephones are among those
covered by this LOA. (Use attached form for additional telephone numbers)
( ) ( ) ( ) ( )
- ------------------- ------------------- ----------------- ----------------
( ) ( ) ( ) ( )
- ------------------- ------------------- ----------------- ----------------
( ) ( ) ( ) ( )
- ------------------- ------------------- ----------------- ----------------
( ) ( ) ( ) ( )
- ------------------- ------------------- ----------------- ----------------
To whom it may concern: PIC Change Charge: $__________ + tax.
- --------------------------------------------------------------------------------
Current carrier, _____________________ to be changed to selected carrier:
TELTRUST COMMUNICATION SERVICES, INC.
221 North Charles Lindbergh Drive
Salt Lake City, UT 84116
Phone Number: 801-535-2000
CIC CODE: 485
as the PIC for [_] Interlata [_] Intralata [_] Interlata/Intralata
- --------------------------------------------------------------------------------
To whom It May Concern:
The purpose of this Letter of Agency and Authority (LOA) is to advice you that
we have entered into a contractual agreement with _____________________________,
to act as our sole and exclusive communications representative for all relations
with any person or company, including the local telephone company (LEC) and/or
interexchange carrier (IXC) for public telecommunications services. This LOA
supercedes any previous Letter(s) of Agency and/or Authority.
I hereby represent and warrant that I am authorized to make decisions regarding
telecommunication, including decisions regarding presubscription, on behalf of
the undersigned individual or entity.
_______________________ ________
Company Name Date
_______________________ ________ __________________________
Signature of Authorized Date Printed Name of Authorized
Representative Representative
- --------------------------------------------------------------------------------
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-----------------------------------------------------------
EXHIBIT X.
SAMPLE PREPAID CALLING REPORTS
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[LETTERHEAD OF TELTRUST APPEARS HERE]
DEBIT CARD INVOICE SUMMARY
PERIOD 04/01/96 - 04/30/96 05/03/96
<TABLE>
<CAPTION>
TOTAL TIME CHARGES
- --------------------------------------------------------------------------------
TIME CHARGES
- --------------------------------------------------------------------------------
<S> <C> <C>
International 288.00 $222.700
Mexico 25.00 $ 30.670
Domestic 2587.18 $422.182
Information Services 8.00 $ 1.880
Directory Assistance 35.00 $ 17.500
----------------------------
TOTAL TIME CHARGES 2943.18 $ 694.93
UNITS
- --------------------------------------------------------------------------------
UNITS CHARGES
- --------------------------------------------------------------------------------
International 0 0.00 $ 0.000
Mexico 0 0.00 $ 0.000
Domestic 0 0.00 $ 0.000
Directory Assistance 0 0.00 $ 0.000
-------------------------------
TOTAL UNITS CHARGES 0 0.00 $ 0.00
- --------------------------------------------------------------------------------
INTERNATIONAL ORIGINATION CHARGES
- --------------------------------------------------------------------------------
TOTAL INTERNATIONAL ORIGINATION CHARGES 0.00 $ 0.000
- --------------------------------------------------------------------------------
OTHER CHARGES & FEES
- --------------------------------------------------------------------------------
Minimum System Charges for your account; $0
Incidental Charges $ 0.00
Federal Excise Tax $ 29.21
Recredits $ 41.40
- --------------------------------------------------------------------------------
TOTAL AMOUNT DUE $ 682.74
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
================================================================================
[LETTERHEAD OF TELTRUST TELESERVICES, INC. APPEARS HERE]
Page: 1
<TABLE>
<CAPTION>
RECREDITS BY ACCOUNT
Period: 01/01/96 - 01/31/96 03/12/96
EXPIRE TRANSACT
CONTROL NUMBER DATE CREDIT CARD DATE AMOUNT FEE % TOTAL
=============================================================================================
<S> <C> <C> <C> <C> <C> <C>
0000000005035171 01/02/96 Visa 03/96 25.00 8 23.00
-----------------------------
Total for Sub Account: 5035 25.00 23.00
=============================================================================================
0000000005038320 01/09/96 Visa 10/97 25.00 8 23.00
-----------------------------
Total for Sub Account: 5038 25.00 23.00
- ---------------------------------------------------------------------------------------------
TOTAL 50.00 46.00
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[LETTERHEAD OF TELTRUST APPEARS HERE]
Page 4
DOMESTIC MINUTES DETAIL
Period:01/01/96 - 01/31/96 03/14/96
<TABLE>
<CAPTION>
DIST ID CONTROL NUMBER CALLS DURATION RATE TOTAL
================================================================================
<S> <C> <C> <C> <C> <C>
12185732 0000000005732655 1 24:48 0.500 12.400
12185732 0000000005732663 6 19:12 0.500 9.600
12185732 0000000005732664 2 1:12 0.500 0.600
12185732 0000000005732666 1 6:00 0.500 3.000
12185732 0000000005732729 1 21:54 0.500 10.950
12185732 0000000005732730 1 0:54 0.500 0.450
12185732 0000000005732732 5 14:30 0.500 7.250
12185732 0000000005732747 5 17:36 0.500 8.800
12185732 0000000005732751 2 24:06 0.500 12.050
12185732 0000000005732772 1 10:42 0.500 5.350
12185732 0000000005732774 8 20:36 0.500 10.300
12185732 0000000005732775 18 17:24 0.500 8.700
12185732 0000000005732777 12 19:54 0.500 9.950
12185732 0000000005732778 1 22:42 0.500 11.350
12185732 0000000005732779 1 23:00 0.500 11.500
12185732 0000000005732780 3 21:48 0.500 10.900
12185732 0000000005732781 6 18:24 0.500 9.200
12185732 0000000005732782 6 19:06 0.500 9.550
12185732 0000000005732783 2 3:18 0.500 1.650
12185732 0000000005732784 1 0:30 0.500 0.250
12185732 0000000005732786 1 23:00 0.500 11.500
12185732 0000000005732787 3 22:24 0.500 11.200
12185732 0000000005732788 11 19:12 0.500 9.600
12185732 0000000005732789 7 20:24 0.500 10.200
12185732 0000000005732791 1 0:54 0.500 0.450
12185732 0000000005732792 4 4:06 0.500 2.050
12185732 0000000005732797 5 10:12 0.500 5.100
12185732 0000000005732798 19 21:54 0.500 10.950
12185732 0000000005732836 1 0:48 0.500 0.400
12185732 0000000005732859 1 0:30 0.500 0.250
12185732 0000000005732861 11 20:00 0.500 10.000
12185732 0000000005732863 1 9:36 0.500 4.800
12185732 0000000005732865 1 3:12 0.500 1.600
12185732 0000000005732982 2 14:12 0.500 7.100
12185732 0000000005732986 2 19:48 0.500 9.900
12185732 0000000005732989 1 0:30 0.500 0.250
12185732 0000000005732992 1 0:30 0.500 0.250
--------------------------------------------
Totals for Dist ID: 12185732 192 621:24 $310.700
--------------------------------------------
Totals for Sub Account: 1218 641 2320:24 $1,160.200
- -------------------------------------------------------------------------------
TOTALS 641 2320:24 $1,160.200
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
[LOGO]
[LETTERHEAD OF TELTRUST TELESERVICES, INC.]
Page: 8
INTERNATIONAL MINUTES DETAIL
Period: 01/01/96 - 01/31/96 03/15/96
<TABLE>
<CAPTION>
FIRST ADD'L
DIST ID COUNTRY CONTROL NUMBER CALLS DURATION MIN MIN TOTAL
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
00120012 CANADA 0000000058846036 4 5:00 0.52 0.00 2.600
00120012 CANADA 0000000058847064 3 13:00 0.52 0.52 6.760
00120012 COSTA RICA 0000000058846060 1 13:00 1.64 1.64 21.320
00120012 COSTA RICA 0000000058846061 1 5:00 1.64 1.64 8.200
-----------------------------------------------
Totals for Dist ID: 00120012 17 52:00 $ 51.200
00030472 DOMINICAN RE 0000000058836365 3 6:00 1.26 1.26 7.560
-----------------------------------------------
Totals for Dist ID: 00030472 3 6:00 $ 7.560
00010507 GERMANY 0000000005881162 2 4:00 1.10 0.00 4.400
-----------------------------------------------
Totals for Dist ID: 00010507 2 4:00 $ 4.400
00120012 GERMANY 0000000058846068 5 11:00 1.10 1.10 12.100
-----------------------------------------------
Totals for Dist ID: 00120012 5 11:00 $ 12.100
00020179 HAWAII 0000000005886190 1 5:00 0.47 0.47 2.350
00020179 HAWAII 0000000058861108 1 14:00 0.47 0.47 6.580
-----------------------------------------------
Totals for Dist ID: 00020179 2 19:00 $ 8.930
00120012 HAWAII 0000000058847054 1 1:00 0.47 0.00 0.470
00120012 JAMAICA 0000000058846049 1 1:00 1.96 0.00 1.960
00120012 NETHERLANDS 0000000058846059 1 2:00 0.99 0.99 1.980
00120012 SOUTH AFRICA 0000000058847027 1 1:00 1.85 0.00 1.850
00120012 SOUTH AFRICA 0000000058847059 2 2:00 1.85 0.00 3.700
00120012 SWEDEN 0000000058846065 1 5:00 0.83 0.83 4.150
-----------------------------------------------
Totals for Dist ID: 00120012 7 12:00 $ 14.110
00030502 UNITED KING 0000000005883892 1 12:00 0.70 0.70 8.400
-----------------------------------------------
Totals for Dist ID: 00030502 1 12:00 $ 8.400
00120012 UNITED KING 0000000058846014 3 30:00 0.70 0.70 21.000
00120012 ZIMBABWE 0000000058847015 2 3:00 2.83 2.83 8.490
00120012 ZIMBABWE 0000000058847048 2 5:00 2.83 2.83 14.150
-----------------------------------------------
Totals for Dist ID: 00120012 7 38:00 $ 43.640
-----------------------------------------------
Totals for Sub Account: 5884 85 256:00 $198.280
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
00040021 ALASKA 0000000058829508 2 2:00 0.47 0.00 0.940
00040021 ALASKA 0000000058829509 5 52:00 0.47 0.47 24.440
00040021 CANADA 0000000005882107 1 12:00 0.52 0.52 6.240
00040021 CANADA 0000000005882108 2 17:00 0.52 0.52 8.840
</TABLE>
<PAGE>
[LETTERHEAD OF TELTRUST APPEARS HERE]
Page: 3
MEXICO MINUTES DETAIL
Period: 01/01/96 - 01/31/96 03/14/96
<TABLE>
<CAPTION>
DAY DAY NIGHT NIGHT DAY NIGHT
DIST ID CONTROL NUMBER DURATION 1ST MIN ADD MIN 1ST MIN ADD MIN COUNT COUNT TOTAL
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
00130455 0000000058848050 2:00 0.55 0.55 0.00 0.00 1 0 1.100
00130455 0000000058848123 1:00 1.29 1.29 0.00 0.00 1 0 1.290
--------------------------------------------------------------------------------
Totals for Dist ID: 00130455 6:00 3 1 $6.360
--------------------------------------------------------------------------------
Totals for Sub Account: 5884 48:00 18 10 $75.480
========================================================================================================================
00010001 0000000000588716 1:00 0.55 0.55 0.00 0.00 1 0 0.550
--------------------------------------------------------------------------------
Totals for Dist ID: 00010001 1:00 1 0 $0.550
--------------------------------------------------------------------------------
Totals for Sub Account: 5886 1:00 1 0 $0.550
- ------------------------------------------------------------------------------------------------------------------------
TOTALS 168:00 51 21 $239.67
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[LETTERHEAD OF TELTRUST APPEARS HERE]
Page: 1
IMFORMATIONAL SERVICES DETAIL
Period: 01/01/96 - 01/31/96 03/15/96
<TABLE>
<CAPTION>
CONTROL NUMBER CALLS DURATION RATE TOTAL
==================================================================================================
<S> <C> <C> <C> <C> <C>
0000000030334159 1 1:00 0.300 0.300
----------------------------------------------
Totals for Sub Account: 3033 1 1:00 $0.300
==================================================================================================
0000000005042254 1 1:00 0.300 0.300
0000000050421448 1 1:00 0.300 0.300
000000050429944 1 2:00 0.300 0.600
----------------------------------------------
Totals for Sub Account: 5042 3 4:00 $1.200
==================================================================================================
0000000005044126 1 1:00 0.300 0.300
----------------------------------------------
Totals for Sub Account: 5044 1 1:00 $0.300
- --------------------------------------------------------------------------------------------------
TOTALS 5 6:00 $1.80
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
---------------------------------------------------------
EXHIBIT XI.
FRAUD SYSTEM GUIDELINES
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
---------------------------------------------------------
EXHIBIT XII.
EMERGENCY CALL HANDLING PROCEDURES
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
---------------------------------------------------------
EXHIBIT XIII.
NETWORK CONFIGURATION DIAGRAMS
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 5 pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
---------------------------------------------------------
EXHIBIT XIV.
SERVICE LEVEL AGREEMENTS
FOR PROVISION OF DAILY CDR
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
EXHIBIT 10.8
OPERATOR AND NETWORK SERVICES AGREEMENT
--------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION I.
CONTRACT DEFINITIONS...............................................Page 1
SECTION II.
COMPUTATION AND REMITTANCE OF COMMISSION DUE BSPC..................Page 4
SECTION III.
OPERATOR SERVICES..................................................Page 5
SECTION IV.
ADDITIONAL SERVICES................................................Page 7
SECTION V.
PROVlSION AND MAINTENANCE OF ANI DATABASES.........................Page 7
SECTION VI.
VALIDATION, SWITCHING AND NETWORK FACILITIES.......................Page 8
SECTION VII.
REPORTING, SETTLEMENT AND REMITTANCE OF FUNDS......................Page 13
SECTION VIII.
SERVICE IMPLEMENTATION.............................................Page 15
SECTION IX.
MINIMUM LIVE OPERATOR SETTLEMENTS..................................Page 16
SECTION X.
TERM/EXCLUSIVITY...................................................Page 17
SECTION XI.
TERMINATION OF AGREEMENT...........................................Page 18
SECTION XII.
BRANDING AND REGULATORY ISSUES.....................................Page 18
SECTION XIII.
CONFIDENTIALITY AND NON-DISCLOSURE.................................Page 19
SECTION XIV.
INDEMNIFICATION AND LIMITATION OF LIABILITY........................Page 21
SECTION XV.
DISPUTE RESOLUTION.................................................Page 21
SECTION XVI.
TAXES..............................................................Page 22
SECTION XVII.
MISCELLANEOUS......................................................Page 22
</TABLE>
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Table of Contents
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-------------------------------------------------
TABLE OF CONTENTS
ADDENDUM #1
ADDENDUM #2
ADDENDUM #3
EXHIBIT I.
RATE ELEMENTS
EXHIBIT IA.
RATE ELEMENTS OUT OF REGION AND OVERFLOW IN REGION TERMINATION
EXHIBIT lB.
RATE ELEMENTS FOR INTERNATIONAL TERMINATION
EXHIBIT IC.
RATE ELEMENTS FOR VALIDATION
EXHIBIT II.
VOLUME PROJECTIONS
EXHIBIT III.
PERFORMANCE STANDARDS
EXHIBIT IV.
CDR SAMPLE
EXHIBIT V.
CALL RATING COMPONENTS
EXHIBIT VI.
OSO ORDER FORM
EXHIBIT VII.
ACD FORM
EXHIBIT VIII.
DESCRIPTION OF MANAGEMENT REPORTS
EXHIBIT IX.
TELTRUST DATABASE CONFLICT POLICY
EXHIBIT X.
PlC PROCESS
EXHIBIT XI.
FRAUD SYSTEM GUIDELINES
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Table of Contents
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
----------------------------------------------------
TABLE OF CONTENTS
EXHIBIT XII.
EMERGENCY CALL HANDLING PROCEDURES
EXHIBIT XIII.
NETWORK MAP
EXHIBIT XIV.
SERVICE LEVEL AGREEMENTS FOR PROVISION OF DAILY CDR
EXHIBIT XV.
SWITCHED ACCESS FGD TARIFF RATES FOR BELLSOUTH
EXHIBIT XVI.
WEEKLY INCOME SUMMARY
EXHIBIT XVII.
SAMPLE REMITTANCE STATEMENT
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Table of Contents
<PAGE>
EXHIBIT 10.8
INTERLATA OPERATOR AND NETWORK SERVICES AGREEMENT
THIS AGREEMENT is entered into this 24th day of February, 1997 ("Effective
Date") by and between TELTRUST COMMUNICATIONS SERVICES, INC. ("TELTRUST"), a
Utah corporation with its principal place of business at 221 North Charles
Lindbergh Drive, Salt Lake City, Utah 84116 and BELLSOUTH PUBLIC COMMUNICATIONS,
INC., a Georgia corporation with its principal place of business at 75 Bagby
Drive Homewood, AL 35209 (hereinafter referred to as "BSPC"). TELTRUST and BSPC
may be collectively referred to in this Agreement as the "Parties."
R E C I T A L S:
WHEREAS, TELTRUST offers live operator services, automated platform
services, directory assistance services and related telecommunications services;
and
WHEREAS, BSPC desires to obtain TELTRUST's live operator, automated call
processing, directory assistance and other related telecommunications services,
detailed below, in connection with its business objectives; and
WHEREAS, based upon the specific mutual obligations and commitments as set
forth below, the Parties desire to enter into a business relationship in which
TELTRUST will provide operator and network services to BSPC pay telephones and
other BSPC premise equipment, and BSPC will share in the revenues generated by
TELTRUST in providing such services.
NOW, THEREFORE, in consideration of mutual covenants herein and other good
and valuable consideration, receipt of which is hereby acknowledged, the Parties
hereto agree as follows:
SECTION I. CONTRACT DEFINITIONS.
1.1 ACCESS: Refers to the network origination of a telephone call. Access
may be via switched Feature Group D service or 800 or 888 service. Access, as
referenced in this Agreement, does not include the use (and cost of use) of
underlying private line network, e.g. T-1 facility.
1.2 AFFILIATE: A company or entity in which BellSouth Corporation, as parent
of BSPC, holds an equity or equivalent financial interest, e.g. BellSouth
Cellular, BellSouth Telecommunications, etc.
1.3 ANI: Automatic Number Identification, e.g., a telephone number.
1.4 AUTOMATED CALL PROCESSING: Services provided through TELTRUST's automated
switching platform.
1.5 AUTOMATED COLLECT CALL: A collect call that is placed through a switching
platform that performs the same functions as an operator assisted collect call,
i.e. obtaining the caller's name, acceptance of charges by the bill to party,
etc., through a computerized mechanism.
1.6 BELLSOUTH REGION: The nine state area currently served by BellSouth
Telecommunications, consisting of Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina, and Tennessee.
______________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC Proprietary & Confidential
interLATA Operations and Network Services Agreement Page 1
<PAGE>
1.7 BILLING TELEPHONE NUMBER ("BTN"): The number associated with a specific
account which carries all pertinent billing information to which a completed
operator or network platform services call will be billed.
1.8 BONG TONE: The tone heard by an End User after having reached TELTRUST's
automated platforms.
1.9 CALL ATTEMPT: An attempt made by an End User to place any call type
contemplated in this Agreement. A call attempt may result in either a
Completed Call or an Incomplete Call.
1.10 CLEARING HOUSE: The provider of bill clearing services whereby Call
Records are submitted to the LEC for billing and collections via the LEC
billing system.
1.11 CALL RATING SERVICE: Service whereby TELTRUST rates calls using its
software and according to TELTRUST tariffs . See EXHIBIT V, "Call Rating
Components."
1.12 CALL RECORDS: Records relating to individual telephone calls originated
by BSPC's End Users. Also referred to as call detail record or "CCDR."
1.13 CALLING CARD: A non proprietary card issued to End Users, generally by
Local Exchange Carriers, that can be used to bill completed calls. Calling
card databases are maintained via LIDB in order that calling card numbers can
be validated prior to placing and billing a call.
1.14 CASUAL CALLING-DIALING: A call placed by an End User Customer, initiated
by first dialing a carrier identification code, e.g. 10XXX, followed by 0 and
the number to which the End User Customer wishes to be connected. As
referenced by this Agreement, casual calling will originate over circuits
provided to BSPC by TELTRUST. Casual Calling will be permitted to originate
within the BellSouth Region.
1.15 COMMISSION: The portion of revenues generated by TELTRUST, resulting
from the provision of services described in this Agreement to End Users, to
which BSPC will be entitled.
1.16 COMPLETED CALL: A call attempt that reaches the TELTRUST platform or a
TELTRUST live operator, that results in successful connection between the
calling and called number.
1.17 CREDIT CARD: A card issued to End Users by banking or other institutions,
e.g. MasterCard, VISA, American Express, that is used to bill completed calls.
1.18 DIRECT DIAL SERVICE: Also referred to herein as 1+ service or coin sent
paid calling, any call originated from BSPC locations initiated by an End User
who dials 1+ destination number and has deposited coin into a telephone.
1.19 DIRECTORY ASSISTANCE: Service whereby a TELTRUST live operator attempts
to locate a telephone number listing or an address listing, or both, to a BSPC
End User who has dialed 1+NPA 555-1212. Service may also be provided to End
Users who have dialed 0+NPA+555-1212 as an operator services call. In the
event of such a call, both rate elements for Operator Services and Directory
Assistance, as outlined in EXHIBIT I, "Rate Elements," shall be deducted from
BSPC's Commission.
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1.20 EGRESS: Refers to the LEC termination of a telephone call via switched
Feature Group D service.
1.21 END USER CUSTOMER: A consumer who, from a BSPC pay telephone places, or
attempts to place, any type of telephone call as described in this Agreement.
Also referred to as End User.
1.22 FULLY AUTOMATED CALLING CARD CALL: A call placed by dialing 0 plus the
destination number followed by entering a calling card number at the bong tone,
and no live operator intervention is required.
1.23 GROSS REVENUE: The total amount of revenue billed by TELTRUST to End
Users for services described in this Agreement. The term Gross Revenue may be
used to describe such revenue from a single call, or to describe the aggregate
revenue during a certain period of time, e.g. Monthly Gross Revenue.
1.24 INCOMPLETE CALL: A call attempt that reaches the TELTRUST platform or a
TELTRUST live operator that does not result in a connection between the calling
and called number.
1.25 INGRESS: See "Access."
1.26 INTERNATIONAL CALL: A call attempt to a destination other than the United
States and its outlying territories. May include calls placed by dialing 011
or 01 plus the applicable country and city code, or calls placed to other
countries utilizing the North American Numbering Plan.
1.27 INMATE SERVICES: Call traffic generated at correctional facilities in
which BSPC provides telecommunications equipment. As referenced in this
Agreement, Inmate Service traffic will be 1+ dialed on TELTRUST's network and
switching platforms. Inmate Service traffic does not include administrative
calling.
1.28 IXC: lnterexchange Carrier: A provider of long distance transport
services.
1.29 LINE INFORMATION DATABASE ("LIDB"): Database utilized for validation of
billing methods; maintained by Local Exchange Carriers and containing BTNs that
accept billing of 0+ or 0- calls, or both.
1.30 LIVE OPERATOR SERVICES: All services provided by TELTRUST which require
the intervention and assistance of a live operator.
1.31 LOCATION PROVIDER: Entity that is responsible for maintaining the
premises upon which a BSPC pay telephone(s) is located and on whose behalf BSPC
has been given authority to negotiate and contract with an IXC for provision of
interLATA services, including the provision of operator services calls.
1.32 NORTH AMERICAN NUMBERING PLAN: The series of 10 digits (preceded by 1 or
0) dialed to reach a destination in North America, e.g., 0+NPA+NXX+XXXX.
1.33 OPERATOR ASSISTED CALLING CARD CALL: A call billed to a calling card with
the assistance of a live operator.
1.34 OPERATOR ASSISTED CREDIT CARD CALL: A call billed to a credit card with
the assistance of a live operator.
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1.35 OPERATOR ASSISTED COLLECT CALL: A call billed to the called to party with
the assistance of a live operator.
1.36 OPERATOR ASSISTED THIRD-PARTY BILLED CALL: A call billed to a third-party
with the assistance of a live operator.
1.37 OPERATOR ASSISTED GENERAL ASSISTANCE CALL: A call placed to a live
operator by an End User or caller requesting rate information, refund & repair
information, time of day information, and other like information and which does
not result in a call being placed by TELTRUST's operator.
1.38 OUTCLEARING SERVICES: Service whereby TELTRUST sends appropriately rated
Call Records to its Clearinghouse in order to bill the responsible (billed)
party for a completed call.
1.39 PERSON-TO-PERSON CALL: An operator-assisted call in which the caller
requests to speak with a particular person. Charges on a Person-to-Person Call
may be billed to the called party or via an alternative billing method i.e.
credit card, calling card, third-party.
1.40 STATION-TO-STATION CALL: Any operator assisted call in which the calling
party does not specify a party with whom he/she must be connected (e.g. person
to person), and for which billing will occur once answer supervision is
received as a result of the called number answering.
1.41 TERMINATION: Refers to the portion of a telephone call when an outbound
circuit is seized by the TELTRUST switch and answer supervision has been given
by the called party. Termination may be via switched Feature Group D service
or service provided by a third party termination provider. Termination, as
referenced in this Agreement, includes LEC Egress charges and TELTRUST network
transport. Termination within the BellSouth Region, however, does not include
the use (and cost of use) of underlying transport private line network, e.g. T-
1 facility.
1.42 VALIDATION: Process by which a BTN is determined to be authorized and in
good standing by the issuer.
1.43 0+/- CALL ATTEMPT: Call placed when an End User dials zero ("0"), plus
the destination number.
1.44 0- CALL ATTEMPT: Call place when End User dials zero ("0") or zero-zero
("00"), and no destination number or billing method. Destination and billing
information must be requested by an operator and must be manually keyed by the
operator to process the call attempt.
SECTION II. COMPUTATION AND REMITTANCE OF COMMISSION DUE BSPC.
2.1 COMMISSION. TELTRUST will, on a weekly basis, pay BSPC a commission on
all Gross Revenues associated with calls generated from BSPC pay telephones and
other premise equipment owned by BSPC, in which TELTRUST is the designated long
distance carrier of the call.
[***]
2.2 REMITTANCE OF COMMISSIONS TO BSPC. Funds due BSPC based on computed
commissions will be remitted to BSPC as outlined in SECTION 7.4 "Flow of
Funds."
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2.3 OTHER SERVICES. The parties may, from time to time, enter into addendums
to this Agreement governing the provision of additional services by one Party
to the other. It is the intent of the Parties that monies owed either Party by
the other will either be deducted from, or added to, as the case may be,
Commission due BSPC ("Settlement Process").
SECTION III. OPERATOR SERVICES
3.1 LIVE OPERATOR SERVICES.
3.1.1 LIVE OPERATOR SERVICES. TELTRUST shall provide trained bilingual
(English and Spanish) live call assistance operators twenty four hours a
day, seven days a week. Live operator service shall begin at the time of
operator answer and end at the time the operator releases the call. Live
operator service rates are attached hereto as EXHIBIT I, "Rate Elements."
For Commission purposes, live operator service rates shall be deducted
from Gross Revenues for all call attempts whether complete or incomplete.
Live call assistance operators shall provide live operator services for
the following types of calls:
(1) Operator Assisted Calling or Credit Card Calls:
(2) Operator Assisted Collect Calls; and
(3) Operator Assisted Third-Party Billed Calls; and
(4) Operator Assisted General Assistance Calls.
These services may be provided on a station-to-station or person-to-
person basis. TELTRUST shall process International Collect Calls to those
countries as may be requested in writing from BSPC and where proper
billing arrangements have been set and agreed upon by the Parties.
3.2 AUTOMATED CALL PROCESSING.
3.2.1 AUTOMATED CALL PROCESSING SERVICES. TELTRUST shall provide
switching and software platforms for the following:
(1) Automated Collect Calls;
(2) Fully Automated 0+ Dialed Calling Card Calls.
Automated Call Processing rates are attached hereto as EXHIBIT I, "Rate
Elements." For commission purposes, Automated Call Processing service
rates shall be deducted from Gross Revenue for all automated call
attempts, whether completed or incomplete except those call attempts
defaulting to a live operator.
3.3 CALL RATING
3.3.1 TELTRUST shall provide software & other appropriate systems to
format and rate calls, in industry standard EMI format, in order that
Call Records will be submitted either: (1) directly to a Clearing House
pursuant to SECTION 3.4. below, and subject to BSPC's approval and
direction; or (2) to a specific location as directed by BSPC in writing.
Call Rating Service rates are attached hereto as EXHIBIT I, "Rate
Elements," and will be deducted from Gross Revenue in computing BSPC's
commission.
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3.3.2 BSPC shall be responsible for selecting the rate schedules, as
available from TELTRUST filed rates and tariffs, containing the rates to be
charged to End User Customers of BSPC. BSPC may also request TELTRUST to file
tariffs to support additional rate plans. TELTRUST shall file for approval
such requests within ten (10) business days of receipt of such written
request. Any such requests submitted by BSPC shall be within applicable
regulatory guidelines.
3.3.3 BSPC shall forward all rating instructions in writing, signed by
BSPC's authorized employee, to BSPC's designated representative at TELTRUST.
TELTRUST shall implement call rating information on BSPC's requested
implementation date, effective at 12:00 a.m. eastern time, provided that the
requested implementation date is at no fewer than two (2) business days from
receipt. TELTRUST will confirm those rates in writing to BSPC within one (1)
business day of implementation. BSPC shall have 14 days from receipt of
confirmation from TELTRUST to correct rating information confirmed in error.
Thereafter, TELTRUST shall not be liable to BSPC for any damages whatsoever
resulting from incorrect rates, absent system errors, being charged by
TELTRUST software. Components to be rated in a Call Record that is to be
billed to an End User Customer are detailed in EXHIBIT V.
3.4 OUTCLEARING SERVICES.
3.4.1 LEC OUTCLEARING SERVICES. TELTRUST shall supply billing and
collection services to BSPC under the terms and conditions of TELTRUST's
billing agreements with its Clearing House. BSPC shall provide TELTRUST at
least thirty (30) days written notice detailing whether it desires Call
Records be cleared via TELTRUST'S Clearing House or submitted directly to
BSPC, or a location specified by BSPC. In addition to applicable TELTRUST per
call clearing fees detailed in EXHIBIT I, LEC and Clearing House fees, costs
or charges for Bad Debt, Unbillable Call Records, True-ups, Customer Service
Adjustments, and any applicable LEC and Clearing House imposed fees (the
"Clearing Costs") will be deducted from Gross Revenue in computing BSPC's
commission.
3.4.2 MERCHANT OUTCLEARING SERVICES. TELTRUST shall supply billing and
collection services to BSPC under the terms and conditions of TELTRUST's
merchant billing agreements, in which case Outclearing Charges will apply.
BSPC shall provide TELTRUST at least thirty (30) days written notice
detailing whether it desires Call Records be cleared via TELTRUST'S Clearing
House or submitted directly to BSPC, or a location specified by BSPC. In
addition to applicable TELTRUST per call clearing fees detailed in EXHIBIT I,
LEC and Clearing House fees, costs or charges for Bad Debt, Unbillable Call
Records, True-ups, Customer Service Adjustments, and any applicable LEC and
Clearing House imposed fees (the "Clearing Costs") will be deducted from
Gross Revenue in computing BSPC's commission. TELTRUST will provide
information to BSPC related to merchant outclearing in a form consistent with
information received directly from the Merchant Clearing House. TELTRUST will
advise BSPC of any changes in which credit cards available for billing (i.e.
MasterCard, American Express, Diner's Club) as those changes occur.
3.4.3 TELTRUST shall transmit by the end of each business day completed
call records for the previous day's (or days) applicable call activity, in
EMI format, to BSPC's designated location, pursuant to SECTION 3.3.1 above.
Should TELTRUST experience system difficulties such that a delay of more than
24 hours would occur, it will advise in writing of the situation to a BSPC
representative designated by BSPC as the primary point of contact for billing
and collection activity. In no event, however, shall any system difficulties
cause any call records to be rendered unbillable due to age of toll
restrictions imposed by the billing LEC.
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3.5 CASUAL OPERATOR SERVICE CALLING. Casual operator services calling
initiated by BSPC's End User Customers, and originating within the BellSouth
region, shall be processed by TELTRUST using the 10485 calling access code.
Calls may originate only from ANIs that are resident in ANI databases
maintained by TELTRUST for BSPC, regardless of the PIC status of the ANI.
3.6 MANAGEMENT FEES. TELTRUST shall deduct, in computing BSPC commissions, a
management fee, as outlined in EXHIBIT I, "Rate Elements." This fee is intended
to compensate TELTRUST for expenses not associated with other specific Rate
Elements identified in this Agreement.
3.7 QUALITY OF SERVICES. TELTRUST shall provide the services described in
SECTION 3 in conformance with the appropriate industry standards for like
services and as detailed in EXHIBIT III. The Parties agree to meet quarterly,
or sooner if necessary, to review performance and related issues.
SECTION IV. ADDITIONAL SERVICES
4.1 DIRECTORY ASSISTANCE. TELTRUST shall provide trained directory assistance
operators that will access a national database for United States listings
twenty four (24) hours a day, seven (7) days a week. TELTRUST shall provide
directory assistance services for ten digit dialed inquiries, e.g., 1+ NPA +
555 + 1212. Directory Assistance rates are outlined in EXHIBIT I, "Rate
Elements," attached hereto and will be deducted from Gross Revenue in computing
BSPC's Commission. Directory Assistance service shall also be supplied for
calls dialed 0+NPA+555+1212. Such calls shall be considered operator services
calls, and applicable rate elements, per EXHIBIT I, for operator services shall
apply in addition to the rates applicable for Directory Assistance.
4.2 CUSTOMER SERVICE. TELTRUST shall supply to BSPC an 800 or 888 toll free
number to be utilized for End User information requirements as mandated by
Telephone Operator Consumer Services Improvement Act of 1990 ("TOCSIA"). This
toll free number will be posted on all BSPC pay telephone placards that utilize
TELTRUST as the Preferred Interexchange Carrier and the Operator Services
Provider. End User inquiries initiated on the toll free number will be
processed by TELTRUST in its Customer Service Center.
4.3 Database Maintenance. Teltrust will use its best efforts to keep its
database accurate and will work with BSPC to resolve any customer complaints
involving the accuracy of the directory assistance database, including, if
required, taking necessary action with its supplier to improve the accuracy of
the database.
SECTION V. PROVISION AND MAINTENANCE OF ANI DATABASES
5.1 BSPC shall be responsible to provide ANI information consistent with the
requirements of the order form attached as EXHIBIT VI. Any exception to the
requirements outlined in the order form shall be mutually agreed upon by the
Parties.
5.2 TELTRUST shall be responsible to implement additions, deletions or changes
to BSPC's ANI database(s). Any such additions, deletions or changes shall be
effective the second business day following the receipt of order forms provided
that such forms are 1) received by 3:00 p.m. MST and 2) are complete with
respect to required field inputs. Any requests for additions, deletions or
changes on the part of BSPC shall be submitted in accordance with the "ACD
Order" attached as EXHIBIT VII, or via electronic transfer methods as mutually
agreed upon by the Parties. All changes implemented shall be confirmed to BSPC
in writing (or electronically). BSPC shall be responsible to review such
confirmations and inform TELTRUST, in writing (or electronically) of any errors
discovered. Confirmations shall be considered complete and accepted four
business days after receipt by BSPC.
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5.2.1 In the event change requests are received after 3:00 p.m. MST, such
requests will be considered to have been received on the next business
day, and therefore implemented two business days thereafter. In the event
of incomplete forms, error records or files being received, TELTRUST shall
notify BSPC within twenty four (24) hours which change requests have not
been accepted, and BSPC shall be responsible to correct and resubmit
changes.
5.3 BSPC shall be responsible for providing TELTRUST with all billing CIC,
entity code and sub-account information, i.e., property identifying which
brands apply to which ANIs, which will dictate the billing CIC attached to call
records from that ANI, or dedicated trunk group(s), in order that the
appropriate information is shown on End User bills and management reports
provided by TELTRUST.
[***]
5.5 In the event that an ANI submitted by BSPC already resides in the TELTRUST
master database under another TELTRUST client account, TELTRUST's standard
Database Conflict Policy resolution terms shall apply. Terms and conditions of
this Policy are subject to change, upon written notification to BSPC,
throughout the term of this Agreement. See EXHIBIT IX.
SECTION VI. VALIDATION, SWITCHING AND NETWORK FACILITIES.
6.1 TELTRUST shall be responsible for all costs associated with the
acquisition, installation and maintenance of necessary switching equipment to
facilitate the call volumes projected by BSPC, as detailed in EXHIBIT II.
TELTRUST will install its switch(es) at a site(s) to be mutually agreed upon by
the Parties. TELTRUST shall be responsible for all costs covering the
facilities between TELTRUST's switch(es) in Atlanta (or other locations as
needed) and its operator center(s).
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[***]
6.3 PRIVATE LINE NETWORK. TELTRUST will provision, order and manage a private
line network to all BellSouth Telecommunications Access Tandems. BSPC and
TELTRUST shall work to mutually configure the private line network to satisfy
BSPC traffic needs and other requirements, based on network efficiencies and
applicable service requirements.
[***]
6.4 CALL ROUTING. Calls will be routed to TELTRUST Feature Group D (10485 CIC)
originating facilities from pay telephones by BSPC as a result of either:
(1) BSPC shall select TELTRUST as the Preferred Interexchange Carrier
("PIC") for pay telephones (see EXHIBIT X); or
(2) BSPC will program pay telephones that are equipped with the
appropriate technology to dial TELTRUST's 10485 CIC (or other available
access methods, e.g., 800 access).
6.5 TELTRUST will terminate calls over its Feature Group D terminating
facilities in those areas TELTRUST has installed such facilities (see EXHIBIT
XIII), or over third party contracted carrier circuits if 1) calls terminate in
areas not served by TELTRUST installed terminating facilities; or 2) conditions
warrant the use of "overflow" third party termination circuits.
6.6 VALIDATION SERVICES.
[***]
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[***]
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* Portions of this Agreement have been redacted to preserve the Company's
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<PAGE>
[***]
6.7 PERFORMANCE REQUIREMENTS. Switching and transport equipment utilized by
TELTRUST to provide services for BSPC shall meet or exceed industry performance
requirements specified and as applicable in BellCore's Generic Requirements,
GR-929-Core, Issue 1, Revision 1, December 1995. If any unit does not meet
current requirements, TELTRUST will establish a Quality Council with the
manufacturer and initiate action to bring the product or products into
compliance.
6.8 COMPUTATION OF THE ACCESS, TERMINATION AND VALIDATION RATE ELEMENTS. For
the purposes of determining Commissions due BSPC, Rate Elements for services
described in this SECTION 6 shall be estimated (except SECTION 6.8.2 below) for
reporting on the Weekly Income Summary (see SECTION 7.3), and reconciled on a
Month End Summary as follows:
[***]
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* Portions of this Agreement have been redacted to preserve the Company's
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[***]
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* Portions of this Agreement have been redacted to preserve the Company's
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<PAGE>
[***]
SECTION VII. REPORTING, SETTLEMENT AND REMITTANCE OF FUNDS.
7.1 REPORTING: TELTRUST will provide to BSPC on a daily basis, unless
otherwise mutually agreed, the following data files:
[***]
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[***]
7.4 FLOW OF FUNDS. Pursuant to SECTION 3.4, TELTRUST shall submit call records
for billing and collection. Funds received by TELTRUST from billing and
collection providers ("Providers") related to call records originating from
BSPC pay telephones shall be handled in the following manner:
(1) TELTRUST will cause its Providers to remit funds by wire transfer (or
other depository mechanisms as may be the case for, and subject to,
merchant outlclearing services) into TELTRUST accounts. BSPC acknowledges
that payment cycles from Providers are subject to the times at which Local
Exchange Carriers and other entities who bill and collect for call records
(e.g., NECA) actually remit funds to TELTRUST Providers. TELTRUST will
supply any and all information supplied to it by its Providers regarding
outstanding accounts receivable relative to BSPC call records.
(2) Upon receipt of funds from TELTRUST Providers, TELTRUST will first
apply funds received against any outstanding charges due TELTRUST pursuant
to SECTION 7.3, and will then remit remaining funds to BSPC, via wire
transfer, to its designated depository institution. TELTRUST will use its
best and reasonable efforts to remit funds within one (1) banking business
day after receipt of funds from its Providers, but will remit any funds due
BSPC no later than two (2) banking business days after receipt of funds
from its Providers.
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<PAGE>
(3) TELTRUST will, concurrent with any remittance of funds to BSPC, supply
documentation (see sample--EXHIBIT XVII) to BSPC via facsimile or other
mutually agreed upon mechanism fully detailing all funds received from its
Provider(s) related to BSPC call records. Such documentation shall also
detail any and all deductions made by TELTRUST to which any funds have been
applied.
(4) BSPC acknowledges that Providers, excluding merchant outclearing
providers, have the contractual right to deduct fees and charges, as
detailed in SECTION 3.4, owed them from funds remitted to TELTRUST. Any
such deductions shall be accompanied by full documentation as supplied by
the Provider.
[***]
7.6 COMMISSION DISPUTES. In the event BSPC shall in good faith dispute
TELTRUST's computation of commissions due BSPC, BSPC shall submit complete
documentation of the disputed amount(s) to TELTRUST's BSPC Customer Service
Representative no later than sixty (60) days after the Monthly Settlement
Statement date. Upon the discovery of a commission computation error, BSPC
shall have the right to dispute commissions affected by the error for no more
than the previous three (3) months' invoices, nor shall TELTRUST, upon the
discovery of a commission computation error, adjust commissions due or paid
BSPC beyond three previous months. Each Party shall use its respective best
reasonable efforts to resolve any dispute as expeditiously as possible.
SECTION VIII. SERVICE IMPLEMENTATION
8.1 NOTICE. BSPC will deliver, in writing, notice of its intent to begin
utilizing TELTRUST's operator and network services no less than forty five
(45) days in advance of the date on which it intends to begin processing and
delivering calls. The date of receipt of such notice by TELTRUST shall be the
Notification Date, and TELTRUST shall confirm in writing to BSPC receipt of
such notice within twenty four (24) hours.
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* Portions of this Agreement have been redacted to preserve the Company's
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<PAGE>
8.2 IMPLEMENTATION PLAN. BSPC will, on the Notification Date, supply to
TELTRUST final projections (the "Implementation Plan") outlining, on a weekly
basis, the number of pay telephones that will, during implementation of this
Agreement, be routed to TELTRUST for interlata services as described in this
Agreement. The Implementation Plan will outline no fewer than the first four
weeks of implementation. The Implementation Plan shall also include projections
for services described in any Addendums incorporated in this Agreement. BSPC
will exercise its best and reasonable efforts to supply accurate projections,
however, BSPC shall incur no penalty or liability to TELTRUST for any actual
variances from its projected plan.
8.3 NETWORK INSTALLATION. TELTRUST will, on the Notification Date, (a)
initiate service orders for the full implementation of network per SECTIONS 6.2
AND 6.3; and (b) implement final staffing plans in its operator center(s).
TELTRUST shall be fully prepared to deliver and perform services pursuant to
this Agreement, and in accordance with the Implementation Plan, forty five (45)
days after the Notification Date subject to network suppliers (i.e. private
line providers and LEC switched access and termination providers) complying
with service due dates supplied by them. In the event of a network suppliers'
inability to meet a due date previously supplied by them, TELTRUST shall
immediately notify BSPC of the reason for a change in due dates and the new due
date given by the network supplier.
[***]
SECTION IX. MINIMUM LIVE OPERATOR SETTLEMENTS.
[***]
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[***]
SECTION X. TERM/EXCLUSIVITY
10.1 CONTRACT TERM. The Term of this Agreement shall begin on the Effective
Date and shall remain in force for a period of three (3) years from the
Effective Date. This Agreement shall automatically renew for quarterly periods
subsequent to the expiration of the Initial Contract Term unless either Party
notifies the other of its intent to terminate the Agreement with written notice
no less than 120 days prior to the expiration of the Contract Term or any
renewal period.
10.2 EXCLUSIVITY. BSPC shall select TELTRUST for interlata services described
in this Agreement on an exclusive basis during the Contract Term, and any
extensions thereof. Exclusivity shall mean that at least ninety percent (90%)
of BSPC's eligible pay stations will be PIC'd to TELTRUST. Eligible pay
stations are those pay telephones for which the Location Provider has
authorized BSPC to select the IXC on its behalf. BSPC shall not be bound to
the terms of this SECTION 10.2 except for those services specifically related
to interLATA operator and network services as outlined in EXHIBIT I, "Rate
Elements," with the exception of Directory Assistance. Additionally, any
services provided to BSPC by TELTRUST pursuant to any addendums to this
Agreement entered into by and between the Parties shall not be subject to the
terms of this SECTION 10.2.
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* Portions of this Agreement have been redacted to preserve the Company's
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<PAGE>
SECTION XI. TERMINATION OF AGREEMENT.
11.1 TERMINATION FOR CAUSE. Either Party may terminate this Agreement with
reasonable notice to the other in the event that the Party to whom notice is
given is in default of its payment obligations under this Agreement, provided
that the defaulting Party has failed to cure such non payment within 30 days of
notification. BSPC may terminate this Agreement at any time in the event
TELTRUST is in breach of its performance obligations under this Agreement, and
provided TELTRUST fails to take all commercially reasonable steps to cure such
breach or default within sixty (60) days after written notice of such default
or breach is given to TELTRUST. BSPC shall not construe any potential negative
effects on service levels due to exceeding projections, as described in SECTION
9.1.2 as breach of TELTRUST performance obligations.
11.2 TERMINATION WITHOUT CAUSE. BSPC may terminate this Agreement at any time
on or after the Effective Date without cause upon 90 days prior written notice
to TELTRUST and payment to TELTRUST of the Early Termination Charge, as defined
herein. BSPC acknowledges and agrees that TELTRUST's willingness to provide
equipment, switches, personnel and the rates agreed to herein are based on
BSPC's commitments contained in this Agreement. It is difficult if not
impossible to calculate TELTRUST's loss if BSPC terminates the Agreement
pursuant to this SECTION 11.2 prior to the end of the term. Therefore, to
compensate TELTRUST for such loss, and not as a penalty, BSPC shall pay
TELTRUST an Early Termination Charge in the event of such termination. The
Early Termination Charge shall be [***]. This Early Termination Charge shall
not apply in the event BSPC assigns its rights and obligations under this
Agreement to an Affiliate in accordance with SECTION 17.9.
SECTION XII. BRANDING & REGULATORY ISSUES.
12.1 BRANDING, CALL RATING, TARIFFS AND REGULATORY REQUIREMENTS. TELRUST shall
provide branding and call rating in accordance with its federal and state
tariffs. TELTRUST represents that it has, or will have (North Carolina
pending), all necessary legal authority to charge and collect the rates for
services contemplated in this Agreement, and that TELTRUST will comply with any
applicable state or federal regulatory requirements incident to such rates.
BSPC and TELTRUST each represent that it will comply with all applicable local,
state and federal regulations, including the Telephone Operator Consumer
Services Improvement Act of 1990 ("TOCSIA"), or other applicable regulatory
orders. Both Parties understand that TELTRUST, as the operator service
provider, is obligated to withhold amounts due BSPC for operator services calls
if BSPC is not in compliance with regulations.
12.2 EMERGENCY NUMBER DATA & LIABILITY LIMITATION. BSPC shall provide TELTRUST
with all applicable emergency number information. BSPC acknowledges and agrees
that TELTRUST shall not be liable to BSPC or any third party for any special,
indirect, incidental, punitive or consequential damages, including without
limitation, claims for damages by BSPC or End Users arising from TELTRUST
emergency call handling procedures or the integrity of BSPC's emergency
database, or similar claims by a BSPC End User, absent TELTRUST's negligence or
failure to follow the procedures required, as defined in EXHIBIT XII, and
absent such failure or negligence being the cause of the damage.
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
InterLATA Operator and Network Services Agreement Page 18
* Portions of this Agreement have been redacted to preserve the Company's
confidential information
<PAGE>
SECTION XIII. CONFIDENTIALITY AND NON-DISCLOSURE.
13.1 CONFIDENTIAL INFORMATION.
13.1.1 Information furnished or disclosed by one Party or its agent or
representative (the "Originating Party") to the other Party or its agent or
representative (the "Receiving Party") in connection with or in
contemplation of this Agreement, or relating to current or anticipated
voice and data telecommunications needs of BSPC (including but not limited
to proposals, contracts, tariff and contract drafts, specifications,
drawings, network designs and design proposals, pricing information,
strategic plans, computer programs, software and documentation, and other
technical or business information related to current anticipated TELTRUST
or BSPC products and services) shall be "Confidential Information".
13.1.2 If such information is in written or other tangible form
(including, without limitation, information incorporated in computer
software or held in electronic storage media) when disclosed to the
Receiving Party, it shall be Confidential Information only if it is
identified by clear and conspicuous markings to be confidential and/or
proprietary information of the Originating Party; provided, however, that
all written or oral proposals exchanged between the Parties regarding
pricing of the Services shall be Confidential Information, whether or not
expressly indicated by markings or statements to be confidential or
proprietary.
13.1.3 If such information is not in writing or other tangible form when
disclosed to the Receiving Party, it shall be Confidential Information only
if: (1) the original disclosure of the information is accompanied by a
statement that the information is confidential or proprietary, or both; and
(2) the Originating Party provides a written description of the information
so disclosed, in detail reasonably sufficient to identify such information,
to the Receiving Party within thirty (30) days after such original
disclosure.
13.1.4 The terms and conditions of this Agreement shall be deemed
Confidential Information as to which each Party shall be both an
Originating Party and a Receiving Party.
13.1.5 Confidential Information shall be deemed the Property of the
Originating Party.
13.1.6 The following categories of information shall not be Confidential
Information:
(1) Known to the Receiving Party without restriction when received,
or thereafter developed independently by the Receiving Party; or
(2) Obtained from a source other than the Originating Party through
no breach of confidence by the Receiving Party; or
(3) In the Public domain when received, or thereafter enters the
public domain through no fault of the Receiving Party; or
(4) Disclosed by the Originating Party to a third party without
restriction; or
(5) Lawfully in the possession of the Receiving Party at the time
of receipt from the Originating Party.
13.1.7 Rights and obligations provided in this Section shall take
precedence over specific legends or statements associated with information
when received.
________________________________________________________________________________
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<PAGE>
13.2 PROTECTION OF CONFIDENTIALITY. A Receiving Party shall hold all
Confidential Information in confidence during the Term of this Agreement and
for a period of three (3) years following the end of the Term or such other
period as the Parties may agree. During that period, the Receiving Party:
(a) shall use such Confidential Information solely in furtherance of
the matters contemplated by this Agreement and related to either Party's
performance of this Agreement;
(b) shall reproduce such Confidential Information only to the extent
necessary for such purposes;
(c) shall restrict disclosure of such Confidential Information to such
of its employees or its Affiliate's employees as have a need to know
such information for such purposes only;
(d) shall advise any employees to whom such Confidential Information is
disclosed of the obligations assumed in this Agreement;
(e) shall not disclose any Confidential Information to any third Party
(not including disclosure to a BellSouth Subsidiary or persons
identified in SECTIONS 13.3 AND 13.5) without prior written approval of
the Originating Party except as expressly provided in this Agreement;
and
(f) shall take such other reasonable measures as are necessary to
prevent the disclosure, unauthorized use or publication of Confidential
Information as a prudent business person would take to protect its own
similar confidential information, including, at a minimum, the same
measures it uses to prevent the disclosure, unauthorized use or
publication or its own similar proprietary or confidential information.
13.3. DISCLOSURE TO OR BY AFFILIATES, CONSULTANTS OR SUBCONTRACTORS. In the
absence of a contrary instruction by a Party, such Party's Affiliates and its
consultants and its subcontractors performing work in connection with this
Agreement shall be deemed agents of such Party for purposes of receipt or
disclosure of Confidential Information. Accordingly, any receipt or disclosure
of Confidential Information by a Party's Affiliate, or its consultant or
subcontractor performing work in connection with this Agreement, shall be
deemed a receipt or disclosure by the Party.
13.4. RETURN OR DESTRUCTION OF CONFIDENTIAL INFORMATION.
13.4.1 Upon termination of this Agreement, or at an earlier time if the
information is no longer needed for the purposes described in SECTION
13.2(A), each Party shall cease use of Confidential Information received
from the other Party and shall use its best efforts to destroy all such
Confidential Information, including copies thereof, then in its
possession or control. Alternatively, or at the request of the
Originating Party, the Receiving Party shall use its best efforts to
return all such Confidential Information and copies to the Originating
Party.
13.4.2 Any Confidential Information that is contained in databases or
mechanized systems in such a manner that it reasonably cannot be
isolated for destruction or return, shall continue to be held in
confidence subject to the provisions of this Agreement.
13.4.3 The rights and obligations of the Parties under this Agreement
with respect to any Confidential Information return to the Originating
Party shall survive the return of the Confidential Information.
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
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<PAGE>
13.5 REQUIRED DISCLOSURE. A Receiving Party may disclose Confidential
Information if such disclosure is in response to an order or request from a
court, the FCC or other regulatory body provided, however, that before making
such disclosure, the Receiving Party shall first give the Originating Party
reasonable notice and opportunity to object to the order or request, or obtain
a protective order covering the Confidential Information to be disclosed, or
both.
SECTION XIV. INDEMNIFICATION & LIMITATION OF LIABILITY.
14.1 INDEMNIFICATION. Each Party (as 'Indemnitor') shall indemnify, defend
and hold harmless the other Party (as "Indemnitee') from and against any and
all liabilities, costs, damages, fines, assessments, penalties and expenses
(including reasonable attorney's fees) resulting from (a) breach of any
provision in this Agreement by the lndemnitor, its employees or operators, or
(b) any negligent misrepresentation or illegal act, including acts of
regulatory non-compliance, of Indemnitor, its employees or operators, arising
out of the Indemnitor's performance hereunder.
14.2 LIMITATION OF LIABILITY. The liability of TELTRUST for damages resulting
in whole or in part from or arising in connection with the furnishing of
services under this Agreement, including but not limited to mistakes,
omissions, interruptions, delays, errors or other defects shall not exceed an
amount equal to the Rate Elements under this Agreement applicable to the
specific call or service that was affected. No other liability shall attach to
TELTRUST including, but not limited to, liability for special, indirect, or
consequential damages arising from or in connection with the furnishing of
service or equipment hereunder. This limitation shall not apply to instances
of gross negligence or willful misconduct on the part of TELTRUST.
14.3 WARRANTIES. THE WARRANTIES AND REMEDIES SET FORTH IN THIS AGREEMENT ARE
THE ONLY WARRANTIES AND REMEDIES WITH RESPECT TO THE SERVICES PROVIDED
HEREUNDER, AND ARE IN LIEU OF ANY OTHER WARRANTY, WRITTEN OR ORAL, STATUTORY,
EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
SECTION XV. DISPUTE RESOLUTION.
15.1 MEDIATION. In the event of material breach of any of the terms or
conditions of this Agreement, the wronged Party shall inform the other Party of
such breach in writing, which writing shall serve as notice to cure or rectify
such breach. The other Party shall have sixty (60) days from receipt of such
notice to cure or rectify such breach, except for non payment, as described in
SECTION 7.3. If, however, after sixty (60) days the wronged Party has not
received a satisfactory remedy, the Parties shall agree to submit all disputes
for mediation in accordance with the rules of the Center for Public Resources.
The mediation, unless otherwise mutually agreed upon by the Parties, shall be
conducted in Atlanta, Georgia for any dispute submitted by TELTRUST, or in Salt
Lake City, Utah for any dispute submitted by BSPC. The Parties shall use their
best efforts to conclude any mediation initiated hereunder within forty-five
(45) days, unless otherwise agreed to in writing by the Parties, from the
initiation of such mediation.
15.2 ARBITRATION. If after the initial time period referred to in SECTION
15.1 above expires without resolution of the outstanding dispute, either Party
may request that the dispute be settled by binding arbitration in accordance
with the rules of the Center for Public Resources. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. Sec 1, et seq., and
judgment upon the award rendered by the arbitrator(s) may be entered by any
court with jurisdiction.
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
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<PAGE>
SECTION XVI. TAXES.
16.1 DEFINITION OF TAX. For purposes of this Agreement, the term "Taxes" shall
include but not be limited to Federal, State or local sales, use, excise, gross
receipts or other taxes or tax-like fees (including tariff surcharges) imposed
on or with respect to customer's services, excluding however, ad valorem
property taxes, state and local privilege and license taxes based on gross
revenue, taxes measured by net income, and any taxes or amounts in lieu of the
foregoing excluded items.
16.2 TELTRUST RESPONSIBILITIES. TELTRUST shall be responsible for the
calculation, billing, collection and remittance of any Taxes (and any related
interest and penalties) which may apply as a result of the provision of service
by TELTRUST to its customers. TELTRUST shall not include such taxes in the Call
Detail Records furnished to BSPC. BSPC shall not be responsible or liable for
the calculation, billing, collection and remittance of any Taxes related to
non-sent paid calling activity.
16.3 EFFORTS TO MINIMIZE TAXES. TELTRUST shall cooperate reasonably with BSPC
to lawfully minimize any such taxes payable; such cooperation shall, if
requested, include changes in billing address or service reconfiguration,
subject to the terms of this Agreement governing such changes or
reconfigurations.
16.4 NEITHER PARTY LIABLE FOR OTHER'S INCOME TAXES. Neither Party shall be
liable for taxes on the other Party's net income.
SECTION XVII. MISCELLANEOUS.
17.1 NOTICE. Unless otherwise agreed herein, all notices, requests, or other
communications shall be in writing, effective when received, to the following
unless subsequently changed in writing:
If to TELTRUST: If to BSPC:
TELTRUST Communications Services, Inc. BellSouth Public Communications, Inc.
221 No. Charles Lindbergh Drive 75 Bagby Drive
Salt Lake City, UT 84116 Homewood, AL 35209
Attn.: Vice President & General Counsel Attn.: V.P., Strategic Development
Phone: (801)535-2000 Phone: (205)943-2666
Facsimile: (801)535-2080 Facsimile: (205)943-2830
Any notices shall be submitted by the Parties as identified in this SECTION
17.1.
17.2 COMPLIANCE WITH APPLICABLE LAW. This Agreement is made subject to all
present and future orders, rules and regulations of any regulatory body having
jurisdiction over the subject matter hereof, and to the laws of the United
States of America or any of its states having jurisdiction over the Parties and
the subject matter contained herein (collectively, "Applicable Law"). In the
event this Agreement or any of its provisions shall be found contrary to, or in
conflict with, any such Applicable Law, this Agreement shall be deemed modified
to the extent necessary to comply with such Applicable Law, and shall be
modified in such a way as the Parties mutually agree is consistent with the
form, intent, and purpose of its surviving provisions.
________________________________________________________________________________
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<PAGE>
17.3 AUDIT RIGHTS. BSPC shall have the right to perform audits as described
herein of the services provided to it by TELTRUST. The audit will be located
at a TELTRUST company location during normal business hours, and will be
performed only on information that reasonably may bear upon the provision of
services specified as part of this Agreement. Unless otherwise agreed, BSPC
shall be limited to one audit per calendar year. BSPC shall give notice of its
intent to perform an audit at least thirty (30) days prior to the proposed
commencement date. Such notice will include the specific objective of the
audit, the proposed commencement date, primary BSPC contact names, and to the
best of BSPC's ability, the information requested for review. TELTRUST will
make reasonable efforts to ensure that all information requested by BSPC and
required to perform an audit, subject to information deemed to be proprietary
and confidential information relating to other TELTRUST client or product
activity, will be made available by the audit commencement date. Within sixty
(60) days after the conclusion of an audit, BSPC will prepare a final written
report, identifying any deficiencies found and documenting any claims
associated with the audit. Upon receipt of BSPC's final report, TELTRUST will
investigate all findings and claims, and provide a written response to BSPC
within thirty (30) days. Each Party will bear its own expenses in connection
with performing an audit.
17.4 GOVERNING LAW. With respect to any lawsuit or binding arbitration
involving this Agreement, the Parties hereto agree that the prevailing law
shall be that of the State of Utah.
17.5 COSTS OF ENFORCEMENT. In the event of litigation arising from the
enforcement of this Agreement the Parties hereto agree that all costs,
including reasonable attorney's fees of the prevailing Party shall be paid by
the losing Party, unless otherwise agreed.
17.6 NO AGENCY. Neither Party is authorized to act as an agent for, or legal
representative of, the other Party and neither Party shall have authority to
assume or create any obligation on behalf of, in the name of, or binding upon,
the other Party. Provision of services hereunder shall not create a
partnership, joint venture or other like relationship between the Parties.
17.7. INTELLECTUAL PROPERTY
17.7.1 Neither BSPC or TELTRUST shall use the others trade names, trademarks
or service marks ("Marks"), nor permit them to be displayed or used by third
parties, except as specifically provided in this Agreement or upon other
prior written approval of the other Party. Nothing in this Agreement creates
in a Party rights in the trade names, trademarks or service marks of the
other Party.
17.7.2 Except as otherwise specifically provided in this Agreement, neither
BSPC nor TELTRUST will: (a) use the other Party's corporate logos, trade
dress, or other symbols that serve to identify and distinguish such other
Party from its competitors (or use confusingly similar corporate logos, trade
dress or such other symbols); or (b) conduct business under the other Party's
corporate or trade names, logos, trademarks, service marks, trade dress, or
other symbols that serve to identify and distinguish such other Party from
its competitors (or under any confusingly similar corporate or trade names,
logos, trademarks, service marks, trade dress or such other symbols).
17.8 WAIVER OF BREACH. Failure of either Party to exercise any rights
granted to it hereunder upon any breach or default by such Party shall not be
deemed a waiver in the event of further breaches or defaults.
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
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<PAGE>
17.9 ASSIGNMENT. Neither this Agreement nor any right or obligation hereunder
may be assigned or delegated to any other entity, except for subsidiaries or
affiliates, without the prior written consent of the other Party, which consent
shall not be unreasonably withheld. BSPC may, upon thirty (30) days notice,
assign its obligations under this Agreement, in whole or in part, to an
Affiliate, at such time as that Affiliate is able to provide interlata services
contemplated herein to BSPC. In such event, the terms or obligations under this
Agreement shall be superseded and subordinated by any terms previously agreed
to between TELTRUST and that Affiliate, if applicable.
17.10 ENTIRE AGREEMENTS. This Agreement, together with the attached Exhibits,
represents the entire agreement of the Parties with respect to the subject
matter hereof and supersedes all other agreements between the Parties relating
to the services provided hereunder.
17.11 FORCE MAJEURE. With the exception of BSPC's obligation to make payments
to TELTRUST as provided for herein, neither Party hereto shall be obliged to
perform its obligations or commitments hereunder if prevented therefrom by
reason of labor disputes, equipment or software failures, government
regulations, court injunctions, acts of nature, accidents, fires, floods or any
other occurrence beyond the control of the Party involved, including the
failure of third party providers, such as suppliers of telephone lines to
deliver adequate or timely services. In the event either Party curtails or
suspends its services or obligations as provided under this SECTION 17.11, it
shall incur no liability to the other Party or to any other party or entity
arising therefrom. During any period of Force Majeure, BSPC shall be relieved,
for that period, of minimum volume commitments and related financial
obligations.
17.12 ADDENDUMS. Any Addendum to this Agreement shall be signed by an
authorized Officer of each Party, and the terms and conditions of this
Agreement shall apply to each Addendum unless specifically otherwise stated in
such Addendum.
17.12 MODIFICATION OF AGREEMENT. This Agreement, including its Exhibits and
Addendums, may be amended, modified or supplemented only by a separate written
document executed by Officers of both Parties.
17.13 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of either Party.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers.
BELLSOUTH PUBLIC COMMUNICATIONS, TELTRUST COMMUNICATIONS SERVICES, INC.
INC.
By: /s/ James B. Hawkins By: /s/ Lyle O. Keys
---------------------------- --------------------------------------
Name: James B. Hawkins Name: Lyle O. Keys
Title: President, Bellsouth Title: Chairman of the Board C.E.O.
Public Communications, Inc.
Date: 2-26-97 Date: 2-28-97
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
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<PAGE>
ADDENDUM #1 TO THE INTERLATA OPERATOR AND NETWORK SERVICES AGREEMENT
--------------------------------------------------------------------
BY AND BETWEEN BELLSOUTH PUBLIC COMMUNICATIONS
----------------------------------------------
AND TELTRUST COMMUNICATIONS SERVICES.
------------------------------------
AGENCY AGREEMENT
SENT PAID CALLING
WHEREAS, BSPC and TELTRUST have entered into an Interlata Operator and Network
Services Agreement (the "Agreement"); and
WHEREAS, TELTRUST wishes to provide Preferred Interexchange Carrier services
from certain BSPC pay telephone locations equipped with rating functionality,
including, in accordance with its applicable Sent Paid tariffed End User rates,
the network termination of direct dialed, coin sent calls; and
WHEREAS, BSPC maintains, services and collects coin from its pay telephones,
including those pay telephones that TELTRUST will provide Preferred
Interexchange Carrier Services to; and
WHEREAS, based on the specific mutual obligations and commitments as set forth
below, the Parties desire to enter into a business relationship in which BSPC
will collect, on behalf of TELTRUST, coins deposited for direct dialed interlata
calls by End Users, and remit the same to TELTRUST.
NOW, THEREFORE, in consideration of mutual covenants herein and other good and
valuable consideration, receipt of which is hereby acknowledged, the Parties
hereto agree as follows:
1. ACTIVITY REPORTING. BSPC will provide to TELTRUST on a calendar month
basis, no later than ten (10) days after the end of each calendar month, summary
data (see EXHIBIT A TO ADDENDUM I, "Sample Coin Sent Activity Report") for
direct dialed interlata calls from BSPC pay telephones for which TELTRUST has
been selected as the Preferred Interexchange Carrier. Summary information shall
include the number of interlata direct dialed calls placed during the period,
the duration of such calls, the rated amount for such calls , and any applicable
local, state and federal tax liabilities resulting therefrom. BSPC shall be
responsible to rate such calls in accordance with TELTRUST tariffs, copies of
which will be supplied to BSPC. Call detail information will be delivered, via
electronic media, to TELTRUST at its request.
2. CALL RATING. BSPC shall be responsible for the accurate rating of sent paid
calls processed by its pay telephone in accordance with TELTRUST tariffs, copies
of which will be supplied to BSPC.
3. NETWORK. TELTRUST shall process calls directed to it by BSPC equipment in
accordance with SECTIONS 6.4 AND 6.5 of the Agreement. Rate elements for access
and termination shall apply, and shall be reported on a Weekly Income Summary,
as is outlined in SECTIONS 6.8.1.1 through 6.8.1.3, and 5.9.2. of the Agreement.
[***]
4. SETTLEMENT WITH TELTRUST. Based on the mutual agreement of the Parties,
which is hereby acknowledged, TELTRUST will deduct amounts owed to it by BSPC,
as documented by the summary of rated sent paid calls , from amounts owed BSPC
pursuant to the Agreement. This settlement process will occur once monthly in
accordance with the Settlement Process described in SECTION 6.3 of the
Agreement.
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Interlata Operator and Network Services Agreement Page 1
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
5. TAXES. BSPC shall compute and collect applicable Taxes for coin sent paid
messages and remit such Taxes to the appropriate taxing authority on behalf of
TELTRUST. BSPC shall use the same tax practice and procedures for applicable
Taxes that it uses for similar or comparable BSPC services, unless notified in
writing by TELTRUST to do otherwise. Where system limitations do not allow any
tax amount to be included in the amount charged to the End User, BSPC shall be
responsible for such tax.
(a) BSPC shall implement any legislated tax law or tax rate changes into its
procedures as required by applicable tax law for coin sent paid messages
collected by BSPC.
(b) TELTRUST will provide BSPC with written notification for any Taxes or
taxing requirement that may apply to it and not to BSPC including, but not
limited to, those Taxes or taxing requirements covered by agreements with the
taxing authority.
(c) TELTRUST is responsible for filing and providing appropriate tax
registration numbers for all taxing jurisdictions to BSPC for remittance of
Taxes.
(d) BSPC shall furnish to TELTRUST on a timely basis, all information and
reports in its possession reasonably necessary for TELTRUST to respond to tax
related inquiries.
(e) BSPC is responsible for implementing any legislated Tax rate changes on
Taxes currently being charged to End Users on TELTRUST's behalf, which are also
being collected for BSPC's End Users.
(f) TELTRUST has the right to review BSPC's tax procedures and supporting
documentation, and BSPC shall supply TELTRUST with such documentation upon
request by TELTRUST at a mutually agreeable location.
(g) TELTRUST is responsible for including gross receipts related to TELTRUST's
coin sent paid calls in its payment of the Florida Gross Receipts tax and any
other like tax. Any such payment to the extent not included in TELTRUST's
tariffed rate or otherwise collected from TELTRUST's End User shall be treated
as another rate element for purposes of Section 7.2.4 of the Agreement. BSPC
shall not report TELTRUST's revenues as its own receipts for gross receipts tax
purposes or any other tax purposes.
(h) All communications with taxing authorities regarding Taxes applicable to
TELTRUST shall be the responsibility of TELTRUST. BSPC shall participate as
needed.
5.1 TAX INDEMNITY AND RECOURSE
BSPC shall indemnify, defend and hold (at BSPC's expense) TELTRUST from and
against any liability or loss resulting from Taxes, penalties, interest,
additions to Tax surcharges, or other charges or payable expenses (including
reasonable attorney's fees) incurred by TELTRUST as a result of the negligence
of BSPC to accurately calculate, collect and pay Taxes in performing services
under this Agreement. Such indemnity shall be provided to TELTRUST on an after
tax basis.
TELTRUST shall indemnify, defend and hold harmless, and defend (at TELTRUST's
expense) BSPC from and against any liability or loss resulting from any Taxes,
Gross Receipts taxes, penalties, interest, additions to tax surcharges, or other
charges or payable expenses (including reasonable attorney's fees) incurred by
BSPC as a result of:
(a) TELTRUST's failure to pay any Tax or file any return or other information
as required by law or the Agreement and which is not BSPC's obligation under
the Agreement including but not limited to gross receipts taxes and additional
Taxes due as the result of audits; or
________________________________________________________________________________
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<PAGE>
(b) BSPC complying with the Agreement or with any determination or direction by
or advice of TELTRUST provided in writing by TELTRUST, or BSPC correctly using
information provided in writing by TELTRUST in performing any Tax-related
service hereunder; or
(c) BSPC acting or failing to take any action at the direction of TELTRUST with
respect to any Tax which is subject of the Agreement.
(d) Such indemnity shall be provided to TELTRUST on an after tax basis.
Notwithstanding the above, such indemnity is conditioned upon BSPC providing
TELTRUST or TELTRUST providing BSPC with notice (which notice shall be given
allowing the Party time to file a response, but in no event more than ten (10)
business days of receipt of assessment) of any additional Tax, penalties, or
interest due with respect to this Agreement. BSPC shall receive a copy of all
filings in any such proceeding, protest or legal challenge, all rulings issued
in connection therewith and all correspondence between TELTRUST and the taxing
authority.
Any legal proceeding or any other action with respect to BSPC and with respect
to any asserted liability or additional Taxes borne by BSPC shall be under
BSPC's direction, but TELTRUST shall be consulted.
Any legal proceeding or any other action with respect to TELTRUST and with
respect to any asserted liability of additional Taxes borne by TELTRUST shall be
under TELTRUST's direction, but BSPC shall be consulted. In any event, both
TELTRUST and BSPC shall fully cooperate with each other as to the asserted
liability. TELTRUST shall bear all the costs of any such action undertaken at
its specific request. BSPC shall bear the costs of any such action undertaken
absent such a request from TELTRUST.
7. The terms and conditions of this Addendum shall apply only to this Addendum,
and shall not be construed to apply to any other agreements or addendums between
the Parties.
8. This Addendum shall be made an integral part of that certain Interlata
Operator and Network Services Agreement between Teltrust Communications
Services, Inc. and BellSouth Public Communications, Inc. dated February ____,
1997.
IN WITNESS WHEREOF, the Parties hereto have caused this Addendum #1 to be
executed by their duly authorized officers.
BELLSOUTH PUBLIC COMMUNICATIONS, INC. TELTRUST COMMUNICATIONS SERVICES, INC.
By: /s/ James B. Hawkins By: /s/ Lyle O. Keys
------------------------------ ---------------------------------
Name: James B. Hawkins Name: Lyle O. Keys
Title: President, Bellsouth Public Title: Chairman of the Board/C.E.O
Communications, Inc.
Date: 2-26-97 Date: 2-28-97
----------------------------- --------------------------------
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Interlata Operator and Network Services Agreement Page 3
<PAGE>
ADDENDUM #2 TO THE INTERLATA OPERATOR AND NETWORK
-------------------------------------------------
SERVICES AGREEMENT BY AND BETWEEN BELLSOUTH PUBLIC COMMUNICATIONS
-----------------------------------------------------------------
AND TELTRUST COMMUNICATIONS SERVICES.
------------------------------------
AGENCY AGREEMENT
STORE & FORWARD INTERLATA OPERATOR SERVICES
WHEREAS, BSPC and TELTRUST have entered into an Interlata Operator and Network
Services Agreement; and
WHEREAS, TELTRUST wishes to provide Preferred Interexchange Carrier services
from certain BSPC premise owned and operated equipment equipped with rating and
routing functionality located in inmate and other facilities, including, in
accordance with its applicable tariffed End User rates, Interlata Operator
Services calls; and
WHEREAS, based on the specific mutual obligations and commitments as set forth
below, the Parties desire to enter into a business relationship in which BSPC
will process, on behalf of TELTRUST, inmate and other calls from its Store and
Forward equipment.
NOW, THEREFORE, in consideration of mutual covenants herein and other good and
valuable consideration, receipt of which is hereby acknowledged, the Parties
hereto agree as follows:
1. BSPC will manage and process interlata operator service calls with its Store
and Forward equipment located in inmate and other facilities. Such equipment
will convert an operator services dialed called, in accordance with the terms
and conditions in this Addendum, to a direct dial outbound call from the Store
and Forward equipment.
2. BSPC RESPONSIBILITIES.
a. CALL RATING. BSPC shall be responsible for the accurate rating of operator
service calls processed by its Store and Forward equipment in accordance with
TELTRUST tariffs, copies of which will be supplied to BSPC.
b. VALIDATION. BSPC shall be responsible for ensuring that all billing methods
utilized by inmates and other End Users are valid for billing.
c. REGULATORY COMPLIANCE. BSPC shall be responsible for ensuring that all call
processing occurs within regulatory guidelines as may be applicable.
d. RECORD SUBMISSION. BSPC shall submit call records to TELTRUST's billing and
collection provider(s), as directed by TELRUST. Information submitted shall be
in form and layout as requested by TELTRUST and/or its billing and collection
provider. BSPC shall submit to TELTRUST summary information on all record
submission, including date of submission, number of records and gross revenue.
e. BILLING AND COLLECTION PROCESS MANAGEMENT. BSPC shall be responsible for
all monitoring, management and activity associated with rejected records,
accounts recievable, bad debt analysis and similar aspects of managing billing
and collection costs.
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Interlata Operator and Network Services Agreement Page 1
<PAGE>
f. OTHER STORE AND FORWARD FACILITIES. At such time as BSPC desires to use
Store & Forward equipment in non-inmate facilities, it shall advise TELTRUST
with at least thirty (30) days advance notice.
3. TELTRUST RESPONSIBILITIES.
[***]
b. FLOW OF FUNDS. TELTRUST shall receive from its billing and collection
providers remittances associated with revenues from the inmate calls. The flow
of funds shall be as outlined in SECTION 7.4 of the Agreement, and the
Settlement Process outlined in SECTION 7.3 of the Agreement shall be utilized.
4. The terms and conditions of this Addendum shall apply only to this Addendum,
and shall not be construed to apply to any other agreements or addendums between
the Parties.
5. This Addendum shall be made an integral part of that certain Interlata
Operator and Network Services Agreement between Teltrust Communications
Services, Inc. and BellSouth Public Communications, Inc. dated February 24,
1997.
IN WITNESS WHEREOF, the Parties hereto have caused this Addendum #2 to be
executed by their duly authorized officers.
BELLSOUTH PUBLIC COMMUNICATIONS, INC. TELTRUST COMMUNICATIONS SERVICES, INC.
By: /s/ James B. Hawkins By: /s/ Lyle O. Keys
----------------------------------- ---------------------------------
Name: James B. Hawkins Name: Lyle O. Keys
Title: President, BellSouth Public Title: Chairman of the Board/C.E.O.
Communications, Inc.
Date: 2-26-97 Date: 2-28-97
-------------------------------- -------------------------------
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Interlata Operator and Network Services Agreement Page 2
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
ADDENDUM #3 TO THE INTERLATA OPERATOR AND NETWORK SERVICES
----------------------------------------------------------
BY AND BETWEEN BELLSOUTH PUBLIC COMMUNICATIONS
----------------------------------------------
AND TELTRUST COMMUNICATIONS SERVICES.
-------------------------------------
[***]
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Interiata Operator and Network Services Agreement Page 1
* Portions of this Agreement have been redactedd to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Addendum comprised 2
pages.]
<PAGE>
ADDENDUM #4 TO THE INTERLATA OPERATOR AND NETWORK SERVICES AGREEMENT
--------------------------------------------------------------------
BY AND BETWEEN BELLSOUTH PUBLIC COMMUNICATIONS
----------------------------------------------
AND TELTRUST COMMUNICATIONS SERVICES.
------------------------------------
WHEREAS, BSPC and TELTRUST have entered into an Interlata Operator and Network
Services Agreement; and
WHEREAS BSPC desires to offer "preferred" interlata operator and carrier
services to End User customers through TELTRUST but in areas where TELTRUST
currently does not offer feature group D (FGD) facilities within the BellSouth
9-state region and not within the BellSouth billing area, e.g., in independent
LEC areas; and where 800 service is not appropriate; and where traffic volumes
do not warrant the installation of dedicated private line facilities; and
WHEREAS TELTRUST currently has agreements in place with 0+ transport providers
that can facilitate this requirement; and
WHEREAS based on the specific mutual obligations and commitments as set forth
below, the Parties desire to enter into a business relationship in which
TELTRUST will provide operator, network and billing and collection services to
facilitate the services in independent areas;
NOW, THEREFORE, in consideration of mutual covenants herein and other good and
valuable consideration, receipt of which is hereby acknowledged, the Parties
hereto agree as follows:
1. Access and Termination. TELTRUST will provide for access from BSPG pay
telephones located in independent LEC territories, but within the 9-state
BellSouth region, to the TELTRUST network for the purpose of both automated
and live operator (0-/0+) interLATA call processing via its equal access
FGD agreement with [***]. BSPC pay telephones utilizing this service
will be programmed to the [***] CIC code [***]. No pay telephones may be
PIC'd to this CIC. All ANIs producing one plus traffic (store & forward or
coin-sent paid) will be terminated via the [***] network. All 0+/0-calls
delivered to TELTRUST for automated or live operator call processing will
be terminated via the TELTRUST network. Pricing for access and termination
via this transport method will be in accordance with Exhibit I attached
hereto.
2. Operator Services Transport. [***] will deliver all 0+/0- calls
identified as originating from TELTRUST/BSPC ANIs to the TELTRUST switching
and network system in Salt Lake City, Utah. All calls will be processed in
accordance with the terms and conditions as set forth in the TELTRUST/BSPC
InterLATA Operator and Network Services Agreement.
3. Data.
3.1. Operator Services Orders (OSOs). BSPC will submit to TELTRUST
all ANIs designated to access the [***] network in the same manner
as has been established by and between BSPC, BSLD and TELTRUST for
entry into TELTRUST's mastersite database. TELTRUST will enter these
ANIs into the [***] system via TELTRUST's on-site data entry
[***] terminal. These ANIs will be identified under the TELTRUST
account for proper routing of 0+/0- call types to the TELTRUST switch.
3.2. Mastersite Confirmations. TELTRUST will confirm to BSPC that
ANIs have been loaded into both the TELTRUST and the [***] systems
prior to BSPC's programming of pay telephones to the [***] CIC.
Confirmations shall be in the same manner as have been established by
and between BSPC, BSLD and TELTRUST.
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
2
3.3. CDR Transmissions. TELTRUST shall report/transmit CDRs for all
calls originating and/or terminating on the [***] network on behalf
of BSPC in the same format and concurrently with other BSLD daily
records transmissions. No special reporting development shall be
required. All CDRs shall be assigned the appropriate account code,
site code, etc. as has already been established by and between BSPC,
BSLD and TELTRUST.
4.0 Call Rating. Call rating shall be in accordance with the applicable tariffs
flied and approved at the state and federal level.
5.0 Other Services, Charges and Settlements. All services contemplated under
this Addendum except as outlined above shall be the same as detailed in the
TELTRUST BSPC InterLATA Operator and Network Services Agreement. All charges and
settlements hereunder shall be handled and reported in the same manner as
detailed in the Agreement via the Income Summary procedure.
6.0 The terms and conditions of this Addendum shall apply only to this Addendum
and shall not be construed to apply to any other agreements or addendums between
the Parties.
7.0 This addendum shall be made an integral part of that certain Interlata
Operator and Network Services Agreement between TELTRUST Communications
Services, Inc. and BellSouth Public Communications, Inc., dated February 24,
1997.
IN WITNESS WHEREOF, the Parties hereto have caused this Addendum #4 to be
executed by their duly authorized officers.
BELLSOUTH PUBLIC COMMUNICATIONS, INC. TELTRUST COMMUNICATIONS SERVICES, INC.
By: /s/ James B. Hawkins By: /s/ Marc B. Cohen
-------------------------------- -----------------------------------
Name: James B. Hawkins Name: Marc B. Cohen
Title: President, BellSouth Public Title: President and CEO, Teltrust,
Communications, Inc. Inc.
Date: February 16, 1998 Date: 2/3/98
------------------------------ ---------------------------------
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
----------------------------------------------------
EXHIBIT I.
RATE ELEMENTS
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
------------------------------------------------
EXHIBIT IA.
RATE ELEMENTS OUT OF REGION
AND
OVERFLOW IN REGION TERMINATION
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 4 pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
--------------------------------------------------
EXHIBIT IB.
RATE ELEMENTS
FOR INTERNATIONAL TERMINATION
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 6 pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
----------------------------------------------
EXHIBIT IC.
RATE ELEMENTS
FOR VALIDATION
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
----------------------------------------------
EXHIBIT II.
VOLUME PROJECTIONS
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
_______________________________________________
EXHIBIT III.
PERFORMANCE STANDARDS
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. PROPRIETARY & CONFIDENTIAL
OPERATOR AND NETWORK SERVICES AGREEMENT EXHIBITS
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 2 pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
___________________________________________
EXHIBIT IV.
CDR SAMPLE
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. PROPRIETARY & CONFIDENTIAL
OPERATOR AND NETWORK SERVICES AGREEMENT EXHIBITS
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 3 pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-------------------------------------------------
EXHIBIT V.
CALL RATING COMPONENTS
- --------------------------------------------------------------------------------
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 12
pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
---------------------------------------------------
EXHIBIT VI.
OSO ORDER FORM
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. PROPRIETARY & CONFIDENTIAL
OPERATOR AND NETWORK SERVICES AGREEMENT EXHIBITS
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 4 pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
___________________________________________
EXHIBIT VII.
ACD FORM
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
TELTRUST COMMUNICATIONS SERVICES. INC.
ADD, CHANGE OR DELETE FORM (ACD)
<TABLE>
<S> <C>
Customer Number: _____________________________________________ (Teltrust use only) Date: _______________________________________
CLIENT NAME: ______________________________________________________ CLIENT NUMBER: ______________________________________________
CHANGE REQUESTED BY: ____________________________________________________________________________________________________________
SITE NAME: ______________________________________________________________________________________________________________________
SPECIAL INSTRUCTIONS FOR CHANGE (OPTIONAL) ______________________________________________________________________________________
Any changes to dialing instructions require a NEW OSO
_________________________________________________________________________________________________________________________________
Select One: [_] ADD [_] CHANGE [_] DELETE [_] PICLINE
Select One: [_] ANI [_] AUTH [_] LOCATION [_] RATES [_] BLOCK 1+ [_] ALLOW 1+
ORIGINAL ANI NEW ANI NEW SITE NAME and/or RATES
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
(______ ) _______________________________________ ( ______) _____________________________________________________________________
_________________________________________________________________________________________________________________________________
Mail: Fax:
Teltrust Communications Services, Inc. (801) 535-2080
221 N. Charles Lindbergh Dr.
Salt lake City, UT 84116
For Client Services Call: (801) 535-2000
BY: ___________________________________________
(Teltrust use only)
</TABLE>
[LOGO OF TELTRUST APPEARS HERE]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
----------------------------------------------------
EXHIBIT VIII.
DESCRIPTION OF MANAGEMENT REPORTS
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 20
pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-----------------------------------------------
EXHIBIT IX.
TELTRUST DATABASE CONFLICT POLiCY
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
TELTRUST DATABASE CONFLICT POLICY
A database conflict occurs in the event that a client submits an ANI for order
entry, either by OSO (Operator Services Order) form or by file transfer, which
already exists in the Teltrust Master Site Database under another client's
account.
In order to resolve the conflict, Letters of Agency (LOAs) or other appropriate
documentation (refer to the "Accepted Proof of Agency / Ownership" section
below) is requested via fax.
Both clients involved receive a written notice of the database conflict listing
the ANIs involved. Each client is given a twenty-four hour deadline to submit
proper documentation to Teltrust via fax. The twenty- four hour deadline insures
that Teltrust will provide a timely resolution to the database conflict.
If one client fails to submit the requested proof of ownership, the ANIs will,
by default, be assigned to the other client's account. If both parties fail to
provide proof of ownership, the ANI remains in the existing account.
Accepted Proof of Agency / Ownership includes:
LOA:
---
Teltrust requires that FCC LOA guidelines are met. Refer to the sample
FCC approved LOA attached.
Phone Bill on a PAL (Public Access Line):
----------------------------------------
The most recent bill available should be submitted. All associated ANIs
must be indicated on the bill with the proper Billing Name and Address
(BNA) listing the customer of record at the LEC level. The customer of
record on the bill should be Teltrust's client.
Contract or Notice of Acquisition:
---------------------------------
All associated ANIs must be listed. The effective date of the agreement
and signatures from both parties should be included. A contract or
notice of acquisition only applies if one Teltrust client contracts
with or sells phones to another Teltrust client.
In reviewing the documentation from each client, Teltrust will evaluate the
dates on each agreement and the ANIs listed on the document. The most recently
dated document will take priority. Teltrust will review signatures to insure
that the proper authority has been provided. Property managers and owners are
most commonly the authorized parties designated to choose long distance
providers / carriers. Teltrust reserves the right to contact the party whose
signature appears on the document to verify validity.
Both clients will receive a written notice of the database conflict resolution.
<PAGE>
LETTER OF AGENCY AND AUTHORITY
- --------------------------------------------------------------------------------
Company Name: _________________________________________________________________
Address: ______________________________________________________________________
City: _________________________________ State: __________Zip: _________________
Billing Name: ________________________________________ Type: __________________
Billing Address: ______________________________________________________________
Street Address: _______________________________________________________________
City: ________________________________ State: __________Zip: __________________
Contact Name: ___________________________________Title: _______________________
Contact Phone Number: _________________________________________________________
Federal Tax ID or SS# of Site Provider: _______________________________________
The following (public, business, or residential) telephones are among those
covered by this LOA.
(Use attached form for additional telephone numbers)
<TABLE>
<S> <C> <C> <C>
( ) ( ) ( ) ( )
- ---------------- --------------- ----------------- -----------------
( ) ( ) ( ) ( )
- ---------------- --------------- ----------------- -----------------
( ) ( ) ( ) ( )
- ---------------- --------------- ----------------- -----------------
</TABLE>
To whom it may concern: PlC Change Charge: $ ___________ + tax.
- --------------------------------------------------------------------------------
Current carrier, ________________________ to be changed to selected carrier:
Teltrust Communication Services, Inc.
221 North Charles Lindbergh Drive
Salt Lake City, UT 84116
Phone Number: 801-535-2000
CIC CODE: 485
as the PlC for [_]Interlata [_]Intralata [_]Interlata / Intralata.
- --------------------------------------------------------------------------------
To Whom It May Concern:
The purpose of this Letter of Agency and Authority (LOA) is to advise you that
we have entered into a contractual agreement with
_______________________________ , to act as our sole and exclusive
communications representative for all relations with any person or company,
including the local telephone company (LEC) and/or Interexchange carrier (IXC)
for public telecommunications services. This LOA supercedes any previous
Letter(s) of Agency and/or Authority
I hereby represent and warrant that I am authorized to make decisions regarding
telecommunication, including decisions regarding presubscription, on behalf of
the undersigned individual or entity.
______________________________________ ________
Company Name Date
______________________________________ ________ _____________________________
Signature of Authorized Representative Date Printed Name of Authorized
Representative
- --------------------------------------------------------------------------------
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
---------------------------------------------
EXHIBIT X.
PIC PROCESS
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 9 pages.]
<PAGE>
OPERATOR AND NETWORK SERVlCES AGREEMENT
---------------------------------------------
EXHIBIT XI.
FRAUD SYSTEM GUIDELINES
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-------------------------------------------------
EXHIBIT XII.
EMERGENCY CALL HANDLING PROCEDURES
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-----------------------------------------
EXHIBIT XIII.
NETWORK MAP
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
TELTRUST NETWORK FACILITIES
[MAP OF TELTRUST NETWORK FACILITIES APPEARS HERE]
- ----------------------------
* Switch Site
_________ FGD Approved
......... FGD Pending
- ----------------------------
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-----------------------------------------
EXHIBIT XIV.
SERVICE LEVEL AGREEMENTS
FOR PROVISION OF DAILY CDR
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
119
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-----------------------------------------
EXHIBIT XV.
SWITCHED ACCESS FGD TARIFF RATES
FOR BELLSOUTH
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
121
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-------------------------------------------
EXHIBIT XVI.
WEEKLY INCOME SUMMARY
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 4 pages.]
<PAGE>
OPERATOR AND NETWORK SERVICES AGREEMENT
-------------------------------------------
EXHIBIT XVII.
SAMPLE REMITTANCE STATEMENT
________________________________________________________________________________
TELTRUST COMMUNICATIONS SERVICES, INC. Proprietary & Confidential
Operator and Network Services Agreement Exhibits
<PAGE>
Page 1
<TABLE>
<CAPTION>
12/?? ??????????
Lib??? REPAYMENT ??????? CHECK 950705
TRANS OBLIGATION TRANS TRANS ACCEPTED UNBILL BAD DEBT EPDI INQUIRY
DATE TAPE LIC NUMBER CIC COUNT AMOUNT AMOUNT AMOUNT ALLOWANCE TRUE ?? FEES FEES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
02/28/95 9104 BDSPEC9405 -47.79
02/28/95 9204 BDSPEC9405 -11.13
02/28/95 9209 BDSPEC9406 -18.53
02/28/95 9210 BDSPEC9407 -8.00
02/28/95 9211 BDSPEC9406 -3.00
02/28/95 9212 BDSPEC9407 -33.49
02/28/95 9213 BDSPEC9407 -46.00
02/28/95 9214 BDSPEC9407 -3.00
02/28/95 9321 BDSPEC9407 -27.00
02/28/95 9323 BDSPEC9407 -33.97
02/28/95 9327 BDSPEC9407 -23.00
02/28/95 9329 BDSPEC9407 87.85
02/28/95 9417 BDSPEC9407 -177.55
02/28/95 9419 BDSPEC9407 -3451.82
02/28/95 9533 BDSPEC9411 -1903.85
02/28/95 9631 BDSPEC9407 25.86
02/28/95 9638 BDSPEC9407 128.64
02/28/95 9740 BDSPEC9408 413.84
02/28/95 9742 BDSPEC9408 -22.09
03/01/95 9998 AJ_E9506C -10.21
05/01/95 9998 LA_E9506C -107.77
02/20/95 9999 TA_E9502A 311.08
04/10/95 EC560781 5200 75495961 145 1 -9.35 -0.07
04/10/95 EC560781 9419 75495012 158 3 -6.99 -0.21
04/10/95 EC560781 9533 75495707 158 2 -4.79 -0.14
04/10/95 EC560781 9740 75495707 145 4 -22.95 -0.28
04/17/95 EC561401 5200 75495966 145 1 -2.43 -0.07
04/17/95 EC561401 9533 75495712 99999 7 -34.77 -0.49
04/17/95 EC561401 9740 75495712 145 8 -79.50 -0.56
04/12/95 EP541267 9211 75495649 145 3 18.45 18.45 -0.18 -0.91 -0.21 -0.09
04/13/95 EP541268 9211 75495649 158 4 9.62 9.62 -0.10 -0.46 -0.28 -0.12
04/27/95 EP542456 9102 75495679 145 7 27.97 27.97 -0.28 -1.38 -0.49 -0.21
04/27/95 EP542456 9104 75495679 145 7 34.79 34.79 -0.35 -1.72 -0.49 -0.21
04/27/95 EP542456 9204 75495679 145 6 26.47 26.47 -0.27 -1.32 -0.42 -0.18
04/27/95 EP542456 9208 75495679 145 6 39.33 39.33 -0.39 -1.95 -0.42 -0.18
04/27/95 EP542656 9213 75495679 145 6 21.69 21.69 -0.22 -1.07 -0.42 -0.18
04/27/95 EP542659 9102 75495679 158 17 38.12 38.12 -0.38 -1.89 -1.19 -0.51
04/27/95 EP542659 9104 75495679 158 23 62.97 62.97 -0.63 -3.12 -1.61 -0.69
04/27/95 EP542659 9206 75495679 158 12 33.61 33.61 -0.34 -1.66 -0.?4 -0.36
04/27/95 EP542659 9208 75495679 158 14 40.89 40.89 -0.41 -2.02 -0.98 -0.42
04/27/95 EP542659 9210 75495679 158 5 16.17 16.17 -0.16 -0.80 -0.35 -0.15
04/27/95 EP542659 9212 75495679 158 15 31.72 31.72 -0.32 -1.57 -1.05 -0.45
04/27/95 EP542659 9213 75495679 158 21 61.71 61.71 -0.62 -3.06 -1.47 -0.63
05/04/95 EP550355 9533 75495684 145 10 45.97 45.97 -0.46 -3.17 -0.70 -0.30
05/04/95 EP550355 9740 75495684 145 491 1001.56 1001.56 -10.02 -70.29 -34.37 -14.73
05/04/95 EP550355 9742 75495684 145 1 4.82 4.82 -0.05 -0.31 -0.07 -0.03
05/04/95 EP550354 9533 75495684 158 4031 6325.33 6325.33 -83.25 -575.24 -282.17 -120.93
05/04/95 EP550354 9740 75495684 158 129 303.37 303.37 -3.03 -21.29 -9.03 -3.87
05/04/95 EP550354 9742 75495684 158 2 7.30 7.30 -0.07 -0.48 -0.14 -0.06
05/04/95 EP550375 9533 75495684 145 31 222.64 222.64 -2.23 -15.40 -2.17 -0.93
<CAPTION>
TRANS LEC SALES CUSTOMER FUNDED FINANCE NET PAID CHECK
DATE FEES TAX CREDIT AMOUNT CHARGE PAYABLE AMOUNT DATE NUMBER
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
02/28/95 47.79 47.79 07/05/95 950705
02/28/95 11.13 11.13 07/05/95 950705
02/28/95 18.53 18.53 07/05/95 950705
02/28/95 8.00 8.00 07/05/95 950705
02/28/95 3.00 3.00 07/05/95 950705
02/28/95 33.69 33.69 07/05/95 950705
02/28/95 46.00 46.00 07/05/95 950705
02/28/95 3.00 3.00 07/05/95 950705
02/28/95 27.00 27.00 07/05/95 950705
02/28/95 33.97 33.97 07/05/95 950705
02/28/95 23.00 23.00 07/05/95 950705
02/28/95 -87.85 -87.85 07/05/95 950705
02/28/95 177.55 177.55 07/05/95 950705
02/28/95 3451.82 3451.82 07/05/95 950705
02/28/95 1903.85 1903.85 07/05/95 950705
02/28/95 -25.86 -25.86 07/05/95 950705
02/28/95 -128.64 -128.64 07/05/95 950705
02/28/95 -613.84 -613.84 07/05/95 950705
02/28/95 22.09 22.09 07/05/95 950705
03/01/95 -10.21 -10.21 07/05/95 950705
05/01/95 -107.77 -107.77 07/05/95 950705
02/20/95 -311.08 -311.08 07/05/95 950705
04/10/95 -0.11 -9.35 -9.53 -9.53 07/05/95 950705
04/10/95 -0.48 -6.99 -7.68 -7.68 07/05/95 950705
04/10/95 -0.29 -4.79 -5.22 -5.22 07/05/95 950705
04/10/95 -0.44 -22.95 -23.69 -23.69 07/05/95 950705
04/17/95 -0.11 -2.43 -2.61 -2.61 07/05/95 950705
04/17/95 -1.03 -36.77 -38.29 -38.29 07/05/95 950705
04/17/95 -0.92 -19.50 -80.98 -80.98 07/05/95 950705
04/12/95 -0.54 -14.76 -0.34 1.42 1.42 07/05/95 950705
04/13/95 -0.72 -7.70 -0.18 0.04 0.04 07/05/95 950705
04/27/95 -1.90 -22.38 -0.42 0.91 0.91 07/05/95 950705
04/27/95 -1.90 -27.83 -0.52 1.77 1.77 07/05/95 950705
04/27/95 -1.19 -21.34 -0.37 1.58 1.58 07/05/95 950705
04/27/95 -1.11 -31.46 -0.55 3.27 3.27 07/05/95 950705
04/27/95 -1.17 -17.35 -0.31 0.97 0.97 07/05/95 950705
04/27/95 -4.62 -30.50 -0.57 -1.54 -1.54 07/05/95 950705
04/27/95 -6.26 -50.38 -0.95 -0.67 -0.67 07/05/95 950705
04/27/95 -2.38 -26.89 -0.46 0.68 0.68 07/05/95 950705
04/27/95 -2.40 -32.71 -0.57 1.18 1.18 07/05/95 950705
04/27/95 -0.96 -12.94 -0.22 0.59 0.59 07/05/95 950705
04/27/95 -2.90 -25.38 -0.48 -0.43 -0.43 07/05/95 950705
04/27/95 -4.08 -49.37 -0.88 1.60 1.60 07/05/95 950705
05/04/95 -1.47 -36.78 -0.61 2.48 2.48 07/05/95 950705
05/04/95 -56.27 -801.25 -13.57 1.06 1.06 07/05/95 950705
05/04/95 -0.30 -3.86 -0.07 0.13 0.13 07/05/95 950705
05/04/95 -592.96 -6660.26 -110.63 -110.11 -110.11 07/05/95 950705
05/04/95 -14.75 -242.70 -4.11 -4.56 -4.56 07/05/95 950705
05/04/95 -0.60 -5.64 -0.10 0.01 0.01 07/05/95 950705
05/04/95 -4.56 -178.27 -2.96 16.32 16.32 07/05/95 950705
</TABLE>
<PAGE>
TELTRUST, INC.
<TABLE>
<CAPTION>
TRANS OBLIGATION TRANS TRANS ACCEPTED UNBILL BAD DEBT SPDI INQUIRY LEC
DATE TAPE LEC NUMBER CIC COUNT AMOUNT AMOUNT AMOUNT ALLOWANCES TRUE UP FEES FEES FEES
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
05/04/95 %p550375 9740 75695684 145 1 2.54 2.56 -0.03 -0.18 -0.07 -0.03 -0.11
05/11/95 %p551055 9533 75695689 145 4 22.15 22.15 -0.22 -1.52 -0.28 -0.12 -0.59
05/11/95 %p551056 9533 75695689 145 4314 9068.73 9068.73 -90.69 -622.12 -301.98 -129.42 -624.59
05/11/95 %p551066 9533 75695689 145 29 174.04 174.04 -1.74 -11.94 -2.03 -0.87 -4.27
- ---------------------------------------------------------------------------------------------------------------------------------
Report Totals: 9215 19479.60 19642.38 -314.42 -1344.89 -4643.15 -645.05 -275.67 -1346.23
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SALES CUSTOMER FUNDED FINANCE NET PAID PAID CHECK
TAX CREDIT AMOUNT CHARGE PAYABLE AMOUNT DATE NUMBER
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-2.05 -0.03 0.04 0.05 07/05/95 950705
-17.72 -0.75 1.45 1.45 07/05/95 950705
-7254.98 -104.29 -69.34 -69.34 07/05/95 910705
-139.23 -1.00 11.96 11.96 07/05/95 910705
- --------------------------------------------------------------------------------------
-162.76 -15713.93 -245.44 4237.82 4237.12
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CALLING PLATFORM AND NETWORK AGENCY AGREEMENT
Exhibit 10.9
THIS AGREEMENT is entered into this 15th day of Oct., 1997 (("Effective Date")
by and between TELTRUST COMMUNICATIONS SERVICES, INC. ("TELTRUST"), a Utah
corporation with its principal place of business at 221 North Charles Lindbergh
Drive, Salt Lake City, Utah 84116 and BELLSOUTH LONG DISTANCE, INC. ("BSLD"), a
Delaware corporation with its principal place of business at 32 Perimeter Center
East, Atlanta GA 30346 (hereinafter collectively referred to as the "Parties").
RECITALS:
WHEREAS, TELTRUST offers carrier services including live operator services,
automated platform services, directory assistance services, network and related
telecommunications services; and
WHEREAS, BSLD has a Proprietary Access Platform through which End User
Customers can obtain access to carrier services and have these services billed
through various methods, including BellSouth's Global Calling Card; and
WHEREAS, BSLD has entered into a billing and collection agreement which
allows BSLD to provide billing services for certain calls placed via
proprietary-access means, and TELTRUST desires to obtain such billing services
from BSLD on the terms and conditions contained herein; and
WHEREAS, based on the specific mutual obligations and commitments as set
forth below, the Parties desire to enter into a business relationship in which
TELTRUST provides operator, network and related telecommunications services to
End User Customers accessing BSLD's Proprietary Access Platform, and BSLD
performs limited billing services on behalf of TELTRUST;
NOW, THEREFORE, in consideration of mutual covenants herein and other good
and valuable consideration, receipt of which is hereby acknowledged, the Parties
hereto agree as follows:
SECTION I. CONTRACT DEFINITIONS
1.1 Affiliate: A company or entity in which BellSouth Corporation holds an
equity or equivalent financial interest, e.g. BellSouth Cellular,
BellSouth Telecommunications, etc.
1.2 AIN: Advanced Intelligent Network. Database maintained to store and
receive queries on BSLD's proprietary calling cards.
1.3 ANI: Automatic Number Identification, e.g., a telephone number.
1.4 Automated Call Processing: Services provided through TELTRUST's
automated switching platform.
1.5 Automated Collect Call: A collect call that is placed through a
switching platform that performs the same functions as a live operator,
i.e. obtaining the caller's name, acceptance of charges by the bill to
party, etc., through a computerized mechanism.
1.6 BellSouth Region: The nine state area currently served by BellSouth
Telecommunications, consisting of Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina, and Tennessee.
<PAGE>
1.7 BSLD Proprietary Access Platform (PAP): The software and other
intellectual property that reside on TELTRUST's calling platform which
provides End Users access to services available on the calling platform.
The PAP provides menus and prompts that allow End Users to select the
services he or she wishes to use. All calls by End Users, utilizing the
800/888 access number contemplated by this Agreement, must access the PAP
prior to receiving any calling platform services or being transported for
termination.
1.8 BST: BellSouth Telecommunications, Inc. An Affiliate of BSLD, and a
billing and collection provider of BSLD.
1.9 BTN: Billing Telephone Number. The number associated with a specific
account which carries all pertinent billing information to which a
completed operator or network platform services call will be billed.
1.10 Bong Tone: The tone heard by an End User Customer after having reached
TELTRUST automated platforms.
1.11 Branding: Depending on the context, the association of the BellSouth name
to an End User Customer with a BellSouth service, or a TELTRUST name to
an End User Customer with a TELTRUST service.
1.12 Call Attempt: An attempt made by an End User to place any call type
contemplated in this Agreement. A call attempt may result in either a
Completed Call or an Incomplete Call.
1.13 Change Request: Request from either Party to revise the processing of
services, or add new services to the terms and conditions of this
Agreement, in accordance with defined, written requirements.
1.14 Clearing House: The provider of bill clearing services whereby Call
Records are submitted to the LEC for billing and collections via the LEC
billing system.
1.15 Call Rating: Process whereby TELTRUST rates calls using its software and
in accordance with TELTRUST tariffs, as selected by BSLD.
1.16 Calling Card: A non-proprietary card issued to End User Customers,
generally by Local Exchange Carriers, that can be used to bill completed
calls. Calling card databases are maintained via LIDB in order that
calling card numbers can be validated prior to placing and billing a
call.
1.17 CDR: Call Detail Record. Record relating to individual telephone calls
originated by End User Customers via the BSLD Proprietary Access
Platform.
1.18 Completed Call: A call attempt that reaches the TELTRUST platform or a
TELTRUST live operator via BSLD's Proprietary Access Platform, that
results in successful connection between the calling and called party.
1.19 Credit Card: A card issued to End User Customers by banking or other
institutions, e.g. MasterCard, VISA, American Express, that is used to
bill completed calls.
1.20 Directory Assistance: Service accessed via BSLD's Proprietary Access
Platform whereby a TELTRUST directory assistance operator attempts to
locate a telephone number listing or an address listing, or both, for a
BSLD or Affiliate End User Customer.
2
BSLD/TELTRUST Proprietary
Subject to Confidentiality Agreement
<PAGE>
1.21 Directory Assistance - Call Completion: Automated system accessed via
BSLD's Proprietary Access Platform providing an End User Customer of
Directory Assistance the ability to complete a call to the number for
which the End User Customer sought a telephone number listing or an
address listing, or both, without having to hang up and initiate a new
call.
1.22 EMI: Exchange Message Interface. The industry standard record layout
for the exchange of messages between telecommunication providers. The
EMI standards are maintained and provided by Bellcore in its
Documentation SR-320.
1.23 End User Customer: A consumer, who may or may not be a BSLD or
Affiliate proprietary card holder, who places, or attempts to place,
any type of telephone call as described in this Agreement. Also
referred to as "End User".
1.24 Full Market Entry Date: The first day of the month following the date
upon which BSLD obtains all necessary legal authority, including any
authority required under 47 U.S.C. Section 271(d) to provide non-
incidental originating interLATA telecommunications service in all
states in the BellSouth Region.
1.25 Fully Automated Calling Card Call: A call placed by dialing the
proprietary access number to BSLD's Proprietary Access Platform,
followed by entering a destination number, hearing a bong tone, and
finally the proprietary or calling card number. May also be placed by
dialing a 0 in designated locations, followed by the destination number
and, upon hearing a bong tone, entering the proprietary or calling card
or credit card number. In either event, no operator intervention is
required.
1.26 General Assistance: An automated service offering from BSLD's
Proprietary Access Platform that enables End User Customers to obtain
calling card information or other like information from BellSouth,
without requiring a call to be billed by TELTRUST.
1.27 Gross Billings Accepted: Shall be defined as gross revenue transmitted
to BST by BSLD for billing less any LEC rejects by BST. Also, defined
as Total Revenue accepted on the BST Confirmation Report #4310.
1.28 Incomplete Call: A call attempt that reaches the TELTRUST platform or a
TELTRUST live operator via BSLD's Proprietary Access Platform that does
not result in a connection between the calling and called party.
1.29 International Call: A call attempt to a destination other than the
United States and its outlying territories. May include calls placed by
dialing 011 or 01 plus the applicable country and city code, or calls
placed to other countries utilizing the North American Numbering Plan.
1.30 IXC: Inter-Exchange Carrier. A provider of long distance telephone
services to End User Customers.
1.31 LEC: Local Exchange Carrier. A provider of local telephone services to
End User Customers.
1.32 LIDB: Line Information Database. Database utilized for validation of
billing methods; maintained by Local Exchange Carriers and containing
BTNs that accept billing of 0+ or 0- calls, or both.
1.33 Live Operator Services: All services which require the intervention and
assistance of a live operator.
3
BSLD/TELTRUST Proprietary
Subject to Confidentiality Agreement
<PAGE>
1.34 Market Entry Date: The first day of the month following the date upon
which BSLD obtains all necessary legal authority, including any authority
required under 47 U.S.C. Section 271(d) to provide non-incidental
originating interLATA telecommunications service in a given BellSouth
Region state.
1.35 North American Numbering Plan: The series of 10 digits dialed to reach a
destination in North America.
1.36 Operator Assisted Calling Card Call: A call billed to a proprietary or
LEC calling card with the assistance of a live operator.
1.37 Operator Assisted Credit Card Call: A call billed to a credit card with
the assistance of a live operator.
1.38 Operator Assisted Collect Call: A call billed to the called to party with
the assistance of a live operator.
1.39 Operator Assisted Third-Party Billed Call: A call billed to a third-party
with the assistance of a live operator.
1.40 Operator Assisted General Assistance Call: A call placed to a live
operator by an End User Customer requesting rate information, refund and
repair information, time of day information, and other like information
and which does not result in a call being placed by TELTRUST's operator.
1.41 PBA: Post Billing Adjustment. Credits issued to end user customer
accounts for charges that have been billed to these accounts, which in
turn modifies (adjusts) the total settlement balance due TELTRUST from
BSLD.
1.42 Person-to-Person Call: An operator-assisted call in which the caller
requests to speak with a particular person. Charges on a Person-to-Person
Call may be billed to the called party, via the proprietary card, or via
an alternative billing method, i.e. credit card, calling card, third-
party.
1.43 Proprietary Calling Card: A card issued by BSLD or its Affiliate for use
by its End User Customers.
1.44 PARS: Purchase of Accounts Receivable. Statement sent to TELTRUST by BSLD
detailing the amount due TELTRUST for the Purchase of Accounts Receivable
("PAR"). Includes TELTRUST transmitted revenue and associated Taxes
received, and recourse or settlement amounts such as unbillables, post-
billing adjustments and uncollectible-realized amounts, and Settlement
Allowance recoursed to TELTRUST for the given settlement period.
1.45 Station-to-Station Call: Any operator assisted call in which the calling
party does not specify a party with whom he or she must be connected
(e.g. person-to-person), and for which billing will occur once answer
supervision is received as a result of the called number answering.
1.46 Taxes: All taxes including, but not limited to, federal, state or local
sales, use, excise, gross receipts or other receipts, or other taxes or
tax-like fees (including tariff surcharges) imposed on or with respect to
TELTRUST's services, excluding however, ad valorem property taxes, state
and local privilege and license taxes based on gross revenue, taxes
measured by net income, and any taxes or amounts in lieu of the foregoing
excluded items.
1.47 Teltrust Commission Statement: Shall be defined as TELTRUST's monthly
commission settlement statement to BSLD outlining commission payable on
gross billings accepted for the applicable settlement period.
4
BSLD/TELTRUST Proprietary
Subject to Confidentiality Agreement
<PAGE>
1.48 Unbillable: TELTRUST messages BSLD is unable to bill to an End User
Customer account through its billing and collection agreement with BST.
1.49 Uncollectible: Billed End User Customer charges where BSLD is unable to
effect collection because the End User Customer does not pay the
charge.
1.50 Validation: Process by which a BTN is determined to be authorized and
in good standing by the issuer.
SECTION II. CALLING PLATFORM AND NETWORK SERVICES
2.1 BSLD's Proprietary Access Platform.
[***]
2.2 Calling Platform and Network Facilities.
2.2.1 End User Customers will place calls by dialing a proprietary
800 or 888 access number, which will be routed by TELTRUST to
BSLD's PAP. BSLD's PAP will then, based on End User Customer
prompts, transfer the call to TELTRUST's appropriate platform
and network facilities.
2.2.2 The compensation for all of BSLD's PAP services performed by
BSLD on behalf of TELTRUST for End User Customers over the term
of this Agreement shall be reflected in the commission as set
forth in Section 5.2.2.
2.2.3 Call Types Available Via BSLD's Proprietary Access Platform.
The following types of calls will be permitted via BSLD's PAP,
through End User-selected options on BSLD's PAP menu:
2.2.3.1 Fully Automated Calling Card Calls. These call types
shall include BSLD proprietary cards, non-proprietary
LEC calling card calls, and credit card calls. They
are allowed by End User Customers entering a "l" at
BSLD's PAP menu.
5
BSLD/TELTRUST Proprietary
Subject to Confidentiality Agreement
* Portions of this Agreement have been redacted to preserve the Company's
confidential information
<PAGE>
2.2.3.2 Automated Collect Calls. These call types are allowed by End User
Customers entering a "2" at BSLD's PAP menu.
2.2.3.3 Directory Assistance Calls. These call types are allowed either
by End User Customers entering a "3" at BSLD's PAP menu, or by
End User Customers placing a fully automated calling card call
with Directory Assistance identified as the destination number.
2.2.3.3.a) TELTRUST shall provide trained directory assistance
operators, access to its national database for United
States listings twenty-four (24) hours a day, seven
(7) days a week. TELTRUST shall provide directory
assistance services for End User Customer inquiries
who identify the city and state in which the desired
called party resides.
2.2.3.4 General Assistance and other Customer Service Calls. These call
types are allowed by End User Customers entering a "4" at BSLD's
PAP menu.
2.2.3.4.a) TELTRUST shall provide connection to BSLD's designated
customer care/fulfillment center when End User
Customers enter a "1" at the General Assistance menu
in order for End User Customers to order BellSouth
calling card calls. The telephone number will be
provided by BSLD.
2.2.3.4.b) TELTRUST shall provide connection to BSLD's designated
fraud or customer service center when End User
Customers enter a "2" at the General Assistance menu
in order for End User Customers to gain calling card
assistance from BellSouth. BSLD will provide dialing
instructions to TELTRUST to complete these calls.
2.2.3.4.c) TELTRUST live operators will connect End User
Customers requesting card fulfillment services to
BSLD's designated center. TELTRUST live operators will
also connect End User Customers with customer service
or card troubles to BSLD's designated fraud or
customer service center via an unannounced collect
call to that center.
2.2.3.5 Live Operator Services. Access to a live operator for call
assistance will be provided by TELTRUST when an End User Customer
enters a "0" at BSLD's PAP menu, when the End User Customer does
not successfully complete a call from elsewhere on BSLD's PAP
menu, or when the End User Customer does not enter a digit to
complete the call processing.
TELTRUST shall provide trained bilingual (English and Spanish)
live call assistance operators twenty-four (24) hours a day,
seven (7) days a week. Call assistance operators shall provide
live operator services for the following types of calls:
(1) Operator Assisted Calling Card Call
(2) Operator Assisted Credit Card Call
(3) Operator Assisted Collect Call
(4) Operator Assisted Third-Party Billed Call
6
BSLD/TELTRUST Proprietary
Subject to Confidentiality Agreement
<PAGE>
These services may be provided on a station-to-station or
person-to-person basis.
2.2.3.6 Other call types or services may be added to the existing BSLD
PAP as agreed upon in writing by the Parties.
2.3 Network
2.3.1 TELTRUST shall be responsible for securing the network inbound
access, responsible organization, interconnection and facilities
in order that calls may be delivered to BSLD's PAP and, if
necessary, from BSLD's PAP to TELTRUST's calling platform. Calls
may originate from any location within the United States and its
outlying territories, and from other selected areas that are
included in the North American Numbering Plan.
[***]
2.3.3 TELTRUST shall be responsible for completing calls to their
destination, either via its own network or via transport
agreements with other IXCs.
2.3.4 TELTRUST shall be responsible for all costs associated with the
acquisition, installation and maintenance of necessary switching
equipment to facilitate the call volumes projected by BSLD, as
detailed in Exhibit II. TELTRUST will install its switch(es) and
calling platform facilities at the site(s) mutually agreeable to
both parties. TELTRUST shall be responsible for all costs
covering the facilities between the switch(es) in Atlanta (or
other locations as needed) and its operator center(s).
2.3.5 Unless otherwise agreed to by the parities, TELTRUST will comply
with SS7 signaling requirements for network interconnection with
BSLD or TELTRUST's IXC(s), or both. SS7 signaling will be
provided for both setup and call validation.
2.3.6 Switching and transport equipment utilized by TELTRUST to
provide services pursuant to this Agreement shall meet or exceed
industry performance requirements specified and as applicable in
BellCore's Generic Requirements, GR-929-Core, Issue 1, Revision
1, December 1995. If any unit does not meet current
requirements, TELTRUST will establish a Quality Council with the
manufacturer and initiate action to bring the product or
products in compliance.
2.3.7 Any TELTRUST provided point-to-point trunk group carrying
traffic referred to in this Agreement shall be engineered as
follows:
7
BSLD/TELTRUST Proprietary
Subject to Confidentiality Agreement
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
Method: Neal-Wilkinson B.01, Low day-to-day variation or industry
standard equivalent
Peakedness Factor: 1.3
This engineering standard may be modified by mutual agreement of
the parties.
2.4 Validation
2.4.1 TELTRUST is responsible to ensure that all calls accessed via
BSLD's PAP (excepting general assistance or other non-bill
affecting calls) will be validated using all commercially
reasonable steps.
2.4.2 BSLD shall ensure that its proprietary cards are maintained and
accessible for validation by TELTRUST, either through BSLD's AIN
database, or through LIDB, or both. However, the parties
acknowledge that BSLD's AIN database will not be operational on
the effective date of this Agreement. BSLD will provide thirty
(30) days written notice to TELTRUST as to when the AIN will
become operational; until that time, TELTRUST will validate calls
only against LIDB.
2.4.3 Service Outages.
2.4.3.1 In the event of service outages resulting in TELTRUST's
inability to receive data from either AIN, when
operational, or LIDB, TELTRUST shall rely on internal
software providing algorithmic analysis, NPA analysis
and negative databases. TELTRUST shall immediately
notify BSLD in writing via facsimile in the event of a
database services outage exceeding fifteen (15)
consecutive minutes.
2.4.3.2 TELTRUST reserves the right, with notice to BSLD, to
suspend processing of calls billed to commercial credit
cards, in the event of a service outage.
2.4.6 Fraud Control
2.4.6.1 BSLD will provide selected fraud control and management
services on behalf of TELTRUST for all call which access
BSLD's PAP. The terms and conditions of these services
will be, to the best of BSLD's ability, in accordance
with the terms of its Fraud Management agreement with
other suppliers, of which TELTRUST will be provided
copies for its reference, and whose terms, as they may
apply to TELTRUST, form an integral part of this
Agreement. TELTRUST agrees to keep confidential all
terms of BSLD's Fraud Management agreement in accordance
with the conditions specified in Section 9,
Confidentiality and Non-Disclosure.
2.4.6.2 The compensation for all fraud control and management
services performed by BSLD on behalf of TELTRUST over
the term of this Agreement shall be reflected in the
commission arrangement as set forth in Section 5.2.2.
8
BSLD/TELTRUST Proprietary
Subject to Confidentiality Agreement
<PAGE>
2.4.6.3 TELTRUST shall permit BSLD review and monitoring
rights towards call activity generated on TELTRUST's
calling platform residing on BSLD-exclusive switches,
in order that BSLD may provide assistance and support
towards performing fraud control procedures.
2.5 Call Rating
2.5.1 TELTRUST shall provide software and other appropriate systems to
format and rate calls, in accordance with Section 2.6.1.1, in
order that call records will be submitted either (1) to BSLD for
clearinghouse services; or (2) to another clearinghouse provider
designated by TELTRUST; as mutually agreed to by the Parties.
2.6 Reporting
2.6.1 TELTRUST will provide to BSLD on a daily basis, unless otherwise
mutually agreed, the following files:
[***]
2.6.1.2 The Parties shall determine mutually acceptable
methods and procedures for data transfer, including
procedures related to failed data transmissions. These
methods and procedures will be documented within
thirty (30) days of the effective date of this
Agreement.
2.6.1.3 TELTRUST agrees that it will disclose to BSLD all End
User Customer information for all End User Customers
who authorize TELTRUST to provide such disclosure.
2.7 Quality of Services
2.7.1 TELTRUST shall provide the services described in this Agreement
in conformance with the appropriate industry standards for like
services. The parties shall mutually develop network
surveillance procedures that will allow BSLD to monitor
TELTRUST's network integrity and quality. Once the procedures
are established, the Parties agree to meet quarterly, or sooner
if necessary, to review performance and related issues.
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<PAGE>
2.7.2 TELTRUST shall provide weekly reports that indicate the quality
of service being provided to End Users. The parties shall
mutually develop format for the reports that is agreeable to
both parties. However, at a minimum, the report format shall be
sufficient to ensure the trunk engineering standard for each
trunk group under TELTRUST's control is in accordance with
Section 2.3.7.
[***]
SECTION III. BILLING SERVICES
3.1 Records/Data Transmission.
3.1.1 TELTRUST shall provide to BSLD on a daily basis by 8:00 a.m.
Eastern Time, unless otherwise mutually agreed, call detail
records (CDRs) for all call attempts and all services
contemplated in this Agreement. A CDR is generated for each call
attempt received by TELTRUST switch(es) via the proprietary
access method. The parties agree to use good faith efforts to
negotiate a Service Level Agreement to document the manner and
format by which TELTRUST will provide CDRs to BSLD.
[***]
3.1.3 Only messages provided by TELTRUST in connection with the BSLD's
Proprietary Access Platform shall be covered by this Agreement.
TELTRUST shall not submit messages to BSLD for billing if such
messages are not eligible to bill under this agreement, unless
otherwise agreed to by the Parties.
3.2 Data Processing and Outclearing
3.2.1 Upon receipt of TELTRUST CDRs, BSLD will promptly process the
CDRs through its system edits and screens. Those records that
pass BSLD's edits and screens shall be considered valid billing
records. Those CDRs that do not pass BSLD edits and screens
shall be returned to TELTRUST, either for correction or for
outclearing through alternate means. No BSLD Clearinghouse Fee
shall apply to such records.
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* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
3.2.2 BSLD will reformat the CDRs into EMI format. BSLD will remit CDRs
that pass through its edits and screens to BST within two (2)
business days after receipt.
3.2.3 TELTRUST's name, along with the associated valid EMI billing records
accepted by BST, will appear on the BSLD bill page of the BST
telephone bill. BSLD shall separately identify TELTRUST messages
from its own or other messages.
3.2.4 Records rejected for billing by BST will be investigated by BSLD for
possible correction and resubmission. The Parties will agree to the
establishment of reject and resubmission methods and procedures.
3.2.5 Unbillable records rejected by BST, through no fault of BSLD, shall
be charged the same Clearinghouse Fee as described in Exhibit I.
BSLD shall return such records to TELTRUST in the format received
from BST.
3.2.6 Unbillable records which are resubmitted to BST for billing and
collection shall be charged the standard Clearinghouse Fee as
described in Exhibit I.
3.2.7 BSLD will provide to TELTRUST daily confirmation of messages
accepted for outclearing. BSLD will also provide to TELTRUST daily
confirmation of message processing activity between BSLD and BST on
TELTRUST's behalf.
3.3 Reports and Returns
3.3.1 BSLD shall provide to TELTRUST those billing and collection reports
which relate specifically to TELTRUST call activity. Such reports
shall include (and be provided within the following time frames):
(a) Rejected CDRs (daily)
(b) Unbillable CDRs (daily)
(c) Taxes (monthly)
(d) Post Billing Adjustments (monthly)
(e) Bad Debts by Account (monthly)
Such reports shall be provided in a paper format at the initiation
of this Agreement. BSLD agrees to supply the detail to TELTRUST in a
mechanized format once it develops the means to do so.
SECTION IV. BILLING AND COLLECTIONS.
[***]
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* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
[***]
SECTION V PAYMENTS AND SETTLEMENTS.
5.1 BSLD Payment Obligations to TELTRUST.
[***]
5.1.1.2 LEC Rejects. TELTRUST revenue accepted by BSLD but
rejected for billing by BST. These messages will be
investigated for error correction and resubmission in
accordance with Section 3.2.4. LEC Rejects will reduce
TELTRUST accounts receivable only after it is discovered
that the reject did not occur due to error on the part of
BSLD or BST.
5.1.1.3 Taxes. For each settlement period, taxes associated with
TELTRUST's billed messages will be determined by BST, and
added to TELTRUST's accounts
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* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
receivable. Tax reports reconciling the amount of increase
will be provided on a monthly basis.
5.1.1.4 Unbillables. For each settlement period, BSLD will calculate
TELTRUST's amount of messages that cannot be billed to End
User Customers, and reduce TELTRUST's accounts receivables
by the total amount. BSLD will provide a summary report of
unbillables activity.
5.1.1.5 Post Billing Adjustments. For each settlement period, BSLD
will calculate the amount of accounts receivable previously
purchased in which an adjustment was granted to the End User
Customer's account, and reduce TELTRUST's accounts
receivable by the total amount. BSLD will provide a summary
report of PBA activity on an adjustment or account level
basis, and where available, on an adjusted message level
basis.
5.1.1.6 Bad Debts. For each settlement period, BSLD will calculate
the amount of net realized End User Customer bad debts on
accounts receivable previously purchased, and reduce
TELTRUST's accounts receivable the total net amount. Net
realized bad debts are made up of two parts:
(1) Actual write-offs of End User Customer amounts due that
have been removed from the books after completion of
standard collection efforts;
(2) Recoveries on previously written off End User Customer
amounts due.
Taxes associated with the realized bad debt amounts are also
reported on the PARS Statement and recoursed to TELTRUST in
the same month in which the revenue is written off or
recovered. BSLD will provide a summary report of bad debt
and recovery activity on an account level basis.
5.1.1.7 Clearinghouse Fees. For each settlement period, BSLD will
calculate the amount of clearinghouse fees for all messages
outcleared by BSLD for billing purposes, and reduce
TELTRUST's accounts receivable by the total. The
clearinghouse fees are set forth in Section 5.2.1.1.
5.1.1.8 Other Adjustments. BSLD will add or subtract other amounts
that affect the net realized purchase amount Such amounts
include, but are not limited to, settlement of claims or
corrections of previous PAR activities, and Settlement
Reserve as explained in Section 5.1.2. BSLD shall supporting
documentation for such adjustments where applicable.
[***]
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* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
[***]
5.2 TELTRUST Payment Obligations to BSLD
5.2.1 Clearinghouse Fees
5.2.1.1 For those messages identified as requiring outclearing by
BSLD to BST for billing, BSLD shall assess TELTRUST a
charge per message outcleared as set forth in Exhibit I.
5.2.2 Commission
[***]
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* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
[***]
SECTION VI TAXES.
6.1 Taxes - Bill Processing Service
6.1.1 BSLD shall compute, bill and collect all applicable Taxes to its End
Users and remit such Taxes to TELTRUST through the PARS process.
BSLD shall use the same tax practice and procedures (including
exemption procedures) to apply Taxes on similar or comparable BSLD
services, unless notified in writing by TELTRUST to do otherwise.
BSLD shall implement any legislated tax law or tax rate changes into
its procedures as required by applicable tax law for services billed
by BSLD. TELTRUST shall give BSLD instructions for application of
Taxes for any new services in the form of an Change Request.
TELTRUST will provide BSLD with written notification for any taxes
or taxing requirements that may apply to it and not to the BSLD
including but not limited to those taxes or taxing requirements
covered by agreements with the taxing authority.
6.1.2 TELTRUST has the right to review BSLD's)'s tax procedures and
supporting documentation, and BSLD shall supply TELTRUST with such
documentation upon request by TELTRUST at a mutually agreeable
location. TELTRUST can request BSLD to change its tax procedures
with respect to applying and billing Taxes on TELTRUST's messages
via a Change Request.
6.1.3 BSLD shall furnish to TELTRUST on a timely basis, all information
and reports in its possession reasonably necessary for TELTRUST to
file its tax returns within the applicable filing period. TELTRUST
may request modifications to BSLD reporting for Taxes via a Change
Request. TELTRUST shall file all returns for all such Taxes with the
applicable taxing authority and pay or remit all such Taxes to the
applicable taxing authority. BSLD shall have no responsibility for
payments of Taxes to the taxing authorities.
6.1.4 BSLD shall use the same Tax exemption status with respect to
TELTRUST's End Users as it uses for its own End User Customers, and
when requested by BSLD, furnish copies of such information as may be
in its possession regarding Tax exemption of End User Customers.
BSLD shall maintain information regarding Tax exemption status of
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* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
TELTRUST's End User Customers in a reasonably accurate and complete
manner. End User Customer status information shall be maintained by
BSLD in the same manner as it would maintain records for its own End
User Customers. TELTRUST may review information relating to End User
Customer's Tax exemption status and request that BSLD change Tax
exemption status with respect to TELTRUST's services as mutually
agreed upon by the tax departments of both Parties.
6.1.5 BSLD is responsible for ensuring the implementation of any
legislated Tax rate changes on Taxes currently being charged to End
User Customers on TELTRUST's behalf, which are also being billed for
BSLD's End User Customers.
6.2 BSLD shall not remit Taxes to TELTRUST when it is not able to do so as a
result of legal restrictions; however, TELTRUST reserves the right to
challenge such determinations.
6.3 BSLD shall not be entitled to retain or receive any statutory fee or share
of Taxes that the person collecting or remitting such Taxes is entitled
under applicable law.
6.4 BSLD, as directed by BST, shall be responsible for calculating and billing
any foreign states' taxes associated with a jurisdiction where the call
originates in a state other than the billing state.
6.5 TELTRUST understands and agrees that BSLD is merely providing services with
respect the billing and collection of Taxes hereunder.
6.6 All communications with taxing authorities regarding Taxes applicable to
TELTRUST shall be the responsibility of TELTRUST.
6.7 Taxes - Indemnity and Recourse
6.7.1 BSLD agrees to indemnify, hold harmless, and defend (at BSLD's
expense) TELTRUST from and against any liability or loss resulting
from Taxes, penalties, interest, additions to Tax surcharges, or
other charges or payable expenses (including reasonable attorney's
fees) incurred by TELTRUST as a result of the willful misconduct or
gross negligence of BSLD to accurately calculate and bill Taxes as
instructed by TELTRUST pursuant to Section 6.2 hereto. Such
indemnity shall be provided to TELTRUST on an after tax basis.
6.7.2 TELTRUST shall indemnify, hold harmless, and defend (at TELTRUST's
expense) BSLD from and against any liability or loss resulting from
any Taxes, penalties, interest, additions to Tax surcharges, or
other charges or payable expenses (including reasonable attorney's
fees) incurred by BSLD as a result of:
6.7.2.1 TELTRUST's failure to pay any Tax or file any return or
other information as required by law or the Agreement; or
6.7.2.2 BSLD complying with the Agreement or with any
determination or direction by or advice of TELTRUST
provided in writing by TELTRUST, or BSLD correctly using
this information provided in writing by TELTRUST in
performing any Tax-related service hereunder; or
6.7.2.3 BSLD acting or failing to take any action with respect to
any Tax which is the subject of this Agreement.
6.7.3 Notwithstanding the above, such indemnity is conditioned upon BSLD
providing TELTRUST or TELTRUST providing BSLD with notice (which
notice shall be given
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<PAGE>
allowing the Party time to file a response, but in no event more
than ten (10) business days of receipt of assessment) of any
assessment of any additional Taxes, penalties, or interest due with
respect to this Agreement. BSLD shall receive a copy of all filings
in any such preceding, protest or legal challenge, all rulings
issued in connection therewith and all correspondence between
TELTRUST and the taxing authority.
6.7.4 If TELTRUST disagrees that any Taxes are payable by BSLD, disagrees
with an assessment of any additional Taxes, penalties, interest,
additions to tax surcharges, or other charges or payable expenses
due by BSLD as a result of BSLD's billing to TELTRUST for services
under this Agreement, TELTRUST shall, at its option and expense
(including, if required by a taxing authority, payment of such Tax,
penalty and interest before final resolution of the issue) have the
right to seek administrative relief, a ruling, judicial review
(original or appellate level) or other appropriate review (in a
manner deemed appropriate by TELTRUST, as to the applicability of
any Tax, penalty or interest, or to protest any assessment and
direct any legal challenge filed with the Internal Revenue Service
or in a court of law such assessment, and shall be liable hereunder
for any such amount ultimately determined to be due.
6.7.5 Any legal proceeding or any other action with respect to BSLD and
with respect to any asserted liability or additional Taxes due by
BSLD shall be under BSLD's direction, but TELTRUST shall be
consulted. Any legal proceeding or any other action with respect to
TELTRUST and with respect to any asserted liability of additional
Taxes due by TELTRUST shall be under TELTRUST's direction, but BSLD
shall be consulted. In any event, both Parties shall fully cooperate
with each other as to the asserted liability. TELTRUST shall bear
all the costs of any such action undertaken at its specific request.
BSLD shall bear the costs of any such action undertaken absent such
a request from TELTRUST.
6.8 Gross Receipts Taxes. BSLD is outclearing TELTRUST's revenues for a
specific fee. BSLD shall not report these billings as its own receipts for
gross receipts tax purposes or any other tax purpose.
6.9 Taxes Associated with Service Charges. Should any Federal, State or local
jurisdiction determine that sales, use, gross receipts or other receipts,
or any other taxes (including interest, penalties and surcharges thereon)
are due by BSLD as a result of BSLD's or its billing provider's provision
of services and such taxes have not already been billed through BSLD and
paid by TELTRUST, BSLD shall advise TELTRUST and TELTRUST shall be liable
for any such taxes, interest, penalties, and surcharges, and TELTRUST shall
immediately reimburse BSLD for the amount of such taxes, interest,
penalties and surcharges paid by BSLD. If TELTRUST disagrees with BSLD's
determination that any Taxes are due, TELTRUST shall, at its option and
expense, including immediate payment of any such assessment, have the right
to seek a ruling as to the inapplicability of any such tax or to protest
any assessment and participate in any legal challenge to such assessment,
but shall be liable for any Tax, penalty, surcharge and interest ultimately
determined to be due.
6.10 Billing Agent. For purposes of this Section VI, Taxes, BSLD shall be
defined to include its authorized billing agents.
SECTION VII TERM AND TERMINATION
7.1 The Initial Contract Term of this Agreement shall begin on October 15,
1997, the effective date, and end on October 15, 1999, and may renew in
full force and effect, automatically on monthly basis unless agreed to
otherwise by the Parties. BSLD may terminate the Agreement for
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<PAGE>
convenience by providing a sixty (60) day written notice. However, in the
event BSLD terminates the Agreement, pursuant to this Section 7.1, twelve
months or sooner from the effective date, a [***] early termination fee
will apply from the date of termination through the twelfth (12th) month.
7.2 BSLD may, upon thirty (30) days notice, terminate this Agreement without
penalty or prejudice, provided BSLD utilizes TELTRUST services under the
terms and conditions of the Operator and Network Services Agreement, signed
between the Parties, dated November 21, 1996.
7.3 TELTRUST may terminate this Agreement with reasonable notice to BSLD in the
event BSLD is in default of any payment obligations under this Agreement,
provided that BSLD has failed to cure such non-payment within thirty (30)
calendar days of notification. TELTRUST may also terminate this Agreement
at any time in the event BSLD is in breach of its performance obligations
under this Agreement, and provided BSLD fails to take all commercially
reasonable steps to cure such breach or default within sixty (60) calendar
days after written notice of such default or breach is given to BSLD.
7.4 BSLD may terminate this Agreement with reasonable notice to TELTRUST in the
event TELTRUST is in default of any payment obligations under this
Agreement, provided that TELTRUST has failed to cure such non-payment
within thirty (30) calendar days of notification. BSLD may also terminate
this Agreement at any time in the event TELTRUST is in breach of its
performance obligations under this Agreement, and provided TELTRUST fails
to take all commercially reasonable steps to cure such breach or default
within sixty (60) calendar days after written notice of such default or
breach is given to TELTRUST.
[***]
SECTION VIII BRANDING AND REGULATORY ISSUES.
8.1 TELTRUST shall provide branding and call rating in accordance with its
federal and state tariffs.
8.2 TELTRUST represents that it has all necessary legal authority to charge and
collect the rates for services contemplated in this Agreement, and that
TELTRUST complies with applicable regulatory requirements incident to such
rates. TELTRUST shall supply to BSLD, at its request, copies of any
applicable state and federal tariffs, certifications or other documentation
governing authority and rates, terms and conditions of TELTRUST service
provisioning.
8.3 BSLD represents that it has all necessary legal authority to perform the
services contemplated in this Agreement, and that BSLD complies with
applicable regulatory requirements incident to such services.
SECTION IX. CONFIDENTIALITY AND NON-DISCLOSURE.
9.1 Confidential Information
9.1.1 Information furnished or disclosed by one Party or its agent or
representative (the "Originating Party") to the other Party or its
agent or representative (the "Receiving Party") in connection with
or in contemplation of this Agreement, or relating to current or
anticipated voice and data telecommunications needs of BSLD or its
Participating Affiliates (including but not limited to proposals,
contracts, tariff and contract drafts,
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* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
specifications, drawings, network designs and design proposals,
pricing information, strategic plans, computer programs, software
and documentation, and other technical or business information
related to current anticipated TELTRUST or BSLD products and
services) shall be "Confidential Information".
9.1.2 If such information is in written or other tangible form (including,
without limitation, information incorporated in computer software or
held in electronic storage media) when disclosed to the Receiving
Party, it shall be Confidential Information only if it is identified
by clear and conspicuous markings to be confidential or proprietary
information, or both, of the Originating Party; provided, however,
that all written proposals exchanged between the Parties regarding
pricing of the Services shall be Confidential Information, whether
or not expressly indicated by markings or statements to be
confidential or proprietary.
9.1.3 If such information is not in writing or other tangible form when
disclosed to the Receiving Party, it shall be Confidential
Information only if:
(1) The original disclosure of the information is accompanied
by a statement that the information is confidential or
proprietary, or both; and
(2) The Originating Party provides a written description of
the information so disclosed, in detail reasonably
sufficient to identify such information, to the Receiving
Party within thirty (30) calendar days after such original
disclosure.
9.1.4 The terms and conditions of this Agreement shall be deemed
Confidential Information as to which each Party shall be both an
Originating Party and a Receiving Party.
9.1.5 Confidential Information shall be deemed the Property of the
Originating Party.
9.1.6 The following categories of information shall not be Confidential
Information:
9.1.6.1 Known to the Receiving Party without restriction when
received, or thereafter developed independently by the
Receiving Party; or
9.1.6.2 Lawfully obtained from a source other than the Originating
Party through no breach of confidence by the Receiving
Party; or
9.1.6.3 In the Public domain when received, or thereafter enters
the public domain through no fault of the Receiving Party;
or
9.1.6.4 Disclosed by the Originating Party to a third party
without restriction; or
9.1.6.5 Lawfully in the possession of the Receiving Party at the
time of receipt from the Originating Party.
9.1.7 Rights and obligations provided in this Section shall take
precedence over specific legends or statements associated with
information when received.
9.2 Protection of Confidential Information
9.2.1 A Receiving Party shall hold all Confidential Information in
confidence during the Term of this Agreement and for a period of
three (3) years following the end of the Term or such other period
as the Parties may agree. During that period, the Receiving Party:
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<PAGE>
9.2.1.1 Shall use such Confidential Information solely in
furtherance of the matters contemplated by this Agreement
and related to either Party's performance of this
Agreement;
9.2.1.2 Shall reproduce such Confidential Information only to the
extent necessary for such purposes;
9.2.1.3 Shall restrict disclosure of such Confidential Information
to such of its employees or its Affiliate's employees as
have a need to know such information for such purposes
only;
9.2.1.4 Shall advise any employees and agents to whom such
Confidential Information is disclosed of the obligations
assumed in this Agreement;
9.2.1.5 Shall not disclose any Confidential Information to any
third party (not including disclosure to a BellSouth
subsidiary or persons identified in Section 9.3 and
Section 9.5) without prior written approval of the
Originating Party except as expressly provided in this
Agreement; and
9.2.1.6 Shall take such other reasonable measures as are necessary
to prevent the disclosure, unauthorized use or publication
of Confidential Information as a prudent business person
would take to protect its own similar confidential
information, including, at a minimum, the same measures it
uses to prevent the disclosure, unauthorized use or
publication or its own similar proprietary or confidential
information.
9.3 Disclosure to or by Affiliates, Consultants or Subcontractors. In the
absence of a contrary instruction by a Party, such Party's Affiliates,
consultants, subcontractors and agents performing work in connection with
this Agreement shall be deemed agents of such Party for purposes of receipt
or disclosure of Confidential Information. Accordingly, any receipt or
disclosure of Confidential Information by a Party's Affiliate, or its
consultant or subcontractor performing work in connection with this
Agreement, shall be deemed a receipt or disclosure by the Party.
9.4 Return or Destruction of Confidential Information.
9.4.1 Upon termination of this Agreement, or at an earlier time if the
information is no longer needed for the purposes described in
Section 9.2.1.1, each Party shall cease use of Confidential
Information received from the other Party and shall use its best
efforts to destroy all such Confidential Information, including
copies thereof, then in its possession or control. Alternatively, or
at the request of the Originating Party, the Receiving Party shall
use its best efforts to return all such Confidential Information and
copies of the Originating Party.
9.4.2 Any Confidential Information that is contained in databases or
mechanized systems in such a manner that it reasonably cannot be
isolated for destruction or return, shall continue to be held in
confidence subject to the provisions of this Agreement.
9.4.3 The rights and obligations of the Parties under this Agreement with
respect to any Confidential Information return to the Originating
Party shall survive the return of the Confidential Information.
9.5 Required Disclosure. A Receiving Party may disclose Confidential
Information if such- disclosure is in response to an order or request from
a court, the FCC or other regulatory body provided, however, that before
making such disclosure, the Receiving Party shall first give the
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<PAGE>
Originating Party reasonable notice and opportunity to object to the order
or request, or obtain a protective order covering the Confidential
Information to be disclosed, or both.
SECTION X. INDEMNIFICATION AND LIMITATION OF LIABILITY.
10.1 Indemnification. Each Party (as "Indemnitor") shall indemnify, defend and
hold harmless the other Party (as "Indemnitee") from and against any and
all liabilities, costs, damages, fines, assessments, penalties and
expenses (including reasonable attorney's fees) resulting from: (a) breach
of any provision in this Agreement by the Indemnitor, its employees or
operators; or (b) any misrepresentation or illegal act of Indemnitor, its
employees or operators, arising out of the Indemnitor's performance
hereunder.
10.2 Limitation of Liability. The liability of either Party for damages
resulting in whole or in part from or arising in connection with the
furnishing of service under this Agreement, including but not limited to
mistakes, omissions, interruptions, delays, errors or other defects shall
not exceed an amount equal to the charges under this Agreement applicable
to the specific call or service that was affected. No other liability
shall attach to TELTRUST including, but not limited to, liability for
special, indirect, or consequential damages arising from or in connection
with the furnishing of service or equipment hereunder. This limitation
shall not apply to instances of gross negligence or willful misconduct.
10.3 Warranties. THE WARRANTIES AND REMEDIES SET FORTH IN THIS AGREEMENT ARE
THE ONLY WARRANTIES AND REMEDIES WITH RESPECT TO THE SERVICES PROVIDED
HEREUNDER, AND ARE IN LIEU OF ANY OTHER WARRANTY, WRITTEN OR ORAL,
STATUTORY, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
SECTION XL DISPUTE RESOLUTION.
11.1 Mediation. In the event of a material breach of any of the terms or
conditions of this Agreement, the wronged Party shall inform the other
Party of such breach in writing, which writing shall serve as notice to
cure or rectify such breach. The other Party shall have sixty (60)
calendar days from receipt of such notice to cure or rectify such breach,
except for non-payment, as described in Sections 7.3 and 7.4. If, however,
after sixty (60) calendar days the wronged Party has not received a
satisfactory remedy, the Parties shall agree to submit all disputes 'for
mediation in accordance with the rules of the Center for Public Resources.
The mediation, unless otherwise mutually agreed upon by the Parties, shall
be conducted in Atlanta, Georgia for any dispute submitted by TELTRUST, or
in Salt Lake City, Utah for any dispute submitted by BSLD. The Parties
shall use their best efforts to conclude any mediation initiated hereunder
within forty-five (45) calendar days, unless otherwise agreed to in
writing by the Parties, from the initiation of such mediation.
11.2 Arbitration. If after the initial time period referred to in Section 11.1
above expires without resolution of the outstanding dispute, either Party
may request that the dispute be settled by binding arbitration in
accordance with the rules of the Center for Public Resources. The
arbitration shall be governed by the United States Arbitration Act, 9
U.S.C. Sec 1, et seq., and judgment upon the award rendered by the
arbitrator(s) may be entered by any court with jurisdiction.
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BSLD/TELTRUST Proprietary
Subject to Confidentiality Agreement
<PAGE>
SECTION XII. MISCELLANEOUS.
12.1 Notice. Unless otherwise agreed herein, all notices, requests, or other
communications shall be in writing, effective when received, to the
following unless subsequently changed in writing:
TELTRUST Communications Service, Inc. BellSouth Long Distance, Inc.
221 N. Charles Lindbergh Drive 32 Perimeter Center East
Salt Lake City, UT 84116 Atlanta, GA 30346 Attn:
Vice-President & General Counsel Attn: Sr. Director Carrier Relations
Phone: (801) 535-2000 Phone: (770) 352-3000
Facsimile: (801)535-2080 Facsimile: (770)352-3181
12.2 Compliance with Applicable Law.
12.2.1 This Agreement is made subject to all present and future orders,
rules and regulations of any regulatory body having jurisdiction
over the subject matter hereof, and to the laws of the United
States of America or any of its states having jurisdiction over
the Parties and the subject matter contained herein (collectively,
"Applicable Law"). In the event this Agreement or any of its
provisions shall be found contrary to, or in conflict with, any
such Applicable Law, this Agreement shall be deemed modified to
the extent necessary to comply with such Applicable Law, and shall
be modified in such a way as the Parties mutually agree is
consistent with the form, intent, and purpose of its surviving
provisions.
12.2.2 This Agreement shall be construed in accordance with and supports
the state Tariffs which deal with the provision of services by
BSLD or its billing services provider to ership IXCs such as
TELTRUST. It is expressly understood and acknowledged that the
intrastate billing services are provided pursuant to and under the
terms and conditions of the applicable state Tariffs in effect. In
the event of any conflict between this Agreement and the state
Tariffs, the state Tariffs regarding intrastate traffic shall
prevail. It is understood by both Parties that regulatory action
may supersede the terms and conditions of this Agreement.
12.2.3 TELTRUST shall obtain and keep current Federal, State and local
licenses or approvals that may be required to carry the traffic or
otherwise conduct the business for which BSLD is outclearing
hereunder. TELTRUST is solely and fully responsible to BSLD for
any damages incurred due to breach of this obligation. COPIES OF
ALL REQUIRED CERTIFICATIONS AND APPROVALS, IN THE APPLICABLE
JURISDICTIONS, OBTAINED BY TELTRUST SHALL BE FURNISHED TO BSLD
BEFORE THE IMPLEMENTATION OF THIS AGREEMENT OR, IF ISSUED DURING
THE TERM OF THIS AGREEMENT, WITHIN THIRTY (30) DAYS OF ISSUANCE.
12.2.4 BSLD shall obtain and keep current all Federal, State and local
licenses or approvals and comply with other such regulations as
may be applicable to the Services performed by BSLD hereunder.
12.3 Policy Statements. TELTRUST agrees that it will abide by all reasonable
policy statements issued by BSLD regarding the provision of services to
BellSouth customers. In the event that TELTRUST fails to abide by said
policy statements, BSLD may terminate this Agreement pursuant to Section
7.4.
22
BSLD/TELTRUST Proprietary
Subject to Confidentiality Agreement
<PAGE>
12.4 Audit Rights. Each Party (as Auditor") shall have the right to perform
audits as described herein of the services provided to it by the other
Party (as "Auditee"). The audit will be located at the Auditee's company
location during normal business hours, and will be performed only on
information that reasonably may bear upon the provision of services
specified as part of this Agreement. Unless otherwise agreed, Auditor shall
be limited to one audit per calendar year. Auditor shall give notice of its
intent to perform an audit at least thirty (30) calendar days prior to the
proposed commencement date. Such notice will include the specific objective
of the audit, the proposed commencement date, primary Auditor contact
names, and to the best of Auditor's ability, the information requested for
review. Auditee will make reasonable efforts to ensure that all information
requested by Auditor and required to perform an audit, subject to
information deemed to be proprietary and confidential information relating
to other Auditee client or product activity, will be made available by the
audit commencement date. Within sixty (60) calendar days after the
conclusion of an audit, Auditor will prepare a final written report,
identifying any deficiencies found and documenting any claims associated
with the audit. Upon receipt of Auditor's final report, Auditee will
investigate all findings and claims, and provide a written response to
Auditor within thirty (30) calendar days. Each Party will bear its own
expenses in connection with performing an audit.
12.5 GOVERNING LAW. With respect to any lawsuit or binding arbitration involving
this Agreement, the Parties hereto agree that the prevailing law shall be
that of the State of Georgia.
12.6 COSTS OF ENFORCEMENT. In the event of litigation arising from the
enforcement of this Agreement the parties hereto agree that all costs,
including reasonable attorney's fees of the prevailing Party shall be paid
by the losing Party, unless otherwise agreed.
12.7 NO AGENCY. Neither party is authorized to act as an agent for, or legal
representative of, the other Party and neither Party shall have authority
to assume or create any obligation on behalf of, in the name of, or binding
upon, the other Party. Provision of services hereunder shall not create a
partnership, joint venture or other like relationship between the Parties.
12.8 INTELLECTUAL PROPERTY.
12.8.1 Neither BSLD nor TELTRUST shall use the others trade names,
trademarks or service marks ("Marks"), nor permit them to be
displayed or used by third parties, except as specifically provided
in this Agreement or upon other prior written approval of the other
Party. Nothing in this Agreement creates in a Party rights in the
trade names, trademarks or service marks of the other Party.
12.8.2 Except as otherwise specifically provided in this Agreement, neither
BSLD nor TELTRUST will: (a) use the other Party's corporate logos,
trade dress, or other symbols that serve to identify and distinguish
such other party from its competitors (or use confusingly similar
corporate logos, trade dress or such other symbols); or (b) conduct
business under the other Party's corporate or trade names, logos,
trademarks, servicemarks, trade dress, or other symbols that serve
to identify and distinguish such other Party from its competitors
(or under any cunfusingly similay corporate or trade names, logos,
trademarks, service marks, trade dress or such other symbols.)
12.8.3 BSLD or its contractors or agents may develop specification,
drawings, documentation, concepts, methods, techniques, processes,
adaptations and ideas including, but not limited to, software
(hereinafter "Software") for the purpose of rendering Services under
this Agreement. Unless otherwise agreed by authorized
representatives of the Parties, in writing, in advance of the
creation of the Software, BSLD shall own all right, title and
interest, including copyright, in and to the Software.
23
BSLD/TELTRUST Proprietary
subject to Confidentiality Agreement
<PAGE>
12.9 Waiver of Breach. Failure of either Party to exercise any rights
granted to it hereunder upon any breach or default by such Party
shall not be deemed a waiver in the event of further breaches or
defaults.
12.10 Assignment. Neither this Agreement nor any right or obligation
hereunder may be assigned or delegated to any other entity, except
for subsidiaries or affiliates, without the prior written consent of
the other Party, which consent shall not be unreasonably withheld.
TELTRUST may, without further permission but with proper notice to
BSLD, assign its right to receive payment from BSLD.
12.11 Entire Agreement. This Agreement, together with the attached
Exhibits, represents the entire agreement of the Parties with
respect to the subject matter hereof and supersedes all other
agreements between the Parties relating to the services provided
hereunder.
12.12 Force Majeure. With the exception of BSLD's obligation to make
payments to TELTRUST as provided for herein, neither Party hereto
shall be obliged to perform its obligations or commitments hereunder
if prevented therefrom by reason of labor disputes, equipment or
software failures, government regulations, court injunctions, acts
of nature, accidents, fires, floods or any other occurrence beyond
the control of the Party involved, including the failure of third
party providers, such as suppliers of telephone lines to deliver
adequate or timely services. In the event either Party curtails or
suspends its services or obligations as provided under this Section
12.11, it shall incur no liability to the other Party or to any
other party or entity arising therefrom.
12.13 Modification of Agreement. This Agreement, including its Exhibits,
may be amended, modified or supplemented only by a separate written
document executed by both Parties.
12.14 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the successors and permitted assigns of either Party.
12.15 Survival. The Parties agree that the termination of this Agreement
pursuant to any provision or section hereof, or for any other
reason, shall not affect or terminate any obligation or liability
incurred or assumed by either Party before the effective date of
termination of this Agreement, and the provisions of this Agreement
shall survive its termination with respect to conclusion of any
unresolved matters relating to the Services performed before
termination.
12.16 Descriptive Headings. Descriptive headings in this Agreement are for
convenience only and shall not affect the content or construction of
this Agreement.
24
BSLD/TELTRUST Proprietary
Subject to Confidentiality Agreement
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers.
BELLSOUTH LONG DISTANCE, INC. TELTRUST COMMUNICATIONS SERVICES, INC.
By: /s/ William F. Reddersem By: /s/ Marc B. Cohen
----------------------- -----------------------
Name: William F. Reddersen Name: Marc B. Cohen
Title: Group President, BellSouth Long Title: President and C.E.O.
Distance & Video Services
Date: 10/15/97 Date: 10/15/97
----------------------- ----------------------
25
BSLD/TELTRUST Proprietary
Subject to Confidentiality Agreement
<PAGE>
EXHIBIT I
of the
Proprietary Platform
Agency Agreement
Between
BellSouth Long Distance, Inc.
and
Teltrust Communications Services, Inc.
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
EXHIBIT II
of the
Proprietary Platform
Agency Agreement
Between
BellSouth Long Distance, Inc.
and
Teltrust Communications Services, Inc.
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 1 page.]
<PAGE>
EXHIBIT III
of the
Proprietary Platform
Agency Agreement
Between
BellSouth Long Distance, Inc.
and
Teltrust Communications Services, Inc.
<PAGE>
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Exhibit comprised 2 pages.]
<PAGE>
EXHIBIT 10.10
AGREEMENT
---------
THIS SERVICES AGREEMENT is entered into this 30th of September, 1997, between
QUEST GROUP INTERNATIONAL, INC., a Georgia corporation with its principal
offices located at 242 Falcon Drive, Forest Park, Georgia 30297 ("Quest"), and
AMERITECH COMMUNICATIONS, INC., a Delaware corporation with offices located at
2000 West Ameritech Center Drive, Hoffman Estates, Illinois 60196 ("Ameritech").
WHEREAS, Quest is engaged in providing various prepaid telecommunication
platform services and selling related retail and/or wholesale telecommunications
products; and
WHEREAS, Ameritech desires to purchase from Quest, and Quest desires to sell to
Ameritech, these prepaid telecommunications platform services and wholesale
telecommunications products for resale by Ameritech to customers; and
WHEREAS, Quest desires to provide on a retail basis to Ameritech's Customers
and/or End Users certain long distance telecommunications services;
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other valuable consideration, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms have the meanings hereinafter indicated whenever used in
this Agreement:
1.1 "AFFILIATE" shall mean, when used with respect to a specific Person, a
Person who directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the specified
Person.
1.2 "CARRIER" shall mean the underlying facilities-based provider of
intraLATA, interLATA or international telecommunications services.
1.3 "DISCLOSING PARTY" shall mean, when used in connection with the disclosure
of any particular Confidential Information, the Party who discloses such
Confidential Information to the other Party.
1.4 "END USER" shall mean the actual consumer of the Services.
1.5 "EVENT OF DEFAULT" shall mean any event or occurrence described as such in
SECTION 7.1 hereof.
1.6 "FCC" shall mean the Federal Communications Commission and any successor
federal agency having jurisdiction over the interstate provision of
telecommunications services.
1.7 "QUEST" shall mean Quest Group International, Inc., a Georgia corporation.
1.8 "PARTY" shall mean Ameritech on the one hand and Quest on the other hand.
1.9 "PERSON" shall mean any individual, partnership, corporation, limited
liability company, trust, or other entity.
1.10 "RATE SCHEDULE" shall mean that certain schedule attached hereto as
ADDENDUM "A" and the
<PAGE>
exhibits thereto, which identifies (i) each of the telecommunications
products and platform services that may be purchased by Ameritech for
resale to Customers, (ii) each of the telecommunications products that may
be provided by Quest directly to Ameritech's Customers and/or End Users,
(iii) the Usage Charges applicable to each such product or service, and
(iv) the Service Charges applicable to each such product or service, as
such schedules may be amended from time to time by mutual agreement of the
parties.
1.11 "RECEIVING PARTY" shall mean, when used in connection with the disclosure
of any particular Confidential Information, the Party to whom such
Confidential Information is disclosed by the other Party.
1.12 "CUSTOMER" shall mean any retail and/or wholesale customer procured by
Ameritech.
1.13 "SERVICE CHARGES" shall mean any charges other than Usage Charges which are
set forth in the Rate Schedule and which are payable (i) by Ameritech to
Quest in connection with the purchase of a particular category of Wholesale
Services, including recurring and non-recurring installation charges,
location charges, management fees, and similar items, or (ii) by Quest in
connection with the provision of a particular Retail Service.
1.14 "SERVICES" shall mean the Retail Services and the telecommunications
services provided by Ameritech to Customers and/or End Users as a result of
the resale of Wholesale Services.
1.15 "USAGE CHARGES" shall mean (i) the charges payable by Ameritech to Quest
with respect to each minute or six (6) second increment thereof, whichever
is specified, of use by Ameritech of a particular category of Wholesale
Services, as calculated in accordance with the applicable rates set forth
in the Rate Schedule, or (ii) the charges payable by Quest to Ameritech
with respect to each minute or six (6) second increment thereof, whichever
is specified, of provision of a particular category of Retail Service, as
calculated in accordance with the applicable rates set forth in the Rate
Schedule.
1.16 "WHOLESALE SERVICES" shall mean the telecommunications products and
platform services identified in the Rate Schedule which are sold directly
by Quest to Ameritech for resale by Ameritech. The Wholesale Services shall
include at a minimum those Services specified in ADDENDUM "B" hereto,
regardless of whether they are currently being provided by Quest to
Ameritech under this Agreement.
1.17 "RETAIL SERVICE" shall mean the telecommunications products identified in
the Rate Schedule which are provided by Quest to Ameritech's Customers
and/or End Users.
1.18 "TRANSMISSION SERVICES" shall mean the physical carriage of a telephone
call from the point of origin to the destination point, and shall include
both Wholesale Transmission Services and Retail Transmission Services.
ARTICLE II
PURCHASE/PROVISION OF SERVICES
------------------------------
2.1 GENERAL.
(A) Ameritech shall purchase from Quest, and Quest shall sell to
Ameritech, in accordance with the terms and conditions contained in
this Agreement, such Wholesale Services as may be ordered by Ameritech
from time to time for resale. In exchange for such Wholesale
Services, Ameritech shall be obligated to pay to Quest any applicable
Usage Charges and Service
2
<PAGE>
Charges as set forth on the Rate Schedule in accordance with the
provisions of ARTICLE IV hereof.
(B) Quest shall provide, in accordance with the terms and conditions
contained in this Agreement, such of the Retail Services identified in
ADDENDUM "A" as may be specified from time to time by Ameritech. In
exchange for such Retail Services, Quest shall be obligated to pay
Ameritech any applicable Service Charges as set forth in the Rate
Schedule in accordance with the provisions of ARTICLE IV hereof.
2.2 ADDITIONAL SERVICES. From time to time, Quest may make available for
purchase by Ameritech additional wholesale telecommunications products and
services other than the Wholesale Services listed in the Rate Schedule. If
Ameritech desires to purchase any such additional product or service, the
price of such additional product or service, and the terms and conditions
on which it will be provided to Ameritech, will be determined by mutual
agreement of the parties hereto at the time such product or service is
offered by Ameritech, and the Rate Schedule will be modified accordingly.
2.3 SPECIAL SERVICES. From time to time, Ameritech may request that Quest
supply to Ameritech special services in addition to or different from those
services specified in Sections 2.1 and 2.2 hereof. Any such request from
Ameritech shall be in writing, and Quest shall respond to such request with
a written quotation to Ameritech, which quotation specifies the cost and
timeline for performance of the special services. The parties must agree
in writing to performance of the special services before Quest will
undertake those special services.
2.4 REQUIRED DOCUMENTATION. Prior to the delivery by Quest to Ameritech of any
Wholesale Services which would be subject to any federal, state or local
excise, sales or use taxes if Ameritech were not purchasing such Wholesale
Services for resale, Ameritech shall deliver to Quest all applicable
exemption forms and certificates required to avoid the collection of such
taxes by Quest or, in the event Quest is processing and paying said taxes
on behalf of Ameritech, all appropriate accounts and documentation shall be
agreed upon by the Parties.
[***]
2.6 WARRANTY AND LIMITATIONS. Quest represents and warrants to Ameritech that
the Wholesale Services shall conform to and operate in strict accordance
with the specifications contained in ADDENDUM "B" attached hereto.
AMERITECH ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY PROVIDED
OTHERWISE HEREIN, QUEST MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED,
CONCERNING ITS FACILITIES, PRODUCTS OR SERVICES, INCLUDING, WITHOUT
LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE
OR PURPOSE. In no event shall Quest be liable for any act or omission of
either the Carrier(s) from whom Ameritech obtains network services or any
other entity furnishing equipment, products, or services to Ameritech, its
End Users or its Customers, nor shall Quest be liable for any damages or
losses due to the fault or negligence of Ameritech, its End Users or its
Customers.
3
* Portions of this Agrement have been redacted to preserve the Company's
confidential information.
<PAGE>
ARTICLE III
ORDERS
------
3.1 STANDARD ORDER PROCESSING PROCEDURES. All orders for those Services
specified in ADDENDUM A shall contain the information specified in, and be
submitted by Ameritech to Quest in accordance with, those order processing
procedures mutually established by Quest and Ameritech.
3.2 CUSTOM ORDER PROCESSING PROCEDURES. Orders for the development of special
or custom services not then specified in ADDENDUM A as being available to
Ameritech shall be submitted by Ameritech to Quest in accordance with such
special order processing procedures as the Parties shall mutually
establish. Each order for development of custom or special services shall
indicate whether (a) Ameritech is requesting exclusive use of such custom
or special service, or (b) if Ameritech does not request exclusive use of
such custom or special service, the royalty arrangement to be utilized
whereby Quest will compensate Ameritech if such custom or special service
is provided by Quest to another of Quest's customers after Ameritech has
paid for the development of the custom or special service.
3.3 REQUIRED INFORMATION. Each order submitted by Ameritech shall contain
all required information. If Ameritech submits an order for Services which
is incomplete or which otherwise fails to comply with the established order
processing procedures, Quest may either return the order to Ameritech for
completion or correction or attempt to process the order in the condition
submitted by Ameritech.
3.4 ACCEPTANCE OF ORDERS. No order for Services will be binding upon Quest
unless and until such order has been approved by Quest; provided that,
Quest shall not unreasonably withhold or delay its approval of an order for
Services. If Quest refuses to approve an order for Services, it shall
provide Ameritech with notice of such rejection and the reason therefor.
ARTICLE IV
BILLING AND COLLECTION
----------------------
4.1 INVOICES AND PAYMENTS.
(A) Invoices. Within ten (10) days of the last day of each calendar month
--------
during the term of this Agreement and for each month thereafter until
all charges for the Wholesale Services other than Transmission
Services have been billed and paid, Quest shall prepare and deliver to
Ameritech an invoice summarizing the various non-Transmission Services
charges incurred by Ameritech during the immediately preceding month.
Quest shall on a weekly basis prepare and deliver to Ameritech an
invoice summarizing the various Transmission Services charges incurred
by Ameritech during the immediately preceding week. Quest's failure
to forward an invoice within the prescribed time period shall not
relieve or otherwise modify or alter in any way Ameritech's obligation
to make the payments required herein.
(B) Payments. Ameritech shall pay the undisputed portion of each non-
--------
Transmission Services invoice no later than thirty (30) days after the
invoice date. Ameritech's payment shall be made by wire transfer to
an account specified by Quest. Ameritech shall pay the undisputed
portion of each Transmission Services invoice not later than fifteen
(15) days after the invoice date. Ameritech's payment shall be made
by wire transfer to a separate, specific bank account set up in
Quest's name, but said account shall be subject to a restriction that
payments into the account from Ameritech must be automatically
forwarded by the bank to one (1) or more Carriers specified by
Ameritech and Quest, and those forwarding instructions
4
<PAGE>
cannot be altered or canceled without both Quest's and Ameritech's
prior written consent. Any invoice that is not paid when due,
including any disputed payment withheld by Ameritech pending
resolution of the dispute with Quest which is subsequently determined
to be due and owing to Quest, shall be subject to a late fee
calculated using the prime rate (the average rate published in The
---
Wall Street Journal on the payment due date) plus two percent (2%).
-------------------
(C) Statements. Within fifteen (15) days of the last day of each week
----------
during the term of this Agreement and for each week thereafter until
all settlements for the Retail Services have been paid, Ameritech
shall prepare and deliver to Quest a statement summarizing the various
revenue(s), calculated in accordance with the Rate Schedule, to be
paid to Quest for providing the Retail Services during the immediately
preceding month, less the Service Charges owed by Quest to Ameritech
in connection therewith. Ameritech shall include with each such
statement the full net payment due and owing to Quest.
4.2 DISPUTES. If either party disputes any calculation or amount shown on an
invoice, it shall notify the other party of such dispute and the basis
therefor within twenty (20) business days after receipt of such invoice.
The non-disputing party shall respond to the disputing party in writing
within ten (10) business days of its receipt of such a notice. If the
dispute is not resolved as a result of the response, Ameritech and Quest
shall in good faith attempt to resolve such dispute through mediation and
arbitration in accordance with ARTICLE XI hereof.
4.3 AUDIT.
(A) Upon reasonable advance written notice to Quest, Ameritech shall be
entitled from time to time (but no more frequently than every six (6)
months) to audit (a) Quest's books and records to confirm the accuracy
of charges invoiced by Quest to Ameritech, (b) the End User database
of information to verify its accuracy and completeness, and (c)
Quest's personnel and methods and procedures to verify Quest's
compliance with this Agreement. Any such audit shall be performed at
reasonably convenient times for the Parties and during normal business
hours. Any audit of the accuracy and completeness of Quest's invoices
to Ameritech shall be limited to transactions underlying those
invoices submitted within one (1) year of Ameritech's request for the
audit. If any audit conducted by Ameritech reveals a discrepancy of
five percent (5%) or more, then Quest shall reimburse Ameritech's
reasonable audit expenses. Nothing herein shall give Ameritech the
right to have access to any information other than that information
related to Ameritech's account.
(B) Notwithstanding the foregoing, Ameritech shall be entitled to place
one (1) or more of its employees and/or consultants at Quest's
facilities in order to audit the accuracy, correctness and
completeness of the Carrier's bills to Quest for Wholesale
Transmission Services sold by Quest to Ameritech. Quest shall furnish
such employees/consultants reasonable accommodations, facilities and
assistance in this effort, and Ameritech shall reimburse Quest for any
reasonable out of pocket expenses (to include such expenses as
telephone charges but not to include an allocation for rent, lights,
heat, etc.) incurred by Quest in providing such accommodations,
facilities and assistance. If Quest requests and they have time,
Ameritech will direct those employees/consultants to also audit the
accuracy, correctness and completeness of the Carrier's bills to Quest
for Retail Transmission Services provided by Quest to Ameritech's
Customers and/or End Users, in which event Quest shall reimburse
Ameritech for a pro rata portion of the employees'/consultants' time
and expenses based on Ameritech's portion of the Carrier's bill in
relation to Quest's portion of the Carrier's bill.
5
<PAGE>
4.4 BILLING INQUIRIES AND COLLECTION EFFORTS. Ameritech shall be solely
responsible for responding to billing inquiries from its Customers and End
Users, unless Ameritech has purchased that type of customer service from
Quest. Ameritech shall be solely responsible for all collection efforts
involving its Customers, and the inability to collect payment from its
Customers and End Users shall not affect Ameritech's obligation to make the
payments to Quest required herein.
ARTICLE V
ADDITIONAL COVENANTS
--------------------
5.1 TAXES. Ameritech shall pay or cause to be paid, when due, all federal,
state, and local excise, sales, and use taxes payable with respect to any
Wholesale Services resold by Ameritech to its Customers and End Users.
Quest shall pay or cause to be paid, when due, all federal, state, and
local excise, sales, and use taxes payable with respect to any Retail
Services provided to Ameritech's Customers and/or End Users. Each party
shall pay or cause to be paid, when due, all federal, state and local taxes
payable with respect to the revenues and profits recognized by that party
hereunder.
5.2 COMPLIANCE WITH LAWS. Each Party shall, at its own expense, comply with
all federal, state, and local laws, ordinances and regulations relating to
its duties, obligations, and performance under this Agreement and shall
procure all certificates, permits, and licenses required in connection
therewith.
5.3 TRADEMARKS. Except for Ameritech's use of Quest's name and/or trademark(s)
and logo(s) to identify that Quest is the provider of Retail Services to
Ameritech's Customers and/or End Users, neither Party shall use the name or
logo of the other Party or an Affiliate of the other Party without the
prior express written consent of the other Party. All use by a Party of
the other Party's name, trade names, trademarks, service marks, and logos
will inure to the benefit of the other Party. Each Party further agrees
not to use the other Party's name, trade names, trademarks, service marks,
or logos as or with any part of any name, mark, or trade name of the Party
or any Affiliate of the Party. Without limiting any other provision of
this Agreement, all uses by a Party of a name or logo of the other Party,
whether on tangible materials or in communications in connection with the
rendition of its duties hereunder, must conform to this Agreement and,
where applicable, the policies and practices of the other Party furnished
to the Party from time to time.
5.4 MOVEMENT OF CUSTOMERS. During the term of this Agreement, Ameritech shall
not directly solicit the retail prepaid phone card business of those
customers of Quest identified in ADDENDUM "C" attached hereto. Nothing
herein contained shall prohibit Ameritech from responding to an unsolicited
request for proposal from any such customer, or from pursuing the retail
prepaid phone card business of such customer if that customer is no longer
purchasing services from Quest.
5.5 PROPRIETARY SYSTEMS/TECHNOLOGY. Ameritech acknowledges that the
technologies and systems, including but not limited to software, procedures
and methods of processing information, activation and refresh systems, and
other proprietary information provided to Ameritech and used by Quest in
connection with Quest's performance under this Agreement, are the sole and
exclusive property of Quest. Nothing contained herein shall convey to
Ameritech any rights or interests in Quest's proprietary programs and
systems, other than the right for Ameritech to use Quest's proprietary
programs and systems during, subject to and in conjunction with the terms
and conditions of this Agreement, and except as such use may be required by
Ameritech upon or after the expiration or termination of this Agreement to
continue to utilize the Customer records database and/or convert or
transition the Customer records database to Ameritech and/or a third party
of Ameritech's choosing.
6
<PAGE>
[***]
5.7 REPORTS. Attached as EXHIBIT "1" TO ADDENDUM "A" is a listing of the
reports that Quest will supply to Ameritech on a weekly, monthly and other
periodic basis, along with a description of the information contained in
each such report. The parties may by mutual agreement add or delete
reports from the list, with a goal to establish an intranet account whereby
Ameritech may electronically access the data in Quest's possession and
prepare such reports on such a frequency as Ameritech deems appropriate.
ARTICLE VI
CONFIDENTIALITY
---------------
6.1 DUTY OF CARE. Each Party acknowledges that any Confidential Information
which may be provided to it by the other Party or which may be generated by
a Party in performing its obligations under this Agreement may have
substantial value to the Disclosing Party. Accordingly, each Receiving
Party agrees to take all reasonable and necessary steps to preserve the
confidentiality of all Confidential Information received from a Disclosing
Party, whether generated and/or communicated in writing, electronically,
orally, or otherwise. A receiving Party shall use not less than the same
degree of care to avoid disclosure of such Confidential Information as it
uses with respect to its own proprietary and confidential information of
like importance and, at a minimum, shall exercise reasonable care.
6.2 CONFIDENTIAL INFORMATION. For purposes of this Agreement, "Confidential
Information" shall include, without limitation, the terms of this
Agreement, Ameritech's Customer and End User lists and associated
information, Quest's rates or agreements with its Carriers, and such other
confidential engineering, technical, financial, business, marketing,
promotional, usage and sales data as a Disclosing Party shall designate as
"confidential," either in writing or orally.
6.3 RESTRICTIONS ON USE AND DISCLOSURE. Each Party recognizes and acknowledges
that a Disclosing Party is disclosing Confidential Information solely to
facilitate full performance of this Agreement by both Parties and each
Receiving Party agrees to, and shall, use the Confidential Information
disclosed to it by the Disclosing Party solely in furtherance of this
purpose and not for any other purpose. A Receiving Party shall restrict
disclosure of Confidential Information to such of its directors, officers,
employees, and agents as shall have obligated themselves in writing to
comply with the restrictions on use and disclosure contained in this
Agreement and who have a reasonable need to know such information for such
purpose and shall reproduce such information only to the extent necessary
for such purpose. A Receiving Party may disclose Confidential Information
to a Consultant, but if it does so, it must ensure that the Consultant is
obligated in writing to abide by the restrictions on use and disclosure
contained in this Agreement and that the Confidential Information bears
appropriate legends or statements indicating the confidential and/or
proprietary nature of the information. A receiving Party shall be liable
for any violation of the provisions of this ARTICLE VI by any such
Consultant. Except as expressly provided otherwise herein, a Receiving
Party shall not disclose Confidential Information to any third party.
7
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
6.4 EXCEPTIONS. The restrictions on disclosure by a Receiving Party of
Confidential Information shall not apply to: (i) information which at the
time of disclosure was generally available to the public; (ii) information
which subsequent to its disclosure by the Disclosing Party to the Receiving
Party is published or otherwise becomes available to the public through
means other than an act or omission of the Receiving Party; (iii)
information which was previously known to the Receiving Party free of any
obligation to keep it confidential or which is subsequently and
independently developed in good faith by the Receiving Party without
reference to or use of the Confidential Information; and (iv) information
rightfully acquired by a receiving Party in good faith from a third party
on a non-confidential basis without breach of an agreement to maintain said
information in confidence. Notwithstanding anything to the contrary
herein, a Receiving Party may disclose confidential Information if required
to do so by law, or if ordered to do so by a court or other governmental
authority of competent jurisdiction; provided, however, that a Receiving
Party shall provide the Disclosing Party prior written notice of any such
mandated disclosure and exercise its best efforts, consistent with sound
business practice, both to afford the Disclosing Party an opportunity to
contest the disclosure and to itself limit the extent of the disclosure to
the maximum extent practicable. Upon the requests of the Disclosing Party,
the Receiving Party shall use its best efforts to negotiate with any court
or governmental authority of competent jurisdiction that has compelled such
disclosure an appropriate protective order that would permit review of any
Confidential Information only by the court or appropriate staff of the
governmental authority and would limit any further disclosure to the
maximum extent possible.
6.5 OWNERSHIP. Confidential Information disclosed to and/or generated by a
Receiving Party is and shall remain the property of the Disclosing Party.
By disclosing the Confidential Information to a Receiving Party, the
Disclosing Party does not relinquish any of its proprietary rights and
interests therein and hereby specifically reserves all such proprietary
rights and interests to said Confidential Information. A Receiving Party
shall return (or, with the consent of the Disclosing Party, which shall not
be unreasonably withheld, destroy) all Confidential Information and all
copies thereof, including, without limitation, written and electronic
copies, as well as all summaries, notes, or other documents, materials or
things containing Confidential Information, to the Disclosing Party
promptly upon the reasonable written requests of the Disclosing Party and
upon termination of this Agreement.
6.6 INJUNCTIVE RELIEF. In the event of a breach or threatened breach by a
Receiving Party or its agents of the terms of this ARTICLE VI, the
Disclosing Party shall be entitled to an injunction prohibiting such breach
in addition to other legal and equitable remedies available to it in
connection with such breach. Each Party acknowledges that the Confidential
Information of the other Party is valuable and unique and that the use or
disclosure of such Confidential Information in breach of this Agreement
will result in irreparable injury to the other Party.
6.7 SURVIVAL. The Parties hereby agree that the confidentiality and non-use
undertakings reflected in this ARTICLE VI shall survive the termination of
this Agreement.
ARTICLE VII
EVENTS OF DEFAULT
-----------------
7.1 DESCRIPTION. Each of the following events, separately, shall constitute an
"Event of Default":
(A) A Party shall fail to pay when due any amount owed to the other Party
pursuant to this Agreement and any such failure shall continue
unremedied for ten (10) business days after written notice thereof
shall be given to the defaulting Party by the non-defaulting Party;
8
<PAGE>
(B) A Party shall fail to perform or observe in any material respect any
material covenant contained in this Agreement, and any such failure
shall remain unremedied for thirty (30) days after written notice
thereof shall have been given to the defaulting Party by the non-
defaulting Party;
(C) Any material action by a Party which directly or indirectly violates
any applicable federal, state or local law, ordinance or regulation,
or any FCC and/or state regulatory rules and policies.
7.2 DEFAULT BY AMERITECH. Upon the occurrence of any Event of Default by
Ameritech, Quest shall have the right to: (i) suspend Services under this
Agreement; (ii) terminate this Agreement and any other agreements or
instruments delivered to Quest connection with this Agreement; (iii)
declare all amounts payable by Ameritech to Quest hereunder immediately due
and payable; and (iv) exercise all other remedies available to it under
this Agreement and such other agreements and instruments or otherwise
available at law or in equity.
7.3 DEFAULT BY QUEST. Upon the occurrence of any Event of Default by Quest,
Ameritech shall have the right to: (i) terminate this Agreement and any
other agreements or instruments delivered by Quest in connection with this
Agreement; (ii) declare all amounts payable by Quest to Ameritech hereunder
immediately due and payable; and (iii) exercise all other remedies
available to it under this Agreement and such other agreements or
instruments or otherwise available at law or in equity.
7.4 CUMULATIVE REMEDIES. Each Party's rights and remedies hereunder shall be
cumulative and the exercise by a Party of any particular right or remedy
shall not prevent such Party from exercising any other right or remedy.
ARTICLE VIII
LIABILITY
---------
[***]
8.2 GENERAL INDEMNITY. Each party shall defend, indemnify and hold harmless
the other and the other's officers, directors, employees, and agents and
their successors and assigns against and from any and
9
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
all losses, liabilities, suits, damages, claims, demands, and expenses
(including, without limitation, reasonable attorneys' fees), whether based
on contract or tort (including strict liability), arising out of or in
conjunction with, but only to the extent that such losses, liabilities,
damages claims, demands, and expenses arise out of or in connection with,
claims or lawsuits brought by unaffiliated third parties alleging (1) the
negligent or intentional acts or omissions of the indemnifying party, its
Affiliate(s) or subcontractors, or the officers, directors, employees,
agents, successors and assigns of any of them, (2) the failure of the
indemnifying party, its Affiliate(s) or subcontractors to fully comply with
the provisions of this Agreement, (3) defective or malfunctioning Services
provided hereunder, and (4) assertions under Worker's Compensation or
similar laws made by persons furnished by the indemnifying party. The
indemnified party shall promptly notify the indemnifying party of any
written claim, loss, or demand for which the indemnifying party is
responsible under this Section.
ARTICLE IX
TERM OF AGREEMENT
-----------------
9.1 INITIAL TERM. Unless sooner terminated in accordance with ARTICLE VII
hereof, the initial term of this Agreement shall commence on the date
hereof and shall continue for a period of three (3) years after the
Services are initiated.
9.2 RENEWAL. Upon the conclusion of the initial term or any renewal term, this
Agreement shall be renewed automatically and shall continue in effect for
consecutive additional one (1) year renewal terms unless either party
delivers to the other Party a written notice of non-renewal at least one
hundred twenty (120) days prior to the expiration of the initial term or
the then-current renewal term.
9.3 SETTLEMENT PROCESS. Upon the expiration or other termination of this
Agreement, the invoice and payment process described in ARTICLE IV hereof
shall continue until Quest has received full payment for all amounts owed
to it in connection with this Agreement, including full payment for all
Wholesale Services purchased by Ameritech during any prior Period.
9.4 POST-TERMINATION RESPONSIBILITIES.
(A) Prior to the expiration or termination of this Agreement, and
extending for a reasonable period of time beyond the termination or
expiration of this Agreement, if deemed necessary by Ameritech, Quest
shall supply to Ameritech such reasonable support and assistance as
Ameritech shall specify to assist Ameritech in the orderly winding-
down of the performance of Services by Quest and the transition of
such services to Ameritech or to a successor selected by Ameritech.
These transition services shall include the transfer of 800/888 access
numbers and the transfer (and conversion to a different database
format, if necessary) of the End User preferences, usage and
outstanding balance database information to Ameritech or its chosen
service provider. Ameritech shall pay for the transition services
specified herein in accordance with the pricing provisions hereof, or
if not specified, at Quest's then-current prices.
(B) Except as required pursuant to Subsection (a) hereof, upon the
expiration or termination of this Agreement, each Party agrees to (i)
immediately cease all new use of the other Party's name, trade names,
trademarks and service marks, and logo; (ii) immediately deliver to
the other Party any and all materials not distributed bearing the
other Party's name, trade names, marks, or logos; and (iii) return all
proprietary and confidential information of the other Party to the
other Party. The obligations contained in this Section shall survive
the termination of this Agreement.
10
<PAGE>
(C) The expiration or termination of this Agreement shall not release
either Party from any liability, obligation or agreement which,
pursuant to any provision of this Agreement, is to survive or be
performed after such expiration or termination.
ARTICLE X
RELATIONSHIP OF THE PARTIES
---------------------------
10.1 WHOLESALE SERVICES. With respect to the Wholesale Services, Ameritech's
relationship to Quest shall be that of a purchaser and reseller of services
only. Ameritech shall contract directly with its Customers and/or End Users
in its own name and shall not represent itself to be the agent or
representative of Quest. Quest Customer Service representatives will
respond to Ameritech's customer service calls by answering in Ameritech's
name.
10.2 NO JOINT EMPLOYMENT. Nothing in this Agreement shall be construed to
constitute Ameritech and Quest as joint employers of either Party's
employees or agents or Quest as a special employer of any employee or agent
of Ameritech.
10.3 RELATIONSHIP OF THE PARTIES. Each of the Parties shall act as, and shall
be, independent contractors in all aspects of their performance of this
Agreement. Nothing contained in this Agreement shall authorize either
Party to act as agent for the other, nor grant either Party authority to
make representations or agreements on behalf of the other. Nothing in this
Agreement shall be deemed to constitute or create a joint venture,
partnership, pooling arrangement or other formal business entity or
fiduciary relationship between Quest and Ameritech. Nothing in this
Agreement shall be construed to give any person or entity other than Quest
and Ameritech any legal or equitable right, remedy or claim under this
Agreement or any provision contained herein.
[***]
11
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
[***]
ARTICLE XI
DISPUTE RESOLUTION
------------------
11.1 MEDIATION. The parties shall attempt in good faith to promptly resolve
any dispute relating to this Agreement by negotiation between their
executives who have authority to settle the controversy and who are at a
higher level of management than the persons with direct responsibility for
administration of this Agreement. Either party may give the other party
notice of any dispute not resolved in the normal course of business.
Within fifteen (15) days after receipt of such notice, the receiving party
shall submit to the other a written response. The notice and response
shall include (a) a statement of each party's position and a summary of
arguments supporting that position, and (b) the name and title of the
executive who will represent that party and of any other person who will
accompany the executive. Within twenty (20) days after receipt of the
disputing party's notice, the executives of both parties shall meet at a
mutually acceptable time and place, and thereafter as often as they deem
reasonably necessary, to attempt to resolve the dispute. Each party shall
honor reasonable requests for information made by the other. If the
parties are unable to resolve the dispute within sixty (60) days of the
disputing party's notice requesting mediation, then either party may
initiate arbitration of the dispute as provided below.
11.2 ARBITRATION. If the parties are unable to resolve a dispute by mediation
as provided above, or if either party fails to resort to or comply with a
request for such negotiation in a reasonable and timely fashion, then the
exclusive remedy for resolving disputes between Ameritech and Quest
relating to this Agreement shall be by binding arbitration in accordance
with the Center for Public Resources ("CPR") Model Procedure for Mediation
of Business Disputes. One (1) arbitrator having experience in the data
processing and/or telecommunications industry shall be selected by CPR to
adjudicate any such dispute, and the arbitration shall be conducted on an
expedited basis in the home city of the party against whom the arbitration
is being invoked. Each party shall bear its own expenses of the
arbitration, and the cost and expenses of the arbitrator shall be equally
shared by the parties. The arbitration award shall be in writing and shall
be final and binding upon the parties, and judgment thereon may be entered
in any court of competent jurisdiction.
11.3 LIMITATION. The requirements of this ARTICLE XI to utilize mediation and
arbitration shall not apply to disputes between the parties for which
injunctive relief is a remedy. During the pendency of any mediation and
arbitration conducted under this ARTICLE XI, both parties shall continue
the full performance of their respective obligations under this Agreement.
Negotiations pursuant to this ARTICLE XI are confidential and shall be
treated as compromise and settlement negotiations for purposes of the
Federal Rules of Evidence and State rules of evidence or any arbitration
proceeding between the parties.
ARTICLE XII
MISCELLANEOUS
-------------
12.1 ENTIRE AGREEMENT. This Agreement and the ADDENDA A, B AND C attached
hereto and incorporated herein by this reference constitute the entire
agreement among the Parties hereto and supersede and cancel any prior
agreements, representations, warranties, or communications, whether oral or
written, among the Parties relating to the transactions contemplated hereby
or the subject matter herein.
12
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
12.2 WAIVER. Any failure on the part of any Party hereto to comply with any of
its obligations, agreements, or conditions hereunder may be waived by any
other Party to whom such compliance is owed. A waiver under this SECTION
10.2 must be in writing signed by the Party to whom compliance is owed, as
specified in SECTION 10.1 above. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a
continuing waiver.
12.3 AMENDMENTS. This Agreement may not be changed, altered or modified unless
such change, alteration or modification is in writing and signed by an
authorized representative of the Party against whom such amendment is to be
enforced.
12.4 SEVERABILITY. In the event that any provision of this Agreement or any
word, phrase, clause, sentence or other portion thereof should be held to
be unenforceable or invalid for any reason, such provision or portion
thereof shall be modified or deleted in such a manner so as to make this
Agreement, as modified, legal and enforceable to the fullest extent
permitted under applicable laws, and the balance of this Agreement shall
remain in full force and effect.
12.5 GOVERNING LAW. This Agreement shall be governed by, construed under, and
interpreted in accordance with the domestic laws of the State of Georgia.
12.6 NOTICES. All notices, requests, demands or other communications required
or permitted to be given or made hereunder shall be in writing and
delivered personally by the sender or overnight courier service, or sent by
pre-paid, first class, certified or registered mail, return receipt
requested, to the intended recipient at its address set out below. Any
such notice, demand or communication shall be deemed to have been duly
given on the next business day if sent by overnight courier, or three (3)
days after mailing, and in proving same it shall be sufficient to show that
the envelope containing the same was duly addressed, stamped and posted.
The addresses of the Parties for purposes of this Agreement are:
If to Quest: If to Ameritech:
Quest Group International, Inc. Ameritech Product Management
242 Falcon Drive 2000 W. Ameritech Center Dr., 3E7C
Forest Park, Georgia 30297 Hoffman Estates, Illinois 60196
ATTN: Richard J. Dewitt, President ATTN: Mr. Sam Maropis
Any Party may change the address to which notices, requests, demands, or
other communications to such Party shall be delivered or mailed by giving
notice thereof to the other Party hereto in the manner provided herein.
12.7 FORCE MAJEURE. If performance by either Party of any part of this
Agreement (other than the payment of money) is prevented by reason of any
flood, riot, fire, strike, earthquake, explosion, power blackout, civil
disturbance, labor dispute, war, change in government regulation, court
action, or any other cause beyond the reasonable control of that Party,
then that Party shall be excused from such performance to the extent of and
during the duration of such force majeure. If Quest is the Party claiming
the force majeure condition, then Ameritech shall be excused from making
payments hereunder to the extent and for the duration that Services are not
being performed by Quest, and if such force majeure continues unabated for
more than thirty (30) days, then Ameritech may terminate this Agreement
immediately upon written notice to Quest.
13
<PAGE>
12.8 CONSEQUENTIAL DAMAGES. EXCEPT AS PROVIDED IN ARTICLE VIII HEREOF, NEITHER
PARTY SHALL BE HELD RESPONSIBLE TO THE OTHER PARTY OR TO ANY THIRD PARTY
FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, OR SPECIAL DAMAGES INCURRED
BY REASON OF A BREACH OF OR THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.
12.9 ASSIGNMENT. Neither Party shall assign any of its rights or delegate any
of its obligations under this Agreement without the prior written consent
of the other Party, such consent not to be unreasonably withheld or
delayed; provided that, Ameritech may assign its rights and obligations
under this Agreement to an Affiliate without the consent of Quest, and any
Ameritech Affiliate may purchase the Services set forth in this Agreement
subject to the terms and conditions hereof. This Agreement shall be
binding on the parties and their respective legal successors and permitted
assigns, subject to the terms and conditions hereof.
12.10 HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their officers thereunto duly authorized the day and year first written
above.
QUEST GROUP INTERNATIONAL, INC. AMERITECH COMMUNICATIONS, INC.
By: /s/ Richard J. Dewitt By: /s/ Patrick J. Earley
------------------------------ ---------------------------
Name: Richard J. Dewitt Name:_________________________
----------------------------
Title: President Title: _______________________
---------------------------
14
<PAGE>
AMENDMENT
THIS AMENDMENT ("Amendment") is made this 13 day of November, 1997, to the
Agreement dated September 30, 1997 (the "Agreement") between QUEST GROUP
INTERNATIONAL, INC. ("Quest") and AMERITECH COMMUNICATIONS, INC. ("Ameritech").
________________________________________
Notwithstanding anything to the contrary in the Agreement, it is hereby
agreed between Quest and Ameritech as follows:
1. Except as expressly provided to the contrary herein, terms used in
this Amendment shall have the meaning defined in the Agreement.
2. Section 2.6 of the Agreement is amended by adding the following
sentences as a new subsection (b) thereof:
"(b) Quest warrants that its Services and any information supplied by
Quest to Ameritech hereunder shall properly perform Year 2000
Processing. Quest shall promptly remedy any breach of this warranty at
no additional charge to Ameritech by correcting its Services so as to
make them capable of correctly performing Year 2000 Processing.
Quest's breach of this warranty shall not be subject to any provisions
regarding limitations of Quest's liability set forth in this
Agreement. "Year 2000 Processing" means processing which is dependent
upon usage of calendar dates, including dates on or after January 1,
2000. Year 2000 Processing includes, in addition to software provided
by Quest, any third party software embedded in the Services that
manages and/or manipulates data involving dates, including single
century formulas and multi-century formulas. "Proper processing" means
the Services will not cause an abnormally ending scenario or
result in incorrect values generated involving dates."
3. The following is hereby added the Agreement or as a new Section 2.7:
[***]
4. The second and third sentences of Section 4.1(a) of the Agreement are
hereby deleted to their entirety and replaced with the following:
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
"Quest shall on a monthly (or such arber frequency as may be negotiated
with the Carrier) basis prepare and deliver to Ameritech an invoice
summarizing the various Transmission Services charges incurred by Ameritech
during the immediately proceeding billing period. Quest's failure to
forward an invoice within the prescribed time period shall not relieve or
otherwise modify or alter in any way Ameritech's obligation to make the
payments required herein; provided that, in no event will Quest invoice
Ameritech for Services which were performed more than ninety (90) prior to
the date of the invoice."
5. In the third sentence of Section 4.1(b) of the Agreement, the words
"fifteen (15)" are deleted and replaced with the words "thirty (30)" (or such
other frequency as may be negotiated with the Carrier).
6. Section 4.1(e) of the Agreement is amended in the first sentence by
replacing the words "fifteen (15)" with the words "thirty (30)" and both
instances replacing the word "week" with the words "billing period" (or such
other frequency as may be negotiated with the Carrier), and in the second
sentence by replacing the word "month" with the words "billing period" (or such
other frequency as may be negotiated with the Carrier).
7. Section 4.3(a) of the Agreement is amended by adding the following
sentence after the third sentence thereof: "Ameritech shall be entitled to
interest (calculated using the prime rate (the average rate published in The
---
Wall Street Journal on the payment due date) plus two percent (2%)) on any
- -------------------
overpayment to Quest.
8. The following is hereby added to the end of Section 5.4 of the
Agreement:
"During the term of this Agreement and for one (1) year thereafter. Quest
shall not directly solicit the retail prepaid phone card business of those
Ameritech Customers identified in Addendum "C" or any other Ameritech
Customer of whom Quest becomes aware as a result of Quest's performance of
Services hereunder. Nothing herein contained shall prohibit Quest from
responding to an unsolicited request for proposal from any such customer,
or from pursuing the retail prepaid phone card business of such customer if
that customer is no longer purchasing services from Ameritech."
9. Except as expressly amended herein, the Agreement shall continue in
full force and effect. In the event of any conflict, inconsistency or
incongruity between the terms of this Amendment and any terms of the Agreement,
this Amendment shall govern and control.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and date written above.
AMERITECH COMMUNICATIONS, INC. QUEST GROUP INTERNATIONAL, INC.
By: /s/ Patrick J. Earley By: /s/ Richard I. Dewitt
-------------------------- ---------------------------
Name: Patrick J. Earley Name: Richard I. Dewitt
------------------------- --------------------------
Title: President - ACI Title: President
------------------------ -------------------------
<PAGE>
Addendum "A"
------------
PRICING
1. Switching Charge.
----------------
At the end of each month, Quest will calculate the number of minutes of use
during that month, and the applicable price from the following table will be
applied against all of the minutes of use during that month to arrive at the
appropriate Switching Charge.
[***]
2. System Expansion.
----------------
[***]
(b) Any System hardware and software ("Equipment") purchased in accordance with
this Section shall be owned solely and exclusively by Ameritech. Quest shall not
have any interest in such Equipment, and shall not pledge, hypothecate or suffer
a lien upon such Equipment. Quest shall bear the risk of loss or damage to such
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
Equipment while the same is in Quest's custody and control, and shall obtain
insurance, with Ameritech named as the loss payee, in the amount of the purchase
price of the Equipment.
(c) Upon the expiration or termination of this Agreement, Ameritech shall have
the right to enter upon Quest's premises and remove the Equipment, or to have
Quest perform the removal for Ameritech. In either event, Ameritech shall pay
or reimburse Quest for the reasonable costs incurred in removing the Equipment
from Quest's premises, transporting it to a location of Ameritech's choosing,
and reinstalling it in that new location.
[***]
3. Other Charges.
-------------
[***]
4. Management Fee.
--------------
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
[***]
5. Technology Development Fund.
---------------------------
[***]
6. Transmission Services.
---------------------
(a) Ameritech will purchase Wholesale Transmission Services from Quest for
prepaid phone card calls originating from anywhere within World Zone One other
than the States of Illinois, Indiana, Michigan, Ohio and Wisconsin. Quest will,
at Ameritech's request and for so long as and to the extent that Ameritech
requests, provide Retail Transmission Services for prepaid phone card calls
originating from the States of Illinois, Indiana, Michigan, Ohio and Wisconsin.
In both instances, calls may terminate anywhere in the United States or
internationally.
(b) The rates quoted in this Section 6 for both Wholesale Transmission Services
and Retail Transmission Services is inclusive of all other Carrier charges
associated with such a call, including without limitation facilities
preparation, utilization, transport, access charges, and 800 database access
charges, but excluding any charges referred to in Sections 1 and 3 above. Quest
will, at Ameritech's specific request or from time to time on its own
initiative, competitively bid the Carrier community to determine if Quest is
able to procure Carrier transport service which meets the requirements of this
Agreement at better prices for the parties.
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
(e) For each Retail Transmission Service provided by Quest to Ameritech's
Customers and/or End Users, Quest shall charge the End Users a per-minute fee
for each completed minute, rounded up to the next minute, in accordance with the
following schedule:
<TABLE>
<CAPTION>
Card Denomination Rate
----------------- ------
<S> <C>
Variable $.4000
30 Units $.3333
60 Units $.3000
67 Units $.2985
100 Units $.2850
143 Units $.2797
200 Units (plus any recharges) $.2750
</TABLE>
If necessary, Quest will file tariffs with the appropriate public utility
commission(s) to enable Quest to provide these services at these rates.
In connection with the Retail Transmission Services to be provided by Quest
hereunder, Ameritech will (1) collect the applicable fee from the Customer
and/or End User for payment to Quest if and when the End User receives service
from Quest, and (2) provide to Quest certain, administrative, production,
recording and call processing services, including identifying and contracting
with the Customer and/or End User, production and distribution of the prepaid
phone cards, verifying, rating and timing of calls, and preparation of message
detail records.
[***]
7. Facilities Siting.
-----------------
Both parties shall in good faith undertake a joint assessment of the economic
and operational benefits of locating one (1) or more of Quest's Systems and/or
operational facilities within Ameritech's five (5) State region. The parties
shall supply each other with all relevant information necessary to perform the
assessment and shall explore any reasonable option to make the decision a
financially and operationally viable option for both parties.
* Portions of this Agreement have been redacted and preserve the Company's
confidential information.
<PAGE>
Addendum "B"
------------
SERVICE STANDARDS
I. PLATFORM SERVICE STANDARDS
--------------------------
The system shall operate 24 hours a day, 7 days a week. Subject to the
qualifications set forth below, Quest's system down time shall not exceed [***]
during any rolling 12 month period. System down time shall not begin to accrue
until 120 days after the system is turned up. Quest shall report all system
downtime to Ameritech.
System down time shall mean the unavailability of the switching system to
process calls. System down time shall not include: events attributable to
excess volume beyond the capacity committed by Ameritech, scheduled maintenance
and upgrades, force majeure, or network failures or problems attributable to
Carriers approved by Ameritech. Upon the occurrence of one of these events,
Quest shall use all reasonable efforts to restore service as soon as
commercially practicable. Upon the conclusion of said events, Quest shall
resume performing to established quality standards.
Until the monthly volume of minutes of use reaches [***] between the hours of
12:00 a.m. and 6 a.m., Quest shall have [***] to respond to system outages
before any system down time is accrued.
During any month after the cumulative annual system down time has exceeded [***]
during the prior 12 month period, Quest shall be subject to performance
penalties in the form of credits as a percentage reduction of its monthly
invoice charges for switching service as follows:
[***]
Should the platform be down for greater than [***] in any two months of any six
month period then Ameritech shall have the right to terminate this Agreement.
Any credits due will be calculated on the past month's invoice for switching
services and be applied to the current month's invoice.
II. TRANSMISSION STANDARDS
----------------------
Quest and Ameritech shall in good faith negotiate with Carriers to establish
network performance/reliability standards. Those standards, when agreed to,
shall be attached to this Agreement as an Addendum.
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
III. CUSTOMER SERVICE STANDARDS
--------------------------
Customer Service shall operate 24 hours a day, 7 days a week. Subject to the
qualifications set forth below, Quest's customer service shall meet reasonable
minimum quality standards regarding average system time and average call abandon
rates as mutually agreed to by Quest and Ameritech. Customer service quality
standards shall not apply until [***] after the system is turned up.
Customer service minimum standards shall not be less than those set forth in
Quest's response to Ameritech's RFP. Customer service quality standards shall
not apply to events related to excess volume beyond the capacity committed by
Ameritech, scheduled maintenance and upgrades, force majeure, or network
failures or problems attributable to Carriers approved by Ameritech. Standards
shall also be adjusted for special programs or new program offerings. Upon the
occurrence of one of these events. Quest shall use all reasonable efforts to
restore service as soon as commercially practicable. Upon the conclusion of
said events. Quest shall resume performing to established quality standards.
Until the monthly volume of minutes of use reaches [***] service quality
standards shall not apply between the hours of 12:00 a.m. and 6 a.m.
During any month where Quest's performance, as set forth above and agreed to by
Quest and Ameritech, does not meet the quality standards, Quest shall be subject
to performance penalties in the form of credits as a percentage reduction of its
monthly invoice charges for customer service as follows:
[***]
Any credits due will be calculated on the past month's invoice for switching
services and be applied to the current month's invoice.
IV. ADDITIONAL SPECIFICATIONS
-------------------------
Additional technical and operational specifications of the Service being
provided by Quest to Ameritech are contained in Section Two of Quest's Response
to Ameritech's Request For Proposal RFP 00301-SM, which specifications are
attached to and incorporated in full into this Addendum "B" as Attachment "B-1."
In the event of any conflict, inconsistency or incongruity between any term or
condition of this Agreement and Attachment B-1, the terms and conditions of this
Agreement shall govern and control.
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
Addendum "C"
------------
Quest Customers (for purposes of Section 5.4 of the Agreement):
[List to be attached hereto]
Entities (for purposes of Section 10.4 of the Agreement):
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
Addendum "D"
------------
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
<PAGE>
EXHIBIT 10.11
AGREEMENT FOR SERVICES
----------------------
This Agreement is entered into as of February 5, 1998, between Ameritech
Services Inc., a Delaware corporation, with principal offices at 2000 West
Ameritech Center Drive, Hoffman Estates, Illinois 60196-1025, for itself and the
Affiliates of Ameritech Corporation, the parent company (hereinafter
"Ameritech"), and Teltrust Communications Services, Inc., a Utah corporation,
with principal offices at 221 North Charles Lindbergh Drive, Salt Lake City,
Utah 84116 (hereinafter "Supplier").
In consideration of the mutual promises set forth herein, the parties agree as
follows:
ARTICLE ONE
1.01 SCOPE OF SERVICES
-----------------
This agreement is for the provision of services by Supplier required to furnish
in-region telecommunication services including, but not limited to, IntraLATA
and InterLATA transport and operator services via the "1-800-AMERITECH" access
number in accordance with the specifications and requirements set forth in
Attachment "A" (hereafter "Services"). Supplier shall comply with the
specifications and requirements established in this Agreement.
From time to time, Supplier may make available or Ameritech may request
additional services other than the Services listed in this Agreement. If
Ameritech desires any such additional service, the price of such additional
product or service, and the terms and conditions on which it will be provided,
will be determined by mutual agreement of the parties hereto at the time such
product or service is offered by Ameritech, and this Agreement will be modified
accordingly.
1.02 AGREEMENT TERM
--------------
This Agreement is effective February 5, 1998 through March 31, 2000 or twenty
four (24) full months after the date of commercial deployment of the Service, if
commercial deployment occurs after April 1, 1998, (hereafter "Initial Term").
The Services shall be implemented according to the schedule set forth in Exhibit
"E". Ameritech shall have the option to extend the Initial Term of this
Agreement for additional twelve (12) month periods by giving Supplier written
notice at least sixty (60) days prior to the expiration of the Initial Term and
of any subsequent term. In the absence of such notification, this Agreement
shall terminate on the scheduled expiration date.
1.03 LICENSE
-------
Ameritech hereby grants Supplier a limited, revocable (pursuant to the terms set
forth in this Agreement), non-transferable, but exclusive license to use "1-800-
AMERITECH" to provide telecommunications services originating within the
Ameritech region. Such license is granted only with the express understanding
that: (i) Ameritech owns all rights to 1-800-AMERITECH; (ii) Supplier can
perform no advertising or promotion of 1-800-AMERITECH without the prior written
consent of Ameritech other than in the normal course of providing the Service;
(iii) Supplier can not communicate with the 1-800-AMERITECH customers in any
manner without the prior written consent of Ameritech; and (iv) Supplier can
retain call data solely for tax and/or regulatory purposes and other uses
belonging solely to Ameritech.
Page 1
<PAGE>
1.04 LICENSE FEES AND COMPENSATION
-----------------------------
License fees and compensation are set forth in Attachment "B".
1.05 ACCEPTANCE
----------
All Services provided hereunder shall be subject to Ameritech's inspection and
right of rejection. Ameritech shall have no obligation to accept Services which
do not conform to the specifications and requirements established in this
Agreement, as set forth in Attachment "A" hereto.
1.06 TERMINATION
-----------
After the Initial Term of this Agreement, Ameritech may at any time and for any
or no reason terminate this Agreement, in whole or in part, by giving seventy
five (75) days prior written notice to Supplier. During the Initial Term of this
Agreement, Ameritech reserves the right to limit the scope of this Agreement to
the extent Ameritech is granted the right to provide InterLATA
telecommunications services within the State(s) of Illinois, Indiana, Michigan,
Ohio and/or Wisconsin.
After the Initial Term of this Agreement, Supplier may at any time and for any
or no reason terminate this Agreement, by giving seventy five (75) days written
notice to Ameritech.
Termination of this Agreement, whether by passage of time or otherwise, by
Ameritech or Supplier shall automatically operate to simultaneously terminate
the Billing and Collection Agreement between Ameritech and Supplier, to the
extent the Billing and Collection Agreement covers billing and collection of 1-
800-AMERITECH calls. Conversely, termination of the Billing and Collection
Agreement, whether by passage of time or otherwise by Ameritech or Supplier,
shall automatically operate to simultaneously terminate this Agreement.
1.07 CHANGE IN CONTROL
-----------------
Notwithstanding the previous Section, Ameritech may terminate this Agreement at
anytime with thirty (30) days written notice if there is a change in control of
Supplier. As used in this paragraph, a "Change in Control" means any transaction
or series of related transactions after the effective date of this Agreement
which results in the surviving or resulting corporation or the issuer being
directly or indirectly controlled (control of more than fifty percent (50%) of
the outstanding voting securities) by an entity listed in Attachment "D". All
percentages referenced herein shall be determined on a fully diluted basis. The
following transactions shall not constitute, or be considered in determining, a
Change of Control: (i) any acquisition of Supplier's securities by Supplier; or
(ii) any acquisition of securities by any employee benefit plan or related trust
sponsored by Supplier; or (iii) consummation of a public offering by Teltrust
Inc. In the event of a Change in Control of Supplier pursuant to which an entity
listed in Attachment "D" or any of its affiliates acquires control of Supplier,
Supplier shall immediately so notify Ameritech in writing and Ameritech may at
its sole election, which election will be communicated to Supplier within sixty
(60) days after receipt of Supplier's notice of Change of Control, either (a)
consent to such Change in Control, in which event this Section 1.06 shall
thereafter apply to the successor corporation, or (b) terminate this Agreement
without any further obligation or liability to Supplier, or liability by
Supplier to Ameritech.
Page 2
<PAGE>
1.08 DEFAULT
-------
Each of the following events, separately, shall constitute a default:
A party shall fail to pay when due any amount owed to the other party pursuant
to this Agreement, if and for the duration that such failure to pay does not
result from a dispute pursuant to Section 2.15 hereof, and such failure shall
continue unremedied for thirty (30) business days after written notice thereof
shall be given to the defaulting party by the non-defaulting party;
A party shall fail to perform or observe in any material respect any material
covenant contained in this Agreement, and any such failure shall remain
unremedied for thirty (30) days after written notice thereof shall have been
given to the defaulting party by the non-defaulting party;
Any material action by a party which directly or indirectly violates any
applicable federal, state or local law, ordinance or regulation, or any FCC
and/or state regulatory rules and policies.
Upon any occurrence of any default by Ameritech, Supplier shall have the right
to: (i) suspend Services under this Agreement; (ii) terminate this Agreement and
any other agreements or instruments delivered to Supplier in connection with
this Agreement; and (iii) exercise all other remedies available to it under this
Agreement and other such agreements and instruments otherwise available at law
or in equity.
Upon any occurrence of any default by Supplier, Ameritech shall have the right
to: (i) terminate this Agreement and any other agreements or instruments
delivered by Supplier in connection with this Agreement; (ii) declare all
amounts payable by Supplier to Ameritech hereunder immediately due and payable;
and (iii) exercise all other remedies available to it under this Agreement and
other such agreements and instruments otherwise available at law or in equity.
Each party's rights and remedies hereunder shall be cumulative and the exercise
by a party of any particular right or remedy shall not prevent such party from
exercising any other right or remedy.
1.09 MINIMUM VOLUME COMMITMENT
-------------------------
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
Page 3
<PAGE>
Ameritech shall be entitled to reduce the payment specified herein if and to the
extent Ameritech returns to Supplier any Co-Marketing Contributions held by
Ameritech but not then spent on marketing the Service.
With thirty (30) days notice and approval from Ameritech, Supplier may withhold
the appropriate amount from monies it would otherwise remit to Ameritech.
Otherwise, Ameritech shall pay the amount due directly to Supplier within thirty
(30) days of notice from Supplier.
For the purposes of this Section, the Initial Term shall have the same meaning
as set forth in Section 1.02 above or any shorter period of time resulting from
Ameritech's terminating this Agreement.
In the event Ameritech is permanently prevented by a Force Majeure cause from
performing under this Agreement, this Agreement shall be amended automatically
to retain Supplier as the operator services provider for Services under all of
the relevant terms and conditions, including rates, contained in this Agreement.
[***]
1.10 NOTICES
-------
Any notice which under the terms of this Agreement must or may be given or made
by either party hereunder shall be in writing and shall be delivered personally
or sent by express delivery service or by certified mail, return receipt
requested, addressed to the respective parties as follows:
To Ameritech: Ameritech Corporation
2000 West Ameritech Center Drive
Hoffman Estates, IL 60196-1025
Attn: Peter Risman 3E37D
To Supplier: Teltrust Communications Services, Inc.
221 North Charles Lindbergh Drive
Salt Lake City, UT 84116
Attn: Steven E. Swenson, w/ copy to Mark McNeill
or to such other address as either party shall designate by proper notice.
Notices will be deemed to have been received as of the earlier of the date of
actual receipt or, in case of notices sent via U.S. mail, three (3) business
days after mailing. A signed receipt shall be obtained where a notice is
delivered in person.
1.11 STATEMENTS and PAYMENT
----------------------
Statements. Within thirty (30) days of the last day of each calendar month
- ----------
during the term of this Agreement and for each month thereafter until all
charges for the Services have been paid, Supplier shall prepare and deliver to
Ameritech a statement summarizing the various Services performed during the
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
Page 4
<PAGE>
immediately preceding month. Supplier's failure to forward a statement within
the prescribed time period shall not relieve or otherwise modify or alter in any
way Supplier's obligation to make the payments required herein. All statements
are subject to a Quarterly true-up, pursuant to the provisions set forth in
Attachment "B".
Payments. Within ten (10) business days after receipt of funds, Supplier shall
- ---------
make payment of amounts due to Ameritech by wire transfer to an account
specified by Ameritech. All payments are subject to a Quarterly true-up,
pursuant to the provisions set forth in Attachment "B". In the event that the
timing of payments under the Billing and Collections Agreement and payments by
Supplier as a result of provisioning Services under this Agreement result in a
negative cash flow to Supplier, then Ameritech will (at Supplier's request)
adjust collection terms on payments due it to eliminate the negative cash flow.
Disputed Payments. Any payment that is not paid when due by either party,
- -----------------
including any disputed payment withheld by either party in connection with this
Agreement or the Billing and Collections Agreement, pending resolution of the
dispute which subsequently determined to be due and owing shall be subject to a
late fee calculated using the prime rate (the average rate published in The Wall
--------
Street Journal on the payment due date) plus two percent (2%).
- --------------
1.12 POST-TERMINATION RESPONSIBILITIES
---------------------------------
Prior to the expiration or termination in whole or in part, of this Agreement,
and extending for a reasonable period of time beyond such termination or
expiration of this Agreement, if deemed necessary by Ameritech, Supplier shall
supply to Ameritech such reasonable support and assistance as Ameritech shall
specify to assist Ameritech in the orderly winding-down of the performance of
Services by Supplier and the transition of such services to Ameritech or to a
successor selected by Ameritech. These transition services shall include the
transfer of 800/888 access numbers and the transfer (and conversion to a
different database format, if necessary) of the 1-800-AMERITECH customers'
preferences, usage and other database information to Ameritech or its chosen
service provider. Ameritech shall pay for the transition services specified
herein in accordance with the pricing provisions hereof, or if not specified, at
Supplier's then-current prices.
Except as required pursuant to Subsection (a) hereof, upon the partial or
complete expiration or termination of this Agreement, each Party agrees to (i)
immediately cease all new use of the other Party's name, trade names, trademarks
and service marks, and logo; (ii) immediately deliver to the other Party any and
all materials not distributed bearing the other Party's name, trade names,
marks, or logos; and (iii) return all proprietary and confidential information
of the other Party to the other Party. The obligations contained in this
Section shall survive the termination of this Agreement.
The expiration or termination of this Agreement shall not release either Party
from any liability, obligation or agreement which, pursuant to any provision of
this Agreement, is to survive or be performed after such expiration or
termination.
Within ninety (90) days of the termination of this Agreement, the parties shall
complete a final true-up. Within thirty (30) days of agreement on said true-up,
the parties shall settle all amounts due each other.
Page 5
<PAGE>
ARTICLE TWO
2.01 ASSIGNMENT
----------
Neither party shall assign any right or obligation under this Agreement without
the other party's prior written consent. Any attempted assignment shall be void,
except that either party may assign monies due or to become due to it, provided
that (a) the assigning party gives the other party at least thirty (30) days
prior written notice of such assignment and (b) such assignment does not impose
upon the other party obligations to the assignee other than the payment of such
monies.
Notwithstanding the foregoing, Ameritech may assign this Agreement, in whole or
in part, to any of its Affiliates. Ameritech will provide Supplier with at least
thirty (30) days prior written notice of such assignment. Upon such assignment
and assumption of liability thereto by the assignee, Ameritech shall be
discharged of any subsequent liability under this Agreement.
Without limiting the generality of the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties' respective
successors and assigns.
Notwithstanding anything to the contrary herein, Ameritech hereby consents to
the Supplier granting a security interest in Supplier's rights under this
Agreement to any Lender providing financing to the Supplier, including Fleet
National Bank (as Administrative Agent) on behalf of certain lenders to secure
loans and other obligations of the Supplier and certain other related Parties
under a credit agreement among Teltrust Inc., its Affiliates and Fleet National
Bank.
Ameritech further consents to the exercise by Fleet of its rights and remedies
under that certain Credit Agreement, provided, however, Ameritech shall not be
deemed to have consented hereunder, and expressly reserves its right to consent
to the transfer of rights under the Agreement to any third party as a result of
the exercise by Fleet of such rights and remedies, provided that Ameritech shall
not unreasonably withhold its consent to such assumption or transfer.
2.02 AUDITS AND EXAMINATIONS
-----------------------
(a) Upon reasonable advance written notice to Supplier, Ameritech shall be
entitled from time to time (but no more frequently than every six (6) months) to
audit (a) Supplier's books and records to confirm the accuracy of charges
invoiced and payments made by Supplier to Ameritech, (b) the database of calling
information to verify its accuracy and completeness, and (c) Supplier's
personnel and methods and procedures to verify Supplier's compliance with this
Agreement. Any such audit shall be performed at reasonably convenient times for
the Parties and during normal business hours. Any audit of the accuracy and
completeness of Supplier's invoices to Ameritech shall be limited to
transactions underlying those invoices submitted within one (1) year of
Ameritech's request for the audit. If any audit conducted by Ameritech reveals a
discrepancy of five percent (5%) or more, then Supplier shall reimburse
Ameritech's reasonable audit expenses. Nothing herein shall give Ameritech the
right to have access to any information other than that information related to
Ameritech's account.
(b) Notwithstanding the foregoing, Ameritech shall be entitled to place one (1)
or more of its employees and/or consultants at Supplier's facilities in order to
audit the accuracy, correctness and completeness of
Page 6
<PAGE>
the Carrier's bills to Supplier for Services provided by Supplier pursuant to
this Agreement. Supplier shall furnish such employees/consultants reasonable
accommodations, facilities and assistance in this effort, and Ameritech shall
reimburse Supplier for any reasonable out of pocket expenses (to include such
expenses as telephone charges but not to include an allocation for rent, lights,
heat, etc.) incurred by Supplier in providing such accommodations, facilities
and assistance.
2.03 CHOICE OF LAW AND FORUM
-----------------------
This Agreement and any claims arising hereunder or related hereto, whether in
contract or tort, shall be governed by the laws of Illinois, except provisions
relating to conflict of laws. Any suit arising out of or regarding this
Agreement which is brought by a party shall be filed in a court of competent
jurisdiction within the home State of the other party hereto.
2.04 COMPLIANCE WITH LAWS
--------------------
Supplier and all persons furnished by Supplier shall comply with the provisions
of the Fair Labor Standards Act, the Federal Occupational Safety and Health Act,
environmental laws and all other applicable federal, state and local laws,
ordinances and regulations in the performance of this Agreement, including the
procurement of required permits and certificates.
Supplier shall maintain throughout the term of this Agreement all federal, state
and local licenses, permits, and certificates necessary to perform this
Agreement, which shall be promptly furnished to Ameritech upon request.
2.05 CONFIDENTIAL INFORMATION
------------------------
Duty of Care - Each Party acknowledges that any Confidential Information which
- ------------
may be provided to it by the other Party or which may be generated by a Party in
performing its obligations under this Agreement may have substantial value to
the Disclosing Party. Accordingly, each Receiving Party agrees to take all
reasonable and necessary steps to preserve the confidentiality of all
Confidential Information received from a Disclosing Party, whether generated
and/or communicated in writing, electronically, orally, or otherwise. A
receiving Party shall use not less than the same degree of care to avoid
disclosure of such Confidential Information as it uses with respect to its own
proprietary and confidential information of like importance and, at a minimum,
shall exercise reasonable care.
Confidential Information - For purposes of this Agreement, "Confidential
- ------------------------
Information" shall include, without limitation, the terms of this Agreement,
Ameritech's 1-800-AMERITECH Customer lists and associated information,
Supplier's rates or agreements with its Carriers, and such other confidential
engineering, technical, financial, business, marketing, promotional, usage and
sales data as a Disclosing Party shall designate as "confidential," either
orally or in writing.
Restrictions on Use and Disclosure - Each Party recognizes and acknowledges that
- ----------------------------------
a Disclosing Party is disclosing Confidential Information solely to facilitate
full performance of this Agreement by both Parties and each Receiving Party
agrees to, and shall use the Confidential Information disclosed to it by the
Disclosing Party solely in furtherance of this purpose and not for any other
purpose. A Receiving Party shall restrict disclosure of Confidential
Information to such of its directors, officers, employees, and agents as shall
have obligated themselves in writing to comply with the restrictions on use and
disclosure
Page 7
<PAGE>
contained in this Agreement and who have a reasonable need to know such
information for such purpose and shall reproduce such information only to the
extent necessary for such purpose. A Receiving Party may disclose Confidential
Information to a Consultant, but if it does so, it must ensure that the
Consultant is obligated in writing to abide by the restrictions on use and
disclosure contained in this Agreement and that the Confidential Information
bears appropriate legends or statements indicating the confidential and/or
proprietary nature of the information. A receiving Party shall be liable for any
violation of the provisions of this Article 2.05 by any such Consultant. Except
as expressly provided otherwise herein, a Receiving Party shall not disclose
Confidential Information to any third party.
Exceptions - The restrictions on disclosure by a Receiving Party of Confidential
- ----------
Information shall not apply to: (i) information which at the time of disclosure
was generally available to the public; (ii) information which subsequent to its
disclosure by the Disclosing Party to the Receiving Party is published or
otherwise becomes available to the public through means other than an act or
omission of the Receiving Party; (iii) information which was previously known to
the Receiving Party free of any obligation to keep it confidential or which is
subsequently and independently developed in good faith by the Receiving Party
without reference to or use of the Confidential Information; and (iv)
information rightfully acquired by a receiving Party in good faith from a third
party on a non-confidential basis without breach of an agreement to maintain
said information in confidence. Notwithstanding anything to the contrary herein,
a Receiving Party may disclose confidential Information if required to do so by
law, or if ordered to do so by a court or other governmental authority of
competent jurisdiction; provided, however, that a Receiving Party shall provide
the Disclosing Party prior written notice of any such mandated disclosure and
exercise its best efforts, consistent with sound business practice, both to
afford the Disclosing Party an opportunity to contest the disclosure and to
itself limit the extent of the disclosure to the maximum extent practicable.
Upon the requests of the Disclosing Party, the Receiving Party shall use its
best efforts to negotiate with any court or governmental authority of competent
jurisdiction that has compelled such disclosure an appropriate protective order
that would permit review of any Confidential Information only by the court or
appropriate staff of the governmental authority and would limit any further
disclosure to the maximum extent possible.
Ownership - Confidential Information disclosed to and/or generated by a
- ---------
Receiving Party is and shall remain the property of the Disclosing Party. By
disclosing the Confidential Information to a Receiving Party, the Disclosing
Party does not relinquish any of its proprietary rights and interests therein
and hereby specifically reserves all such proprietary rights and interests to
said Confidential Information. A Receiving Party shall return (or, with the
consent of the Disclosing Party, which shall not be unreasonably withheld,
destroy) all Confidential Information and all copies thereof, including, without
limitation, written and electronic copies, as well as all summaries, notes, or
other documents, materials or things containing Confidential Information, to the
Disclosing Party promptly upon the reasonable written requests of the Disclosing
Party and upon termination of this Agreement.
Injunctive Relief - In the event of a breach or threatened breach by a Receiving
- -----------------
Party or its agents of the terms of this Article 2.05, the Disclosing Party
shall be entitled to an injunction prohibiting such breach in addition to other
legal and equitable remedies available to it in connection with such breach.
Each Party acknowledges that the Confidential Information of the other Party is
valuable and unique and that the use or disclosure of such Confidential
Information in breach of this Agreement will result in irreparable injury to the
other Party.
Page 8
<PAGE>
Survival - The Parties hereby agree that the confidentiality and non-use
- --------
undertakings reflected in this Article 2.05 shall survive the termination of
this Agreement.
2.06 FORCE MAJEURE
-------------
Neither Ameritech nor Supplier shall be liable to the other for any delay or
failure in performance hereunder due to fires, strikes, stoppage of work,
embargoes, requirements imposed by governmental regulations, civil or military
authorities, acts of God, the public enemy or other causes which are beyond the
reasonable control of the party unable to perform (hereinafter "force majeure").
If a force majeure occurs, the party delayed or unable to perform shall give
immediate notice to the other party. In the event Supplier is the party delayed
or unable to perform, Ameritech may elect: (a) to terminate this Agreement
relating to Services not already performed without any further liability to
Supplier, or (b) to suspend performance for the duration of the force majeure,
during which period Ameritech may buy elsewhere substitute services. In the
event the parties established a commitment, purchase level or discount program,
the quantity bought or for which commitments have been made elsewhere shall be
deducted from such commitment, purchase level or discount program. Ameritech
shall not be obligated to pay for Services to the extent and for the duration
that performance thereof is delayed or prevented pursuant hereto. Ameritech's
exercise of its rights under option (b) shall not prevent Ameritech from
subsequently terminating this Agreement. Unless written notice of termination is
given by Ameritech, option (b) shall be deemed selected.
2.07 HEADINGS
--------
The Clause headings inserted in this Agreement are for convenience only and
shall not affect the meaning or interpretation of this Agreement.
2.08 INDEMNITY
---------
Each party shall defend, indemnify and hold harmless the other and the other's
officers, directors, employees, and agents and their successors and assigns
against and from any and all losses, liabilities, suits, damages, claims,
demands, and expenses (including, without limitation, reasonable attorneys'
fees), whether based on contract or tort (including strict liability), arising
out of or in conjunction with this Agreement, but only to the extent that such
losses, liabilities, damages, claims, demands, and expenses arise out of or in
connection with, claims or lawsuits brought by unaffiliated third parties
alleging (1) the negligent or intentional acts or omissions of the indemnifying
party, its Affiliate(s) or subcontractors, or the officers, directors,
employees, agents, successors and assigns of any of them, (2) the failure of the
indemnifying party, its Affiliate(s) or subcontractors to fully comply with the
provisions of this Agreement, (3) defective or malfunctioning Services provided
hereunder, and (4) assertions under Worker's Compensation or similar laws made
by persons furnished by the indemnifying party. The indemnified party shall
promptly notify the indemnifying party of any written claim, loss, or demand for
which the indemnifying party is responsible under this Section.
Notwithstanding the foregoing, Ameritech shall indemnify, defend and hold
harmless Supplier from all liabilities, expenses, costs and damages (including
legal fees and expenses) related to any litigation or regulatory action
resulting from a challenge to Ameritech's authority or authorization to enter
into this Agreement, or to contract with Supplier to provide Services.
Page 9
<PAGE>
2.09 RELATIONSHIP OF PARTIES
-----------------------
No Joint Employment - Nothing in this Agreement shall be construed to constitute
- -------------------
Ameritech and Supplier as joint employers of either Party's employees or agents
or Supplier as a special employer of any employee or agent of Ameritech.
Relationship of the Parties - Each of the Parties shall act as, and shall be,
- ---------------------------
independent contractors in all aspects of their performance of this Agreement.
Nothing contained in this Agreement shall authorize either Party to act as agent
for the other, nor grant either Party authority to make representations or
agreements on behalf of the other. Nothing in this Agreement shall be deemed to
constitute or create a joint venture, partnership, pooling arrangement or other
formal business entity or fiduciary relationship between Supplier and Ameritech.
Nothing in this Agreement shall be construed to give any person or entity other
than Supplier and Ameritech any legal or equitable right, remedy or claim under
this Agreement or any provision contained herein.
2.10 INFRINGEMENT
------------
Supplier shall defend, indemnify and hold harmless Ameritech and its corporate
affiliates from and against any suits, claims, actions, losses, damages,
expenses (including attorneys' fees and costs) or liabilities that may result by
reason of any alleged violation, infringement or misappropriation of a United
States patent, trade secret, copyright or other proprietary right based on any
Services (including any materials and/or equipment utilized or supplied in the
performance of such Services) provided under this Agreement. Ameritech shall
promptly notify Supplier of any claim of infringement, violation or
misappropriation for which Supplier is responsible and shall cooperate with
Supplier to facilitate the defense or settlement of such claim. Supplier or
Supplier's attorney(s) shall keep Ameritech reasonably apprised of the
continuing status of the claim, including any lawsuit resulting therefrom, and
shall permit Ameritech, upon Ameritech's written request and at its own expense,
to participate in the defense or settlement of such claim.
If use of the Services shall be prevented or appears likely to be prevented by
court order or settlement resulting from any such claim, Supplier shall, at its
expense, either: (a) by license or release from claim of violation,
infringement or misappropriation, procure for Ameritech the right to continue
receiving the Services; or (b) modify the Services so that they are functionally
equivalent to the original Services but are no longer subject to a claim of
violation, infringement or misappropriation; or (c) remove any infringing
materials and replace same with equally suitable materials free from claim of
violation, infringement or misappropriation. Unless otherwise agreed in writing
by Ameritech, Supplier shall use its best efforts to procure the right for
Ameritech to use the Services as provided in (a) above.
2.11 INSURANCE
---------
Supplier shall maintain during the term of this Agreement: (a) Workers'
Compensation insurance as prescribed by the law of the State in which Supplier's
obligations under this Agreement are performed, (b) Employer's Liability
insurance with limits of at least $500,000 for each occurrence, (c) Commercial
General Liability insurance (including, but not limited to, contractual and
products liability coverage) with combined single limits for each occurrence of
at least $1,000,000, and (d) if the use of motor vehicles is required,
Commercial Automobile Liability insurance (including hired and non-owned
coverage) with combined single limits for each occurrence of at least $1,000,000
for bodily injury and property
Page 10
<PAGE>
damage. Neither Supplier nor Supplier's insurer(s) shall have a claim, right of
action or right of subrogation against Ameritech based on any occurrence insured
against, in whole or in part, under the foregoing insurance. Supplier's policy
shall be endorsed to name Ameritech Corporation and its corporate affiliates as
additional insureds and state: "Ameritech Corporation is to be notified in
writing at least sixty (60) days prior to cancellation of or any material change
in this policy." Supplier shall furnish a copy of the endorsement and
certificate(s) evidencing the foregoing insurance coverage prior to commencement
of Services hereunder and, if applicable, annually thereafter during the term of
this Agreement. Supplier's purchase of insurance shall not in any way limit
Supplier's liability under this Agreement.
[***]
2.13 NONEXCLUSIVITY
--------------
Other than as set forth in Section 1.03 above, this Agreement does not grant to
Supplier any exclusive right or privilege to provide to Ameritech services of
the type contemplated herein, and Ameritech reserves the right to contract with
other parties for the procurement of comparable services or to utilize its own
employees or employees of its corporate affiliates to provide comparable
services.
2.14 NONWAIVER
---------
Failure of either party to insist on performance of any term or condition of
this Agreement or to exercise any right or privilege hereunder shall not be
construed as a waiver of such term, condition, right or privilege in the future.
2.15 OFFSET
------
Both parties' obligations under this Agreement shall be subject to deduction of
any valid claim of one Party against the other Party arising under this
Agreement. Ameritech shall have the right to offset any valid claim related to
disputed amounts in the Quarterly true-up against amounts due under the Billing
and Collection Agreement. Neither Party shall be obligated to make payments
required hereunder during which time such payments are in dispute. The Parties,
however, shall continue performing their respective obligations during such
dispute. Immediately following resolution, a Party shall be responsible for any
amounts due and owing as a result of such dispute.
If either party disputes any calculation or amount shown on an invoice or
payment, it shall notify the other party of such dispute and the basis therefor
within twenty (20) business days after receipt of such invoice. The non-
disputing party shall respond to the disputing party in writing within ten (10)
business days of its receipt of such a notice. If the dispute is not resolved
as a result of the response, Ameritech
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
Page 11
<PAGE>
and Supplier shall in good faith attempt to resolve such dispute through
mediation and arbitration in accordance with Article Three hereof.
2.16 PUBLICITY
---------
Supplier shall not identify, either expressly or by implication, Ameritech or
its corporate affiliates, or use any of their trademarks, trade names, service
marks, other proprietary marks, or reference the Services performed hereunder in
any advertising, press releases, publicity matters or other promotional
materials without Ameritech's prior written permission.
Except for Ameritech's use of Supplier's name and/or trademark(s) and logo(s) to
identify that Supplier is the provider of Services to 1-800-AMERITECH customers,
neither party shall use the name or logo of the other party or an Affiliate of
the other party without the prior express written consent of the other party.
All use by a party of the other party's name, trade names, trademarks, service
marks, and logos will inure to the benefit of the other party. Each party
further agrees not to use the other party's name, trade names, trademarks,
service marks, or logos as or with any part of any name, mark, or trade name of
the party or any Affiliate of the party. Without limiting any other provision of
this Agreement, all uses by a party of a name or logo of the other party,
whether on tangible materials or in communications in connection with the
rendition of its duties hereunder, must conform to this Agreement and, where
applicable, the policies and practices of the other party furnished to the party
from time to time.
Ameritech recognizes that Supplier may be required to disclose its major
customers in certain filings it makes in connection with a public offering of
its securities, and Ameritech hereby consents to such disclosure.
2.17 REMEDIES
--------
The rights and remedies herein provided shall be cumulative and shall be in
addition to any other remedies available at law or in equity.
2.18 SEVERABILITY
------------
If any provision of this Agreement shall be held invalid or unenforceable, such
provision shall be deemed deleted from this Agreement and shall be replaced by a
valid and enforceable provision which so far as possible achieves the same
economic and other benefits for the parties as the severed provision was
intended to achieve, and the remaining provisions of this Agreement shall
continue in full force and effect.
2.19 SUBCONTRACTORS
--------------
Supplier shall not engage or make use of subcontractors for the purpose of
providing Services hereunder, except as authorized in writing by Ameritech. The
foregoing shall not include Installers, Programmers, Consultants or Third Party
hardware and software suppliers. No provisions of this Agreement or of any
agreement between Supplier and any subcontractor shall be construed as an
agreement between Ameritech and any subcontractor. Except for subcontractors
designated or approved by Ameritech, Supplier shall be as fully responsible to
Ameritech for the acts and omissions of any of Supplier's subcontractors
Page 12
<PAGE>
or of any other contractors engaged by the subcontractor, as Supplier is for the
acts and omissions of Supplier's own employees.
Any material agreement Supplier enters into with a subcontractor for any
Services to be provided hereunder shall be in writing and signed by Supplier and
the subcontractor, and it shall set forth the agreement of the subcontractor to
comply with the requirements set forth in the COMPLIANCE WITH LAWS Clause and
all applicable requirements and specifications set forth herein. Supplier's
subcontractor shall maintain such insurance as will adequately protect the
subcontractor against any loss, damage, claim or liability resulting from its
performance hereunder including, but not limited to, Workers' Compensation,
Employer's Liability, Commercial Automobile Liability, and Commercial General
Liability insurance. Supplier shall indemnify Ameritech against all loss, cost,
expense or liability incurred by Ameritech on account of Supplier's failure to
secure such written agreement by each subcontractor.
2.20 SURVIVAL OF OBLIGATIONS
-----------------------
The parties' obligations under this Agreement which by their nature are intended
to continue beyond the termination or expiration of this Agreement shall survive
the termination or expiration of this Agreement.
2.21 SUSPENSION OF PERFORMANCE
-------------------------
If bankruptcy proceedings are commenced with respect to Supplier and if this
Agreement has not been otherwise terminated, then Ameritech may suspend all
future performance of this Agreement until Supplier assumes and provides
adequate assurance of future performance or rejects this Agreement pursuant to
(S)365 of the Bankruptcy Code or any successor provision. Any such suspension
of further performance by Ameritech pending Supplier's assumption or rejection
will not be a breach of this Agreement and will not affect Ameritech's right to
pursue or enforce any of its rights under this Agreement or otherwise.
2.22 TAX
---
Supplier shall be solely responsible for the payment of all applicable federal,
state and local excise sales and use taxes to the proper jurisdiction on all
Services provided by Supplier. Each party shall pay or cause to be paid, when
due, all federal, state and local taxes payable with respect to the revenues and
profits recognized by that party hereunder. Ameritech shall not be held liable
for Supplier's failure to pay the appropriate tax amounts to the proper
jurisdiction, unless such underpayment is due to Ameritech's failure to properly
assess, collect and remit the appropriate tax amount to Supplier, and provide
Supplier with the appropriate tax information for tax returns. In such case,
Ameritech shall be liable for any such underpayment, including interest and
penalties.
2.23 WARRANTY
--------
Supplier represents and warrants to Ameritech that the Services shall conform to
and operate in strict accordance with the specifications contained in Attachment
"A" attached hereto. Ameritech acknowledges and agrees that, except as
expressly provided otherwise herein, Supplier makes no warranty, either express
or implied, concerning its facilities, products or services, including, without
limitation, warranties or merchantability or fitness for a particular use or
purpose. In no event shall Supplier be liable for any act or omission of any
Ameritech-approved carriers or suppliers from whom Supplier obtains net-
Page 13
<PAGE>
work services, or any other equipment, products or services, nor shall Supplier
be liable for any damages or losses due to the fault or negligence of Ameritech
or its End Users.
2.24 YEAR 2000 CAPABILITIES
----------------------
Supplier warrants that its Services and any information supplied by Supplier to
Ameritech shall properly perform Year 2000 Processing. Supplier shall promptly
remedy any breach of this warranty at no additional charge to Ameritech by
correcting its Services so as to make them capable of correctly performing Year
2000 Processing. Supplier's breach of this warranty shall not be subject to any
provisions regarding limitations of Supplier's liability set forth in this
Agreement. "Year 2000 Processing" means processing which is dependent upon usage
of calendar dates, including dates on or after January 1, 2000. Year 2000
Processing includes, in addition to software provided by Supplier, any third
party software embedded in the Services that manages and/or manipulates data
involving dates, including single century formulas and multi-century formulas.
"Proper Processing" means the Services will not cause an abnormally ending
scenario or result in incorrect values generated involving dates.
2.25 ENTIRE AGREEMENT
----------------
The terms contained in this Agreement and the attachment(s) and specification(s)
referred to herein, which are incorporated herein by this reference, constitute
the entire agreement between the parties with respect to the subject matter
hereof, superseding all prior understandings and communications, oral or
written. In addition, Ameritech shall not be bound by any terms additional to or
different from those in this Agreement that may appear subsequently in
Supplier's quotations, acknowledgments, invoices or any other communications
from Supplier. This Agreement may not be modified except by a writing signed by
both parties.
2.26 CONSEQUENTIAL DAMAGES
---------------------
EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT OR AN ATTACHMENT HERETO,
NEITHER PARTY SHALL BE HELD RESPONSIBLE TO THE OTHER PARTY OR TO ANY THIRD PARTY
FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, OR SPECIAL DAMAGES INCURRED BY
REASON OF A BREACH OF OR THE EXPIRATION OR TERMINATION OF THIS AGREEMENT.
2.27 PROPRIETARY SYSTEMS/TECHNOLOGY
------------------------------
Ameritech acknowledges that the technologies and systems, including but not
limited to software, procedures and methods of processing information,
activation and refresh systems, and other proprietary information provided to
Ameritech and used by Supplier in connection with Supplier performance under
this Agreement, are the sole and exclusive property of Supplier. Nothing
contained herein shall convey to Ameritech any rights or interests in Supplier
proprietary programs and systems, other than the right for Ameritech to use
Supplier's proprietary programs and systems during, subject to and in
conjunction with the terms and conditions of this Agreement, and except as such
use may be required by Ameritech upon or after the expiration or termination of
this Agreement to continue to utilize the Customer records database and/or
convert or transition the Customer records database to Ameritech and/or a third
party of Ameritech's choosing.
Page 14
<PAGE>
2.28 MUTUAL ACCOMMODATION
--------------------
If and to the extent it will not place a party in breach of an agreement that
party has with its carriers or other suppliers, or it is not otherwise a
violation of any federal, state or local law, ordinance or regulation, the
parties shall periodically discuss the arrangements each has with carriers for
their telecommunications traffic and other related products and services. The
parties shall in good faith look for opportunities to reduce their respective
costs and expenses by aggregating purchasing volumes in new contractual
arrangements or by allowing one party to purchase under or through the other
party's contract(s).
ARTICLE THREE
3.01 MEDIATION
---------
The parties shall attempt in good faith to promptly resolve any dispute relating
to this Agreement by negotiation between their executives who have authority to
settle the controversy and who are at a higher level of management than the
persons with direct responsibility for administration of this Agreement. Either
party may give the other party notice of any dispute not resolved in the normal
course of business. Within fifteen (15) days after receipt of such notice, the
receiving party shall submit to the other a written response. The notice and
response shall include (a) a statement of each party's position and a summary of
arguments supporting that position, and (b) the name and title of the executive
who will represent that party and of any other person who will accompany the
executive. Within twenty (20) days after receipt of the disputing party's
notice, the executives of both parties shall meet at a mutually acceptable time
and place, and thereafter as often as they deem reasonably necessary, to attempt
to resolve the dispute. Each party shall honor reasonable requests for
information made by the other. If the parties are unable to resolve the dispute
within sixty (60) days of the disputing party's notice requesting mediation,
then either party may initiate arbitration of the dispute as provided below.
3.02 ARBITRATION
-----------
If the parties are unable to resolve a dispute by mediation as provided above,
or if either party fails to resort to or comply with a request for such
negotiation in a reasonable and timely fashion, then the exclusive remedy for
resolving disputes between Ameritech and Supplier relating to this Agreement
shall be by binding arbitration in accordance with the Center for Public
Resources ("CPR") Model Procedure for Mediation of Business Disputes. One (1)
arbitrator having experience in the data processing and/or telecommunications
industry shall be selected by CPR to adjudicate any such dispute, and the
arbitration shall be conducted on an expedited basis in the home city of the
party against whom the arbitration is being invoked. Each party shall bear its
own expenses of the arbitration, and the cost and expenses of the arbitrator
shall be equally shared by the parties. The arbitration award shall be in
writing and shall be final and binding upon the parties, and judgment thereon
may be entered in any court of competent jurisdiction.
3.03 LIMITATION
----------
The requirements of this Article Three to utilize mediation and arbitration
shall not apply to disputes between the parties for which injunctive relief is a
remedy. During the pendency of any mediation and arbitration conducted under
this Article Three, both parties shall continue the full performance of their
respective obligations under this Agreement. Negotiations pursuant to this
Article Three are confidential
Page 15
<PAGE>
and shall be treated as compromise and settlement negotiations for purposes of
the Federal Rules of Evidence and State rules of evidence or any arbitration
proceeding between the parties.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
Page 16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their officers thereunto duly authorized the day and year first written
above.
TELTRUST COMMUNICATIONS AMERITECH SERVICES, INC.
SERVICES, INC. for itself and on behalf of its Affiliates
Signature: /s/ Jerry E. Romney Jr. Signature: /s/ Bruce Chatterly
----------------------- -------------------
Printed Name: Jerry E. Romney Jr. Printed Name: Bruce Chatterly
-------------------- ----------------
Title: Vice Chairman Title: Vice President
--------------------------- -----------------------
Date: 2-5-98 Date: 2-17-98
---------------------------- ------------------------
/s/ Richard J. Dewitt
- ----------------------------------
[STAMP APPEARS HERE]
[SIGNATURE APPEARS HERE] 2/17/98
Page 17
<PAGE>
ATTACHMENT "A"
TECHNICAL SPECIFICATIONS
AND
FUNCTIONAL REQUIREMENTS
-----------------------
SERVICE REQUIREMENTS
Supplier affirms that they are in compliance with the following requirements:
Service Description
- -------------------
Supplier will provide:
. An ABS (Alternate Billing Services) platform
. Operator Services to provide assistance in processing ABS calls
. Dedicated transport facilities for the provisioning of all services accessed
by using the Ameritech designated access number, including 100% of call
completion volume.
Certification
- -------------
. Supplier is certified to complete both IntraLATA and InterLATA calls that
originate In-Region and terminate anywhere in the North American Numbering
Plan Area.
. Supplier is also certified to complete International calls that originate In-
Region and terminate outside the North American Numbering Plan Area.
ABS Platform Access
- -------------------
. Supplier will provide In-Region originating toll-free (800/888/877) access to
the platform utilizing Ameritech's 1-800 AMERITECH number.
Customized Branding
- -------------------
. The ABS platform has the capability to custom brand on both the "front-end"
and "back-end" of the platform.
. Supplier will use the voice talent and announcements selected and approved or
provided by Ameritech for the prompts and announcements supported by the ABS
platform.
Billing Options
- ---------------
The ABS platform will be able to support the following billing options for both
station-to-station and person-to-person calls:
. Ameritech LEC Calling Card
. Ameritech Proprietary Calling Card
Page 18
<PAGE>
. Other LECs' calling cards
. Commercial Credit Cards
. Collect
. Billed to Third (via Operator Assisted only)
ABS Platform Capabilities
- -------------------------
[***]
* Portions of this exhibit have been redacted to preserve the Company's
confidential information.
Page 19
<PAGE>
Transport Requirements
- ----------------------
. Supplier will transport all calls placed using the 1-800 AMERITECH designated
access number that originate In-Region, and terminate anywhere in the North
American Numbering Plan area.
. Supplier will also transport all calls placed using the 1-800 AMERITECH
designated access number that originate In-Region, and terminate to most
international locations.
. Supplier can support an Ameritech request to add international destinations
on 30 days notice, dependent upon specific country requested and co-operation
from in-country PTT.
Network Requirements
- --------------------
. No more than [***] calls will experience blocking during the busy hour,
based on current Ameritech volume projections.
. Subject to provisioned carrier:
. Network availability will be [***] or greater as measured each month.
. Supplier will have alternate routing plans for originating and
terminating traffic in the event of an outage effecting its access
trunks.
. [***] of terminating traffic will complete without experiencing
blocking on the carrier's network.
. Supplier will provide 24x7 performance monitoring of all system components.
. All network connections supporting 1-800 AMERITECH will be 100% digital and
SS7 compliant, such that the only degradations are delay, jitter, wander and
slips.
. Supplier will notify Ameritech of outages within [***] minutes of the event.
. Supplier will provide 30 days notice to Ameritech of planned non-maintenance
activities that may impact customers.
. Supplier will accept and pay penalties imposed for failure to maintain these
levels of service, as described in Attachment "C".
Validation Requirements
- -----------------------
. Supplier will launch queries to validate all transactions placed through the
1-800 AMERITECH access number via:
. LIDB for:
. Ameritech LEC Calling Card
. Other LECs' calling cards
. Collect
. Billed to Third
. Ameritech's Proprietary Card Database for the Ameritech Proprietary
Calling Card (Phase I via LIDB, Phase II via direct connect to
proprietary card database).
. A Commercial Credit Card validation platform for Commercial Credit Card
. Supplier will receive a positive response from the appropriate validation
database on all queries before enabling the customer to complete the
transaction.
. Supplier will provide both the calling and called number information for all
calling card, collect and billed to third validation queries that are
launched to the appropriate LIDB.
. The ABS is able to block calls from customers where those billing mechanisms
could not be billed via the ABS billing clearinghouse.
* Portions of this exhibit have been redacted to preserve the Company's
confidential information.
Page 20
<PAGE>
Call Rating
- -----------
. Supplier will provide rating tables containing surcharge, first minute and
additional minute, with the ability to specify rates by:
. Billing method
. NPA-NXX
. Time of day
. Mileage Band
. Supplier will support promotional rates specific to any element of any rating
table; i.e. by customer first five minutes free, first $10.00 free, or first
month free, etc., as part of Phase III delivery.
. Supplier is able to rate calls in increments from 1 second to 60 seconds.
Recording
- ---------
Supplier will record and send billed messages to:
. Ameritech in standard Bellcore Exchange Message Interface (EMI) format for
transactions billed to Ameritech customers in the following manner:
. Ameritech LEC Calling Card
. Ameritech Proprietary Calling Card
. Collect
. Billed to Third
. Other LECs or clearinghouses for transactions billed to other LECs' customers
in the following manner:
. LEC Calling Card
. Collect
. Billed to Third
Retail Pricing
- --------------
. Messages billed by Supplier will be priced at the following rates:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Call Completion Surcharge Intra-State Inter-State
Local Intra-LATA Inter-LATA
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Calling Card
- -----------------------------------------------------------------------------------------------------
Mechanized $0.75 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
Op Must Assist $0.75 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
Op Assisted $2.25 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
Person to Person $5.25 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
Credit Card
- -----------------------------------------------------------------------------------------------------
Mechanized $1.25 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
Op Must Assist $1.25 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
Op Assisted $2.25 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
Person to Person $5.25 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
Collect
- -----------------------------------------------------------------------------------------------------
Standard Collect $2.25 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
</TABLE>
Page 21
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Person to Person $5.25 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
Billed to Third
- -----------------------------------------------------------------------------------------------------
Billed to Third $2.50 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
Person to Person $5.25 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
Directory Assistance $1.05 n / a n / a n / a n / a
- -----------------------------------------------------------------------------------------------------
DA Call Completion $0.00 25c/min 25c/min 25c/min 25c/min
- -----------------------------------------------------------------------------------------------------
</TABLE>
. Transactions other than call completion will be charged at the rate specified
by Supplier of the enhanced service.
Tariffs
- -------
Supplier is responsible for all filing and administration of tariffs, as well as
compliance with all Regulatory requests or mandates.
Rate Changes
- ------------
[***]
Billing and Collections
- -----------------------
Supplier will support all necessary billing arrangements:
. Supplier will contract with Ameritech as the Billing and Collections (B&C)
agent to process all transactions billed to Ameritech customers via the
Ameritech LEC Calling Card, Ameritech Proprietary Card, Collect or Billed to
Third.
. As part of its B&C agreement with Ameritech, Supplier agrees to:
. Provide Ameritech with the right of inquiry (i.e. the ability for
Ameritech customer service representatives to revise the customer's 800
AMERITECH bill)
. Format the bill page according to Ameritech's requirements.
. Supplier will maintain B&C or clearinghouse arrangements to process all
transactions billed to other LECs' customers via the Calling Card, Collect or
Billed to Third.
. Supplier will maintain an account with a merchant bank to process all
transactions billed to a commercial credit card.
. Supplier will comply with Ameritech policy that prohibits back-billing for
charges older than those which should have appeared in the preceding 30 day
monthly bill cycle.
* Portions of this exhibit have been redacted to preserve the Company's
confidential information.
Page 22
<PAGE>
Fraud Management
- ----------------
. Supplier Fraud Management System has the following capabilities:
. A fraud surveillance system that monitors traffic on a "real-time" basis
(i.e. as the calls occur).
. The ability to screen based upon the originating ANI.
. The ability to provide fraud surveillance specific to International
calling.
. Supplier is able to support Ameritech's monitoring of all 800 AMERITECH
attempts and completes through an SS7 connection or CDR feed from an SCP.
. Supplier is willing to work with Ameritech and Ameritech's Out-Of Region
Supplier to implement systems, procedures and enhancements to minimize fraud.
Operator Services
- -----------------
. Operator Service Centers
. Supplier operates multiple centers, and provide redundancy between
centers.
. The Operator Services system is ACD (Automatic Call Distributing) based.
. Supplier will provide 24x7 support of the ABS platform with live
operator assistance for those customers requesting or requiring
assistance.
. The operators will provide the same functionality as the ABS platform
(including transfers to other platforms).
. The operators will brand the service in compliance with Ameritech's
requirements.
. Operator Training
. Supplier will provide reasonable training on Ameritech and 1-800
AMERITECH.
. Ameritech will approve all training, materials and M&P changes.
. Operator Work Standards
[***]
. Quality / Customer Satisfaction
. Supplier will perform 25 call monitoring samples per operator per month
to ensure compliance with M&Ps, speed, accuracy, and tone and manner.
. Supplier will enable Ameritech to randomly sample operators remotely to
ensure that 800 AMERITECH meets minimum quality criteria. (remote
monitoring is a Phase II capability)
. Customer complaints relayed to operators will be transcribed, compiled
and reported to Ameritech on a weekly basis?
. Supplier will bring the service into compliance within 30 10 days of
failure to meet these quality metrics.
Payphone Identification and Set-Use Fees
- ----------------------------------------
. Supplier is able to identify calls made from payphones, in order to
compensate the payphone owner via Set-Use Fees, provided II digits are
included in the call set-up information.
* Portions of this exhibit have been redacted to preserve the Company's
confidential information.
Page 23
<PAGE>
. Supplier will be responsible for compensating the payphone owners properly.
Required ABS Platform Features
- ------------------------------
The following ABS platform features will be supported:
[***]
Desired ABS Platform Features
- -----------------------------
In addition to the ABS platform requirements identified earlier in the document,
the following features will also be supported:
. Busy Line Verify / Busy Line Interrupt
Reporting
- ---------
. Supplier will be responsible for providing a variety of operational, tracking
and financial reports, as specified by Ameritech.
. Supplier will also support Ameritech's needs for ad hoc reports, as
requested; subject to fees related to report development to be borne by
Ameritech.
Marketing Information
- ---------------------
Supplier must provide, at Ameritech's request in Ameritech's requested, pre-
agreed to format, 800 AMERITECH customer and call detail for Ameritech's
marketing efforts in support of 800 AMERITECH and provide such information
within one (1) week.
* Portions of this exhibit have been redacted to preserve the Company's
confidential information.
Page 24
<PAGE>
ATTACHMENT "B"
* Portions of this exhibit have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Attachment comprised 3
pages.]
<PAGE>
ATTACHMENT "C"
PERFORMANCE METRICS AND PENALTIES
DELAYS BY SUPPLIER
- ------------------
Time is of the essence in Supplier's performance of its obligations under this
Agreement. If Supplier has knowledge that anything prevents or threatens to
prevent timely performance under this Agreement, Supplier shall immediately
notify Ameritech thereof, provided that such notification shall not relieve
Supplier of the requirement set forth in the preceding sentence. Ameritech
shall review such notice, and if Ameritech determines it is not adversely
affected by such delay, then Ameritech shall consent in writing to such delay
and the paragraph below shall not apply, unless Supplier subsequently fails to
meet the extended date, in which event such paragraph shall apply retroactively
from the original date if Ameritech does not consent in writing to such further
delay.
If Supplier fails to provide Ameritech Services in accordance with the terms and
conditions set forth in this Agreement on or before April 15, 1998, (and consent
to an extension is not granted by Ameritech) and such failure is not primarily
and directly attributable to Ameritech's failure to perform those obligations
identified in this Agreement as being Ameritech's only responsibility Ameritech
or any of the reasons covered in the Clause entitled "Force Majeure," then
because damages to Ameritech arising from such delay would be difficult if not
impossible to ascertain, Ameritech shall be entitled to receive as liquidated
damages, and not as a penalty the following non-cumulative amounts as scheduled
until such Services are provided. After sixty (60) days delay either party
shall have the option to terminate this Agreement.
1- 7 Days delay [***]
8- 14 Days delay [***] per day
15- 21 Days delay [***] per day
22- 28 Days delay [***] per day
29- 35 Days delay [***] per day
36- 42 Days delay [***] per day
43- 49 Days delay [***] per day
50- 56 Days delay [***] per day
57- 63 Days delay [***] per day
64- 70 Days delay [***] per day
71- 77 Days delay [***] per day
78- 84 Days delay [***] per day
85- 91 Days delay [***] per day
92- 98 Days delay [***] per day
99-105 Days delay [***] per day
106-112 Days delay [***] per day
113-120 Days delay [***] per day
* Portions of this exhibit have been redacted to preserve the Company's
confidential information.
Page 28
<PAGE>
DELAYS BY AMERITECH
- -------------------
Ameritech must execute this Agreement by [***], in order for Supplier to be able
to meet the April 15, 1998, implementation date. In the event Ameritech fails to
execute this Agreement on [***], there shall be a day for day slip in Supplier's
implementation date. Ameritech agrees that should it delay said implementation
date, it will pay Supplier its actual cost incurred during said delay, including
but not limited to staffing, network, facilities, training and capital costs.
Said payments shall be made within ten (10) business days of invoicing by
Supplier.
PERFORMANCE
- -----------
If after initial acceptance, Supplier fails to provide to Ameritech the Services
in accordance with the terms and conditions set forth in this Agreement, and
such failure is not primarily and directly attributable to Ameritech's failure
to perform those obligations identified in this Agreement as being Ameritech's
responsibility or any of the reasons covered in the Clause entitled "Force
Majeure," and such condition continues uncured for thirty (30) days, then
Supplier shall pay the following non-cumulative amounts until such Services are
provided:
<TABLE>
<CAPTION>
DAYS DELAY BEYOND THIRTY (30) DAY MAXIMUM
-----------------------------------------
<S> <C>
1-7 [***]
8-14 [***]
15-21 [***]
22-28 [***]
29 + [***]
</TABLE>
[***]
If such condition continues uncured for a total of sixty (60) days, this
Agreement may be terminated by either party.
PROJECTIONS
- -----------
Ameritech agrees to provide Supplier with Quarterly forecasts no later than
forty five (45) days prior to each Quarter, so that Supplier can adequately
staff to provide Services. In the event Ameritech materially overestimates the
volume of Services which are actually generated and Supplier incurs costs for
over-staffing, Ameritech agrees to reimburse Supplier for its actual costs
incurred in connection with said over-staffing. In the event Ameritech
materially underestimates the volume of Services which are actually generated,
and Supplier is unable to meet the Service standards set forth in Attachment A
as a result of said underestimate, Supplier shall be released of meeting said
standards until it can reasonably increase its staff to meet the Service demand.
For purposes of this Paragraph, a "material overestimate/underestimate" shall be
more than [***] variance.
* Portions of this exhibit have been redacted to preserve the Company's
confidential information.
Page 29
<PAGE>
ATTACHMENT "D"
CHANGE IN CONTROL ENTITIES
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Attachment
comprised 1 page.]
<PAGE>
ATTACHMENT "E"
DEVELOPMENT TIMELINE
[***]
* Portions of this Agreement have been redacted to preserve the Company's
confidential information.
[Prior to redaction of confidential information this Attachment
comprised 2 pages.]
<PAGE>
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the use of our
reports, and to all references to our Firm, included in this registration
statement.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
May 5, 1998
