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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934. For the fiscal year ended December 31, 1995.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the transition period from __________ to __________.
Commission File No. 33-26019-LA
LONG DISTANCE DIRECT HOLDINGS, INC.
(Name of small business issuer in its charter)
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<S> <C>
Nevada 33-0323376
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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1 Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (914) 620-0765
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ____ No X
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [x]
The issuer's revenues for its most recent fiscal year were $8,363,949.
The aggregate market value of the voting stock held by non-affiliates of the
issuer, based on the average of the closing bid and asked prices of the issuer's
Common Stock in the over-the-counter market as reported by the OTC Bulletin
Board on May 31, 1996, was approximately $6,556,358.
As of May 31, 1996, 3,862,887 shares of Common Stock, $.001 par value, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one): Yes ___ No X
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PART I
ITEM 1. Description of Business.
Long Distance Direct Holdings, Inc., which was formerly known as Golden
Ark Inc., was inactive until October 6, 1995, when it acquired all of the
outstanding stock of Long Distance Direct, Inc. ("LDDI") and LDDI became a
wholly owned subsidiary of the Company. LDDI is a New York corporation which was
formed in 1991 for the purpose of acting as the general partner of Long Distance
Direct L.P. ("LDDLP" or the "Partnership"), a New York limited partnership
formed at the same time for the purpose of carrying on the business of a
non-facilities-based reseller of long-distance telephone service. In October
1995, LDDI acquired all of the partnership interests of LDDLP in exchange for
shares of LDDI common stock. Prior to its acquisition of LDDI, Golden Ark, Inc.
effected a 1 for 1.4700477 forward split of its outstanding Common Stock. After
its acquisition of LDDI, Golden Ark, Inc. changed its name to Long Distance
Direct Holdings, Inc. ("LDD Holdings"). References herein to the Company or to
LDDI shall mean LDD Holdings and LDDI collectively unless the context otherwise
requires. The financial statements included elsewhere herein relate to the
business which was known as LDDLP prior to the acquisition of LDDLP by LDDI and
the subsequent acquisition of LDDI by LDD Holdings.
The Company's offices are located at One Blue Hill Plaza, Pearl River,
New York 10965. The Company's telephone number is 914-620-0765.
GENERAL
Long Distance Direct Holdings, Inc. is a non-facilities-based, or
"switchless", reseller of outbound and inbound long distance telephone,
teleconferencing, cellular long distance and calling card services to small and
medium-sized commercial customers. All of the services sold by the Company are
currently provided either by AT&T or by MCI. Management believes that AT&T and
MCI's long-distance service remains the preferred option of the majority of
telephone users. According to a 1995 FCC report, AT&T and MCI accounted for
approximately 56% and 17% respectively of total domestic long-distance revenue
for calendar year 1994. The Company signs up customers and provisions them onto
the network of AT&T or MCI, which provide the actual transmission service. The
Company has agreements with AT&T and MCI to purchase a minimum annual level of
long distance telephone service at discounted bulk rates which are lower than
rates LDDI's customers are able to obtain for themselves due to insufficient
call volume. The Company does not own or lease any telephone equipment or
participate in the call completion process. Provision of the service to the
customer requires no equipment installation or modification on the customer's
premises; all action to provide the service takes place within the local and
inter-exchange carriers. The customer retains his existing telephone numbers and
incurs no expense in making the decision to switch to the services of the
Company.
MARKETING AND SALES
The Company obtains customer orders through three separate methods
typically employed by sellers and resellers of telephone services: field sales,
telemarketing, and direct mail. Until the beginning of 1994, over 95% of the
Company's billings related to field sales, with the balance coming from
customers who had responded to the Company's direct mail programs. In January
1994, however, the Company commenced a program of outbound telemarketing, and in
June 1994 it increased the volume of its direct mail activity. Currently,
approximately 37% of the Company's billings are derived from field sales using a
system of self-employed independent sales representatives, who are contractually
restricted from performing such services for competitors of LDDI, 57% are
derived from telemarketing using a number of outside telemarketing agencies
specialized in the sale of telephone services on a non-exclusive basis, and the
remainder are derived from direct mail programs. The Company is currently
engaged in raising finance through a private placement of its stock and intends
to use a portion of the proceeds thereof to increase its marketing efforts, to
increase the proportion of its sales attributable to direct mail marketing and
to establish its own in-house telemarketing facility, The Company also intends
to launch a televised marketing program during 1996 to increase its independent
sales force.
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The Company's field sales force is based on a system of independent
sales representatives, all of whom are self-employed. All sales representatives
are compensated on a commission-only basis, except that certain of these
individuals receive an individually negotiated draw to be recouped from future
commissions. Commissions are payable to representatives based on actual monies
collected by LDDI which can be attributed to specific customers. LDDI's current
active sales force numbers about 30 individuals. Management is considering a
number of new methods of recruiting field sales representatives including the
televised marketing programs referred to above. LDDI has prepared a
comprehensive manual for use by sales representatives as a training tool for
reference on the job.
LDDI also generates sales through direct mail programs, backed up by a
small in-house telemarketing department. Until June 1994, this activity
comprised exclusively the sending of direct mail packages to small businesses,
inviting them to telephone LDDI's own 800-number, and incorporating a special
discount offer, with conversions of inquiries being carried out by an inbound
telemarketing team. In June 1994, the Company commenced another direct mail
approach requiring customers to complete and send in a written sales order, with
follow-up information being obtained by the Company's in-house telemarketing
department. The results of the various programs that have been carried out to
date have generated sufficient response to lead management to expand its direct
mail activity.
In January, 1994, in order to market its services to small business
users, the Company contracted with a telemarketing company specializing in the
solicitation of orders for long-distance telephone services on behalf of
resellers. The first billings attributable to customers introduced by this
company were generated in February 1994. In March and July 1994, respectively,
the Company contracted with two additional telemarketing agencies, similarly
specialized in the sale of telephone services, to market its services. Billings
from each of these two sources commenced in June and September, 1994,
respectively. The telemarketing agencies are compensated principally by the
payment of an up front fee based on successfully provisioned orders and average
per customer billing levels. Payments on account are made on delivery of a
validated order to the Company with ongoing reconciliation and adjustment in
light of results achieved.
The Company has now contracted with a number of additional
telemarketing agencies in order to avoid excessive dependence on any one source
of new telemarketed business. The level of business generated to date by this
activity has led management to the decision to increase the level of orders
requested of the outside telemarketing agencies following completion of the
current private placement of its common stock. The Company now intends to
supplement the efforts of the outside agencies by establishing an in-house
outbound telemarketing department.
SERVICES PROVIDED
AT&T
The Company currently resells to its customers AT&T outbound and
inbound long-distance telephone service, including teleconferencing, cellular
long-distance and calling card services. Outbound service had, until September
1994, been provided exclusively under the Company's SDN agreement with AT&T, but
with the signing of a new contract tariff with AT&T, effective September 7,
1994, now superseded by a new contract tariff with AT&T, effective September 1,
1995, such service is now also provided on DNS. The Company's pricing to its
customers for the two services is identical, but DNS can be provisioned
considerably faster than SDN. Inbound service is now provided under the same
contract tariff, effective September 1, 1995, as the outbound service.
Customers may also request a calling card. This allows use of the
telephone system either through off network dialing using an 800-number access
or through the traditional "zero plus" access method. The calling cards have
been designed to the Company's own specifications and are issued subject to the
condition that liability for usage thereunder remains that of the end-user
unless and until loss is reported to LDDI. In turn, LDDI has an on-line
connection with AT&T's Network Remote Access Monitoring System. Once LDDI has
reported a loss or theft to AT&T, LDDI has no
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further liability for usage on the lost or stolen card. The Company is able to
set and vary thresholds and usage parameters that have been designed by AT&T to
facilitate early detection of calling card theft or abuse.
MCI
Since March, 1996 and pursuant to contracts signed in August, 1995 and
March, 1996, the Company has also commenced the resale of MCI outbound and
inbound long-distance telephone service, including teleconferencing, cellular
long-distance, calling card and debit card services. Under the calling card
arrangements, customers may access the Company's network either through an
800-number or through "zero Plus" dialing. In the case of calling cards under
the MCI contract, MCI retains full liability for fraudulent use. Provisioning of
customers onto the MCI network is done directly by the Company in conjunction
with the Local Exchange Carriers.
Whereas, under its arrangements with AT&T, the Company is permitted to
sell only to commercial customers, the MCI contract permits resale to both the
commercial and the residential markets. Furthermore, the pricing of the MCI
contract makes residential sale a realistic and financially attractive
proposition. Finally, the Company is able in respect of the resale of MCI
service to offer its customers the alternative of billing through their Local
Exchange Carrier. This is believed to be important in relation to the
residential market, which is considered to be less willing than the commercial
market to receive separate monthly long distance bills.
Neither the outbound service nor the inbound service provided on the
AT&T or MCI networks requires any equipment installation or modification on the
customer's premises; all action to provide the service takes place within the
local and inter-exchange carriers. The customer retains his existing telephone
numbers and incurs no expense in making the decision to switch to the Company's
service. The Company provides its customers with services at a price which
management believes, because of the average customer's calling volume, would
generally be unavailable to such customers.
The Company's administrative and accounting systems are structured to
address the two principal areas of activity in the Company's business and their
financial and operational interface: the sales division and the customer account
base. With three separate sources of new orders, and a customer base that more
than doubled in 1994, management believes that the continued development and
structural integrity of the business depends on fundamentally sound
administrative and operating systems.
In recognition of this, the Company's management from the outset
established a computerized database under the direction of an outside computer
consultant. This database records and tracks all new sales representatives,
together with their reporting hierarchies, to enable monthly commission
statements to be driven from data supplied electronically from AT&T and MCI, and
to respond to all personnel questions. Additionally, the database records and
implements all activity from the outside telemarketing agencies, from order
entry through submission of orders to AT&T or the Local Exchange Carriers (in
the case of MCI services) to production of the data needed to effect monthly
accounting reconciliations with those agencies. The database tracks and
implements order entry and analyzes the performance of the various direct mail
programs. It also records all customers, together with their sales
representative or other introductory source attribution, and allows both direct
electronic interface with the Company's external billing agency for billing and
collection purposes and for internal interrogation for customer service
purposes.
To support this function, LDDI has established computer-based operating
procedures that track each new customer through its provisioning sequence with
AT&T and the Local Exchange Carriers (where MCI service is concerned), enabling
LDDI to respond systematically and promptly to the reports generated by AT&T and
the Local Exchange Carriers on provisioning progress. In addition, LDDI operates
a customer service function as well as a dedicated credit control function.
Insofar as the Company is marketing services that are available from a wide
range of alternative suppliers, the high level of customer service that it can
offer is an area in which management believes the Company can outperform its
competitors. In this regard, as evidence of its responsive administrative
systems, the Company has a policy of calling its customers on a rotating basis
to establish the level of their satisfaction with the Company's service and to
identify and attend to any additional needs that they might have.
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Through March, 1996, the Company's billing was performed on its behalf
by American College and University Systems ("ACUS"), a strategic business unit
of AT&T that provides resellers with a customized long-distance billing service
known as the "AT&T Bill Manager Service." The Company established its own
tariffed pricing elements and used the ACUS service to bill end-users at its
designated tariffed rates.
From monthly billing tapes and feeds supplied directly by AT&T, ACUS
produces and delivers invoices to all end-users in the Company's name, and
end-users remit payments directly to the Company through a "lock box" set up by
the Company. By using the services of ACUS, the Company was able to avoid the
labor-intensive administration of performing the billing function itself during
a period of strong account growth while retaining control over its pricing,
billing and collection policies. The Company negotiated a release without
penalty from its contract with ACUS, capable of implementation at any time after
July 1995, in order to be able to use the services of a billing company that was
both less expensive and better interfaced with the Company's computer systems.
To that effect, the Company entered into an agreement with Digital
Communications of America Inc. ("DCA") under which DCA provides billing services
to the Company in respect of both AT&T and MCI service. The first DCA bills were
generated in April, 1996. The Company may also in the future consider employing
its own billing personnel if and when it believes that the financial benefits of
so doing will outweigh the practical difficulties involved.
The Company's overall operational strategy is based on management's
belief that the sales function is highly dependent upon the strongest possible
administrative support. The lack of such support would result in a failure to
motivate and retain sales people or respond to the needs of the outside
telemarketing agencies, customer dissatisfaction, and the loss of revenues
through inefficiencies and inattention. Management believes that the Company's
attention to this area of its operations distinguishes it from much of its
competition.
ARRANGEMENTS WITH PROVIDERS
AT&T
The company commenced operations under Part II of AT&T's SDN tariff, a
generic tariff relating to outbound long-distance service only, and available to
both end-users and resellers alike satisfying AT&T's requirements both for usage
commitment and cash deposit for security purposes. Under this tariff, AT&T's
customers, which included the Company, receive a discount from published tariff
rates in return for the commitment and deposit referred to above. In December,
1992, the Company entered into a new five-year agreement with AT&T under Part VI
of the SDN tariff pursuant to which it increased its annual usage commitment in
return for the higher discounts available thereunder.
Effective September 7, 1994, the Company entered into an individually
negotiated contract tariff with AT&T for outbound long-distance service. This
contract tariff, which superseded the Company's arrangements under Part VI of
the SDN tariff, was the subject of an individual filing by AT&T with the FCC,
and had a three year term. Under this contract tariff AT&T agreed to supply the
Company, and the Company acquired the right to resell, both SDN and DNS service.
Effective September 1, 1995, the Company entered into a new
individually-negotiated contract for a fixed term of four years with a one year
extension at the Company's option. This tariff, which supersedes all the
Company's other arrangements with AT&T embraces both outbound and inbound
long-distance service. Under the contract tariff, the Company has accepted a
minimum purchase requirement under which it is obligated to pay such minimum
regardless of whether its usage reaches such levels. The minimum purchase
requirement is a constant amount throughout the duration of the contract tariff.
The minimum quarterly purchase requirements in respect of outbound service, SDN
and DNS combined, for each of the sixteen quarters of the contract tariff, and
for the four subsequent quarters if the Company elects to exercise its extension
option, are $1,200,000 per quarter. Also included within the contract tariff is
a requirement that a specified minimum proportion of each quarter's usage relate
to "new business", i.e. currently non AT&T business.
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Until October 1992, the Company offered only outbound service to its
customers: in that month the Company started to offer its customers AT&T inbound
800-number service through a third-party intermediary provider. However, in
November 1993, the Company ended its arrangement with the third-party provider
and contracted directly with AT&T under CSTP II, a generic tariff, to enable it
to resell inbound 800-number service. In April 1994, the Company signed a
three-year individually-negotiated contract tariff with AT&T, effective May 1,
1994, for the supply of 800-number inbound telephone service with volume
discounts in excess of those available under CSTP II, in return for a minimum
annual purchase requirement of $1,200,000. AT&T has advised the Company that
this contract tariff was the first individually-negotiated contract tariff ever
signed for inbound 800 service.
Effective September 1, 1995, this contract tariff was superseded by the
new individually-negotiated contract tariff described above in relation to the
Company's outbound service. Under this tariff, which embraces both outbound and
inbound long-distance service, the Company continues to have a minimum annual
purchase requirement of $1,200,000 for inbound usage. Also included in the
contract tariff is a requirement that a specified minimum proportion of each
quarter's usage relate to "new business" as in respect of the outbound usage.
As a result of information arising from the change of billing company
after December 31, 1995, the Company has advised AT&T that it may have been
significantly over-billed by AT&T since September, 1992. At this time, however,
no estimate can be made as to the time or the amount, if any, of any recovery by
the Company. Accordingly, no provision for recovery has been reflected in the
Company's financial statements.
The agreement with AT&T referenced above is not renewable upon
termination of the five-year term. Management believes, however, that its
relationship with AT&T will enable it to negotiate similar agreements with AT&T
upon termination of the agreement currently in force.
MCI
On August 4, 1995, the Company signed an individually-negotiated
agreement with MCI under which the Company is authorized to resell various MCI
services, including outbound long-distance and local long-distance, inbound long
distance, calling cards, debit cards, teleconferencing and MCI enhanced
services. This agreement was subject to an eight (8) month ramp period followed
by a thirty-six (36) month service period. In March, 1996, the Company signed
another individually negotiated contract with MCI which superseded the contract
of August, 1995. This contract, which requires higher minimum purchase levels
than the prior agreements but affords better prices, is subject to a twelve (12)
month ramp period followed by a thirty (30) month service period.
During the first five (5) months of the ramp period, the Company has no
minimum purchase obligations. During the sixth, seventh, and eighth months, the
Company is obliged to purchase $250,000 of services per month, during the ninth
and tenth month $500,000 per month, during the eleventh and twelfth month
$750,000 per month, and during the thirty month service period $1,000,000 per
month. In the event that the Company fails to meet its minimum purchase
requirements, it must pay MCI fifteen percent (15%) of the difference between
the amount used and the respective minimum monthly requirement.
The agreement is subject to increases and decreases in the rate of
discount offered to the Company, depending on the proportion of "new business"
(currently non-MCI business) in the Company's total usage. During the first six
months of the agreement either the Company or MCI may terminate the agreement at
will, with no penalty. In the event that no notice of termination is received
within six months, the agreement is to run for the full forty-two (42) month
term.
In consideration of its inability to provide service under the August,
1995 contract prior to December 31, 1995, MCI agreed to compensate the Company
in the form of a service credit in an amount not to exceed $1,000,000 to be
applied against its initial usage under the March, 1996 contract. No provision
for this credit has been included in the Company's financial statements.
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CUSTOMERS
At December 31, 1995, the Company had over 10,000 active billing
customers. Customers generated by field sales activity are predominately based
on the Eastern seaboard; those generated either by telemarketing or by direct
mail have no particular geographic bias. Through December 31, 1995, the
Company's customer base was exclusively commercial and contained no residential
element. It covers almost every generic field of business activity in the United
States. No single current customer represented more than 3% of billings for the
year ended December 31, 1995.
COMPETITION
The long-distance telecommunications market is highly competitive. The
Company does not believe it is a significant factor in the industry. The
principal competitive factors affecting the company's market share are pricing,
customer service, and value-added services. The Company's ability to compete
effectively will depend upon its continued ability to maintain high quality,
market-driven services at prices generally equal to or below those charged by
its competitors. The long-distance carriers which sell in competition with the
Company include MCI, Sprint, and AT&T itself. Resellers which sell in
competition with the Company include Long Distance Discount Services, LCI
International, Inc., Ustel Inc., Protel Communications Corp., Equalnet, Midcom,
Tel-Save and Pacific Coin. Of the resellers, some are switchless and some have
their own switches and leased lines: some sell services of both AT&T and other
long-distance carriers. Among the resellers, management believes that LDDI is
one of only a few to market AT&T long distance services under a direct
contractual relationship with AT&T. Management has also been informed that the
Company is one of only a limited number of resellers to be granted a resale
contract by MCI.
Price competition in the long-distance telecommunications industry has
increased in recent years due to the entry of many companies into the market.
Management's policy for gaining and retaining customers is based on four
principal components: first, marketing only premier quality long-distance
services, such as those provided by AT&T and MCI; second, offering rates for
telephone usage that are at least comparable with, and in many cases less
expensive than, those generally available to its target market; third,
developing and maintaining responsive information systems that enable customer
service to be carried out on a timely and efficient basis; and fourth, staff
training programs that teach personnel how to handle customer concerns both
efficiently and courteously.
INDUSTRY BACKGROUND
On January 1, 1984, AT&T's divestiture of the Bell System went into
effect. As a result of the decree ordering such divestiture by AT&T (the "AT&T
Divestiture Decree"), AT&T was forced to divest its 22 Bell Operating Companies
("BOCs"), which were reorganized under seven Regional Bell Operating Companies
("RBOCs"), such as Pacific Telesis and US West, Inc. The RBOCs own and are
responsible for operations of the BOCs in each of their regions. The BOCs, as
well as other independent companies which provide local telephone service, are
characterized as local exchange carriers. The local exchange carriers are
responsible for providing dial tone, local lines and billing for local service
as well as local access for long-distance traffic.
As an additional part of the AT&T Divestiture Decree, the United States
was divided into approximately 200 Local Access and Transport Areas ("LATAs").
AT&T was given the right to compete for inter-LATA long-distance business, but
was prohibited from providing intra-LATA long-distance and local service. The
BOCs and other local exchange carriers were permitted to compete for intra-LATA
long-distance and local service, but were prohibited from entering the
inter-LATA long-distance market in which the Company competes, although
legislation has since been enacted permitting the BOCs and other local exchange
carriers to compete in the long-distance market and allowing AT&T and other
inter-exchange carriers to compete in the local markets.
The AT&T Divestiture Decree also required the local exchange carriers
to provide all inter-exchange carriers with access to local telephone exchange
facilities that are "equal in type, quality and price" to that provided to AT&T.
In addition, the local exchange carriers were required to conduct a subscription
process allowing consumers to select
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their long distance carrier. This development, know as "equal access," enabled
consumers to complete calls using their selected long-distance carrier by simply
dialing "1" plus the area code and number. Prior to equal access, consumers
using an inter-exchange carrier other than AT&T had to dial a local number, then
an access code, then the area code and number of the call destination to
complete a call. With equal access, all inter-LATA traffic is carried by the
local exchange carriers. The AT&T Divestiture Decree and the implementation of
equal access constitute the fundamental regulatory developments that allow
inter-exchange carriers other than AT&T to enter and compete in the
long-distance telecommunications market.
Since the AT&T Divestiture Decree, the long-distance industry has
experienced rapid technological development. One significant technological
change was the advent of digital transmission technology, which represented an
improvement over analog technology. Because the BOCs and many local exchange
carriers converted rapidly to digital switches, digital technology was necessary
for inter-exchange carriers to connect to the local exchange carriers for equal
access. Accompanying the movement toward digital switching was the rapid
development and implementation of fiber optic circuitry, which also requires
digital technology. While AT&T had once been the only source of high quality
transmission facilities, several other companies, including MCI and Sprint,
entered the business of building transmission facilities, using primarily fiber
optic circuits.
Following the AT&T Divestiture Decree, and the birth of competing
long-distance carriers, the inter-exchange carriers developed the concept of the
virtual private network ("VPN") in order to shift traffic onto the public
network from large, private networks transmitting on dedicated facilities. VPNs
are aimed at large organizations that have many locations and that spend at
least $50,000 per month on long-distance calling. The Software Defined Network
("SDN") is AT&T's most sophisticated form of VPN, utilizing its latest fiber
optic facilities and offering significant technical and administrative benefits
to major long-distance users.
In the late 1980's resellers perceived an opportunity to package,
aggregate and market AT&T's premier service at rates lower than small businesses
could expect to obtain directly from any other carrier, with billing carried out
directly by AT&T. The Company believes that this event created the switchless
reseller industry.
Between October 1989 and March 1990 many companies entered the market
of SDN resale, recruiting field sales forces to market to small and medium-sized
businesses. Whereas AT&T is generally believed to have found itself involved
unintentionally in resale at the outset, in 1992 it introduced Distributed
Network Service ("DNS") specifically as a resale product. AT&T encourages the
resale of DNS rather than SDN. In 1994, MCI also decided to make its network
available to resellers such as the Company. Following negotiations which
commenced in February, 1995 the company signed an agreement effective September
1, 1995 to resell MCI's services. That agreement was superseded by an upgraded
contract in March, 1996. Provision of MCI service by the Company commenced in
March, 1996.
Resellers are classified into two categories, facilities-based and
non-facilities based. A facilities-based carrier utilizes lines owned by third
parties but operates its own switching equipment and usually bills its own
customers directly. A non-facilities-based carrier does not own or lease any
telephone equipment or participate in any portion of the call completion
process. For billing purposes it receives magnetic tapes of its customers'
long-distance usage from its service provider and uses this information as a
basis for billing. Facilities-based carriers have both an investment in the
network needed to complete the call process and a geographic concentration,
whereas non-facilities-based carriers have neither such investment nor any
geographic constraint.
As a result of the changes brought about by the AT&T Divestiture
Decree, secondary inter-exchange carriers, including the Company, generally
provide long-distance telephone services at a significantly lower cost than the
comparable services offered directly by AT&T, MCI and Sprint. The Company's
success will depend on its continuing ability to provide comparable services at
prices equal to or lower than its competitors in the future.
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REGULATION
Although in the past the FCC had extensively regulated interstate
communications, the trend during the 1980's was toward lessened regulation.
Non-dominant inter-exchange carriers such as the Company were not required by
the FCC to maintain a certificate of public convenience and necessity or to file
tariffs with the FCC other than with respect to international calls and except
for informational tariffs, which were required to be filed with respect to
operator services. Over this period of time, the FCC had retained general
regulatory jurisdiction over the sale of interstate telecommunications services
by inter-exchange carriers, including the requirement that calls be charged on a
nondiscriminatory, just and reasonable basis.
Tariffs. On November 13, 1992, the United States Court of Appeals for
the District of Columbia Circuit (the "Court of Appeals") ruled that the FCC
lacks authority to waive the requirement that non dominant inter-exchange
carriers file tariffs. The Court of Appeals reversed the FCC's "forbearance
policy," which had excused inter-exchange carriers from tariff filing
requirements. The FCC had also begun a new proceeding to promulgate rules for
non-dominant inter-exchange carriers' tariff filings in a streamlined manner so
as to give substantial flexibility to the Company and similarly situated
competitors. The FCC has enacted certain rules and is expected to enact others
regarding tariff filing requirements for non dominant carriers. The FCC has
issued a statement publicly announcing its intention not to enforce the strict
tariff format and content rules against non dominant inter-exchange carriers in
the interim. In July 1993, a Federal District Court (the "District Court")
granted AT&T's request for a preliminary injunction against MCI for failure to
file customer-specific tariffs. MCI had relied upon its earlier streamlined
tariff filing, which set forth ranges of rates.
As a consequence of the Court of Appeals decision and the District
Court's ruling, the Company could be subject to complaints seeking damages,
assessment of monetary forfeitures and/or injunctive relief filed by any party
claiming to be injured by the Company's failure to file tariffs. The Court of
Appeals decision suggests that reliance upon the forbearance policy may not
excuse past failure to file tariffs, because the Court ruled that the
forbearance policy itself was unlawful. The Court of Appeals does not, however,
require the FCC to assess forfeitures or damages or take any other specific
enforcement action against those carriers who relied upon its policy, although
it does direct the FCC to give further consideration to the issue of damages in
a private suit between AT&T and MCI. In February 1993, AT&T filed lawsuits in
Federal court against MCI, Sprint and Williams Telecommunications Group, Inc.
("WilTel") for alleged failure to file proper tariffs and seeking lost profits
on a denied loss of sales of $1 billion. WilTel responded by filing a Federal
court complaint against AT&T for illegal pricing activity, and similar
complaints filed by MCI and Sprint have been pending at the FCC for several
years. Moreover, the implications of the District Court's preliminary injunction
against MCI for other long-distance carriers may be substantial unless and until
the FCC acts. There is a possibility that the aftermath of the ultimate
consequences of the Court's ruling may affect the Company's pricing practices.
AT&T has also indicated that it may institute similar suits against other
inter-exchange carriers. MCI has filed a motion for reconsideration of the
Court's preliminary injunction and has also filed a petition for declaratory
ruling with the FCC to declare that it and other inter-exchange carriers cannot
be held liable for good faith reliance on the FCC's now reversed forbearance
policy. At this time, the Company cannot predict the likelihood of the filing of
complaints against it or potential liability, if any.
Potential Increased Competition. In 1984, pursuant to the AT&T
Divestiture Decree, AT&T divested its 22 wholly owned BOCs. In 1987, as part of
the triennial review of the AT&T Divestiture Decree, the U.S. District Court for
the District of Columbia denied the BOCs petition to enter, among other things,
the inter-LATA long-distance telecommunications business. The District Court's
ruling was appealed to the Court of Appeals, which, in 1990, affirmed the
District Court's decision to retain the inter-LATA prohibition for the BOCs.
Recent legislation passed in Congress now permits the BOCs to provide inter-LATA
service, subject to the provisions outlined in Recent Legislation below. As
indicated below, the Company and all other providers of inter-LATA service may
now expect to face substantial additional competition. This legislation follows
the relaxing by the FCC of its regulatory requirement applicable to foreign
controlled inter-exchange carriers such that these firms and others that may
enter the market in the future will have greater flexibility to compete in
international routes.
9
<PAGE> 10
Regulation of AT&T. Currently, the Company and the inter-exchange
carriers with which it competes are subject to less regulation and have greater
pricing flexibility than AT&T. However, the difference in the level of
regulation between AT&T and its competitors has recently been narrowed. The
general trend of the FCC is to treat AT&T inter-exchange business service as
competitive and lessen FCC reviews of the rates AT&T charges for many of its
business services. In addition, the FCC has adopted "further streamlined"
regulation for many of AT&T's domestic business services, which effectively
removes various controls under existing regulations governing AT&T's pricing
flexibility. The FCC also allows AT&T to bundle individualized packages of
integrated services to specific, high-volume customers at negotiated prices. The
Court of Appeals recently held that these so-called Tariff 12 offerings are
lawful under the Federal Communications Act. The new rules allowing the further
streamlining of AT&T's regulation are the subject of judicial appeals pending
before the Court of Appeals. The outcome of these appellate proceedings is at
this time uncertain. Management of the Company does not believe that the
implementation by the FCC of the further streamlined rules would have a material
adverse effect on its business or operations. However, should the FCC affirm
further streamlined regulation with respect to a number of AT&T's domestic
business services, AT&T can be expected to offer and price its business services
more aggressively, which in turn, may affect the Company's pricing policies and
gross margins.
Recent Legislation. Under the Telecommunications Act of 1996, which
became law on February 8, 1996, many restrictions were abolished that acted as
entry barriers in telecommunications markets. Of greatest significance to the
Company, this legislation eliminates the restrictions imposed by the AT&T
consent decree on the provision by the BOCs of long distance services. However,
the entry of a BOC into the long-distance market will only be permitted if it
has satisfied the FCC and the Justice department that it has satisfactorily
opened its local exchange market to competitors such as the Company. The process
of entry by the BOCs into the long distance market will take not less than two
years to complete. Although the Company intends to take advantage of the recent
legislation by seeking to resell local telephone service, there can be no
assurance that it will be successful in so doing or that the entry of the BOCs
into the long distance market will not damage the Company's business and
financial position.
State Regulation. The Company's intrastate long-distance
telecommunications operations are subject to various state laws and regulations,
including, in many jurisdictions, certification requirements. Generally, the
Company must obtain and maintain certificates of public convenience and
necessity from regulatory authorities in most states in which it offers
intrastate long distance services. Some state regulatory authorities also
require carriers to file tariffs which set forth their rates and conditions of
service. The Company has obtained certificates, and filed tariffs, to provide
service in Florida and New York and is in the process of doing the same in all
of the other states in which the Company conducts business. Some states prohibit
inter-exchange carriers from providing intrastate service (calls both
originating and terminating in the same state) or restrict or condition the
offering of intrastate or intra-LATA long-distance service by the Company and
other inter-exchange carriers. Those states that do permit the offering of
intrastate or intra-LATA service by inter-exchange carriers generally require
that end users desiring to access these services dial special access codes which
put the Company at a disadvantage vis-a-vis local exchange carrier intrastate
and intra-LATA toll service, which generally requires no similar access code.
The Company historically has not experienced significant problems in its
dealings with state regulatory authorities. Changes in regulatory requirements,
however, could result in changes in the manner in which the company conducts its
operation. The Company may also incur the expense of legal fees and related
costs in order to comply with such changes in regulatory requirements.
EMPLOYEES
The Company has 27 employees, excluding the directors and executive
officers, of whom 23 are full time and 4 are part-time. Of these 27 employees, 8
are responsible for order entry and customer service, 14 are responsible for
accounting and credit control, 2 are responsible for marketing support, and 3
are responsible for general administration. If the Company is successful in its
proposed marketing programs, management envisages that there will be a need for
a substantial increase in the number of its employees.
10
<PAGE> 11
In addition to its employees, the Company has a total of approximately
175 self-employed independent sales representatives who are either currently
active on the Company's behalf or who have introduced customers to the Company
which are still using the Company's network.
ITEM 2. Description of Property
The Company operates out of an 8,200 square foot office at Blue Hill Plaza,
Pearl River, NY, a modern office facility. The space currently occupied by the
Company is leased under a lease expiring in March, 1998 with annual rent of
$135,000 rising to $148,000 in April, 1996. The Company is currently
renegotiating the terms of this lease as a result of a change in ownership of
the property. It is anticipated that the new lease will provide improved rental
terms for the Company as well as for reconstruction of the existing office
space.
ITEM 3. Legal Proceedings
The State of New York Department of Taxation and Finance has filed two
separate warrants against the Company evidencing judgment liens for uncontested
tax liabilities. One such warrant evidences an amount, including penalty and
interest, of $10,449.21. The other warrant evidences an amount, including
penalties and interest, of $5,238.61. The Company negotiated the payment of
these liabilities with the Department with monthly payments being made over a 24
month period ending September 1997, until which time the judgment liens will
remain in effect.
In February, 1996 LDDI, together with Messrs. Steven Lampert and
Michael Preston, commenced suit in New York Supreme Court against Messrs.
Michael Miller and Jeffrey Schwartz alleging duress and coercion in relation to
a Buy-out Agreement, and seeking compensatory damages in excess of $400,000 and
the payment of $10 million in punitive damages. Following the commencement of
the suit, the defendants issued a Notice of Default under the Buy-out Agreement,
filed a motion to dismiss LDDI's suit and commenced a separate suit together
with a motion to accelerate the amounts due under the Buy-out Agreement to
immediately exercise the security interests in respect thereof. LDDI is
contesting the Notice of Acceleration and motion to exercise the security
interests and has filed a cross-motion in its suit asking the court to
disqualify the defendants' attorneys. LDDI believes that it has a meritorious
claim both in respect of its motion to disqualify the defendants' attorneys, as
well as in respect of its opposition to the Notice of Acceleration. In any
event, LDDI believes that it has recorded an adequate provision in its books of
account for any liability that may result from this litigation.
ITEM 4. Submission of Matters to a Vote of Security Holders.
The Company did not submit any matter to a vote of security holders
during the fourth quarter of the fiscal year covered by this report. The Company
did, however, obtain the written consent of the holders of a majority of the
Company's outstanding Common Stock to the adoption of the Company's 1995 Stock
Option Plan.
11
<PAGE> 12
ITEM 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock has been traded in the over-the-counter
market on the OTC Bulletin Board under the symbol LDDI since December 13, 1995.
There was no active trading market for the Company's Common Stock for more than
two years prior to December 13, 1995. Since December 13, 1995, trading activity
with respect to the Company's Common Stock has been extremely limited and
sporadic.
The following table reflects the high and low bid prices of the
Company's Common Stock as reported by the OTC Bulletin Board from December 13,
1995 to May 31, 1996. Such prices are inter-dealer quotations without retail
mark-ups, mark-downs or commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
<S> <C> <C>
1995 High Low
---- ---- ---
Fourth Quarter (December 13 to December 31) $3.00 $3.00
1996 High Low
---- ---- ---
First Quarter $3.00 $3.00
Second Quarter (through May 31, 1996) $6.00 $3.00
</TABLE>
On May 31, 1996, the bid and asked price of the Company's Common Stock
was $6.00 and $7.00 per share, respectively.
As of May 31, 1996, there were approximately 85 stockholders of record.
The Company has never paid any cash dividends on its Common Stock and
anticipates that, for the foreseeable future, no cash dividends will be paid on
its Common Stock. Payment of future cash dividends will be determined by the
Company's Board of Directors based upon conditions then existing, including the
Company's financial condition, capital requirements, cash flow, profitability,
business outlook and other factors.
ITEM 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction
with the Financial Statements and the notes thereto appearing herein. This
report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in this discussion and analysis and elsewhere in this
report.
The following discussion and analysis relates to the financial
condition and results of operations of the Company for the two years ended
December 31, 1995. The Company has sustained losses for each of the two years
due to the lack of working capital to finance adequate levels of marketing
expenditure. The Company effected a restructuring (See "Description of
Business") in order to be able to improve its liquidity and finance its future
expansion by a subsequent offering of shares of its common stock. Prior and
subsequent to December 31, 1995, the Company raised $1,819,500 from the sale of
its Common Stock in a private placement. Part of the proceeds were paid to the
Company in cash and the balance of proceeds were used to reduce the amount of
certain loans to the Company. The Company is currently seeking to raise up to an
additional $2.475 million in a further private placement of its Common Stock.
12
<PAGE> 13
Management will use the proceeds from the current offering to improve
the financial condition of the Company and provide increased working capital.
Marketing activities will be pursued more aggressively to increase the Company's
customer base. The Company has thus far used independent sales representatives,
sub-contracted telemarketers, and direct mail to solicit customers. The Company
now intends to establish its own in-house telemarketing facility, to launch a
televised marketing program during 1996 to increase its independent sales force,
and to increase its direct mail activity. The Company believes that the proceeds
of the current offering, if successful, together with cash flow generated from
operations, will be sufficient to meet its anticipated working capital needs for
the foreseeable future.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain income
and expense items.
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1995 1994
--------------- --------------
% of % of
Gross Gross
Dollars Revenue Dollars Revenue
------- ------- ------- -------
<S> <C> <C> <C> <C>
Gross revenue $ 8,363,949 100% $ 9,527,497 100.0%
Customer rebates and refunds 377,547 4.5% 444,998 4.7%
----------- ------- ----------- -------
Revenues, net 7,986,402 95.5% 9,082,499 95.3%
Cost of Services 5,862,665 70.1% 6,257,686 65.7%
----------- ------- ----------- -------
Gross Profit 2,123,737 25.4% 2,824,813 29.6%
----------- ------- ----------- -------
Operating Expenses:
Sales and Marketing 519,411 6.2% 1,322,546 13.9%
General and Administrative 2,700,451 32.3% 2,554,503 26.8%
----------- ------- ----------- -------
Total Operating Expenses 3,219,862 38.5% 3,877,049 40.7%
----------- ------- ----------- -------
Loss from Operations (1,096,125) -13.1% (1,052,236) -11.0%
----------- ----- ----------- -----
Other Expenses (Income):
Interest Expense 375,820 4.5% 173,996 1.8%
Interest Income (4,594) -0.1% (5,515) -0.1%
IPO Costs 407,572 4.9% -- --
----------- ------- ----------- -------
Total Other Expenses 778,798 9.3% 168,481 1.8%
----------- ------- ----------- -------
Net Loss $(1,874,923) -22.4% $(1,220,717) -12.8%
=========== ===== =========== =====
</TABLE>
TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1994
Gross revenues for the twelve months ended December 31, 1995 were
$8,363,949 as compared to $9,527,497 for the twelve months ended December 31,
1994. The decrease of 12% is attributable partially to the Company's inability
to finance adequate levels of marketing expenditure to offset customer attrition
and partially to the inability of
13
<PAGE> 14
MCI to provide service under its contract with the Company during 1995. In
addition, in October 1995, the Company lost its largest customer, L.C. Wegard &
Company, which had generated gross revenue of approximately $150,000 per month,
as a result of such customer's bankruptcy.
During the second half of 1996, the Company anticipates taking steps to
increase its customer base and, consequently, its revenues and market share as
follows:
Management plans to resume the active pursuit of new customers in 1996
upon receipt of the proceeds of its current private placement, if successful,
and thus increase its revenues. The Company intends to increase expenditures on
sub-contracted telemarketing and direct mail activities as well as establish its
own in-house telemarketing facility and launch a televised marketing program to
increase its independent sales force.
In the first quarter of 1996, Congress passed legislation allowing the
entry of long-distance carriers into the local market and local carriers into
the long distance market to foster greater competition within the telephone
industry. While this may lead to increased competition for the Company in the
long distance market from local carriers, management plans to enter into the
local market in order to increase its overall market share.
The Company will also enter the residential market in 1996. The Company
has signed an agreement which allows the "LECs" (Local Exchange Carriers) to
bill and collect on behalf of the Company. Previously, the Company had sold
exclusively to commercial customers.
Management believes that the Company's systems are capable of
supporting the anticipated growth in the Company's revenues. The systems were
further upgraded in 1995 to provide quicker response times for the customer
service and collections functions.
Gross profit was $2,123,737 and $2,824,813 for the twelve months ended
December, 1995 and 1994, respectively. The gross profit margins for the twelve
months ended December 31, 1995 and 1994 were 25.4% and 29.6%, respectively. The
dollar and percentage decreases are partially attributable to the decrease in
revenues explained above and partially to difficulties experienced in obtaining
fully accurate call record information from AT&T to rebill its customers.
For the period September 1994 through August, 1995, the Company
operated under an individually negotiated contract tariff with AT&T for outbound
long distance service.This contract had a three year term and required the
purchase of $1,200,000 per quarter of SDN(Software Defined Network) and
DNS(Distributed Network Service) usage. The Company received volume discounts
based on its level of usage. The new contract signed on September 1, 1995 -
which supersedes all previous contracts with AT & T - encompasses both outbound
and inbound service and is set at a fixed term of four years with a one-year
extension. The Company continues to have a minimum SDN and DNS purchase
requirement of $1,200,000 per quarter for 16 quarters or 20 quarters if the
Company extends its contract .
The Company has advised AT&T that it may have been significantly
over-billed by AT&T since September, 1992. At this time, however, no estimate
can be made as to the time or the amount, if any, of any recovery by the
Company. Accordingly, no provision for recovery has been reflected in the
Company's financial statements.
On March 1, 1996 the Company signed an individually negotiated
agreement with MCI under which the Company is authorized to resell various MCI
services, including outbound long-distance and local long distance, inbound
long-distance, calling cards, debit cards, teleconferencing and MCI enhanced
services. The agreement is subject to a twelve month ramp period followed by a
thirty month service period and supersedes a prior agreement signed August 1995
under which MCI was unable to provide service as a result of software problems
between MCI and the LECs.
14
<PAGE> 15
During the first five months of the ramp period, the Company has no
minimum purchase obligations. During the sixth, seventh, and eighth months, the
Company is obliged to purchase $250,000 of services per month, during the ninth
and tenth month $500,000 per month, during the eleventh and twelfth month
$750,000 per month, and during the thirty month service period $1,000,000 per
month. In the event that the Company fails to meet its minimum purchase
requirements, it must pay MCI 15% of the difference between the amount used and
the respective minimum monthly requirement.
The agreement is subject to increases and decreases in the rate of
discount offered to the Company, depending on the proportion of "new business"
(currently non-MCI business) in the Company's total usage. During the first six
months of the agreement either the Company or MCI may terminate the agreement at
will, with no penalty. In the event that no notice of termination is received
within six months, the agreement is to run for the full forty-two (42) month
term.
In consideration of its inability to provide service under the August,
1995 contract prior to December 31, 1995, MCI agreed to compensate the Company
in the form of a service credit in an amount not to exceed $1,000,000, to be
applied against its initial usage under the 1996 contract. No provision for this
credit has been included in the Company's financial statements.
Sales and marketing expenses were $519,411 and $1,322,546 for the
twelve months ended December 31, 1995 and 1994 respectively. As a percentage of
gross sales, sales and marketing expenses fell from 13.9 % for the twelve months
ended December 31, 1994 to 6.2 % for the twelve months ended December 31, 1995.
Both the dollar and percentage decrease are attributable to cash constraints
experienced by the Company during the year. The expenditure for the year ended
1994 also included a non-recurring charge of $176,000 in respect of the writeoff
of an amount receivable from an outside telemarketing agency that was unable to
meet its obligations to the Company. Also contributing to the reduction in sales
and marketing expense is the increased efficiency of the Company's management in
controlling new account acquisition costs and monitoring the performance of
accounts acquired through outbound telemarketing firms. Management plans to
resume its acquisition of accounts upon receipt of funding from its current
private placement, if successful. The Company also intends to establish its own
in-house telemarketing facility, to launch a televised marketing program during
1996 to increase its independent sales force and to increase its direct mail
activity.
General and administrative expenses were $2,700,451 and $2,554,503 for
the twelve months ended December 31, 1995, and 1994 respectively. As a
percentage of gross sales, general and administrative expenses for the twelve
months ended December 31, 1995 and 1994 were 32.3 % and 26.8% respectively. The
principal elements which contributed to the increase in general and
administrative expenses were costs relating to attempts during the year to raise
capital for the Company and increased costs relating to the maintenance and
upgrading of the Company's internal systems in anticipation of increased levels
of sales activity.
For the period ending December 31, 1995, costs of $407,572 were written
off in connection with an initial public offering which had been planned for the
beginning of 1995 but which did not take place. These amounts had been largely
incurred during 1994 but not expensed during that year.
Interest expense for the twelve months ended December 31, 1995 and 1994
relates to accrued interest on indebtedness of the Company in connection with a
note incurred in connection with the purchase of the partnership interest of two
of the original limited partners in LDDLP, and various financing agreements
entered into in 1994 to finance the Company's working capital requirements.
The Company incurred a net loss of $1,874,923 for the year ended
December 1995 compared to a net loss of $1,220,717 for the year ended December
1994.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had negative working capital of
$3,485,246 compared to negative working capital of $2,180,641 at December 31,
1994. The Company experienced cash constraints throughout 1995 as a result of
the abandonment of its plans to effect an initial public offering. The Company
has not experienced the growth in revenues and profits that it had anticipated
at the beginning of 1995. Due to cash constraints, management has been unable to
undertake an active pursuit of new accounts from outbound telemarketing firms or
from direct mail, as a result of which revenues progressively declined through
customer attrition.
In fiscal 1996, the Company expects to meet its working capital needs
through cash flows from operations and proceeds from the private placement of
its securities. If management successfully concludes its current private
placement, it plans to use a portion of the proceeds of such offering to
increase its customer base, hire sales, training and support personnel, and
expand its office facilities and promotional expenditures. In addition, the
Company plans to more effectively manage its acquisition of accounts by using
other sources in addition to outbound telemarketing including an in-house
telemarketing department and direct mail. Management believes that if it is able
to increase its revenues as planned, this will generate additional liquidity for
the Company and management further plans to make additional private offerings of
its stock to increase its capital resources although there can be no assurance
that it will be successful in doing so. The Company currently has no material
commitments for capital expenditures.
16
<PAGE> 17
ITEM 7. Financial Statements and Supplementary Data.
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AND
ACCOMPANYING INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1995
F-1
<PAGE> 18
C O N T E N T S
Page
----
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET 2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF STOCKHOLDERS' DEFICIT 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-15
F-2
<PAGE> 19
[Adelman, Katz, and Mond, LLP Letterhead]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Long Distance Direct Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Long Distance
Direct Holdings, Inc. as of December 31, 1995, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
ended December 31, 1995 and 1994. 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 audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Long
Distance Direct Holdings, Inc. as of December 31, 1995, and the consolidated
result of its operations and its cash flows for the years ended December 31,
1995 and 1994, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has incurred a significant loss
from operations and has a deficit that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Adelman, Katz & Mond, LLP
New York, N.Y.
May 31, 1996
F-3
<PAGE> 20
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash $ 207,666
Accounts receivable (net of allowance for
doubtful accounts of $163,149) 1,103,903
Other current assets 93,229
-----------
Total Current Assets 1,404,798
-----------
PROPERTY AND EQUIPMENT
Furniture and equipment 54,856
Computer equipment and software 196,764
Leasehold improvements 38,720
-----------
290,340
Less: accumulated depreciation 129,203
-----------
161,137
-----------
OTHER ASSETS 61,790
-----------
$ 1,627,725
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable - current (Note 6) $ 1,165,000
Accounts payable 2,370,081
Accrued expenses 577,576
Sales and excise taxes payable (Note 5) 703,143
Loans payable - officers (Note 11) 74,244
-----------
Total Current Liabilities 4,890,044
-----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 5) --
STOCKHOLDERS' DEFICIT
Common stock - par value $.001 per share;
authorized 30,000,000 shares; issued
and outstanding 3,797,835 shares 3,798
Additional paid in capital 1,429,434
Accumulated deficit (4,665,551)
-----------
(3,232,319)
Less: Subscriptions receivable (30,000)
-----------
Total Stockholders' Deficit (3,262,319)
-----------
$ 1,627,725
===========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 21
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
REVENUES $ 8,363,949 $ 9,527,497
CUSTOMER REBATES AND REFUNDS 377,547 444,998
----------- -----------
NET REVENUES 7,986,402 9,082,499
COST OF SERVICES 5,862,665 6,257,686
----------- -----------
Gross Profit 2,123,737 2,824,813
----------- -----------
OPERATING EXPENSES
Sales and marketing 519,411 1,322,546
General and administrative 2,700,451 2,554,503
----------- -----------
Total Operating Expenses 3,219,862 3,877,049
----------- -----------
LOSS FROM OPERATIONS (1,096,125) (1,052,236)
----------- -----------
OTHER EXPENSES (INCOME)
Interest expense 375,820 173,996
Interest income (4,594) (5,515)
Initial public offering costs 407,572 -0-
----------- -----------
Total Other Expenses (Income) 778,798 168,481
----------- -----------
NET LOSS ($1,874,923) ($1,220,717)
=========== ===========
NET LOSS PER SHARE (.55) (.36)
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 22
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Common Stock Additional Paid Accumulated
Shares Amount in Capital Deficit
----------- ----------- --------------- ------------
<S> <C> <C> <C> <C>
Balance - December 31, 1993 3,400,000 $ 3,400 $ 611,728 ($1,569,911)
Net loss - December 31, 1994 -- -- -- (1,220,717)
----------- ----------- ----------- -----------
Balance - December 31, 1994 3,400,000 3,400 611,728 (2,790,628)
Accrual of expenses, payable in stock,
in connection with reverse acquisition -- -- (69,000) --
Par value assigned to shares of common
stock issued in private placement, net
of expenses of $306,397 397,835 398 886,706 --
Net loss - December 31, 1995 -- -- -- (1,874,923)
----------- ----------- ----------- -----------
Balance - December 31, 1995 3,797,835 $ 3,798 $ 1,429,434 ($4,665,551)
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 23
LONG DISTANCE DIRECT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($1,874,923) ($1,220,717)
----------- -----------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 54,580 45,905
Amortization of note discount 116,000 52,000
Imputed interest on personal guarantee -0- 2,000
Financing expenses 49,793 -0-
Provision for doubtful accounts 310,953 325,634
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 539,720 (1,388,937)
(Increase) decrease in other current assets 252,718 (282,718)
(Increase) decrease increase in other assets 260,827 (302,013)
Increase in accounts payable 223,398 1,174,456
Increase (decrease) in accrued expenses (74,946) 304,874
Increase (decrease) in sales and excise taxes payable (40,530) 282,030
----------- -----------
Total Adjustments to Net Loss 1,692,513 213,231
----------- -----------
Net Cash Used in Operating Activities (182,410) (1,007,486)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (38,907) (72,284)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payment) of notes payable (155,000) 935,298
Proceeds (payment) of related party loans (112,076) 106,602
Proceeds from private placement 776,209 -0-
Payment of private placement costs (132,165) -0-
----------- -----------
Net Cash Provided by Financing Activities 376,968 1,041,900
----------- -----------
NET INCREASE (DECREASE) IN CASH 155,651 (37,870)
CASH - Beginning of year 52,015 89,885
----------- -----------
CASH - End of year $ 207,666 $ 52,015
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 24
LONG DISTANCE DIRECT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND BUSINESS
The consolidated financial statements consist of the accounts of Long
Distance Direct Holdings, Inc. ("LDDH") and its wholly owned subsidiary,
Long Distance Direct, Inc. ("LDDI"), referred to collectively as the
("Company"). All significant intercompany balances and transactions have
been eliminated in consolidation.
LDDH, which was formerly known as Golden Ark, Inc. was inactive until
October 6, 1995, when it acquired all of the outstanding stock of LDDI in
exchange for 3,000,000 shares of LDDH and LDDI became a wholly owned
subsidiary of LDDH. LDDI is a New York corporation which was formed in
1991 for the purpose of acting as the general partner of Long Distance
Direct L.P. ("LDDLP"), a New York limited partnership formed at the same
time for the purpose of carrying on the business of a non-facilities based
re-seller of long-distance telephone services. On October 5, 1995, LDDI
acquired all of the partnership interests of LDDLP in exchange for
3,218,821 shares of common stock of LDDI. This transaction was accounted
for as a change in form of organization. Prior to its acquisition of LDDI,
Golden Ark, Inc. effected a 1 for 1.4700477 forward split of its common
stock. After its acquisition of LDDI, Golden Ark, Inc. changed its name to
Long Distance Direct Holdings, Inc.
For accounting purposes, the acquisition of the common stock of LDDI has
been treated as a recapitalization of LDDI with LDDI as the acquirer
(reverse acquisition). Stockholders' equity and earnings per share data
has been restated to give retroactive recognition to the recapitalization.
The consolidated financial statements include the combined activities of
LDDI and LDDLP for the year ended December 31, 1994 and for the period
from January 1, 1995 through October 6, 1995, therefore no pro-forma data
has been presented.
The Company is a non-facilities based re-seller of outbound and inbound
long-distance telephone, tele-conferencing, cellular long-distance and
calling card services to small and medium sized commercial customers. All
of the services sold by the Company during the year were provided by AT&T.
Although the Company had contracted with MCI in August, 1995 to purchase
telephone service for resale, MCI was unable to provide service prior to
December 31, 1995. The Company signs up customers and provisions them onto
the network of AT&T, which provides the actual transmission of service.
The Company does not own or lease any telephone equipment or participate
in the call completion process.
F-8
<PAGE> 25
LONG DISTANCE DIRECT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenues, Collections and Cost Recognition
Revenues are recognized from long-distance service usage by the Company's
customers. During the year, the Company operated under a billing service
agreement with an affiliate of AT&T. Under the agreement, AT&T's affiliate
provided billing services on behalf of the Company. Since December 31,
1995 the Company has contracted with another billing company to provide
billing services. The Company's customers make payments directly to the
Company through a lock-box account. This lock-box account is controlled by
the Company and maintained at a financial institution acceptable to AT&T.
Costs are recognized based on monthly network usage billings received from
AT&T.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets, liabilities, income
and expenses and disclosures of contingencies. Future events could alter
such estimates in the near term.
Property and Equipment
Property and equipment are stated at cost. Depreciation of furniture and
computer equipment is provided using the straight-line method for
financial reporting purposes based on their estimated useful lives.
Depreciation of leasehold improvements is provided using the straight-line
method for financial reporting purposes based on their estimated useful
lives or the life of the lease, whichever is shorter.
Initial Public Offering Costs
The Company incurred costs of approximately $407,000 in connection with an
initial public offering which was not successfully completed in 1995. As a
result, all such costs were charged to expense in 1995.
Private Placement Issuance Costs
The Company incurred costs of approximately $306,000 in connection with a
private placement of its own common stock. The Company received
subscriptions in excess of the minimum shares required in the offering and
the offering became effective. As a result, the costs incurred
F-9
<PAGE> 26
have been deducted from the proceeds received in the offering by a charge
to additional paid in capital.
F-10
<PAGE> 27
LONG DISTANCE DIRECT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred Telemarketing Costs
Telemarketing fees paid when a customer order is submitted to the Company
are deferred. These costs are amortized on a straight-line basis over six
months beginning in the month that customer revenue is generated.
Deferred Network Credit
The Company received a cash payment in 1994 as a non-refundable sign-on
bonus for the AT&T service agreement. The amount of the payment was
amortized on a straight-line basis over the life of the agreement.
Weighted Average of Common Shares
Earnings per share are based on the weighted average number of shares
outstanding (3,416,577 in 1995 and 3,400,000 in 1994). The assumed
exercise of stock options is anti-dilutive and therefore is not considered
a common stock equivalent.
AT&T Usage Credits
The Company receives credits from its supplier, AT&T, based upon volume
usage to date. Amounts are recorded in the period in which the Company has
earned the credits.
3. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company has sustained
losses since inception and as a result has experienced deficiencies in
cash flows from operations and has a stockholders' deficit of $3,262,319
at December 31, 1995.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Company
be unable to continue in existence.
F-11
<PAGE> 28
Management is taking the following steps to revise its operating results
and financial position, which it believes will be sufficient to provide
the Company with the ability to continue in existence:
- Improved rates from new AT&T agreement.
- Contract with MCI allowing residential as well as commercial
resale.
- Increased sales volume through telemarketing efforts.
- Closing of a private placement in February, 1996 and planned
completion of another private placement in the Spring of 1996.
4. PRIVATE PLACEMENT
In December, 1995, the Company completed a private placement of 397,835
shares of common stock at a price of $3.00 per share. The Company issued
273,043 shares for cash (net of certain expenses) of $806,211 and 124,792
shares for conversion of certain debt, related interest and expenses in
the amount of $374,376. The proceeds of the offering were utilized for
expansion of marketing activities, working capital and general corporate
purposes. The offering closed in February, 1996.
In April, 1996, the Company commenced a private placement for shares of
its common stock. The offering called for a minimum of 100,000 shares and
a maximum of 750,000 shares to be issued at a price of $3.30 per share.
5. COMMITMENTS AND CONTINGENT LIABILITIES
Contract Tariffs with AT&T-Minimum Commitments
Effective September 1, 1995, the Company entered into an individually
negotiated contract for a fixed term of four years with a one year
extension at the Company's option. The agreement is not renewable upon
termination of the five year term. Under the agreement, the Company will
be able to resell both inbound and outbound long-distance service. The
agreement calls for minimum purchase commitments of $2,400,000 on a
semi-annual basis and $4,800,000 on an annual basis. The agreement also
requires minimum purchases with respect to new business usage of $240,000
on a semi-annual basis and $480,000 on an annual basis. Failure to meet
the minimum purchase requirements will result in payment of any shortfall
by the Company.
As a result of information arising from the change of billing company
after December 31, 1995, the Company has notified AT&T that it may have
been significantly over-billed by AT&T since September, 1992. At this
time, however, no estimate can be made as to the time or the amount, if
any, of any recovery by the Company. Accordingly, no provision for
recovery has been reflected in the accompanying financial statements.
Carrier Agreement with MCI-Minimum Commitments
Effective August 4, 1995, the Company entered into an individually
negotiated agreement with MCI under which the Company is authorized to
resell various MCI services, including outbound and inbound long-distance
calls. This agreement was superseded by an individually negotiated
F-12
<PAGE> 29
contract which was signed in 1996. The new agreement is for a forty-two
(42) month term and is cancelable without liability by either party during
the first six (6) months of the agreement. The agreement is subject to a
twelve (12) month ramp period followed by a thirty (30) month service
period. The usage requirements escalate from no minimum usage during the
first five (5) months to $750,000 in the twelfth month. The minimum usage
for the service periods is $1,000,000 per month. Failure to meet the
minimum purchase requirements will result in payment by the Company of 15%
of the difference between the actual usage and minimum monthly
requirements.
In consideration of its inability to provide service under the August,
1995 contract prior to December 31, 1995, MCI agreed to compensate the
Company in the form of a service credit in an amount not to exceed
$1,000,000, to be applied against its initial usage under the 1996
contract. These financial statements do not include a provision for this
credit.
Joint Venture Agreement
In May, 1996, the Company entered into a joint venture agreement with a
leading television production company to launch a marketing program based
on broadcast media. Under this agreement, the Company is obligated to
expend approximately $400,000 during 1996 in respect to production and
origination costs, with all media expenditures being borne by its joint
venture partner.
Installment Obligation - New York State Taxes
The State of New York Department of Taxation & Finance has filed two
separate warrants against the Company evidencing judgment liens for
uncontested tax liabilities. The Company has negotiated a payment plan
with the State of New York. The Company is making the required payments
under the plan and the warrants will be released when all required
payments have been made.
Installment Obligation - Federal Excise Taxes
During 1993, 1994 and the first quarter of 1995, the Company did not remit
payments for Federal excise taxes which were due to the Internal Revenue
Service. The Company has entered into an installment agreement with the
Internal Revenue Service for the payment of such taxes. The agreement
requires monthly payments of $34,000 until the total liability, including
taxes and interest has been satisfied. Penalties were waived by the
Internal Revenue Service. The Internal Revenue Service has filed a tax
lien in connection with this obligation, which will be released upon the
satisfaction of all amounts due under the agreement.
F-13
<PAGE> 30
LONG DISTANCE DIRECT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995
5. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
Leases
The Company conducts its operations in leased facilities under a
noncancellable operating lease expiring in 1998. The Company also leases
automobiles and equipment under noncancellable operating leases expiring
in 1999. The minimum rental commitments under operating leases are as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996 $230,113
1997 214,262
1998 62,949
1999 3,706
--------
Total Minimum Payments Required $511,030
========
</TABLE>
Legal Proceedings - Partnership Buy-Out
In February 1996, LDDI, together with certain shareholders, commenced suit
in New York State Supreme Court against two former partners of LDDLP,
alleging duress and coercion in relation to the Buy-out Agreement (Note
6), seeking compensatory damages in excess of $400,000 and the payment of
ten (10) million dollars in punitive damages. Following the commencement
of the suit, the defendants issued a Notice of Default under the
Agreement, filed a motion to dismiss LDDI's suit and commenced a separate
suit, together with a motion to accelerate the amounts due under the
Agreement and to immediately exercise their security interest in respect
thereof. LDDI is contesting both the Notice of Acceleration and the motion
to exercise the security interests and has filed a cross-motion in its
suit asking the court to disqualify the defendants' attorneys.
LDDI believes that it has a meritorious claim, both in respect of its
original suit and in respect of its motion to disqualify the defendants'
attorneys, as well as in respect of its opposition to the Notice of
Acceleration. In any event, LDDI believes that it has recorded an adequate
provision in its books of account for any liability that may result from
this litigation.
F-14
<PAGE> 31
LONG DISTANCE DIRECT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
Note payable to Bank of New York (a) $ 500,000
Notes payable to two former partners, issued in
connection with Partnership buy-out (b) 555,000
Note payable, bearing interest at 20%, payable
in six (6) equal monthly installments (c) 110,000
----------
$1,165,000
==========
</TABLE>
(a) Note Payable - Bank
On October 28, 1994, the Company borrowed $500,000 from the Bank of
New York, pursuant to a General Loan Security Agreement, with
interest payable monthly at a rate equal to the prime rate plus
one-half (1/2) percent. Principal is due and payable on July 31,
1996. The loan is secured by a $500,000 certificate of deposit which
was issued by the bank to a shareholder of the Company. The
shareholder has entered into an agreement with the Company under
which it agreed to subscribe to 166,667 shares of the Company's
common stock at $3.00 per share on July 31, 1996 or upon repayment
by the Company of the bank note, if earlier. The loan is personally
guaranteed by two officers of the Company.
(b) Notes Payable - Partnership Buy-Out Agreement
On April 6, 1993, certain officers and LDDI, (the "buyers") entered
into a buy-out agreement to purchase the interests of two (2)
partners in LDDLP (the "sellers"). The agreement provides for the
following:
- Note payable to the sellers for their capital and loan
account balances in the aggregate amount of $80,000. These
notes were due in full on May 31, 1995.
F-15
<PAGE> 32
LONG DISTANCE DIRECT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995
6. NOTES PAYABLE (continued)
(b) Notes Payable - Partnership Buy-Out Agreement (continued)
- Note payable in the amount of $500,000, payable as follows:
$300 to each of the sellers weekly; remaining amounts
outstanding are due upon the occurrence, if any, of the
following events: (a) the sale directly or indirectly by the
buyers of all or a majority of their interests, or (b) the
sale directly or indirectly of all or substantially all of the
assets, to the extent that the proceeds from the sale exceed
$2,000,000 or (c) payments or distributions in any month, as
salary or bonuses to the buyers exceeding $18,750 in the
aggregate. The agreement also calls for payments in the event
that earnings exceed specified levels. After payment of the
notes, the contingent event payments are limited to $750,000
and are reduced by the salary and earnings cap payments
described above.
The notes were non-interest bearing until the second anniversary of
the agreement, at which time, if they were not paid in full,
interest will be charged retroactively to April 6, 1993, at prime
plus 2% per annum.
During 1995, the Company did not make certain required payments
under the agreement. In March, 1996, the Company received a notice
of default with respect to amounts due under the agreement. Pursuant
to the terms of the agreement, all amounts due under the notes are
accelerated upon such default. In addition, any amounts previously
paid against the principal of $500,000 are applied as a reduction in
accrued interest. As a result, $555,000 has been included in the
current portion of notes payable as of December 31, 1995. The Notes
are secured by a Lien on and Security interest in the accounts
receivable and other assets of each Entity in accordance with the
terms of a Security Agreement dated the Closing Date by and among
the Sellers, JAMI and each Entity.
The agreement is the subject of a suit filed by the buyers and LDDI,
as more fully described in Note 5.
(c) Note Payable - Other
Pursuant to a loan made on December 6, 1994, the Company borrowed an
aggregate principal amount of $200,000 from one lender. The note is
evidenced by a promissory note, is payable in six (6) equal monthly
installments starting April 6, 1995, and bears interest at a rate of
20% per annum. The notes are personally guaranteed by certain
officers of the Company. Prior to December 31, 1995 the lender
converted $90,000 of principal into shares of the Company's common
stock at a price of $3.00 per share.
F-16
<PAGE> 33
LONG DISTANCE DIRECT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995
7. STOCK OPTION PLAN
During 1995, the Company adopted the 1995 Stock Option Plan (the "Stock
Option Plan"), pursuant to which key employees of the Company who have
been selected as participants are eligible to receive awards of options to
purchase common shares.
The Stock Option Plan will be administered by the Compensation Committee
of the Board (the "Committee"). Subject to the provisions of the Stock
Option Plan, the Committee has sole discretionary authority to interpret
the Stock Option Plan and to determine the type of awards to grant, when,
if and to whom awards are granted, the number of shares covered by each
award and the terms and conditions of the award.
Options granted under the Stock Option Plan may be Incentive Stock Options
("ISOs"), within the meaning of Section 422 of the U.S. Internal Revenue
Code, as amended (the "Code"), or non-qualified stock options ("NQSOs").
The exercise price of the options will be determined by the Committee when
the options are granted, subject to a minimum price in the case of ISOs of
the fair market value (as defined in the Stock Option Plan) of the common
shares on the date of grant and a minimum price in the case of NQSOs of
the par value of the common shares. In the discretion of the Committee,
the option exercise price may be paid in cash or in common shares or other
property having fair market value on the date of exercise equal to the
option exercise price, or by delivering to the Company an amount of sale
or loan proceeds sufficient to pay the exercise price.
In October, 1995, the Company granted 1,000,000 options to purchase
1,000,000 shares of the Company's common stock at a price of $.001 per
share. No options were exercised during 1995. There was no quoted market
price for the Company's stock on the date of the grant of the options.
Therefore, no compensation expense has been charged to operations in 1995.
8. INCOME TAXES
For the period from January 1, 1994 through October 5, 1995, LDDLP
operated as a limited partnership for Federal and State income tax
purposes. Accordingly, all of the partners were required to report their
share of the Company's loss on their respective Federal and State income
tax returns.
At December 31, 1995, the Company had net operating loss carry-forwards
for financial and U.S. Federal income tax purposes of approximately
$200,000, which are available to offset future taxable income and begin to
expire in the year 2007.
F-17
<PAGE> 34
LONG DISTANCE DIRECT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995
Deferred taxes have not been recorded as the temporary differences, which
consist primarily of differences related to the method of recognizing bad
debts and depreciation, are not considered material by management.
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Cash paid during the year for interest $ 55,151 $98,396
Private placement costs accrued 174,232 -0-
Conversion of debt to equity 337,500 -0-
</TABLE>
10. MAJOR CUSTOMER
The Company had a sales agreement with their one major customer during the
year. Sales to this customer accounted for approximately 11% and 14% of
net sales for the years ended December 31, 1994 and 1995, respectively. At
the pricing applicable to such sales, the amount of revenues generated by
this customer approximated the cost of services provided to it. The
customer discontinued the use of the Company's services in October, 1995.
11. LOANS PAYABLE - OFFICERS
Amounts due to officers are non-interest bearing and are due and payable
upon demand.
12. SEC FILINGS
The Company, which is required to file periodic reports with the SEC
pursuant to Section 15(d) of the Securities Exchange Act of 1934, has not
timely filed its annual report for the fiscal year ended December 31,
1995. The Company expects to file this report in June, 1996.
Until such time as this filing is made, the Company and its shareholders
will be subject to certain restrictions as to the offering or sale of the
Company's shares.
F-18
<PAGE> 35
PART III
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
A change in accountants was previously reported in a report on Form
8-K, as amended, dated April 30, 1996 and in a report on Form 8-K dated May 10,
1996, filed by the Company.
ITEM 9. Directors, Executive Officers, Promoters and Control Persons.
The table below sets forth the names, ages and titles of the persons
who are the directors and executive officers of the Company, all of whom have
held office since October 6, 1995, the date of the acquisition of the Company by
LDDI
<TABLE>
<CAPTION>
Name Age Position
- ------------------ --- --------------------------------------------
<S> <C> <C>
Steven L. Lampert 46 President, Chief Executive Officer and Chairman of the Board
Michael D. Preston 50 Chief Financial Officer, Secretary and Director
Clair Alpert 53 Vice President - Administration
Lori Colin 37 Controller
Andrea Grossman 32 Vice President - Marketing
</TABLE>
Mr. Lampert is a founder of LDDI and has been the Chief Executive
Officer since January 1994. He has served as President of LDDI since it
commenced operations in December 1991. Prior to founding LDDI, Mr. Lampert
served as President of Comtec, Inc., a New York-based telecommunications
corporation, from November 1985 through November 1991. Mr. Lampert has served as
a director of LDDI since December 1991.
Mr. Preston is a founder of LDDI and has been the Vice President -
Finance and Chief Financial Officer of LDDI since January 1994. Prior to this
period, Mr. Preston was retained as a consultant to LDDI commencing in December
1991. Mr. Preston has served as a director of LDDI since December 1991, and
served as a director of the following other companies, with the date of such
service in parentheses: Sterling Publishing Group PLC, a publicly-held UK
business publishing company (1977 to September, 1995; and served as Deputy
Chairman from 1990 to September 1994); Broad Street Group PLC, a publicly-held
UK public relations and marketing services firm (June 1977 to March 1991); Frank
Usher Holdings PLC, a publicly-held UK clothing manufacturer (1989 to 1990);
Cadiz Land Corporation (1983 to 1987).
Clair Alpert has been the Vice President - Administration of LDDI since
October 1993. Ms. Alpert served as Controller of LDDI from April 1992 to October
1993. Prior to joining LDDI, Ms. Alpert served as the Director of Administration
and Accounting for Gross & Alpert, C.P.A., a New York-based accounting firm,
from January 1987 to March 1992.
Lori Colin has been the Controller of LDDI since October 1993. Prior to
joining LDDI, Ms. Colin was a Senior Accountant at Chase Manhattan Leasing Co.
from 1991 to 1993, and prior to that was an Assistant Manager - Accounting at
Concord Leasing in Connecticut from 1985 to 1990.
Andrea Grossman has been the Vice-President Marketing of LDDI since May
1993. Ms. Grossman served as the Director of Marketing of LDDI from October 1992
to May 1993. Prior to joining LDDI, Ms. Grossman was the Database Marketing
Director of JAMI Marketing Services, Inc., a New York-based direct marketing
firm, from October 1990 to October 1992. From June 1990 to October 1990, Ms.
Grossman was a Consultant with The Rostmark Group, a marketing consultancy in
New Jersey, and from January 1987 to June 1990, she was the General Manager of
Webvelope Corp., a New York printing company.
17
<PAGE> 36
ITEM 10. Executive Compensation.
The following table sets forth certain summary information regarding
compensation paid by the Company for services rendered during the fiscal years
ended December 31, 1993, 1994 and 1995, respectively, to the Company's Chief
Executive Officer and Chief Financial Officer during such period. No other
executive officer of the Company holding office in fiscal 1995 received total
annual salary and bonus exceeding $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------
ANNUAL COMPENSATION SECURITIES
NAME AND YEAR ------------------------------------------------ UNDERLYING
PRINCIPAL ENDING OTHER ANNUAL OPTIONS/
POSITION DECEMBER 31, SALARY BONUS COMPENSATION SARS (#)
--------- ------------ ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
1993 $125,000 -- $ 9,769(1) 0
Steven Lampert, 1994 $250,000 -- $ 7,911(1) 0
President 1995 $150,000 -- $10,689(1) 250,000(2)
1993 $100,000 -- $ 2,581(1) 0
Michael Preston, 1994 $100,000 -- $ 5,196(1) 0
Chief Financial Officer 1995 $125,000 -- $ 7,122(1) 250,000(3)
</TABLE>
- -----------------
(1) Includes an allowance for automobile expenses.
(2) Options to purchase 250,000 shares at a price of $.001 per share were
granted to Mr. Lampert under the Company's 1995 Stock Option Plan.
(3) Options to purchase 250,000 shares at a price of $.001 per share were
granted to Mr. Preston under the Company's 1995 Stock Option Plan.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1995
INDIVIDUAL GRANTS
----------------------------------------------------
PERCENT OF
TOTAL OPTIONS EXERCISE
NUMBER OF GRANTED TO OR BASE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN 1995 ($/SH.) DATE
---- --------- ------------- ------- ----------
<S> <C> <C> <C> <C>
Steven Lampert 250,000 25% $.001 10/11/2000
Michael Preston 250,000 25% $.001 10/11/2000
</TABLE>
- -----------------
No executive officer named in the Summary Compensation Table above
exercised stock options during the fiscal year ended December 31, 1995.
18
<PAGE> 37
The following table sets forth for each person the fiscal year-end value of
unexercised options:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN
FISCAL YEAR ENDED DECEMBER 31, 1995 AND OPTION VALUES
VALUE OF
UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT 12/31/95 AT 12/31/95(1)
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Steven Lampert 0 -- 250,000 0 $1,625,000 0
Michael Preston 0 -- 250,000 0 $1,625,000 0
</TABLE>
- ------------------
(1) The value of the Company's Common Stock for purposes of the calculation was
based upon the average of the bid and asked prices for the Common Stock on May
31, 1996 as reported by the OTC Bulletin Board, minus the exercise price.
Stock Option Plan
In 1995, the Company adopted, and the Company's stockholders at that
time approved, the 1995 Stock Option Plan ("Plan") initially providing for the
grant by the Company of options to purchase 1,000,000 shares of the Company's
Common Stock. On May 31, 1996, options to purchase 1,000,000 shares were
outstanding at an average exercise price of $.001 per share, and no options had
been exercised.
The Stock Option Plan will be administered by the Compensation
Committee of the Board (the "Committee"). Subject to the provisions of the Stock
Option Plan, the Committee will have sole discretionary authority to interpret
the Stock Option Plan and to determine the type of awards to grant, when, if and
to whom awards are granted, the number of shares covered by each award and the
terms and conditions of the award.
Options granted under the Stock Option Plan may be "incentive stock
options" ("ISOs"), within the meaning of Section 422 of the U.S. Internal
Revenue Code, as amended (the "Code"), or non-qualified stock options ("NQSOs").
The exercise price of the options will be determined by the Committee when the
options are granted, subject to a minimum price in the case of ISOs equal to the
Fair Market Value (as defined in the Stock Option Plan) of the Common Shares on
the date of grant and a minimum price in the case of NQSOs of the par value of
the Common Shares. In the discretion of the Committee, the option exercise price
may be paid in cash or in Common Shares or other property having Fair Market
Value on the date of exercise equal to the option exercise price, or by
delivering to the Company an amount of sale or loan proceeds sufficient to pay
the exercise price.
Director Compensation
Directors who are officers or employees of the Company receive no
additional compensation for service as members of the Board of Directors or
committees thereof. Directors who are not officers or employees of the Company
will receive such compensation for their services as the Board of Directors may
from time to time determine. It is anticipated that non-employee directors will
receive a fee of $500 per meeting plus expenses of attending the meeting.
19
<PAGE> 38
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of May 31, 1996 by (i) each person
known by the Company to be the beneficial owner of more than five percent of the
Common Stock, (ii) each director of the Company, and (iii) all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED
------------------- ------------------
<S> <C>
Steven L. Lampert....................... 1,337,065(1)
8 Lady Godiva Way
New City, N.Y. 10956
Michael D. Preston...................... 1,337,065(2)
8 Oak Hill Park Mews
London NW3 7LH
England
Business Systems Consultants Limited ... 678,548
31-33 Le Pollet
St. Peter Port
Gurnsey GYI 4J6
Channel Islands
All directors and officers ............. 2,809,130(3)
as a group (5 persons)
</TABLE>
- ----------
(1) Includes 250,000 shares issuable upon the exercise of outstanding options.
(2) Includes 250,000 shares issuable upon the exercise of outstanding options.
(3) Includes 500,000 shares issuable upon the exercise of outstanding options
held by Messrs. Lampert and Preston and 135,000 shares issuable upon the
exercise of options held by other executive officers.
ITEM 12. Certain Relationships and Related Transactions.
PARTNERSHIP TRANSACTION
Pursuant to the Restructuring, on October 5, 1995, LDDI issued 3,218,821
shares of Common Stock to the limited partners of LDDLP in exchange for their
respective partnership interests in LDDLP in a transaction exempt from the
registration requirements of the Securities Act. No other consideration was paid
to or by LDDI in connection with the exchange. LDDLP merged with and into LDDI
and LDDI succeeded to the business formerly conducted by LDDLP. On October 6,
1995 LDD Holdings acquired all of the outstanding shares of Common Stock of LDDI
in exchange for 3,000,000 Shares of the Company's Common Stock.
20
<PAGE> 39
BANK OF NEW YORK LOAN
Pursuant to the terms of a Bridge Loan and Security Agreement (the "Loan
Agreement") dated August 25, 1994 between Wingmead Securities Ltd. ("Wingmead")
and Michael Preston, a Director and Chief Financial Officer of the Company, as
lenders, and LDDLP, Wingmead and Preston each agreed to make one loan to the
Partnership in the original aggregate principal amount of $250,000. The Wingmead
loan (the "Wingmead Loan") was made on August 25, 1994, and the Preston loan
(the "Preston Loan") was made on October 27, 1994. The Wingmead Loan is
evidenced by a secured promissory note (the "Wingmead Note"), and bears interest
at a rate per annum equal to the Prime Rate plus 2.0%. As collateral security
for the payment of such amounts, LDDLP granted to Wingmead a security interest
in all of its assets. In addition, pursuant to the terms of a Guaranty dated
August 25, 1994 between Wingmead and Michael D. Preston, a Director and Chief
Financial Officer of the Company, Preston personally guaranteed the payment,
when due, of all amounts owed under the terms of the Loan Agreement, and as
security for such guaranty, entered into a pledge agreement with Wingmead dated
August 25, 1994 whereby he pledged 466,382 ordinary shares of Sterling
Publishing Group PLC beneficially owned by him and the proceeds of any sale
thereof to secure his obligations under his guaranty. The Preston Loan was
non-interest bearing and was repaid, together with the Wingmead Loan, out of the
proceeds of a loan from The Bank of New York (see following paragraph).
On October 28, 1994, the Company borrowed $500,000 from The Bank of New York
("BONY") pursuant to a General Loan and Security Agreement (the "BONY Note"),
which bears interest at a rate per annum equal to the Prime Rate plus .5%.
Principal and interest on the BONY Note is due on April 12, 1995. The proceeds
from the BONY Note were used to pay in full the principal amount outstanding
under the Wingmead Note and the Preston Loan. There was no cost or other effect
to the Company for such prepayment. The accrued interest on the Wingmead Note
has been paid to date and the Company has issued 22,000 shares of its common
stock to Wingmead.
As collateral security for the payment of the BONY Note, the Company granted
BONY a security interest in a $500,000 certificate of deposit issued by BONY to
Wingmead which had been hypothecated to the Company by Wingmead. In addition,
pursuant to the terms of a Guaranty dated October 28, 1994 between BONY and
Steven Lampert, the Chief Executive Officer and Director of the Company and Mr.
Preston, the Chief Financial Officer and a Director of the Company, each of
Lampert and Preston personally guaranteed the payments, when due, of all amounts
owing by the Company to BONY, which obligation is represented by the BONY Notes.
The repayment date of the BONY Note was extended until September 30, 1995 by
an agreement entered into in April, 1995 on terms substantially identical to
those of the original agreement dated October 28, 1994 and has been subsequently
extended to July 31, 1996. Additionally, BONY has indicated its willingness to
further extend the Note if so requested by the Company and Wingmead, and
Wingmead had indicated its willingness to make that request of BONY if the
Company requests it to do so. In February, 1995 Wingmead entered into an
agreement with the Company under which it agreed to subscribe for 166,667 Shares
of the Company's Common Stock at $3.00 per Share on July 31, 1996 or on the
earlier repayment by the Company of the BONY Notes.
BRIDGE LOANS
Series A Loans. Pursuant to a series of loans made on September 30, 1994,
the Company borrowed an aggregate principal amount of $177,500 from a group of
seven lenders (the "Series A Loans"). Each loan bears interest at a rate per
annum equal to the Prime Rate plus 2%, was due and payable on June 30, 1995, and
was evidenced by a secured promissory note dated as of September 30, 1994.
Pursuant to a Subordination Agreement entered into by and among LDDI, each
holder of the Series A Loans and Wingmead, each of the holders of the Series A
Loans agreed that their right to payment and security interest in the property
of LDDI would be subordinate to all indebtedness owed by LDDI to Wingmead.
The Series A Loan notes provided that any loans outstanding at the time that
the Company concludes an initial public offering or similar transaction may at
the holder's option be converted into shares of the Company's Common Stock at
the Offering price together with a premium of 25% over the face value of the
loan. Loans aggregating $30,000
21
<PAGE> 40
plus accrued interest were repaid during 1995. Holders of the balance of the
Notes, aggregating $147,500, elected to convert the amounts due to them, plus
premium, into shares of the Company's Common Stock at a price of $3.00 per share
prior to December 31, 1995
Second Wingmead Loan. Pursuant to an agreement dated December 6, 1994, the
Company borrowed from Wingmead the sum of $200,000 (the "Second Wingmead Loan")
repayable either within ten days following an initial public offering of the
Company's stock, or, if no such offering occurred within 90 days following the
date of the agreement, in six equal installments commencing on the 120th day
following the date of the agreement. The loan, which is secured by the Loan
Agreement dated August 25, 1994 between the Company, Wingmead and Michael
Preston, and is personally guaranteed by Michael Preston and Steven Lampert
bears interest at the rate of 20% per annum, and, in consideration for making
the loan, the Company agreed to issue to Wingmead 20,000 shares of the Company's
Common Stock, such shares to be unregistered but to have piggy-back registration
rights in the event of a public offering of the Company's Common Stock within
twenty-four months of the date of the agreement.
At 12/31/95, Wingmead had converted $90,000 of the principal due into shares
of the Company's Common Stock at the price of $3.00 per share. The Company
anticipates paying the balance of the principal, $110,000 in June, 1996.
Business Systems Consultants Loan. On October 30, 1993, Business Systems
Consultants Limited advanced the sum of $100,000 to the Company as an
interest-free, five-year unsecured and subordinated loan, repayable at the
obligee's request after three years. Business Systems Consultants converted this
loan into shares of the Company's Common Stock at the price of $3.00 per share
prior to December 31, 1995.
BUY OUT AGREEMENT
Pursuant to the terms of an agreement (the "Buy out Agreement") dated as of
April 6, 1993 by and among Lampert, Preston (Lampert and Preston being the
"Buyers"), Michael Miller ("Miller"), Jeffrey Schwartz ("Schwartz"; Miller and
Schwartz being the "Sellers"), LDDLP, LDDI, Cellular Direct, Inc. ("CDI"),
Private Ventures Inc. ("PVI") and Cellular Direct L.P. ("CDLP"); (LDDLP, LDDI,
CDI, PVI and CDLP, each, an "Entity" and collectively, the "Entities"), Lampert
and Preston, each an officer and director of LDDI, purchased in equal
proportions all of the interests of each of the Sellers in each Entity (the "Buy
out") (CDI, PVI and CDLP are, and have been since inception, inactive). The
purchased interests represented substantially all of the interests in such
Entities owned by the Sellers at the time. The aggregate consideration paid by
the Buyers to the Sellers was $500,000.
In addition, LDDLP issued the Sellers promissory notes (the "Notes") in the
principal amount of $580,000 of which $555,000 was outstanding at December 31,
1995, payable as follows: (i) $600 ($300 to each of the Sellers) is due each
week, (ii) $80,000 was due on May 6, 1995 and (iii) the remaining amounts
outstanding are due upon the occurrence, if any, of a Contingent Event Payment,
Salary Cap Payment or Earnings Ceiling Payment (each as defined below). The
Notes do not bear interest, except in the event that all amounts due thereunder
have not been paid prior to May 31, 1995, in which case interest shall be owed
on any unpaid amounts at a rate equal to the sum of (a) 2.0% plus (b) the annual
rate of interest announced by Citibank N.A. from time to time as its "prime
rate" in effect at its principal office in the City of New York (the "Prime
Rate") and shall be deemed to have commenced accruing on the Closing Date in
respect of such amount. Interest has accordingly been accrued in the Company's
financial statements for all interest due in this respect.
The Notes are secured by a Lien on and security interest in the accounts
receivable and other assets of each Entity in accordance with the terms of a
Security Agreement dated the Closing Date by and among the Sellers, JAMI and
each Entity.
22
<PAGE> 41
As noted above, certain payments are contingent upon the occurrence of other
events. A "Contingent Event Payment" shall be due upon the occurrence of: (a)
the sale by either of the Buyers of all or a majority of their interests in any
Entity, in which case the Buyers are liable for the Contingent Event Payment;
(b) the sale by any Entity of all or substantially all of its assets, in which
case the Entity is liable for the Contingent Event Payment; or (c) the
distribution by any Entity of earnings or profits or other cash or property to
either of the Buyers (excluding salary or bonus payments to Lampert not
exceeding $187,500 per year or to Preston not exceeding $150,000 per year), in
each case only to the extent such sale proceeds or distributed amounts
(collectively, "Distributions") are actually received by the Buyers (or their
designees), in which case the Buyers are liable for the Contingent Event
Payment. Contingent Event Payments are to be made in accordance with the
following terms: (i) with respect to the first $500,000 of Distributions, such
amounts shall be paid (x) first, to the Sellers in respect of amounts owed them
under the Notes and their capital and current accounts with LDDLP ($80,000 in
the aggregate) and second, to JAMI in respect of amounts owed it under the JAMI
Note (such amounts payable under this clause (i), the "Initial Contingent
Payment"); (ii) with respect to the next $2,000,000 of Distributions, no amount
is due; (iii) with respect to the next $1,500,000 of Distributions, fifty
percent of such Distributions shall be owed to the Sellers; and (iv) with
respect to any additional Distributions, no amount shall be owed to the Sellers
or JAMI.
After payment of the Notes, the Contingent Event Payments are limited to
$750,000.
Payment of any of the following shall correspondingly reduce the amounts
owed as Contingent Event Payments:
(a) SALARY CAP PAYMENTS: to the extent that amounts paid in any month as
salary or bonuses to the Buyers exceed in the aggregate $18,750 (the "Cap
Amount") then either the Sellers or JAMI, as the case may be, shall be entitled
to a payment in the next month in an aggregate amount equal to the amount by
which such salaries and bonuses exceeded the Cap Amount, and any such payment
shall be credited against amounts due on account of the Initial Contingent
Payment and shall reduce the contingent payment amount thresholds in a
corresponding amount. Upon payment in full of the Initial Contingent Payment, by
whatever means, no further Salary Cap Payments are required; and
During the year ended December 31, 1994 the Company distributed
approximately $288,000 to the Buyers. These payments exceeded the monthly Cap
Amount by approximately $103,000.
(b)EARNINGS CEILING PAYMENTS: to the extent that any Entity has earnings
in any fiscal year in excess of $200,000 (the "Earnings Ceiling") then the
Sellers or JAMI, as the case may be, shall be entitled to all earnings in excess
of the Earnings Ceiling to the extent of any amounts due in respect of the
Initial Contingent Payment, as reduced pursuant to any payments described above.
In the event that any Earnings Ceiling Payments in excess of $250,000 are due in
a given year, $250,000 is required to be paid within 30 days of the date of
delivery of the financial statements evidencing such earnings (such financial
statements are to be delivered no later than 90 days after the end of the
Entity's fiscal year) and the remainder is to be paid within 120 days of the
financial statement delivery date. Upon payment in full of the Initial
Contingent Payment, of which $272,400 is outstanding, by whatever means, no
further Earnings Ceiling Payments are required. For purposes of calculating
Earnings Ceiling Payment obligations, earnings mean the net income for the
relevant period as determined in accordance with GAAP consistently applied, but
without giving effect to (i) certain depreciation expenses, (ii) payment of
income tax, (iii) interest expense for interest amounts paid other than to a
third party, (iv) amortization in respect of intangibles, (v) legal expenses in
connection with the Buy-out and the transactions contemplated thereby and (vi)
annualized salary payments to Lampert and Preston in excess of $125,000 and
$100,000, respectively.
23
<PAGE> 42
The following constitute events of default under the Buy-out Agreement, and
correspondingly under the Notes:
(1) default in the performance of any obligation under the Buy-out Agreement
(including a payment default), and such default is not cured within 60 days
after written notice;
(2) the filing of a petition in bankruptcy by or against LDDLP; or
(3) the appointment of a receiver or similar entity for the benefit of the
creditors of LDDLP.
Upon the occurrence of an event of default all amounts outstanding under the
Notes are immediately due and payable.
It has been agreed that any amounts paid by the Buyers in respect of
obligations of the Partnership or any other Entity (i.e., the Covenant Note,
JAMI Note or Account Payment) shall be repaid immediately by the Entities with
any unpaid amounts bearing interest at an arm's length rate.
In February, 1996 LDDI, together with Messrs. Steven Lampert and Michael
Preston, commenced suit in New York Supreme Court against Messrs. Michael Miller
and Jeffrey Schwartz alleging duress and coercion in relation to the Buy-out
Agreement, and seeking compensatory damages in excess of $400,000 and the
payment of $10 million in punitive damages. Following the commencement of the
suit, the defendants issued a Notice of Default under the Buy-out Agreement,
filed a motion to dismiss LDDI's suit and commenced a separate suit together
with a motion to accelerate the amounts due under the Buy-out Agreement to
immediately exercise the security interests in respect thereof. LDDI is
contesting the Notice of Acceleration and motion to exercise the security
interests and has filed a cross-motion in its suit asking the court to
disqualify the defendants' attorneys. LDDI believes that it has a meritorious
claim both in respect of its motion to disqualify the defendants' attorneys as
well as in respect of its opposition to the Notice of Acceleration. In any
event, LDDI believes that it has recorded an adequate provision in its books of
account for any liability that may result from this litigation.
24
<PAGE> 43
ITEM 13. Exhibit and Reports on Form 8-K.
(a) List of Exhibits:
No. Exhibits
2.1 Agreement and Plan of Reorganization dated October 6, 1995
between Golden Ark, Inc. (now known as Long Distance Direct
Holdings, Inc.) Long Distance Direct, Inc. and the
stockholders of Long Distance Direct, Inc.
3.1 Amended and Restated Articles of Incorporation of Long
Distance Direct Holdings, Inc. (formerly known as Golden Ark,
Inc.)
3.2 Certificate of Amendment of Articles of Incorporation of Long
Distance Direct Holdings, Inc.
3.3 Bylaws, as amended, of Long Distance Direct Holdings, Inc.
10.1 Buy-out Agreement between Long Distance Direct, Inc., Steve
Lampert, Michael Preston, Jeffrey Schwartz, Michael Miller and
JAMI Marketing Services, Inc.
10.2 Lease Agreement for Suite 1430, 1 Blue Hill Plaza, Pearl
River, New York 10965
10.3 Agreement with AT&T dated July, 1995 for supply of
long-distance telephone service for resale.
10.4 Agreement with MCI dated March, 1996 for supply of
long-distance telephone service for resale.
10.5 1995 Stock Option Plan.
21 List of Subsidiaries.
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K during the last quarter of the
fiscal year ended December 31, 1995 reporting the reverse acquisition of Golden
Ark, Inc. (now known as Long Distance Direct Holdings, Inc.) by Long Distance
Direct, Inc., and subsequently filed an amendment to such report which included
audited financial statements of Long Distance Direct, Inc.
25
<PAGE> 44
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Long Distance Direct Holdings, Inc.
Dated: June 12, 1996 By: /s/ STEVEN LAMPERT,
---------------------------------
Steven Lampert, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
/s/ STEVEN LAMPERT June 12, 1996
- ----------------------------------------
Steven Lampert, President
(Principal Executive Officer), and
Director
/s/ MICHAEL PRESTON June 12, 1996
- ----------------------------------------
Michael Preston, Chief Financial Officer
(Principal Accounting Officer) and
Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS.
The registrant did not send any annual report or proxy materials to its security
holders during the registrant's last fiscal year.
26
<PAGE> 45
EXHIBIT INDEX
-------------
No. Exhibits
2.1 Agreement and Plan of Reorganization dated October 6, 1995
between Golden Ark, Inc. (now known as Long Distance Direct
Holdings, Inc.) Long Distance Direct, Inc. and the
stockholders of Long Distance Direct, Inc.
3.1 Amended and Restated Articles of Incorporation of Long
Distance Direct Holdings, Inc. (formerly known as Golden Ark,
Inc.)
3.2 Certificate of Amendment of Articles of Incorporation of Long
Distance Direct Holdings, Inc.
3.3 Bylaws, as amended, of Long Distance Direct Holdings, Inc.
10.1 Buy-out Agreement between Long Distance Direct, Inc., Steve
Lampert, Michael Preston, Jeffrey Schwartz, Michael Miller and
JAMI Marketing Services, Inc.
10.2 Lease Agreement for Suite 1430, 1 Blue Hill Plaza, Pearl
River, New York 10965
10.3 Agreement with AT&T dated July, 1995 for supply of
long-distance telephone service for resale.
10.4 Agreement with MCI dated March, 1996 for supply of
long-distance telephone service for resale.
10.5 1995 Stock Option Plan.
21 List of Subsidiaries.
27 Financial Data Schedule
<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") made and
entered into as of the 6th day of October, 1995, is by and among Golden Ark,
Inc., a Nevada corporation (hereinafter referred to as the "Company"), Long
Distance Direct, Inc., a New York corporation (hereinafter referred to as
"LDDI") and each of the holders of shares of Common Stock of LDDI listed on
Exhibit A hereto (sometimes hereinafter collectively referred to as the "LDDI
Stockholders").
RECITALS
WHEREAS, prior to the date hereof, LDDI has acted as the general partner
of Long Distance Direct L.P. (the "Partnership"), a limited partnership formed
under the laws of the State of New York;
WHEREAS, on the date hereof, all of the limited partners of the
Partnership transferred and assigned all of their respective interests in the
Partnership to LDDI in exchange for shares of LDDI Common Stock (unless
otherwise indicated, references hereinafter to LDDI include the Partnership).
WHEREAS, the LDDI Stockholders own a total of 3,293,334 shares of LDDI
Common Stock (the "LDDI Shares") which constitutes all of the issued and
outstanding Common Stock of LDDI; and
WHEREAS, the Company desires to acquire all of the LDDI Shares and the
LDDI Stockholders desire to exchange all of the LDDI Shares for shares of Common
Stock of the Company in a transaction intended to qualify under Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in reliance upon the representations and warranties
hereinafter set forth, the parties agree as follows:
1. EXCHANGE OF THE SHARES AND CONSIDERATION
1.1 Shares Being Exchanged. Subject to the terms and conditions
of this Agreement, at the closing provided for in Section 2 hereof (the
"Closing"), each of the LDDI Stockholders shall sell, assign, transfer and
deliver to the Company all of the LDDI Shares which each of them respectively
own.
<PAGE> 2
1.2 Consideration. Subject to the terms and conditions of this
Agreement and in consideration of the sale, assignment, transfer and delivery of
the LDDI Shares to the Company, at the Closing the Company shall issue and
deliver to the LDDI Stockholders a total of Three Million (3,000,000) shares of
Common Stock of the Company (hereinafter referred to as the "Company Shares"),
each LDDI Stockholder to receive as full consideration for the LDDI Shares held
by such LDDI Stockholder the number of Company shares set forth opposite each
such LDDI Stockholder's name on Exhibit C attached hereto.
2. THE CLOSING
2.1 Time and Place. The closing of the transactions contemplated
by this Agreement shall be held at the offices of Day & Campbell, 3070 Bristol
Street, Suite 650, Costa Mesa, California 92626, at 10:00 a.m. on the date first
above written, or at such other time and place as the parties may agree upon in
writing (the "Closing").
2.2 Deliveries by the LDDI Stockholders. At the Closing, each
LDDI Stockholder shall deliver to the Company the following: (a) stock
certificates representing the number of LDDI Shares set forth opposite the name
of such LDDI Stockholder on Exhibit A hereto, duly endorsed or accompanied by
stock powers duly executed in blank and otherwise in form acceptable for
transfer on the books of LDDI, and (b) an investment letter in the form attached
hereto as Exhibit B executed by such LDDI Stockholder.
2.3 Deliveries by LDDI. At the Closing, in addition to the
documents referred to in Section 9.1 hereof, LDDI shall deliver to the Company
the following: (a) certified resolutions of the LDDI Board of Directors
authorizing the execution and delivery of this Agreement and the performance by
LDDI of its obligations hereunder, and (b) a certificate of good standing of
LDDI from the Secretary of State of New York dated as of the most recent
practicable date.
2.4 Deliveries by the Company. At the Closing, in addition to
the documents referred to in Section 9.2 hereof, the Company shall deliver to
the LDDI Stockholders the following: (a) a stock certificate issued in the name
of each LDDI Stockholder representing the number of Company Shares each such
LDDI Stockholder is entitled to receive; (b) certified resolutions of the
Company's Board of Directors authorizing the execution and delivery of this
Agreement and the performance by the Company of its obligations hereunder; (c) a
certificate of good standing of the Company from the Secretary of State of
Nevada dated as of the most recent practicable date; (d) the written resignation
of all of the officers and directors of the Company effective as of the date of
Closing; and (e) the Company's minute book, corporate seal and copies of all
corporate and financial books and records.
2
<PAGE> 3
3. INDIVIDUAL REPRESENTATIONS AND WARRANTIES BY THE LDDI
STOCKHOLDERS
Each of the LDDI Stockholders, severally but not jointly,
represents and warrants to the Company as follows:
3.1 Title. Such LDDI Stockholder owns the number of LDDI Shares
set forth opposite such LDDI Stockholder's name on Exhibit A hereto, and shall
transfer to the Company at the Closing good and valid title to the LDDI Shares,
free and clear of all liens, claims, options, charges, and encumbrances of every
kind, character or description.
3.2 Authority. Such LDDI Stockholder has full power and
authority to execute this Agreement and consummate the transactions contemplated
hereby, and this Agreement is binding on such LDDI Stockholder and enforceable
in accordance with its terms. The execution and delivery of this Agreement and
consummation of the transactions contemplated hereby do not violate or conflict
with or constitute a default under any contract, commitment, agreement,
understanding, arrangement or restriction of any kind to which such LDDI
Stockholder is a party or by which such LDDI Stockholder or such LDDI
Stockholder's property is bound, or to such LDDI Stockholder's knowledge any
existing applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic or foreign, having
jurisdiction over such LDDI Stockholder or any of such LDDI Stockholder's
property.
3.3 Investment Representation. Such LDDI Stockholder intends to
acquire the Company Shares for investment and not with a view to the public
distribution or resale thereof, and such LDDI Stockholder shall confirm such
intention to the Company by delivering to the Company at the Closing an
investment letter in the form attached as Exhibit B hereto. Such LDDI
Stockholder agrees that the Company may endorse on any stock certificate for the
Company Shares to be delivered pursuant to this Agreement an appropriate legend
referring to the provisions of the investment letter attached as Exhibit B
hereto, and that the Company may instruct its transfer agent not to transfer any
Company Shares unless advised by the Company that such provisions have been
complied with.
4. REPRESENTATIONS AND WARRANTIES OF LDDI
LDDI represents and warrants to the Company as follows:
4.1 Authority. LDDI has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated herein. The execution and delivery of this Agreement and the
consummation of the transactions contemplated herein have been duly authorized
and approved by all necessary corporate action on the part of LDDI This
Agreement has been duly executed and delivered by LDDI and constitutes the valid
and binding obligation of LDDI, enforceable in accordance with its terms.
3
<PAGE> 4
4.2 Organization.
(a) LDDI is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York. LDDI has the
corporate power and authority to carry on its business as presently conducted,
possesses all licenses, franchises, rights and privileges material to the
conduct of its business, and is qualified to do business in all jurisdictions
where the failure to be so qualified would have a material adverse effect on its
business or financial condition.
(b) The copies of the Articles of Incorporation and all
amendments thereto of LDDI, as certified by the Secretary of State of New York,
and the Bylaws and all amendments thereto, as certified by the Secretary of
LDDI, which have heretofore been delivered to the Company, are complete and
correct copies of the Articles of Incorporation and Bylaws of LDDI as amended
and in effect on the date hereof. All minutes of meetings and actions in writing
without a meeting of the Board of Directors and stockholders of LDDI are
contained in the minute book of LDDI heretofore delivered to the Company for
examination, and no minutes or actions in writing without a meeting have been
included in such minute book since such delivery to the Company that have not
also been delivered to the Company.
4.3 Capitalization.
(a) The authorized capital stock of LDDI consists of
20,000,000 shares of Common Stock, $.01 par value, of which 3,293,334 shares are
issued and outstanding, and 1,000,000 shares of Preferred Stock, none of which
are issued and outstanding. All of the issued and outstanding shares of Common
Stock of LDDI were issued in compliance with applicable state and Federal
securities laws, are duly authorized, validly issued, fully paid and
nonassessable, and are not subject to preemptive rights created by statute,
LDDI's Articles of Incorporation or Bylaws or any agreement to which LDDI is a
party or is bound.
(b) There are no options, warrants, calls, rights,
commitments or agreements of any character to which LDDI is a party or by which
it is bound obligating LDDI to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of LDDI or obligating LDDI
to grant, extend or enter into any such option, warrant, call, right, commitment
or agreement.
4.4 Acquisition of Partnership. LDDI has entered into an
agreement (the "Partnership Acquisition Agreement") with all of the limited
partners (the "Limited Partners") of Long Distance Direct L.P., a limited
partnership formed under the laws of the State of New York (the "Partnership"),
a fully executed copy of which has been delivered to the Company, pursuant to
which the Limited Partners transferred and assigned all of their respective
interests in the Partnership to LDDI in exchange for shares of LDDI Common
Stock.
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4.5 Financial Statements. LDDI has delivered to the Company
copies of its audited combined balance sheets for the fiscal years ended
December 31, 1993 and 1994 and the related combined statements of operations,
stockholders' equity and cash flows for the periods then ended together with
appropriate notes to such financial statements, and copies of its unaudited
combined balance sheet as of March 31, 1995 and the related combined statement
of operations, stockholders' equity and cash flows for the three month period
then ended (the "LDDI Combined Financial Statements"), copies of which are
attached hereto as Schedule 4.5. The LDDI Combined Financial Statements consist
of the accounts of the Company and the Partnership. All significant intercompany
balances and transactions have been eliminated. The LDDI Combined Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved, and
present fairly the financial condition of LDDI and the results of its operations
as of the dates and for the periods indicated thereon, subject in the case of
the unaudited portion of the LDDI Combined Financial Statements to normal
year-end audit adjustments, which will not be material, and the absence of
certain footnote disclosures.
4.6 Absence of Undisclosed Liabilities. At the date of the most
recent balance sheet of LDDI included in the LDDI Combined Financial Statements
and as of the Closing Date, LDDI had and will have no liability or obligation of
any nature, whether accrued, absolute, contingent, or otherwise, and whether
due, or to become due, other than liabilities or obligations individually or in
the aggregate less than $5,000, that is not reflected or reserved against in the
most recent balance sheet of LDDI or the accompanying notes thereto included in
the LDDI Combined Financial Statements, or set forth in Schedule 4.6 hereto,
except for those that may have been incurred after the date of such balance
sheet and those that are not required by generally accepted accounting
principles to be included in such balance sheet or the accompanying notes
thereto. All liabilities and obligations incurred after the date of such balance
sheet were incurred in the ordinary course of business and are usual and normal
in amount both individually and in the aggregate.
4.7 Business Changes. Since the date of the most recent balance
sheet of LDDI included in the LDDI Combined Financial Statements, except as
otherwise contemplated by this Agreement or set forth on Schedule 4.7 hereto,
LDDI has conducted its business only in the ordinary and usual course and,
without limiting the generality of the foregoing, there have been no changes in
the condition (financial or otherwise), business, net worth, assets, prospects,
properties, employees, operations, obligations or liabilities of LDDI which, in
the aggregate, have had or may be reasonably expected to have a materially
adverse effect on the condition, business, net worth, assets, prospects,
properties or operations of LDDI
4.8 Properties. The most recent LDDI combined balance sheet
included in the LDDI Combined Financial Statements reflects all of the real and
personal property used by LDDI in its business or otherwise held by LDDI except
for (i) property acquired or disposed of in the ordinary and usual course of the
business of LDDI since the date of the most recent LDDI combined balance sheet
included in the LDDI Combined Financial Statements, and (ii) property
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not required under generally accepted accounting principles to be reflected
thereon. Except as set forth on Schedule 4.8 attached hereto, LDDI has good and
marketable title to all assets and properties listed on the most recent LDDI
combined balance sheet included in the LDDI Combined Financial Statements and
thereafter acquired, free and clear of any imperfections of title, lien, claim,
encumbrance, restriction, charge or equity of any nature whatsoever, except for
the lien of current taxes not yet delinquent. All of the fixed assets and
properties listed on the most recent LDDI combined balance sheet included in the
LDDI Combined Financial Statements or thereafter acquired are in satisfactory
condition and repair for the requirements of the business as presently conducted
by LDDI.
4.9 Taxes. Except as described on Schedule 4.9 hereto, within
the times and in the manner prescribed by law, LDDI has filed all federal,
state, and local tax returns and reports required by law and has paid in full
all taxes, assessments, known penalties and interest (all such items are
collectively referred to as "Taxes") due to, or claimed to be due by, any
governmental authority. The most recent combined balance sheet of LDDI included
in the LDDI Combined Financial Statements fully accrues all current and deferred
Taxes. Except as described on Schedule 4.9 hereto, LDDI is not a party to any
pending action or proceeding, nor, to the actual knowledge of LDDI, is any such
action or proceeding threatened by any governmental authority for the assessment
or collection of Taxes, and there are no liens for Taxes except for liens for
property taxes not yet delinquent.
4.10 Litigation. Except as described on Schedule 4.10 hereto,
there is no claim, action, suit or proceeding, at law or in equity, pending
against LDDI, or involving any of its assets or properties, before any court,
agency, authority, arbitration panel or other tribunal (other than those, if
any, with respect to which service of process or similar notice has not been
made on LDDI), and, to the knowledge of LDDI, none have been threatened. LDDI is
not subject to any order, writ, injunction or decree of any court, agency,
authority, arbitration panel or other tribunal, nor is it in default with
respect to any notice, order, writ, injunction or decree.
4.11 No Conflict. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby do not and will not
conflict with, or result in a breach of any term or provision of, or constitute
a default under or result in a violation of, the Articles of Incorporation or
Bylaws of LDDI, any agreement, contract, lease, license or instrument to which
LDDI is a party or by which it or any of its properties or assets are bound, or
any judgment, decree, order, or writ by which LDDI is bound or to which it or
any of its properties or assets are subject.
4.12 Consent. No consent, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality is required by or
with respect to LDDI in connection with the execution and delivery of this
Agreement or the consummation by LDDI of the transactions contemplated herein.
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4.13 Brokers or Finders. LDDI has not dealt with any broker or
finder in connection with the transactions contemplated by this Agreement. LDDI
has not incurred, and shall not incur, directly or indirectly, any liability for
any brokerage or finders' fees or agents commissions or any similar charges in
connection with this Agreement or any transaction contemplated herein.
4.14 Underlying Documents. Copies of any underlying documents
listed or described as having been disclosed to the Company pursuant to this
Agreement, if requested by the Company, have been furnished to the Company. All
such documents furnished to the Company are true and correct copies, and there
are no amendments or modifications thereto that have not been disclosed to the
Company.
4.15 Full Disclosure. Any information furnished to the Company
by or on behalf of LDDI in writing pursuant to this Agreement at any time prior
to the Closing, does not and will not contain any untrue statement of a material
fact and does not and will not omit to state any material fact necessary to make
any statement, in light of the circumstances under which such statement is made,
not misleading.
4.16 LDDI Schedules. The Schedules attached hereto by LDDI
pursuant to Article 4 of this Agreement are sometimes hereinafter referred to as
the LDDI Schedules.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to LDDI and the LDDI
Stockholders as follows:
5.1 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated herein. The execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, and the issuance of the
Company Shares in accordance with the terms hereof, have been duly authorized by
all necessary corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company and constitutes the valid and
binding obligation of the Company, enforceable in accordance with its terms.
5.2 Organization.
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Nevada. The
Company has the corporate power and authority to carry on its business as
presently conducted, and is qualified to do business in all jurisdictions where
the failure to be so qualified would have a material adverse effect on its
business or financial condition.
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(b) The copies of the Articles of Incorporation and all
amendments thereto of the Company, as certified by the Secretary of State of
Nevada, and the Bylaws of the Company and all amendments thereto, as certified
by the Secretary of the Company, which have heretofore been delivered to LDDI
and made available to the LDDI Stockholders, are complete and correct copies of
the Articles of Incorporation and Bylaws of the Company as amended and in effect
on the date hereof. All minutes of meetings and actions in writing without a
meeting of the Board of Directors and stockholders of the Company are contained
in the minute book of the Company heretofore delivered to LDDI and made
available to the LDDI Stockholders, and no minutes or actions in writing without
a meeting have been included in such minute book since such delivery to LDDI
that have not also been delivered to LDDI and made available to the LDDI
Stockholders.
5.3 Capitalization.
(a) The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, $.001 par value, of which 400,000 shares
(plus up to an additional 50 shares to be issued by the Company in connection
with rounding up fractional shares resulting from a recent 1.4700477 for one
stock split) are issued and outstanding. All of the issued and outstanding
shares of Common Stock of the Company were issued in compliance with applicable
state and Federal securities laws, are duly authorized, validly issued, fully
paid and non-assessable, and are not subject to preemptive rights created by
statute, the Company's Articles of Incorporation or Bylaws or any agreement to
which the Company is a party or is bound.
(b) There are no options, warrants, calls, rights,
commitments or agreements of any character to which the Company is a party or by
which it is bound obligating the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock of the Company
or obligating the Company to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement.
5.4 Equity Investments. Company does not own any equity interest
in any corporation, partnership, or other form of business entity.
5.5 Financial Statements. Company has delivered to LDDI and made
available to the LDDI Stockholders copies of its audited balance sheets for the
years ended December 31, 1993 and 1994 and the related statements of
operations, stockholders' equity and cash flows for the periods then ended
together with appropriate notes to such financial statements, and copies of its
unaudited balance sheet as of June 30, 1995 and the related statement of
operations, stockholders' equity and cash flows for the six month period then
ended (the "Company Financial Statements"), a copy of which is attached hereto
as Schedule 5.5. The Company Financial Statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis during the periods involved, and present fairly the financial condition of
the Company and the results of operations as of the dates and for the periods
indicated therein, subject
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in the case of the unaudited portion of the Company Financial Statements to
normal year-end audit adjustments, which will not be material, and the absence
of certain footnote disclosures.
5.6 Absence of Undisclosed Liabilities. At the date of the most
recent balance sheet of the Company included in the Company Financial Statements
and as of the Closing Date, the Company had and will have no liability or
obligation of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, that is not reflected or reserved against in
the most recent balance sheet of the Company included in the Company Financial
Statements, or set forth in Schedule 5.6 hereto, except for those that are not
required by generally accepted accounting principles to be included in such
balance sheet or the accompanying notes thereto and except for fees (including
legal and accounting fees), costs and expenses incurred in connection with the
activities and transactions contemplated by this Agreement.
5.7 Business Changes. The Company has not been actively engaged
in business or any activities other than seeking to acquire an operating
business since 1991.
5.8 Taxes. Within the times and in the manner prescribed by law,
the Company has filed all federal, state, and local tax returns required by law
and has paid all taxes, assessments, penalties and interest (all such items are
collectively referred to as "Taxes") due to, or claimed to be due by, any
governmental authority. The most recent balance sheet of the Company included in
the Company Financial Statements fully accrues all current and deferred Taxes.
5.9 Litigation. There is no claim, action, suit or proceeding,
at law or in equity, pending against the Company, or involving any of its assets
or properties, before any court, agency, authority, arbitration panel or other
tribunal (other than those, if any, with respect to which service of process or
similar notice has not been made on the Company), and, to the actual knowledge
of the Company, none have been threatened. The Company is not subject to any
order, writ, injunction or decree of any court, agency, authority, arbitration
panel or other tribunal, nor is it in default with respect to any notice, order,
writ, injunction or decree.
5.10 Contracts and Undertakings. The Company is not a party to
or bound by nor are any of its properties and assets subject to any contract,
instrument, lease, license, agreement, commitment or undertaking.
5.11 No Conflict. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby do not and will not
conflict with, or result in a breach of any term or provision of, or constitute
a default under or result in a violation of, the Articles of Incorporation or
Bylaws of the Company, any agreement, contract, lease, license, or instrument to
which the Company is a party or by which it or any of its assets are bound, or
any judgment, decree, order or writ by which the Company is bound or to which it
or any of its assets are subject.
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5.12 Consent. No consent, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality is required by or
with respect to the Company in connection with the execution and delivery of
this Agreement or the consummation by the Company of the transactions
contemplated herein, except for (a) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state law and (b) such other consents, approvals, orders,
authorizations, registrations, declarations and filings which if not obtained or
made would not have a material adverse effect on the Company.
5.13 Brokers or Finders. The Company has not dealt with any
broker or finder in connection with the transactions contemplated by this
Agreement. The Company has not incurred, and shall not incur, directly or
indirectly, any liability for any brokerage or finders' fees or agents
commissions or any similar charges in connection with this Agreement or any
transaction contemplated herein.
5.14 Compliance with Securities Laws.
(a) The Company has delivered to LDDI and the LDDI
Stockholders, true and complete copies of the Company's Registration Statement
on Form S-18, Registration No. 33-26019-LA, (the "Registration Statement") which
was declared effective by the Securities and Exchange Commission ("SEC") on
February 14, 1991.
(b) The Company has delivered to LDDI and the LDDI
Stockholders true and complete copies, including exhibits and, as applicable,
amendments thereto, of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and all Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K filed since December 31, 1994. All reports required to be
filed by the Company with the Securities and Exchange Commission (collectively,
the "Reports") have been properly filed and comply in all material respects with
the requirements of the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder with respect to such Reports. The Reports and
the Registration Statement do not contain any untrue statements of a material
fact, or fail to state any material fact required to be stated therein or
necessary to make the statements made therein not misleading.
(c) No formal or informal investigation or examination by
the Securities and Exchange Commission ("SEC") or by the securities
administrator of any state is pending or, to the knowledge of the Company,
threatened against the Company, any officer or director of the Company or any of
the Company's stockholders.
(d) Neither the Company nor any of its officers, directors,
promoters or beneficial owners of more than 10% of its Common Stock have been
convicted of any felony or misdemeanor in connection with the purchase and sale
of any security or involving the making of any false filing with the SEC.
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(e) Neither the Company nor any of its officers, directors,
promoters or beneficial owners of more than 10% of its Common Stock are subject
to any order, judgement or decree of any court of competent jurisdiction,
temporarily or preliminarily restraining or enjoining, or subject to any order,
judgment or decree of any court of competent jurisdiction, permanently
restraining or enjoining, such person from engaging in or continuing any conduct
or practice in connection with the purchase or sale of any security or involving
the making of any false filing with the SEC.
(f) All of the outstanding securities of the Company,
including, without limitation, the securities issued pursuant to the
Registration Statement, have been issued in compliance with all applicable
Federal and state securities laws.
(g) No individual, corporation, partnership, joint venture
or other business enterprise or entity has demand or other rights to cause the
Company to file any registration statement under the Securities Act of 1933
relating to any securities of the Company or any rights to participate in any
such registration statement.
5.15 Underlying Documents. Copies of any underlying documents
listed or described as having been disclosed to LDDI and made available to the
LDDI Stockholders pursuant to this Agreement, if requested by LDDI or the LDDI
Stockholders, have been furnished to LDDI and made available to the LDDI
Stockholders. All such documents furnished to LDDI and made available to the
LDDI Stockholders are true and correct copies, and there are no amendments or
modifications thereto that have not been disclosed to LDDI and made available to
the LDDI Stockholders.
5.16 Full Disclosure. Any information furnished by or on behalf
of the Company in writing pursuant to this Agreement, at any time prior to the
Closing does not and will not contain any untrue statement of a material fact
and does not and will not omit to state any material fact necessary to make any
statement, in light of the circumstances under which such statement is made, not
misleading.
5.17 Company Schedules. The Schedules attached hereto by the
Company pursuant to Article 5 of this Agreement are sometimes hereinafter
referred to as the Company Schedules.
6. COVENANTS RELATING TO CONDUCT OF BUSINESS OF LDDI
During the period from the date of this Agreement and continuing
until the Closing, LDDI and the LDDI Stockholders agree (except as expressly
contemplated by this Agreement or to the extent that the Company shall otherwise
consent in writing) that:
6.1 Ordinary Course. LDDI shall carry on its business in the
usual and ordinary course, in substantially the same manner as heretofore
conducted and, to the extent consistent with
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such business, use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve its
relationship with customers, providers and others having business dealings with
it to the end that its goodwill and ongoing business shall be unimpaired at the
Closing.
6.2 Dividends; Changes in Stock. LDDI shall not and shall not
propose to (i) declare or pay any dividends on or make other distributions in
respect of any of its capital stock, (ii) split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of LDDI,
or (iii) repurchase or otherwise acquire any shares of its capital stock or
rights to acquire any shares of its capital stock.
6.3 Issuance of Securities. LDDI shall not issue, deliver or
sell or authorize or propose the issuance, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock of any class or
securities convertible into, or rights, warrants or options to acquire, any such
shares or other convertible securities.
6.4 Governing Documents. LDDI shall not amend its Articles of
Incorporation or Bylaws.
7. COVENANTS RELATING TO CONDUCT OF BUSINESS OF THE COMPANY
During the period from the date of this Agreement and continuing
until the Closing, the Company agrees (except as expressly contemplated by this
Agreement or to the extent that LDDI and the LDDI Stockholders shall otherwise
consent in writing) that:
7.1 Ordinary Course. The Company shall carry on its business in
the usual and ordinary course in substantially the same manner as heretofore
conducted.
7.2 Dividends; Changes in Stock. The Company shall not and shall
not propose to (i) declare or pay any dividends on or make other distributions
in respect of any of its capital stock, (ii) split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of the
Company, or (iii) repurchase or otherwise acquire any shares of its capital
stock or rights to acquire any shares of its capital stock.
7.3 Governing Documents. The Company shall not amend its
Articles of Incorporation or Bylaws.
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8. ADDITIONAL AGREEMENTS
8.1 Access to Information.
(a) LDDI and the LDDI Stockholders shall afford to the
Company and shall cause its independent accountants to afford to the Company,
and its accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Closing to all information
concerning LDDI, as the Company may reasonably request, provided that LDDI and
the LDDI Stockholders shall not be required to disclose any information which
either of them is legally required to keep confidential. The Company will not
use such information for purposes other than this Agreement and will otherwise
hold such information in confidence (and the Company will cause its consultants
and advisors also to hold such information in confidence) until such time as
such information otherwise becomes publicly available, and in the event of
termination of this Agreement for any reason the Company shall promptly return,
or cause to be returned, to the disclosing party all documents obtained from
LDDI and the LDDI Stockholders, and any copies made of such documents, extracts
and copies thereof.
(b) The Company shall afford to LDDI and the LDDI
Stockholders and shall cause its independent accountants to afford to LDDI and
the LDDI Stockholders, and their accountants, counsel and other representatives,
reasonable access during normal business hours during the period prior to the
Closing to all of the Company's properties, books, contracts, commitments and
records and to the audit work papers and other records of the Company's
independent accountants. During such period, the Company shall use reasonable
efforts to furnish promptly to LDDI and the LDDI Stockholders such information
concerning the Company as LDDI and the LDDI Stockholders may reasonably request,
provided that the Company shall not be required to disclose any information
which it is legally required to keep confidential. LDDI and the LDDI
Stockholders will not use such information for purposes other than this
Agreement and will otherwise hold such information in confidence (and LDDI and
the LDDI Stockholders will cause their respective consultants and advisors also
to hold such information in confidence) until such time as such information
otherwise becomes publicly available, and in the event of termination of this
Agreement for any reason LDDI and the LDDI Stockholders shall promptly return,
or cause to be returned, to the disclosing party all documents obtained from the
Company, and any copies made of such documents, extracts and copies thereof.
8.2 Communications. Between the date hereof and the Closing
Date, neither LDDI nor the Company will, without the prior written approval of
the other party, furnish any communication to its shareholders or to the public
generally if the subject matter thereof relates to the other party or to the
transactions contemplated by this Agreement, except as may be necessary, in the
opinion of their respective counsel, to comply with the requirements of any law,
governmental order or regulation.
8.3 Blue Sky Laws. The Company shall take such steps as may be
necessary to comply with the securities and Blue Sky laws of all jurisdictions
which are applicable in
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connection with the issuance of the Company Shares to the LDDI Stockholders
pursuant to this Agreement. LDDI shall use its best efforts to assist the
Company as may be necessary to comply with such laws.
8.4 Update to Disclosures. Without limiting the Company's right
to rely on the representations and warranties as of the date of this Agreement,
LDDI shall provide the Company with updates to the disclosures provided or made
available to the Company as to material facts which arise between the date of
this Agreement and the Closing and which, if they had occurred and been known
prior to the date of this Agreement, would have been required to have been
disclosed in order to make the representations and warranties contained in
Article 4 true and correct as of the date of this Agreement.
8.5 Securities Law Matters. The Company Shares issued to the
LDDI Stockholders shall be issued without registration under the Securities Act
of 1933, as amended, (the "Act"), in reliance upon certain exemptions from the
registration requirements of the Act, including Regulation D adopted thereunder.
Accordingly, the Company Shares may not be resold by the holders thereof without
registration under the Act unless a further exemption from the registration
requirements of the Act is available for such resale. All certificates
representing the Company Shares shall bear the following legend or a legend of
similar import:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER CERTAIN STATE SECURITIES LAWS. NO SALE OR
TRANSFER OF THESE SHARES MAY BE MADE IN THE ABSENCE OF (1) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (2) AN OPINION
OF COUNSEL THAT REGISTRATION UNDER THE ACT OR UNDER APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED SALE OR TRANSFER."
9. CONDITIONS PRECEDENT
9.1 Conditions to Obligations of the Company. The obligations of
the Company to consummate the transactions contemplated by this Agreement are
subject to the satisfaction on or before the Closing of the following
conditions, unless waived by the Company:
(a) Representations and Warranties of the LDDI Stockholders.
The representations and warranties of the LDDI Stockholders set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as if made at and as of the Closing.
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(b) Representations and Warranties of LDDI. The
representations and warranties of LDDI set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as if
made at and as of the Closing, and the Company shall have received a certificate
or certificates to such effect signed by the chief executive officer and chief
financial officer of LDDI
(c) Acquisition of Interests in the Partnership. LDDI shall
have acquired all of the Limited Partners' interests in the Partnership from the
Limited Partners in accordance with the terms of the Partnership Acquisition
Agreement, and such Partnership Acquisition Agreement shall not have been
rescinded, terminated or amended in any manner prior to the Closing.
(d) Additional Closing Documents. The Company shall have
received the following documents and instruments:
(1) Certified resolutions of the LDDI Board of Directors
authorizing the execution and delivery of this Agreement and the performance by
LDDI of its obligations hereunder;
(2) A certificate of good standing of LDDI from the
Secretary of State of New York dated as of the most recent practicable date;
(3) Such other documents and instruments as are required
to be delivered pursuant to the provisions of this Agreement or otherwise
reasonably requested by the Company.
9.2 Conditions to Obligations of LDDI and the LDDI Stockholders.
The obligations of LDDI and the LDDI Stockholders to consummate the transactions
contemplated by this Agreement are subject to the satisfaction on or before the
Closing of the following conditions unless waived by LDDI and the LDDI
Stockholders:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as if made at and
as of the Closing, and LDDI and the LDDI Stockholders shall have received a
certificate signed by the chief executive officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement prior to the Closing, and LDDI and the LDDI
Stockholders shall have received a certificate signed by the chief executive
officer of the Company to such effect.
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(c) No Material Adverse Change. Since the date of the most
recent balance sheet included in the Company Financial Statements, except as
expressly contemplated by this Agreement and except for fees (including legal
and accounting fees), costs and expenses paid or incurred by the Company in
connection with the activities and transactions contemplated by this Agreement,
there shall have been no changes in the condition (financial or otherwise),
business, obligations or liabilities of the Company which, in the aggregate,
have had or may be reasonably expected to have a materially adverse effect on
the financial condition, business or operations of the Company.
(d) Resignations. The Company shall have received and
accepted the written resignations of all of the Company's officers and directors
as of the Closing, and shall have delivered such resignations to LDDI.
(e) Election of Directors and Officers. The Board of
Directors of the Company shall have elected the following persons to serve as
directors and officers of the Company effective as of the date of Closing:
Name Position
Steven Lampert Director and President
Michael Preston Director, Vice President and Chief
Financial Officer
9.3 Additional Closing Documents. LDDI and the LDDI Stockholders
shall have received the following documents and instruments:
(1) Certified resolutions of the Company's Board of
Directors authorizing the execution and delivery of this Agreement and the
performance by the Company of its obligations hereunder;
(2) A certificate of good standing of the Company from the
Secretary of State of Nevada dated as of the most recent practicable date;
(3) A list of the Company's stockholders as of a date within
ten (10) days prior to the Closing certified by the Company's stock transfer
agent;
(4) Such other documents and instruments as are required to
be delivered pursuant to the provisions of this Agreement or otherwise
reasonably requested by LDDI and the LDDI Stockholders.
16
<PAGE> 17
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY
10.1 Survival of Representations and Warranties. The respective
representations and warranties of the parties contained herein shall survive the
Closing, but shall expire on the first anniversary date following the date of
Closing, unless a specific claim in writing with respect to these matters shall
have been made, or any action at law or in equity shall have been commenced or
filed before this anniversary date. The limitation period for the survival of
the representations and warranties of the parties contained herein shall not
apply to any fraudulent breach, representation or warranty or to any breach or
inaccuracy in any representation or warranty known to such party on or before
the date of Closing.
10.2 Indemnification.
(a) LDDI and the LDDI Stockholders agree to indemnify and
hold the Company and its officers, directors, stockholders, agents and
affiliates harmless from and against all damages, claims, losses, liabilities
and expenses (including, without limitation, reasonable attorneys' fees and
expenses) resulting from or arising out of (1) any breach or violation of this
Agreement by LDDI or the LDDI Stockholders; or (2) any breach of any of the
representations, warranties or covenants made in this Agreement by LDDI or the
LDDI Stockholders; or (3) any inaccuracy or misrepresentation in the LDDI
Schedules attached hereto or in any certificate, document or instrument
delivered in accordance with the terms of this Agreement by LDDI or the LDDI
Stockholders.
(b) The Company agrees to indemnify and hold LDDI and the
LDDI Stockholders and their respective officers, directors, stockholders, agents
and affiliates harmless from and against all damages, claims, losses,
liabilities and expenses (including, without limitation, reasonable attorneys'
fees and expenses) resulting from or arising out of (1) any breach or violation
of this Agreement by the Company; or (2) any breach of any of the
representations, warranties or covenants made in this Agreement by the Company;
or (3) any inaccuracy or misrepresentation in the Company Schedules attached
hereto or in any certificate, document or instrument delivered in accordance
with the terms of this Agreement by the Company.
(c) The obligations to indemnify and hold harmless pursuant
to this Section 10.2 shall survive the Closing for a period of one (1) year
after the date of Closing.
11. OBLIGATIONS OF THE COMPANY AFTER THE CLOSING
11.1 SEC Filing. The Company shall file a Form 8-K which
contains the financial and other information required by Form 8-K with the SEC
within the time periods specified in Form 8-K.
17
<PAGE> 18
12. PAYMENT OF EXPENSES
The Company, LDDI and the LDDI Stockholders shall each pay their
own fees and expenses incurred incident to the preparation and carrying out of
the transactions herein contemplated (including legal and accounting fees).
13. TERMINATION
13.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by mutual written consent of the Company, LDDI and the
LDDI Stockholders;
(b) by the Company if there has been a material breach of
any representation, warranty, covenant or agreement contained in this Agreement
by LDDI or the LDDI Stockholders;
(c) by LDDI and the LDDI Stockholders if there has been a
material breach of any representation, warranty, covenant or agreement contained
in this Agreement by the Company.
13.2 Effect of Termination. Termination of this Agreement in
accordance with Section 13.1 may be effected by written notice from either the
Company or LDDI and the LDDI Stockholders, as appropriate, specifying the
reasons for termination and shall not subject the terminating party to any
liability for any valid termination.
14. MISCELLANEOUS
14.1 Tax Treatment. The transaction contemplated herein is
intended to qualify as a so-called "tax-free" reorganization under the
provisions of Section 368 of the Internal Revenue Code. LDDI, the LDDI
Stockholders and the Company acknowledge, however, that they each have been
represented by their own tax advisors in connection with this transaction; that
no party hereto has made any representation or warranty to the other with
respect to the treatment of such transaction or the effect thereof under
applicable tax laws, regulations, or interpretations; and that no attorney's
opinion or private revenue ruling has been obtained with respect to the effects
thereof under the Internal Revenue Code of 1986, as amended.
14.2 Further Assurances. From time to time, at the other party's
request and without further consideration, each of the parties will execute and
deliver to the others such documents and take such action as the other party may
reasonably request in order to consummate more effectively the transactions
contemplated hereby.
18
<PAGE> 19
14.3 Payment of Fees and Expenses. If any legal action or any
arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
14.4 Parties in Interest. Except as otherwise expressly provided
herein, all the terms and provisions of this Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the respective heirs,
beneficiaries, personal and legal representatives, successors and assigns of the
parties hereto.
14.5 Entire Agreement; Amendments. This Agreement, including the
Schedules, Exhibits and other documents and writings referred to herein or
delivered pursuant hereto, which form a part hereof, contains the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein or therein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to its
subject matter. This Agreement may be amended only by a written instrument duly
executed by the parties or their respective successors or assigns.
14.6 Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
14.7 Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
14.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
14.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
14.10 Notices. Any and all notices, demands or other
communications required or desired to be given hereunder by any party shall be
in writing and shall be validly given or made to another party if given by
personal delivery, telex, facsimile, telegram or if deposited in the United
States mail, certified or registered, postage prepaid, return receipt requested.
If such notice, demand or other communication is given by personal delivery,
telex, facsimile or telegram, service shall be conclusively deemed made at the
time of receipt. If such notice, demand or other communication is given by mail,
such notice shall be conclusively deemed
19
<PAGE> 20
given forty-eight (48) hours after the deposit thereof in the United States mail
addressed to the party to whom such notice, demand or other communication is to
be given as hereinafter set forth:
If to LDDI or the LDDI Stockholders: At the addresses set forth below their
names on the signature page of this
Agreement or on Exhibit A hereto
If to Company: At the address set forth below its name
on the signature page of this Agreement
15. APPOINTMENT OF AGENT
The LDDI Stockholders hereby irrevocably constitute and appoint
Michael Preston as their true and lawful attorney (the "Agent") with full right
and power in their names and stead to take any and all action by and on behalf
of them necessary or desirable to consummate the transactions contemplated by
this Agreement, including without limitation, the right and power to receive
certificates representing the Company Shares on behalf of each of the LDDI
Stockholders, to deliver to the Company the certificates representing the LDDI
Shares, to waive performance of any of the obligations of the Company or waive
compliance by the Company with any of its covenants hereunder, to deliver
investment letters of the LDDI Stockholders referred to in Section 3.3 hereof,
and to amend or terminate this Agreement as herein provided. Any such action
taken by the Agent on behalf of a LDDI Stockholder shall be binding upon such
LDDI Stockholder. The Company shall not have any responsibility to the LDDI
Stockholders or any of them for the distribution by the Agent of the
certificates representing the Company Shares to be delivered to the LDDI
Stockholders, nor shall the Company be liable in any manner whatsoever to the
LDDI Stockholders or any of them by or on account of any act or omission of the
Agent.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto as of the date first above written.
GOLDEN ARK, INC.,
a Nevada corporation
By: /s/
----------------------------------
It: President
------------------------------
Address:
20
<PAGE> 21
LONG DISTANCE DIRECT, INC.,
a New York Corporation
By:
-----------------------------------
Its: Vice President
-----------------------
Address: 1 Blue Hill Plaza
Pearl River
NY 10965
(Signatures of LDDI stockholders commences on the next page)
21
<PAGE> 22
LDDI STOCKHOLDERS
SIGNATURE PAGE
/s/
- ---------------------------------------------------------------------
/s/ Michael Preston
- ---------------------------------------------------------------------
/s/ Business Systems Consultants by Michael Preston, Attorney in Fact
- ---------------------------------------------------------------------
/s/ Wardley Securities S.A. by Michael Preston, Attorney in Fact
- ---------------------------------------------------------------------
/s/ Alan Wheatley by Michael Preston, Attorney in Fact
- ---------------------------------------------------------------------
/s/ Charles Wilkinson by Michael Preston, Attorney in Fact
- ---------------------------------------------------------------------
/s/ Wingmead Securities Limited by Michael Preston, Attorney in Fact
- ---------------------------------------------------------------------
*Michael Preston, by signing his name hereto, does sign this Agreement
and Plan of Reorganization among Golden Ark, Inc., Long Distance Direct, Inc.,
and the stockholders of Long Distance Direct, Inc. on behalf of each of the
indicated persons on October 6, 1995, pursuant to a power of attorney duly
executed by such person.
/s/ October 6, 1995
- -----------------------------------
22
<PAGE> 23
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF LDDI
LDDI STOCKHOLDERS SHARES OWNED
----------------- ------------
<S> <C>
Michael David Preston 1,194,865
8 Oak Hill Park Mews
London NW3 7LH
Steven Lampert 1,194,865
9 Lansdale Road
New City, New York 10956
Jerry Lott 162,567
23 Cranford Drive, New City, New York 10956
Business Systems Consultants Ltd. 487,700
16 New Street, St. Peter Port,
Guernsey, Channel Islands
Wardley Securities S.A. 162,567
16 Bd des Tranchees, Case Postale 345,
1211 Geneve 12, Switzerland
Alan Wheatley 32,513
Highcroft, 79 Kippington Road,
Sevenoaks, Kent TN13 2LN
Charles Wilkinson 16,257
22 Lower Common South, Putney,
London SW15 1 BP
Wingmead Securities Limited 42,000
18 Allandale Avenue,
London N3 3PJ
----------
TOTAL 3,293,334
</TABLE>
SCHEDULE A
<PAGE> 24
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF COMPANY
LDDI STOCKHOLDERS SHARES TO BE ISSUED
- ----------------- -------------------
<S> <C>
Michael David Preston 1,087,065
8 Oak Hili Park Mews
London NW3 7LH
Steven Lampert 1,087,065
9 Lansdale Road
New City, New York 10956
Jerry Lott 147,900
23 Cranford Drive, New City, New York 10956
Business Systems Consultants Ltd. 443,700
16 New Street, St. Peter Port,
Guernsey, Channel Islands
Wardley Securities S.A. 147,900
16 Bd des Tranchees, Case Postale 345,
1211 Geneve 12, Switzerland
Alan Wheatley 29,580
Highcroft, 79 Kippington Road,
Sevenoaks, Kent TN13 2LN
Charles Wilkinson 14,790
22 Lower Common South, Putney,
London SW15 1 BP
Wingmead Securities Limited 42,000
18 Allandale Avenue,
London N3 3PJ
----------
TOTAL 3,000,000
</TABLE>
EXHIBIT C
<PAGE> 1
[STAMP] STATE OF NEVADA
Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
GOLDEN ARK, INC.
A Nevada Corporation
ARTHUR J. DEGRANGE and RICHARD K. DICKSON II certify that:
1. They are the President and Secretary, respectively, of GOLDEN ARK,
INC., a Nevada corporation.
2. The Articles of Incorporation of the corporation are amended and
restated to read in its entirety as follows:
"ARTICLE I
The name of this corporation is GOLDEN ARK, INC.
ARTICLE II
This corporation shall have perpetual existence.
ARTICLE III
The purpose of this corporation is to engage in any lawful activity
permitted under the laws of the State of Nevada.
ARTICLE IV
The total number of shares that may be issued by the corporation is One
Hundred and Ten Million (110,000,000) shares, of which One Hundred Million
(100,000,000) shares with a par value of $.001 per share, amounting in the
aggregate to One Hundred Thousand Dollars ($100,000) shall be designated "Common
Stock," and of which Ten Million (10,000,000) shares with a par value of $.001
per share, amounting in the aggregate to Ten Thousand Dollars ($10,000) shall be
designated "Preferred Stock."
Upon the amendment and restatement of this article, each one (1) issued
and outstanding share of Common Stock, par value $.001 shall be split up and
divided into 1.4700477 shares of Common Stock, par value $.001. To reflect this
Common Stock split and division, each certificate representing shares of Common
Stock, par value $.001, theretofore issued and outstanding shall represent
1.4700477 times the number of shares of Common Stock, par value $.001, issued
and outstanding after such split up and division; and the holder of record of
each such certificate shall be entitled to receive a new certificate
representing a number of shares of Common Stock, par value $.001, of the kind
authorized by this
<PAGE> 2
amendment and restatement, equal to 1.4700477 times the number of shares
represented by said certificate for theretofore issued and outstanding shares of
Common Stock. The Board of Directors of the Corporation is authorized to
prescribe procedures for handling fractional shares of Common Stock.
The Preferred Stock may be issued from time to time in one or more
series. The board of directors is authorized to fix the number of shares of any
series of Preferred Stock, to determine the designation of any such series and
to determine or alter the rights, preferences, privileges, qualifications,
limitations and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and, within the limits and restrictions stated in any
resolution or resolutions of the board of directors originally fixing the number
of shares constituting any series, to increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares of any
such series subsequent to the issue of shares of that series.
ARTICLE V
The authorized and treasury stock of this corporation may be issued at
such time, upon such terms and conditions and for such consideration as the
Board of Directors shall determine. Shareholders shall not have preemptive
rights to acquire unissued shares of the stock of this corporation and
cumulative voting is denied.
ARTICLE VI
The principal place of business of this corporation in the State of
Nevada is 50 West Liberty Street, Suite 880, Reno, Nevada 89501.
ARTICLE VII
The governing board of this corporation shall be known as directors, and
the number of directors may from time to time be increased or decreased in such
manner as shall be provided by the bylaws of this corporation, provided that the
number of directors shall not be reduced to less than three (3).
The names and post office box or street addresses of the directors of
the first board of directors are as follows:
NAME ADDRESS
---- -------
John W. Crane 1221 Gaviota
Laguna Beach, California 92651
-2-
<PAGE> 3
Arthur J. DeGrange 2001 E. Fourth Street, #112
Santa Ana, California 92705
Matthew B. Kaufman 3710 South Ramona Drive
Santa Ana, California 92707
ARTICLE VIII
The name and address of the initial incorporator is as follows: John W.
Crane, 1221 Gaviota, Laguna Beach, California 92651.
ARTICLE IX
The personal liability of a director or officer to the corporation or
its stockholders for damages for breach of fiduciary duty as a director or
officer shall be eliminated to the fullest extent permissible under Nevada law
except for: (a) acts of omissions which involve intentional misconduct, fraud or
a knowing violation of law; or (b) the payment of distributions in violation of
Section 78.300 or the Nevada Revised Statutes.
If the Nevada Revised Statutes are hereinafter amended to authorize the
further elimination or limitation of the liability of a director or officer,
then the liability of a director or officer or the corporation shall be
eliminated or limited to the fullest extent permitted by the Nevada Revised
Statutes, so as amended.
Any repeal or modification of the foregoing provisions of Article IX by
the stockholders of the corporation shall not adversely affect any right or
protection of a director or officer of the corporation existing prior to the
date when such repeal or modification becomes effective.
ARTICLE X
This corporation reserves the right to amend, alter, change or repeal
any provision contained in the articles of incorporation, in the manner now or
hereafter prescribed by statute, or by the articles of incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation."
3. The foregoing Amended and Restated Articles of Incorporation have been
duly approved by all members of the corporation's board of directors by
resolutions duly adopted, approved and ratified by Unanimous Written
Consent effective September 22, 1995.
4. The foregoing Amended and Restated Articles of Incorporation have been
duly approved by at least a majority of the stockholders of the
corporation entitled to vote by resolutions duly adopted at a special
meeting held on October 3, 1995
-3-
<PAGE> 4
Each of the undersigned hereby declares and certifies that the matters set forth
in the foregoing Amended and Restated Articles of Incorporation are true and
correct to his or her knowledge and that this certificate was executed on
October , 1995, at Newport Beach, California.
/s/Richard K. Dickson II
-------------------------
RICHARD K. DICKSON II
/s/Arthur J. DeGrange
-------------------------
ARTHUR J. DEGRANGE
-4-
<PAGE> 5
STATE OF CALIFORNIA )
)ss
COUNTY OF ORANGE )
On October 4th, 1995 before me, Robinson Ranier/Notary Public personally
appeared RICHARD K. DICKSON II and ARTHUR J. DEGRANGE, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the persons whose
names are subscribed to the within instrument and acknowledged to me that they
executed the same in their authorized capacities, and that by their signatures
on the instrument the persons or the entity upon behalf of which the persons
acted, executed the instrument.
WITNESS my hand and office seal.
/s/ Robinson Ranier
- ---------------------------------
Notary Public [NOTARY SEAL]
-5-
<PAGE> 6
STATE OF CALIFORNIA )
)ss
COUNTY OF ORANGE )
On October 4th, 1995 before me, Robinson Ranier/Notary Public personally
appeared RICHARD K. DICKSON II (proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and office seal.
/s/ Robinson Ranier
- ---------------------------------
Notary Public [NOTARY SEAL]
-2-
<PAGE> 1
[STAMP] Exhibit 3.2
State of Nevada
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
GOLDEN ARK, INC.
We, the undersigned President and Secretary of Golden Ark, Inc., a
Nevada corporation, do hereby certify:
That the Board of Directors of the Corporation has duly adopted
resolutions to amend the Articles of Incorporation of the Corporation as
follows:
1. Article 1 is hereby amended to read as follows:
"Article 1. The name of the corporation is Long Distance
Direct Holdings, Inc."
2. Article IV is hereby amended to read as follows:
"Article IV. The total number of shares that may be issued
by the corporation if Forty Million (40,000,000)
shares, of which Thirty Million (30,000,000)
shares with a par value of $.001 per share,
amounting in the aggregate to Thirty Thousand
Dollars ($30,000.00) shall be designated "Common
Stock," and of which Ten Million (10,000,000)
shares with a par value of $.001 per share,
amounting in the aggregate to Ten Thousand
Dollars ($10,000.00) shall be designated
"Preferred Stock."
The Preferred Stock may be issued from time to
time in one or more series. The board of
directors is authorized to fix the number of
shares of any series of Preferred Stock, to
determine the designation of any such series and
to determine or alter the rights, preferences,
privileges, qualifications, limitations and
restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and,
within the limits and restrictions stated in any
resolutions or resolutions of the board of
directors originally fixing the number of shares
constituting any series, to increase or decrease
(but not below the number of shares of such
series then outstanding) the number of shares of
any such series subsequent to the issue of
shares of that series."
That the number of shares of the Corporation outstanding and entitled
to vote on an
<PAGE> 2
amendment to the Articles of Incorporation is 4,100,000.
That the foregoing amendment has been duly adopted and approved by the
written consent of the stockholders holding a majority of the Corporation's
outstanding stock entitled to vote thereon in accordance with the provisions of
Nevada Revised Statutes, Section 76.320.
/s/ Steven Lampert
-------------------------------
Steven Lampert, President
/s/ Michael Preston
-------------------------------
Michael Preston, Secretary
STATE OF NEW YORK )
:s
COUNTY OF ROCKLAND )
On October 9, 1995, personally appeared before me, a Notary Public,
Steven Lampert, as President of Golden Ark, Inc., and Michael Preston, as
Secretary of Golden Ark, Inc., who acknowledged that they executed the above
instrument.
/s/ Stacie Newman
---------------------------------
Notary Public
[NOTARY SEAL]
<PAGE> 3
[STAMP]
State of Nevada
RESOLUTION FOR
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
GOLDEN ARK, INC.
The following Articles of Incorporation of Golden Ark, Inc. are being
amended and restated: IV-capital & stock split, VI-principal business,
VII-directors, IX(New)-directors liability and X(New)-right to amend.
The undersigned hereby declares and certifies that the matters set
forth in the foregoing Resolution of Amended and Restated Articles of
Incorporation of Golden Ark, Inc. are true and correct to his or her knowledge
and that this certificate was executed on October 4, 1995, at Newport Beach,
California.
/s/ Richard K. Dickson II,
-------------------------------
RICHARD K. DICKSON II,
Secretary and Director
<PAGE> 1
Exhibit 3.3
LONG DISTANCE DIRECT HOLDINGS, INC.
* * * * *
BY-LAWS
* * * * *
ARTICLE I
OFFICES
Section 1. The corporation shall maintain a principal office in
the State of Nevada as set forth in the articles of incorporation or determined
from time to time by the board of directors.
Section 2. The corporation may also have offices at such other
places both within and without the State of Nevada as the board of directors may
from time to time determine or the business of the corporation may require
either inside or outside the State of Nevada.
ARTICLE II
ANNUAL MEETINGS OF SHAREHOLDERS
Section 1. All meetings of shareholders for the election of
directors shall be held at such place as may be fixed from time to time by the
board of directors.
Section 2. Annual meetings of shareholders, commencing with the
year 1989, shall be held on the third Monday of May if not a legal holiday, and
if a legal holiday, then on the next secular day following, at 1:00 p.m., at
which they shall elect by a plurality vote a board of directors, and transact
such other business as may
<PAGE> 2
properly be brought before the meeting.
Section 3. Written or printed notice of the annual meeting stating the
place, day and hour of the meeting shall be delivered not less than ten nor more
than sixty days before the date of the meeting, either personally or by mail, by
or at the direction of the president, the secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting.
ARTICLE III
SPECIAL MEETING OF SHAREHOLDERS
Section 1. Special meetings of shareholders for any purpose other than
the election of directors may be held at such time and place within or without
the State of Nevada as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the articles of
incorporation, may be called by the president, the board of directors, or the
holders of not less than one-tenth of all the shares entitled to vote at the
meeting.
Section 3. Written or printed notice of a special meeting stating the
place, day and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be delivered not less than ten nor more than sixty days
before the date of the meeting, either personally or
-2-
<PAGE> 3
by mail, by or at the direction of the president, the secretary, or the officer
or persons calling the meeting, to each shareholder of record entitled to vote
at such meeting.
Section 4. The business transacted at any special meeting of
shareholders shall be limited to the purposes stated in the notice.
ARTICLE IV
QUORUM AND VOTING STOCK
Section 1. The holders of one-third of the shares of stock
issued and outstanding and entitled to vote, represented in person or by proxy,
shall constitute a quorum at all meetings of the shareholders for the
transaction of business except as otherwise provided by statute or by the
articles of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders present in
person or represented by proxy shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally notified.
Section 2. If a quorum is present, the affirmative vote of a
majority of the shares of stock represented at the meeting shall be the act of
the shareholders unless
-3-
<PAGE> 4
the vote of a greater number of shares of stock is required by law or the
articles of incorporation.
Section 3. Each outstanding share of stock, having voting power,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. A shareholder may vote either in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney-in-fact.
In all elections for directors every shareholder, entitled to
vote, shall have the right to vote, in person or by proxy, the number of shares
of stock owned by him, for as many persons as there are directors to be elected.
Section 4. Any action required to be taken at a meeting of the
shareholders may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the shareholders entitled
to vote with respect to the subject matter thereof.
ARTICLE V
DIRECTORS
Section 1. The number of directors shall be three. Directors
need not be residents of the State of Nevada nor shareholders of the
corporation. The directors, other than the first board of directors, shall be
elected at the annual meeting of the shareholders, and each director elected
shall serve until the next succeeding annual meeting and until his successor
shall have been elected and qualified. The first board of directors shall hold
office
-4-
<PAGE> 5
until the first annual meeting of shareholders.
Section 2. Any vacancy occurring in the board of directors may
be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the board of directors. A director elected to fill
a vacancy shall be elected for the unexpired portion of the term of his
predecessor in office.
Any directorship to be filled by reason of an increase in the
number of directors shall be filled by election at an annual meeting or at a
special meeting of shareholders called for that purpose. A director elected to
fill a newly created directorship shall serve until the next succeeding annual
meeting of shareholders and until his successor shall have been elected and
qualified.
Section 3. The business affairs of the corporation shall be
managed by its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the articles of incorporation or by these by-laws directed or required to be
exercised or done by the shareholders.
Section 4. The directors may keep the books of the corporation,
except such as are required by law to be kept within the state, outside of the
State of Nevada, at such place or places as they may from time to time
determine.
Section 5. The board of directors, by the affirmative vote of
a majority of the directors then in office,
-5-
<PAGE> 6
and irrespective of any personal interest of any of its members, shall have
authority to establish reasonable compensation of all directors for services to
the corporation as directors, officers or otherwise.
ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Meetings of the board of directors, regular or
special, may be held inside or outside the State of Nevada.
Section 2. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the shareholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present, or it may convene at such place and
time as shall be fixed by the consent in writing of all the directors.
Section 3. Regular meetings of the board of directors may be
held upon such notice, or without notice, and at such time and at such place as
shall from time to time be determined by the board.
Section 4. Special meetings of the board of directors may be
called by the president on three days' notice to each director, either
personally or by mail or by telegram; special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of two directors.
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<PAGE> 7
Section 5. Attendance of a director at any meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the board
of directors need be specified in the notice or waiver of notice of such
meeting.
Section 6. A majority of the directors shall constitute a
quorum for the transaction of business unless a greater number is required by
law or by the articles of incorporation. The act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
board of directors, unless the act of a greater number is required by statute or
by the articles of incorporation. If a quorum shall not be present at any
meeting of directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 7. Any action required or permitted to be taken by the
board of directors may be taken without a meeting if all members of the board
consent in writing to the action and the consents are filed with the minutes.
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<PAGE> 8
ARTICLE VII
EXECUTIVE COMMITTEE
Section 1. The board of directors, by resolution adopted by a
majority of the number of directors fixed by the by-laws or otherwise, may
designate two or more directors to constitute an executive committee, which
committee, to the extent provided in such resolution, shall have and exercise
all of the authority of the board of directors in the management of the
corporation, except as otherwise required by law. Vacancies in the membership of
the committee shall be filled by the board of directors at a regular or special
meeting of the board of directors. The executive committee shall keep regular
minutes of its proceedings and report the same to the board when required.
ARTICLE VIII
NOTICES
Section 1. Whenever, under the provisions of the statutes or of
the articles of incorporation or of these by-laws, notice is required to be
given to any director or shareholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or shareholder, at this address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be
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<PAGE> 9
given by telegram.
Section 2. Whenever any notice whatever is required to be given
under the provisions of the statutes or under the provisions of the articles of
incorporation or these by-laws, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
ARTICLE IX
OFFICERS
Section 1. The officers of the corporation shall be chosen by
the board of directors and shall be a president, a vice-president, a secretary
and a treasurer. The board of directors may also choose additional
vice-presidents, and one or more assistant secretaries and assistant treasurers.
Section 2. The board of directors at its first meeting after
each annual meeting of shareholders shall choose a president, one or more
vice-presidents, a secretary and a treasurer, none of whom need be a member of
the board.
Section 3. The board of directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board of directors.
Section 4. The salaries of all officers and
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<PAGE> 10
agents of the corporation shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the board of directors may be removed at any time by the affirmative vote of
a majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of
the corporation, shall preside at all meetings of the shareholders and the board
of directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 8. The vice-president, or if there shall
be more than one, the vice-presidents in the order de-
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<PAGE> 11
termined by the board of directors, shall, in the absence or disability of the
president, perform the duties and exercise the powers of the president and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The secretary shall attend all meetings of the board
of directors and all meetings of the shareholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the shareholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other office
to affix the seal of the corporation and to attest the affixing by his
signature.
Section 10. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the board of
directors, shall, in the absence
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<PAGE> 12
or disability of the secretary, perform the duties and exercise the powers of
the secretary and shall perform such other duties and have such other powers as
the board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or
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<PAGE> 13
under his control belonging to the corporation.
Section 14. The assistant treasurer, or, if there shall be more
than one, the assistant treasurers in the order determined by the board of
directors, shall, in the absence or disability of the treasurer, perform the
duties and exercise the powers of the treasurer and shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
ARTICLE X
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by
certificates signed by the president or a vice-president and the secretary or an
assistant secretary of the corporation, and may be sealed with the seal of the
corporation or a facsimile thereof.
When the corporation is authorized to issue shares of more than one
class there shall be set forth upon the face or back of the certificate, or the
certificate shall have a statement that the corporation will furnish to any
shareholder upon request and without charge, a full or summary statement of the
designations, preferences, limitations, and relative rights of the shares of
each class authorized to be issued and, if the corporation is authorized to
issue any preferred or special class in series, the variations in the relative
rights and preferences between the shares of each such series so far as the same
have been fixed and determined and the authority of the
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<PAGE> 14
board of directors to fix and determine the relative rights and preferences of
subsequent series.
Section 2. The signatures of the officers of the corporation upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the corporation itself or an
employee of the corporation. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of its
issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate to be
issued in place of any certificate theretofore issued by the corporation alleged
to have been lost or destroyed. When authorizing such issue of a new
certificate, the board of directors, in its discretion and as a condition
precedent to the issuance thereof, may prescribe such terms and conditions as it
deems expedient, and may require such indemnities as it deems adequate, to
protect the corporation from any claim that may be made against it with respect
to any such certificate alleged to have been lost or destroyed.
TRANSFERS OF SHARES
Section 4. Upon surrender to the corporation or
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<PAGE> 15
the transfer agent of the corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, a new certificate shall be issued to the person entitled
thereto, and the old certificate cancelled and the transaction recorded upon the
books of the corporation.
CLOSING OF TRANSFER BOOKS
Section 5. For the purpose of determining shareholders entitled to
notice of or to vote at any meeting of shareholders, or any adjournment thereof
or entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the board of
directors may provide that the stock transfer books shall be closed for a stated
period but not to exceed, in any case, sixty days. If the stock transfer books
shall be closed for the purpose of determining shareholders entitled to notice
of or to vote at a meeting of shareholders, such books shall be closed for at
least ten days immediately preceding such meeting. In lieu of closing the stock
transfer books, the board of directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than sixty days and, in case of a meeting of shareholders, not less than
ten days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the stock transfer books are
not closed and no record date is fixed for the
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<PAGE> 16
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the board of directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof.
REGISTERED SHAREHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notices thereof, except as otherwise provided by the laws of
Nevada.
LIST OF SHAREHOLDERS
Section 7. The officer or agent having charge of the transfer books for
shares shall make, at least ten days before each meeting of shareholders, a
complete list of the
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<PAGE> 17
shareholders entitled to vote at such meeting, arranged in alphabetical order,
with the address of each and the number of shares held by each, which list, for
a period of ten days prior to such meeting, shall be kept on file at the
registered office of the corporation and shall be subject to inspection by any
shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original share ledger or transfer book, or a duplicate thereof, shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
share ledger or transfer book or to vote at any meeting of the shareholders.
ARTICLE XI
GENERAL PROVISIONS
DIVIDENDS
Section 1. Subject to the provisions of the articles of
incorporation relating thereto, if any, dividends may be declared by the board
of directors at any regular or special meeting, pursuant to law. Dividends may
be paid in cash, in property or in shares of the capital stock, subject to any
provisions of the articles of incorporation.
Section 2. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors
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<PAGE> 18
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interest of the corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 5. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal, Nevada". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
ARTICLE XII
AMENDMENTS
Section 1. These by-laws may be altered, amended, or repealed
or new by-laws may be adopted by the affirma-
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<PAGE> 19
tive vote of a majority of the board of directors at any regular or special
meeting of the board.
CERTIFICATION
I hereby certify that the foregoing is the original or a true copy of
the by-laws adopted by Long Distance Direct Holdings, Inc. pursuant to the
organizational action of its directors.
Dated: May 31, 1988
/s/ John W. Crane, President
----------------------------
John W. Crane, President
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<PAGE> 1
Exhibit 10.1
PURCHASE BY
STEVEN L. LAMPERT AND MICHAEL D. PRESTON
OF THE INTERESTS OF
MICHAEL G. MILLER AND JEFFREY L. SCHWARTZ
IN
LONG DISTANCE DIRECT L.P., LONG DISTANCE DIRECT,
INC. AND CERTAIN OTHER ENTITIES
----------------
MAY 31, 1993
----------------
<PAGE> 2
I. DEFINITIONS
CDI Cellular Direct, Inc., a New York corporation and
general partner of CDLP.
CDLP Cellular Direct L.P., a New York limited partnership.
ENTITIES CDI, CDLP, LDDI, LDDLP and PVI.
JAMI JAMI Marketing Services, Inc., a Delaware corporation.
LAMPERT Steven L. Lampert.
LDDI Long Distance Direct, Inc., a New York corporation and
general partner of LDDLP.
LDDLP Long Distance Direct L.P., a New York limited
partnership.
MILLER Michael G. Miller.
PRESTON Michael D. Preston.
PVI Private Ventures Inc., a New York corporation.
SCHWARTZ Jeffrey L. Schwartz.
<PAGE> 3
II. DOCUMENTATION TAB NO.
A. Pre-closing Documents
Standstill Agreement dated April 2, 1993 1
by and among Lampert, Preston, Miller and
Schwartz.
Agreement dated as of April 6, 1993 by and 2
among Lampert, Preston, Miller, Schwartz
and the Entities.
Side Letter dated April 6, 1993 from 3
Preston to JAMI re: transfer of leased
automobile obligations.
Side letter dated April 6, 1993 from 4
Lampert to JAMI re: certain indebtedness.
Undertaking by Lampert and Preston re: 5
payment of legal fees.
B. Closing Documents
Secured Promissory Note dated as of May 31, 6
1993 by LDDLP to Miller and Schwartz in
the original aggregate principal amount of
$250,000.
Secured Promissory Note dated as of May 31, 7
1993 by LDDLP to JAMI in the original
aggregate principal amount of $288,333.34.
Guaranty dated as of May 31, 1993 by 8
Lampert to JAMI.
Guaranty dated as of May 31, 1993 by 9
Preston to JAMI.
Security Agreement dated as of Nay 31, 10
1993 by and between Miller, Schwartz and
JAMI, as secured parties, and the Entities.
UCC-1 Financing Statement by the Entities 11
in favor of Miller, Schwartz and JAMI, as
filed with the Secretary of State of the
State of New York and in Rockland County.
Release dated as of May 31, 1993 by 12
Lampert, Preston and the Entities in favor
of Miller and Schwartz.
- 2 -
<PAGE> 4
TAB NO.
Release dated as of May 31, 1993 by Miller 13
in favor of Lampert, Preston and the
Entities.
Release dated as of May 31, 1993 by 14
Schwartz in favor of Lampert, Preston and
the Entities.
Bring-down Certificate dated as of May 31, 15
1993 by Lampert.
Bring-down Certificate dated as of May 31, 16
1993 by Preston.
Bring-down Certificate dated as of May 31, 17
1993 by the Entities.
Bring-down Certificate dated as of May 31, 18
1993 by Miller.
Bring-down Certificate dated as of May 31, 19
1993 by Schwartz.
Resignation dated June 3, 1993 of Miller 20
as a director and officer of LDDI.
Resignation dated June 3, 1993 of Miller 21
as a director and officer of CDI.
Resignation dated June 3, 1993 of Miller 22
as a director and officer of PVI.
Resignation dated June 3, 1993 of Schwartz 23
as a director and officer of LDDI.
Resignation dated June 3, 1993 of Schwartz 24
as a director and officer of CDI.
Resignation dated June 3, 1993 of Schwartz 25
as a director and officer of PVI.
LDDI Share Certificate with attached stock 26
power duly endorsed in blank by Miller
evidencing the transfer of 23.75 shares of
LDDI.
LDDI Share Certificate with attached stock 27
power duly endorsed in blank by Schwartz
evidencing the transfer of 23.75 shares of
LDDI.
Stock Power duly endorsed in blank by Miller 28
evidencing the transfer of all of Miller's
interest in CDI.
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<PAGE> 5
TAB NO.
Stock Power duly endorsed in blank by 29
Schwartz evidencing the transfer of all of
Schwartz's interest in CDI.
Stock Power duly endorsed in blank by 30
Miller evidencing the transfer of all of
Miller's interest in PVI.
Stock Power duly endorsed in blank by 31
Schwartz evidencing the transfer of all of
Schwartz's interest in PVI.
Instrument of Transfer dated June 3, 1993 32
of Miller transferring all of his interest
in LDDLP to Lampert and Preston.
Instrument of Transfer dated June 3, 1993 33
of Schwartz transferring all of his
interest in LDDLP to Lampert and Preston.
Instrument of Transfer dated June 3, 1993 34
of Miller transferring all of his interest
in CDLP to Lampert and Preston.
Instrument of Transfer dated June 3, 1993 35
of Schwartz transferring all of his
interest in CDLP to Lampert and Preston.
Waiver and Consent dated as of May 31, 36
1993 by Jerry Lott.
Certificate of Amendment of Certificate of 37
Limited Partnership of LDDLP, as filed
with the Secretary of State of the State
of New York.
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<PAGE> 6
"STANDSTILL" AGREEMENT
The undersigned agree to the following:
1. Concurrently herewith, Long Distance Direct, Inc. ("the Company"), the
general partner of Long Distance Direct L.P. (the "Partnership") has delivered
to JAMI Marketing Services, Inc. ("JAMI") a certified check in the amount of
$16,666.66, in partial payment of amounts due by the Company and the Partnership
to JAMI, and Steven Lampert has delivered to JAMI a bank check payable to JAMI
in the amount of $33,333.33 in full payment of a like amount advanced by JAMI
for Steven Lampert.
2. Each of the undersigned agrees to continue to negotiate in good faith the
terms of the agreement among the undersigned, the Company and the Partnership
regarding the acquisition of the interests of Jeffrey Schwartz ("Schwartz") and
Michael Miller ("Miller") in the Company, the Partnership and Cellular Direct,
Inc., Cellular Direct L.P. and Private Ventures, Inc., (hereafter such agreement
is referred to as the "Settlement Agreement"). Schwartz and Miller acknowledge
that the memorandum dated April 1, 1993 from William H. Gump to Geoffrey A. Bass
RE: LDDI Transaction contains the terms which Preston and Lampert proposed
regarding the Settlement Agreement.
3. While such negotiations continue, the parties agree not to (i) contact, or
instruct or cause their representatives or agents to contact, Allstate Financial
Services Inc. ("Allstate") regarding the factoring agreements between Allstate
and the Company and the disputes among them and the undersigned.
4. Preston and Lampert shall advise Schwartz and Miller of the amount and
identity of the payee, and if requested by Schwartz or Miller, the purpose, of
any checks or wire transfers in excess of $5,000.00 written prior to the date
hereof on the Company's account at MHT without the signature of Schwartz or
Miller, and Schwartz and Miller agree to advise Manufacturers Hanover Trust to
honor such check and wire transfers if written in the ordinary course of
business of the Company and the Partnership for valid business purposes
consistent with prior practices of the Company and the Partnership. Schwartz and
Miller consent to payment of the checks drawn on such account prior to the date
hereof which are identified or described on a list which may be attached hereto,
which list has been signed by Schwartz and Miller of such checks or transfers,
including a transfer of funds to Allstate, shall not be deemed to constitute an
approval by them of the issuance of such checks and wire transfer instructions
without the approval in advance of Schwartz or miller or of any arrangements
between the company, the Partnership and Allstate. Subject to the provisions of
Section 5 below, Schwartz and Miller agree to review requests for issuance of
checks by the company and the Partnership, and to co-sign checks in payment
thereof if written in the ordinary course of business in the Company and the
Partnership for valid business purposes consistent with prior practices of the
Company and the Partnership.
<PAGE> 7
5. This agreement is without prejudice to the rights of any of the undersigned.
This agreement shall be of no further force and effect in the event that the
settlement agreement is not and delivered by the undersigned and the entities
referred to in paragraph 2 above by 3:00 PM Tuesday, April 6, 1993. Time shall
be of the essence with respect to this paragraph.
IN WITNESS WHEREOF, each of the undersigned has executed this Memorandum of
Agreement.
/s/ Jeffrey Schwartz /s/ Michael Preston
- ------------------------------ ---------------------------------
Jeffrey Schwartz Michael Preston
/s/ Michael Miller /s/ Steven Lampert
- ------------------------------ ---------------------------------
Michael Miller Steven Lampert
<PAGE> 8
LONG DISTANCE DIRECT, INC.
SCHEDULE OF CHECKS WRITTEN BUT NOT PRESENTED AS AT 2 APRIL, 1993
<TABLE>
<CAPTION>
PAYEE AMOUNT PURPOSE OF PAYMENT
$
<S> <C> <C>
Blue Hill Plaza Ass. 16,940.00 Security deposit
Blue Hill Plaza Ass. 7,186.67 1 month's rent + util.
Blue Hill Plaza Ass. 10,000.00 Redecoration of offices
AT&T/ACUS division 47,924.41 11/92 & 12/92 billing fee
AT&T/ACUS division 23,349.68 1/93 billing fees
<CAPTION>
WIRE TRANSFERS REQUESTED BUT NOT IMPLEMENTED BY BANK
<S> <C> <C>
Allstate Financial
Corporation 34,674.85 Funds received directly
by LDDI in respect of
invoices bought by factor
</TABLE>
<PAGE> 9
AGREEMENT
Agreement, dated as of April 6, 1993, by and among Steven L.
Lampert ("Lampert") and Michael D. Preston ("Preston"; Lampert and Preston,
collectively, the "Buyers"), Michael G. Miller ("Miller") and Jeffrey L.
Schwartz ("Schwartz"; Miller and Schwartz, collectively, the "Selling
Stockholders") and Long Distance Direct L.P., a New York limited partnership
(the "Partnership"), Long Distance Direct, Inc., a New York corporation (the
"Company"), Cellular Direct, Inc., a New York corporation ("CDI"), Private
Ventures Inc., a New York corporation ("PVI"), and Cellular Direct L.P. , a New
York limited partnership ("CDLP"; the Partnership, the Company, CDI, PVI and
CDLP, each, an "Entity" and collectively, the "Entities").
WHEREAS, Miller is the beneficial and record owner of (i) the
shares of common stock (the "Common Stock") of each of the Company, PVI and CDI
set forth opposite his name on Schedule A attached hereto (the "Miller Shares")
and (ii) the Units (the "Units") of each of the Partnership and CDLP, set forth
opposite his name on Schedule A attached hereto (the "Miller Units") (the Miller
Shares and the Miller Units, collectively, the "Miller Interests"); and
WHEREAS, Schwartz is the beneficial and record owner of (i) the
shares of Common Stock in each of the Company, PVI and CDI set forth opposite
his name On Schedule A attached hereto (the "Schwartz Shares") and (ii) the
Units in each of the Partnership and CDLP set forth opposite his name on
Schedule A attached hereto (the "Schwartz Units") (the Schwartz Shares and the
Schwartz Units, collectively, the "Schwartz Interests"); and
WHEREAS, Miller wishes to sell and the Buyers wish to purchase
all of the Miller Interests in accordance with the terms of this Agreement; and
WHEREAS, Schwartz wishes to sell and the Buyers wish to purchase
all of the Schwartz Interests in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the
receipt and adequacy of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Terms of the Transaction.
1.1 Sale of the Interests.
(a) Miller and Schwartz shall, on the Closing Date (as defined
in Section 5 hereof), sell, transfer and assign to the Buyers all of the Miller
Interests and the Schwartz Interests, respectively, by delivering to the Buyers
<PAGE> 10
certificates representing all the Miller Shares and the Schwartz Shares, duly
endorsed in blank or with duly executed stock powers attached and with all
necessary transfer tax stamps and other revenue stamps, if any, acquired at the
expense of the Selling Stockholders, affixed and cancelled, and (ii) all
evidences of ownership of the Miller Units and the Schwartz Units, with such
instruments of transfer as the Buyers may reasonably request.
1.2 Purchase Price and Consideration for Restrictive Covenant.
(a) Fixed Consideration.
(1) The aggregate fixed consideration for the Miller Interests
and the Schwartz Interests of $500,000 shall be paid by the Buyers one
half to each Selling Stockholder, against the delivery of the Miller
Interests and the Schwartz Interests as provided in Section 1.1, by bank
or tellers checks on the Closing Date.
(2) Contingent Consideration. The balance of the purchase price
for the Miller Interests and the Schwartz Interests shall be paid as a
Contingent Payment (as defined in Section 1.2(b)(3)) in accordance with
the other provisions of this Agreement.
(3) Partnership Consideration for Restrictive Covenant. In
consideration of each selling Stockholder making the restrictive
covenants contained in Section 3 hereof, the Partnership hereby agrees
to pay to the Selling Stockholders the aggregate sum of Two Hundred
Fifty Thousand Dollars ($250,000) which sum shall constitute part of the
Initial Contingent Payment (as defined in Section 1.2(b)(3)(A)), shall
be paid in accordance with the terms of Section 1.2(b)(3)(A) and only
upon the occurrence of any Contingency Event or pursuant to the terms of
Sections 1-4, 1.5 or 1.9 and shall be evidenced by a promissory note in
the form of the note annexed as Exhibit I-A (the "Partnership Seller
Note").
(b) Contingent Payments. (1) The occurrence of any of the
following events shall be referred to as a "Contingency Event":
(A) the sale directly or indirectly by the Buyers of all or a
majority of the Buyers interests in any or all of the Entities;
(B) the sale directly or indirectly of all or substantially all
of the assets of all or any of the Entities; or
(C) the proposed distribution of earnings or profits or any
other distribution of cash or property by any Entity to the
Buyers, which distributions for the
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<PAGE> 11
purposes of this Section shall not include salary or bonus
payments paid directly or indirectly to Lampert not exceeding
$187,500 per calendar year or salary or bonus payments paid
directly or indirectly to Preston not exceeding $150,000 per
calendar year or benefits paid to either Buyer related to the
operation of the business of such entities in the aggregate.
(2) The proceeds of the sales described in clauses (A) and (B) of this
Section 1.2(b) shall be referred to as "Sale Proceeds" . The profits described
in clause (C) of this Section 1.2(b) shall be referred to as "Distributable
Profits".
(3) Upon the occurrence of a Contingency Event, the Selling Stockholders
shall be entitled to the following contingent payments (the "Contingent
Payments"), subject to adjustment in accordance with the terms of Sections 1.4
and 1.5:
(A) with respect to the first $500,000 of Sale Proceeds or of
Distributable Profits, or any combination thereof, such amounts
shall be paid (i) first, to the Selling Stockholders in respect
of amounts owed to them pursuant to Section 1.3 hereof, and (ii)
second, to JAMI Marketing Services, Inc. ("JAMI") in respect of
payments owed to JAMI pursuant to Section 1.6(b)(iii) hereof
(the amounts payable pursuant to this Section 1.2(b)(3)(A) are
hereafter referred to as the "Initial Contingent Payment");
(B) with respect to the next $2,000,000 of Sale Proceeds or of
Distributable Profits, or any combination thereof, remaining
after payment of the amounts described in clause (A) above, the
Selling Stockholders shall not be entitled to any of such Sale
Proceeds or Distributable Profits;
(C) with respect to the next $1,500,000 of Sale Proceeds or of
Distributable Profits, or any combination thereof, remaining
after payment of the amounts described in clauses (A) and (B)
above, the Selling Stockholders shall be entitled to receive
$.50 of every $1.00 paid as Sale Proceeds or of Distributable
Profits, as the case may be; and
(D) with respect to any amounts in excess of those described in
clause (3)(C) above of Sale Proceeds or Distributable Profits,
or any combination thereof, the Selling Stockholders shall not
be entitled to any such Sale Proceeds or Distributable Profits.
(4) With respect to amounts owed in respect of Contingent
Payments, (A) Sale Proceeds shall only include Sale Proceeds actually received
by the Buyers (Or their designees) in respect of any sale described in clause
(1)(A) above or by the Partnership in respect of any sale described in clause
(B) above (i.e., exclusive of any deferred or contingent amounts
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until paid, if ever) and (B) Distributable Profits shall only include amounts
actually distributed to the Buyers (or their designees) (i.e., exclusive of
amounts available for distribution until actually distributed, if ever). The
party (or parties) receiving such Sale proceeds or Distributable profits shall
be the party responsible for any payments due under this Section 1.2(b);
provided, however, that the Entities agree that amounts due to the Selling
Stockholders or, as the case may be, JAMI under this Section 1.2(b) shall be
paid to them by the Entity receiving the Sale Proceeds or distributing the
Distributable Profits simultaneously with any distribution by the Entity of Sale
Proceeds received under clause (B) of Section 1.2(b)(1) or the distribution of
Distributable Profits under clause (C) of Section 1.2(b)(1), and such Entity
shall cause the Buyer receiving Sale Proceeds under clause (A) of Section
1.2(b)(1) to make the payment due to JAMI, or as the case may be, to the Selling
Stockholders under this Section 1.2(b) prior to entering upon its books and
records any transfer of interests or issuing new stock certificates or evidence
of ownership of partnership units resulting from any transfer of interests in
such Entity. The Contingent Payment shall be made not later than the third
Business Day following the receipt of Sale Proceeds or, as the case may be,
simultaneously with the distribution of Distributable Profits, and shall be
payable by bank or tellers checks to JAMI, or as the case may be, one-half to
each Selling Stockholder.
With respect to any Sale Proceeds received or Distributable Profits
distributed in forms other than cash, such proceeds or profits shall be valued
by the Partnership's accountants. In the event the Buyers dispute such valuation
rendered by the Partnership's accountants and the Buyers give notice to the
Partnership of such objection within 5 Business Days of receipt thereof, the
Buyers may, at their cost and expense, retain independent certified public
accountants to prepare a second valuation. In connection with the preparation of
such second valuation, the Buyers and their representatives shall be granted by
the Partnership all reasonable and necessary access to the materials reviewed by
the Partnership's accountants in calculating their valuation, subject to the
rendering by the Buyers and their representatives of usual and customary
undertakings concerning confidentiality of certain information. The two firms of
certified public accountants (collectively, the "Accountants") shall thereafter
use their best efforts to reconcile any differences between the two calculations
and shall prepare a joint certificate setting forth the agreed valuation of such
non-cash consideration, which calculation shall be final and binding. In the
event the two firms cannot so reconcile such difference within 90 days after the
rendering of a valuation by the accountants selected by the Buyers, the
Accountants shall mutually select a firm of certified public accountants to
arbitrate the dispute (the "Arbitrator"). The Arbitrator's determination of a
valuation of the non-cash consideration shall be final and binding on the
parties hereto and the cost of such arbitration shall be borne equally between
the parties. In the event the Accountants are unable to agree on the selection
of the Arbitrator either party
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hereto may commence an action in Supreme Court, New York County to resolve the
dispute at any time after 120 days after the rendering of a valuation by the
accountants selected by the Buyers. Upon the date on which the Accountants
deliver their joint certificate referred to in this Section, the Arbitrator
renders its decision or the final judgment is rendered in the action commenced
in the Supreme Court, New York County, as the case may be, the valuation shall
be considered final and any payments to the Selling Stockholders due as a result
thereof shall be made within 10 Business Days.
As used herein, the term "Business Day" means any day other than
a Saturday, a Sunday or a day on which commercial banks in New York City are
required or authorized to be closed. If the due date for any payment described
above is not a Business Day, then the Selling Stockholders or JAMI (as the case
may be) shall not be entitled to payment of the amount due until the next
following Business Day, and shall not be entitled to any interest or other
payment in respect of such delay.
1.3 Repayment of Capital. The credit balances in the capital and current
accounts of each Selling Stockholder with the Partnership as of the date hereof
as stated opposite such Selling Stockholder's name on Schedule B attached hereto
shall be paid to such Selling Stockholder on the second anniversary of the
Closing Date.
1.4 Equalization Payments. To the extent that amounts paid in any month
as salary or bonuses to Lampert and to Preston exceed in the aggregate
$18,750.00 (the "Cap Amount"), then the Selling Stockholders or JAMI (as the
case may be) shall be entitled to receive from the Partnership in the succeeding
month as a payment of contingent amounts owed to the Selling Stockholders or
JAMI (as the case may be) pursuant to Section 1.2(b)(3)(A), $1.00 for every
$1.00 by which the amounts so paid to Lampert and Preston exceeded the Cap
Amount. Any payments made pursuant to this Section 1.4 shall constitute
Contingent Payments under Section 1.2(b)(3)(A) and shall be credited against the
amounts due on account of the Initial Contingent Payment and shall reduce the
Contingent Payment amounts stated in Section 1.2(b)(3)(A) in a corresponding
amount. Upon payment in full of the Initial Contingent Payment, this Section
shall be of no further force or effect.
1.5 Earnings Ceiling Payments.
(a) To the extent that the Partnership or any other Entity has
Earnings (as defined below) in any fiscal year in excess of $200,000 (the
"Earnings Ceiling"), then (1) with respect to the fiscal year ended December 31,
1993, the Selling Stockholders or JAMI (as the case may be) shall be entitled to
$.50 of every $1.00 of Earnings of the Partnership or other Entity in excess of
the Earnings Ceiling with respect to Earnings up to and including $500,000 and
shall be entitled to all Earnings of the Partnership or other Entity in excess
of
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<PAGE> 14
$500,000 in respect of amounts due to the Selling Stockholders or JAMI (as the
case may be) on account of the Initial Contingent Payment, and (2) with respect
to all fiscal years ending after December 31, 1993, the Selling Stockholders or
JAMI (as the case may be) shall be entitled to all Earnings of the Partnership
or other Entity in excess of the Earnings Ceiling in respect of amounts due to
the Selling Stockholders or JAMI (as the case may be) on account of the Initial
Contingent Payment with such amounts, if any, to be paid within twenty days of
the due date for delivery of the annual financial statements described in
Section 1.5(b)(2). In no event shall payments be made in respect of this Section
1.5(a) in excess of $300,000 (including any prepayments made pursuant to Section
1.5(c)) with respect to the fiscal year of the Partnership ending December 31,
1993; in the event that amounts are owed in excess of $250,000 pursuant to this
Section 1.5(a) based upon the financial statements delivered pursuant to Section
l.5(b)(2) in respect of the fiscal year ended December 31, 1994 (and giving
effect to any prepayments made pursuant to Section 1.5(c)), $250,000 shall be
due and payable within 30 days of the due date for delivery of such annual
financial statements and any amounts in excess thereof shall be paid within 120
days of the due date for delivery of such annual financial statements. Any
amounts paid to the Selling Stockholders or JAMI pursuant to this Section 1.5
shall constitute Contingent Payments and shall reduce the Contingent Payment
amounts stated in Sections 1.2(b)(3)(A)-(D) in a corresponding amount. Upon
payment in full of the Initial Contingent Payment, this Section 1.5 shall be of
no further force or effect. For purposes of this Section, "Earnings" for any
period shall mean the net income of the Partnership for such period as
determined in accordance with generally accepted accounting principles ("GAAP")
consistently applied, but without giving effect to (i) depreciation expenses
other than depreciation in respect of fixed assets taken in lieu of expenses for
lease payments on financing leases; (ii) the payment of income tax; (iii)
interest expense for interest amounts paid other than to a third party; (iv)
amortization in respect of intangibles; (v) payment of any amounts to Willkie
Farr & Gallagher in respect of this Agreement and the transactions contemplated
hereby; and (vi) annualized salary payments to Preston and Lampert in excess of
$100,000 and $125,000, respectively.
(b) With respect to the obligations of the Partnership and the other
Entities under this Section 1.5, the Partnership shall furnish to the Selling
Stockholders and JAMI:
(1) as soon as practicable and in any event within 45 days after the
close of each month of each year with respect to the financial statements
referred to herein, a statement of income of the Partnership and the other
Entities for the month and year to date, in reasonable detail and certified by
the President or Chief Financial Officer of the Partnership and the other
Entities to be true and fair in all material respects and to have been prepared
in accordance with GAAP (except for the omission of footnotes), subject to
normal recurring year-end
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<PAGE> 15
audit adjustments; provided that with respect to the Entities other than the
Partnership, a statement that an Entity has not transacted any business in a
given month certified by the President or Chief Financial Officer of such Entity
shall constitute compliance for purposes of this Section 1.5(b)(1); and
(2) as soon as practicable and in any event within 90 days after the end
of the fiscal year of the Partnership commencing with the fiscal year ending
December 31, 1993, a balance sheet of the Partnership and a statement of income
and retained earnings of the Partnership, as at the end of and for the fiscal
year just closed, all in reasonable detail, presented in a manner consistent
with the financial statements of the Partnership for the fiscal year ended
December 31, 1992 certified by an independent certified public accountant; such
audited financial statements shall be provided with respect to any other Entity
with any gross income in excess of $10,000 in any fiscal year with respect to
such fiscal year.
(c) In the event that the product (the "Annualized Earnings") of (1) the
quotient of (A) the year to date income statement figures delivered pursuant to
Section 1.5(b)(1) above for any of March, June or September divided by (B) the
number of months elapsed from the date of the last audited annual financial
statements of the Partnership or other Entity (as the case may be) to the date
of such year to date income statement multiplied by (2) twelve is greater than
the Earnings Ceiling, then the Partnership or other Entity (as the case may be)
shall deliver to the Selling Stockholders or JAMI (as the case may be) within 30
days of the due date for delivery of such income statement a bank or tellers
check in an amount equal to the quotient of (X) the amount by which the
Annualized Earnings exceed the Earnings Ceiling (provided, however, that this
amount shall be halved for Annualized Earnings between $200,000 and $500,000 in
respect of financial statements delivered with respect to the fiscal year ended
December 31, 1993) divided by (Y) the number of months elapsed from the date of
the last audited annual financial statements of the Partnership to the date of
such year to date income statement; provided, however, that such quotient shall
be reduced by the cumulative amount of any such annualized payments previously
paid in respect of such fiscal year.
(d) In the event that any payments made pursuant to Section 1.5(c) above
are shown to exceed those due to the Selling Stockholders or JAMI (as the case
may be) pursuant to Section 1.5(a) upon the delivery of the audited annual
financial statements of the Partnership pursuant to Section 1.5(b)(2), then the
Partnership shall be entitled to a credit in the amount of such excess against
any other Contingent Payment due pursuant to this Agreement and the amounts due
under Sections 1.2(b)(3)(A)-(D) shall be reduced in a corresponding amount.
(e) The Partnership and each Entity will keep proper books of record
and account in which full, true and correct
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entries in conformity with GAAP shall be made of all dealings and transactions
in relation to its business and activities. The Partnership covenants that it
will, upon reasonable advance notice and at a reasonable time, permit any
representative of either any Selling Stockholder or JAMI (other than the Selling
Stockholders), designated in writing by such entity, at the expense of JAMI or
any Selling Stockholder, to examine the financial records of the Company and
make copies thereof or extracts therefrom for the purposes of verification of
accuracy and completeness of the financial statements delivered pursuant to
Sections 1.5(b)(1) and (2), and for no other purpose provided that JAMI and any
Selling Stockholder and their representatives acknowledge that all information
disclosed in any such examination shall remain confidential in accordance with
the terms of Section 3.4.
(f) In the event that the Selling Stockholders or JAMI do not agree with
any item shown on the audited financial statements delivered pursuant to Section
1.5(b)(2), the Selling Stockholders or JAMI shall promptly (but not later than
45 days after the delivery of the financial statements) give written notice to
the Partnership of any exceptions thereto (in reasonable detail describing the
nature of the disagreement asserted; but only one notice may be given by the
Selling Stockholders or JAMI with respect to any single financial statement). If
the Partnership and the Selling Stockholders or JAMI (as the case may be)
reconcile their differences, the financial statement in question shall be
adjusted accordingly and shall thereupon become final and conclusive upon all of
the parties hereto. If the Partnership and the Selling Stockholders or JAMI (as
the case may be) are unable to reconcile their differences in writing within 20
days after written notice of exceptions is received by the Partnership, the
Selling Stockholders or JAMI (as the case may be) may either accept the
financial statements without adjustment or retain at their cost and expense
(except as set forth below) independent certified public accountants to attempt
to reconcile the exceptions with the Partnership's accountants in the manner
described in Section 1.2(b)(4) of this Agreement. In the event the Accountants
cannot reconcile the exceptions within 45 days after the selection of the
Selling Stockholders' or JAMI's Accountant, an Arbitrator shall be selected in
the manner described in Section 1.2(b)(4), and the exceptions shall be resolved
in the manner described in Section 1.2(b)(4), except that the fees and expenses
of the Selling Stockholders' or JAMI's (as the case may be) Accountant and the
Arbitrator shall be paid as follows: by the Buyers and the Company, if the
Arbitrator's determination increases the amount payable to the Selling
Stockholders and JAMI under Section 1.5 with respect to the fiscal year under
examination by ten percent (10%) or more; by the Buyers and the Company on the
one hand and the Selling Stockholders or JAMI (as the case may be depending upon
who delivered the notice of exceptions) on the other equally if the Arbitrator's
determination increases the amount payable to the Selling Stockholders and JAMI
under Section 1.5 with respect to the fiscal year under examination by less than
ten percent (10%) but more than five percent (5%);
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<PAGE> 17
and by the Selling Stockholders or JAMI (as the case may be depending upon who
delivered the notice of exceptions) if the Arbitrator's determination does not
increase the amount payable to the Selling Stockholders and JAMI under Section
1.5 with respect to the fiscal year under examination by more than five percent
(5%).
1.6 Settlement with JAMI Marketing Services Inc.
(a) The Partnership and the Buyers acknowledge: (i) that the
Partnership rented office space from JAMI Marketing Services, Inc. ("JAMI"),
that JAMI provided the Partnership with receptionist services, conference room
facilities, office furniture, supplies and equipment, including telephones,
copier machines and access to computers for design work (hereafter the foregoing
is referred to as the "Office Facilities and Equipment"); (ii) an agreement
between the Partnership and JAMI pursuant to which JAMI would provide and the
Partnership would purchase from JAMI the Office Facilities and Equipment as long
as the Partnership continued in business (such agreement is referred to as the
"Office Facilities and Equipment Agreement"); (iii) that JAMI provided marketing
and consulting services to the Partnership to assist the Partnership in
developing marketing techniques and materials. The Partnership and JAMI agree
that in consideration for the Office Facilities and Equipment and the consulting
services provided by JAMI to the Partnership, and in consideration for JAMI's
agreement to terminate the Office Facilities and Equipment Agreement and release
the Partnership from its obligations thereunder, the Partnership shall make the
payments to JAMI described in subparagraph (b) of this Section 1.6. All parties
hereto agree that the total indebtedness to JAMI with respect to the above
matters is $303,333.34, which shall be paid to JAMI in the manner provided in
paragraph (b) below, and which obligation for payments due under Section
1.6(b)(ii) below shall be evidenced by a promissory note in the form of the note
annexed as Exhibit I-B (such note shall be referred to as the "Partnership JAMI
Note").
(b) (i) $15,000 shall be paid to JAMI on the Closing Date and
(ii) $38,333.34 shall be paid in 6 equal monthly installments of $6,388.89 each,
the first such installment to be made 30 days after the Closing Date, and each
of the 5 succeeding installment payments to be made on the monthly anniversary
of the first such installment payment (the aggregate of the amounts referred to
in clauses (i) and (ii) above, the "Guaranteed Amount"); and (iii) $250,000.00
which shall constitute part of the Initial Contingent Amount and shall be paid
to JAMI in accordance with the terms of Section 1.2(b)(3)(A) and only upon the
occurrence of a Contingency Event or pursuant to the terms of Sections 1.4, 1.5
or 1.9.
1.7 Covenant. The Buyers and the Entities agree that none of the
Entities shall directly or indirectly sell, mortgage or otherwise transfer all
or substantially all of the Entities' respective assets other than in an arm's
length transaction for adequate consideration.
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<PAGE> 18
1.8 Interest on Initial Contingent Amount. In the event that the Initial
Contingent Amount is not paid prior to the second anniversary of the Closing
Date, then interest shall be owed on any unpaid amounts at a rate equal to the
sum of (a) 2.0% plus (b) the Prime Rate (as defined below) and shall be due and
payable on the first Business Day of each calendar quarter and shall be deemed
to have commenced accruing on the Closing Date in respect of such amount. For
purposes of this Agreement, "Prime Rate" shall mean (i) the annual rate of
interest announced by Citibank, N.A. from time to time as its "prime rate" in
effect at its principal office in the City of New York or (ii) if Citibank, N.A.
does not announce such a rate, then the "prime rate" published in the Wall
Street Journal (New York edition). Interest shall be computed on the basis of a
365-day year for the actual number of days elapsed since payment of such amounts
by the Partnership and shall change when and as the Prime Rate is changed, and
any such change in the Prime Rate shall become effective at the opening of
business on the day on which such change is adopted or published (as the case
may be).
1.9 Current Payment Obligations.
(a) The Partnership hereby agrees to pay the sum of $300 to each
Selling Stockholder on the first Business Day of each week commencing with the
first Business Day of the week following the Closing Date, until all amounts
owed to the Selling Stockholders pursuant to Section 1.2(a)(3) have been paid in
full. Any amounts paid pursuant to this Section 1.9(a) shall be credited against
amounts owed pursuant to Section 1.2(a)(3).
(b) Upon payment in full of all amounts owed to the Selling
Stockholders pursuant to Section 1.2(a)(3), the Partnership shall pay the sum of
$600 to JAMI on the first Business Day of each week commencing with the first
Business Day of the week following the week in which all amounts owed to the
Selling Stockholders pursuant to Section 1.2(a)(3) are paid in full or released.
Any amounts paid pursuant to this Section 1.9(b) shall be credited against
amounts owed pursuant to Section 1.6.
1.10 Acceleration. Any of the following shall constitute an Event of
Default under this Agreement: (a) default in the payment when due of any
payments called for hereunder, and such default is not cured within sixty (60)
days after written notice to the Partnership, or (b) a petition in bankruptcy
shall have been filed by or against the Partnership, or (c) a receiver or
similar entity shall have been appointed for the benefit of the creditors of the
Partnership or (d) a default occurs in the performance by the Buyers, the
Partnership or any of the other Entities of any obligations under this
Agreement, and such default is not cured within sixty (60) days after written
notice to the Partnership. Upon the occurrence of an Event of Default the entire
amount due to the Selling Stockholders under Section 1.2(a)(3) and Section 1.3
and the entire amount due to JAMI under Section 1.6 shall become
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immediately due and payable. Failure to give notice of a default in payment or
performance shall not constitute a waiver of the right to give such notice at
any other time.
2. Security and Guaranty.
2.1 Security Agreement. As security for the payment as and when due of
the obligations of the Entities described above in Sections 1.2(b), 1.3, 1.4,
1.5, 1.6, 1.8, 1.9 and 1.10, the Entities shall execute and deliver a security
agreement (the "Security Agreement") substantially in the form attached hereto
as Exhibit II, securing the payment of such amounts when due by granting to the
Selling Stockholders a lien on and security interest in the accounts receivable
of the Entities.
2.2 Guaranty. As further security for the payment as and when due of the
Guaranteed Amount, each Buyer shall enter into a guaranty agreement (the "Buyer
Guaranties") substantially in the form attached hereto as Exhibit III,
guarantying such payments, provided that the liability of the Buyers under such
guaranty shall terminate and each Buyer Guaranty shall be of no further force or
effect upon the payment of amounts equal to the Guaranteed Amount under the
Partnership JAMI Note.
3. Representations and Warranties and Covenants of the Selling
Stockholders. Each Selling Stockholder severally represents and warrants to
each of the Buyers and the partnership as follows:
3.1 Title. Each Selling Stockholder owns the interests in the Entities
to be sold hereunder and listed opposite his name on each of Schedule A and
Schedule B attached hereto free and clear of any lien, charge, encumbrance or
other right of third parties, and on the Closing Date the Selling Stockholder
will own such interests free and clear of any lien, charge, encumbrance or other
right of third parties.
3.2 Enforceability; No Violation. This Agreement constitutes a valid and
binding obligation of each Selling Stockholder enforceable in accordance with
its terms and the consummation of the transactions contemplated hereby will not
result in a violation of or constitute a default under any of the terms and
provisions of any agreement to which he may be a party or by which he or any of
his assets may otherwise be subject or bound.
3.3 Authority. Each Selling Stockholder has full legal right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby.
3.4 Confidentiality. Each Selling Stockholder acknowledges that he has
had and will continue to have (pursuant to Section 1.5(e)) access to
confidential information, including, but not limited to, marketing, financial
and operating plans and strategies (the "Confidential
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Information") of the Company and the Partnership that is not in the public
domain and that has been acquired, developed or assembled by the Company and the
Partnership at its expense. Each Selling Stockholder agrees, for so long as the
Company or Partnership continues to engage in the active conduct of its business
as defined in Section 13 hereof (whether or not such business shall constitute
the whole of its business) not to disclose the Confidential Information to any
third party.
3.5 Noncompetition. Each Selling Stockholder agrees, for three (3) years
from the Closing Date not to (i) directly or indirectly, endeavor to entice away
from the employ of the Company or Partnership or otherwise interfere with the
relationship of the Company or the Partnership with any individual, partnership,
firm, corporation or other business organization that is employed by the Company
or the Partnership or is otherwise performing services for the Company or the
Partnership, or (ii) acquire a direct or indirect interest in, or act as an
owner, manager, partner, shareholder, joint venturer or consultant to any other
person or entity that competes with the business of the Company or the
Partnership as defined in Section 13 hereof; provided, however, that this shall
not preclude a Selling Stockholder or JAMI or any other affiliate of a Selling
Stockholder (i) from acting as a consultant to any primary provider of telephone
service, but shall preclude such person or entity from engaging in any
consulting activity with any entity whose business is primarily the resale of
telephone service or (ii) from engaging in list rental or list brokerage
activities with or providing data base management services to any entity,
including entities which compete with the Company or the Partnership.
3.6 Blue Penciling. In the event that any provision of Sections 3.4 or
3.5 hereof (the "Relevant Sections") shall be deemed unenforceable, invalid, or
overbroad in whole or in part for any reason, then any tribunal, forum or court
with jurisdiction over these matters is hereby requested and instructed to
reform such provision to provide for the maximum competitive restraints upon a
Selling Stockholder's activities (in time, product, and geographic area) that
may then be legal and valid, and consent to such reformation is hereby granted.
3.7 Injunctive Relief. Each Selling Stockholder agrees that any
violation of the Relevant Sections by a Selling Stockholder is likely to cause
irreparable injury to the Company and the Partnership for which any remedy at
law would be inadequate, and the Company, the Partnership and the Buyers (or
their successors or assigns) shall be entitled to preliminary, permanent, and
other injunctive relief against any breach by a Selling Stockholder of the
provisions of the Relevant Sections. In the event of a violation of any of the
provisions of the Relevant Sections, the period of restriction referred to
therein shall be extended to a period of time equal to that period beginning on
the date when such violation commenced and ending when the activities
constituting that violation shall be finally terminated.
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4. Representations and Warranties of the Buyers. Each Buyer and the
Partnership severally represents and warrants to the Selling Stockholders as
follows:
4.1 Enforceability; No Violation. This Agreement constitutes a valid and
binding obligation of each Buyer and the Partnership enforceable in accordance
with its terms and the consummation of the transactions contemplated hereby will
not result in a violation of or constitute a default under any of the terms and
provisions of any agreement to which he or it may be a party or by which he or
it or any of his or its assets may otherwise be subject or bound:
4.2 Authority. Each Buyer and the Partnership has full legal right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby.
5. Closing.
5.1 The closing of the transactions contemplated hereby (the "Closing")
shall take place at the offices of Feder Kaszovitz Isaacson Weber & Skala, at
10:00 a.m. on a date (the "Closing Date") not later than 30 days from the date
hereof; provided, however, that the Buyers may postpone the Closing for an
additional 30 days on the giving to the Selling Stockholders of written notice
of their intention to do so not less than two Business Days prior to the date
upon which the Closing is initially scheduled.
5.2 At the Closing, the Selling Stockholders shall deliver to the Buyers
and/or to the Partnership, as indicated;
(a) to the Buyers only, a certificate or certificates representing
the Miller Shares and the Schwartz Shares duly endorsed in blank or
with duly executed stock powers attached and with all necessary
transfer tax stamps and other revenue stamps, if any, acquired at
the expense of the Selling Stockholders, affixed and cancelled, and
all evidences of ownership of the Miller Units and the Schwartz
Units, with such instruments of transfer as the Buyers may
reasonably request;
(b) to the Buyers only, their resignations as officers and directors
of the Company and any other Entity;
(c) to the Buyers and the Partnership, a certificate of each of them
certifying that the representations and warranties made by them and
contained in this Agreement remain true and correct in all respects
as of the Closing Date with the same force and effect as if made on
the date thereof; and
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<PAGE> 22
(d) to the Buyers and the Partnership, a release of the Buyers and
each Entity in the form annexed hereto as Exhibit IV, which release
shall exclude the obligations of the Buyers and the Partnership
under this Agreement, the Partnership Note, the Security Agreement
and the Buyer Guaranties; and further provided, however, that such
release shall be void and of no force or effect in the event that
the Buyers or the Partnership default in any payments due hereunder.
5.3 At the Closing, the Buyers shall deliver to the Selling
Stockholders:
(a) a bank or tellers check in the amount of Five Hundred Thousand
Dollars ($500,000); provided, however, that in the event that the
Buyers elect to extend the Closing Date beyond its initially
scheduled date in accordance with Section 5.1 such that the Closing
Date falls on a date not less than 46 nor more than 60 days from the
date hereof, the amount owed by the Buyers pursuant to this Section
5.3(a) shall be Five Hundred Five Thousand Dollars ($505,000);
(b) the Buyer Guaranties, duly executed;
(c) a certificate of each of them certifying that the
representations and warranties made by them and contained in this
Agreement remain true and correct in all respects as of the Closing
Date with the same force and effect as if made on the date thereof;
(d) a release of the Selling Stockholders in the form annexed hereto
as Exhibit V, which release however shall exclude any breach or
violation of the obligations of the Selling Stockholders under this
Agreement; and
(e) a waiver and consent executed by Jerry Lott ("Lott"), whereby
Lott shall waive his rights of first refusal granted under (i)
Section 5 of the Stockholders Agreement (the "Stockholders
Agreement") dated as of December 1, 1991 by and among the Selling
Stockholders, the Buyers, Lott and the Company and (ii) Section 12
of the Partnership Agreement (the "Partnership Agreement") dated as
of April 17, 1992 by and among the Company, the Selling
Stockholders, the Buyers and Lott and under similar provisions of
the Stockholders Agreement regarding CDI and the Partnership
Agreement regarding CDLP and shall consent to the execution of this
Agreement and the consummation of the transactions contemplated
hereby.
5.4 At the Closing, the Partnership and the other Entities
shall execute and deliver to the Selling Stockholders:
(a) the Partnership JAMI Note and the Partnership Seller Note each
executed by the Partnership;
- 14 -
<PAGE> 23
(b) the Security Agreement duly executed by the Entities;
(c) a release of the Selling Stockholders in the form annexed hereto
as Exhibit V;
(d) a certificate certifying that the representations and warranties
made by it and contained in this Agreement remain true and correct
in all respects as of the Closing Date with the same force and
effect as if made on the date thereof; and
(e) Uniform Commercial Code financing statements to evidence the
grant of the security interest described in the Security Agreement.
6. Termination. This Agreement may be terminated (a) at any time prior to the
Closing Date by the mutual written consent of the parties hereto or (b) by any
party should any other party fail to deliver the documents and/or consideration
required to be delivered by it at the Closing in accordance with Section 5
hereof.
7. Survival. If this Agreement is terminated pursuant to Section 6(a) hereof,
this Agreement shall be void and of no further force and effect, and none of the
parties hereto shall have further liability.
8. Modification. This Agreement contains the entire agreement among the parties
hereto with respect to the transactions contemplated herein and shall not be
modified or amended except by an instrument in writing signed by or on behalf of
the parties hereto.
9. Further Assurance. All of the parties shall execute such documents and other
papers and take such further action as may be reasonably required or desirable
to carry out the provisions hereof and the transactions contemplated hereby.
10. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York.
11. Jurisdiction; Service of Process; Venue. Any judicial proceeding brought
against any of the parties hereto with respect to any matter arising under this
Agreement may be brought in the courts of the State of New York and in the
United States District Court for the Southern District of New York, and the
parties hereby accept the jurisdiction of the aforesaid courts, irrevocably
consent to the service of any and all process in any action or proceeding by the
mailing of copies of such process to such party at its address set forth
- 15 -
<PAGE> 24
below in Section 16 opposite its name or at such other address as such party may
give notice of to the other parties hereto and irrevocably agree to be bound by
any judgment rendered thereby except nothing herein shall be deemed to waive any
party's right of appeal. The parties irrevocably waive to the fullest extent
permitted by law any objection that such party may have now or hereafter to the
laying of venue of any judicial proceeding brought in such courts and any claim
that any such judicial proceeding has been brought in an inconvenient forum.
Michael D. Preston hereby appoints Willkie Farr & Gallagher, having an address
at 153 East 53rd Street, New York, New York, as his agent for service of process
in the State of New York.
12. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
13. Paragraph Headings. The paragraph headings in this Agreement are for the
convenience of reference only and shall not be deemed to alter or affect any
provision thereof.
14. Business of the Partnership. It is hereby agreed among the parties hereto
that for the purposes of this Agreement and the ancillary documents contemplated
hereby, including but not limited to the release to be delivered by the Buyers,
the business of the Partnership shall be deemed to be the purchase and resale of
local and long distance telephone service to private and business customers in
the United States of America and the business of the Company shall be deemed to
be the management of the Partnership.
15. Waiver of Conflict. The parties hereby agree that nothing shall prevent the
attorneys of the Selling Stockholders, Feder, Kaszovitz, Isaacson, Weber & Skala
("FKIWS"), from representing the Selling Stockholders in this transaction and
with respect to any dispute which may arise under this Agreement or any
ancillary documents contemplated hereby. All parties hereto and each of the
Entities hereby knowingly waive any claims as to conflict with respect to such
legal representation. The Partnership hereby acknowledges its debt of $20,708.10
to FKIWS in respect of legal services rendered to the Partnership to date and
agree to pay such amount in four equal monthly installments, with the first such
payment to be due within 30 days of the Closing Date and with all three
succeeding payments to be made on the monthly anniversary of the making of the
first such installment payment.
16. Notices. All notices and statements shall be in writing and shall together
with any payments be personally delivered or sent postage prepaid to the
intended party at the address set
- 16 -
<PAGE> 25
forth below (unless notification of a change of address is given in writing).
The date of mailing of a notice, statement or payment shall be deemed the date
the notice is given, statement rendered or payment made.
The address of each party hereto is:
Michael Preston 91 Reddington Road
London NW3 7RR
England
Steven Lampert 9 Lansdale Road
New City, New York 10956
United States of America
Michael Miller 5 Sky Drive
New City, New York 10956
United States of America
Jeffrey Schwartz 3 Glen Eagles Court
New City, New York 10956
United States of America
Each Entity One Blue Hill Plaza
Pearl River, New York 10965
United States of America
- 17 -
<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LONG DISTANCE DIRECT L.P.
By: LONG DISTANCE DIRECT INC.,
its General Partner
By: /s/ STEVEN L. LAMPERT
----------------------------------
Name: Steven L. Lampert
Title: President
CELLULAR DIRECT L.P.
By: CELLULAR DIRECT, INC.,
its General Partner
By: /s/ STEVEN L. LAMPERT
----------------------------------
Name: Steven L. Lampert
Title: President
LONG DISTANCE DIRECT, INC.
By: /s/ STEVEN L. LAMPERT
----------------------------------
Name: Steven L. Lampert
Title: President
CELLULAR DIRECT, INC.
By: /s/ STEVEN L. LAMPERT
----------------------------------
Name: Steven L. Lampert
Title: President
PRIVATE VENTURES INC.
By: /s/ STEVEN L. LAMPERT
----------------------------------
Name: Steven L. Lampert
Title: President
- 18 -
<PAGE> 27
BUYERS
/s/ Steven L. Lampert
------------------------------------------
Steven L. Lampert
/s/ Michael D. Preston
------------------------------------------
Michael D. Preston
SELLING STOCKHOLDERS
/s/ Michael G. Miller
------------------------------------------
Michael G. Miller
------------------------------------------
Jeffrey L. Schwartz
JAMI MARKETING SERVICES, INC.
agrees to the provisions of
Section 1.6 of this Agreement
JAMI MARKETING SERVICES, INC.
By:/s/ Michael G. Miller
----------------------------
- 19 -
<PAGE> 28
BUYERS
------------------------------------------
Steven L. Lampert
------------------------------------------
Michael D. Preston
SELLING STOCKHOLDERS
------------------------------------------
Michael G. Miller
/s/ Jeffrey L. Schwartz
------------------------------------------
Jeffrey L. Schwartz
JAMI MARKETING SERVICES, INC.
agrees to the provisions of
Section 1.6 of this Agreement
JAMI MARKETING SERVICES, INC.
By:/s/ Jeffrey L. Schwartz
------------------------------
Jeffrey L. Schwartz, President
- 19 -
<PAGE> 29
SCHEDULE A TO AGREEMENT
AMONG LAMPERT, PRESTON, SCHWARTZ AND MILLER
AND CERTAIN ENTITIES
MILLER INTERESTS
<TABLE>
<CAPTION>
SHARES OF STOCK UNITS
--------------- -----
<S> <C> <C>
Long Distance Direct Inc. 23.75 common shares
without par value
Long Distance Direct L.P. 23.5125
Cellular Direct Inc. 23.75 common shares
par value $.01 per
share
Cellular Direct L.P. 23.5125
Private Ventures Inc. 50 common shares,
par value $.01
per share
SCHWARTZ INTERESTS
Long Distance Direct Inc. 23.75 common shares
without par value
Long Distance Direct L.P. 23.5125
Cellular Direct Inc. 23.75 common shares
par value $.01 per
share
Cellular Direct L.P. 23.5125
Private Ventures Inc. 50 common shares
par value $.01
per share
</TABLE>
<PAGE> 30
SCHEDULE B TO AGREEMENT AMONG
LAMPERT, PRESTON, SCHWARTZ AND MILLER
AND CERTAIN ENTITIES
Aggregate Capital and Current Account Credit Balances
<TABLE>
<S> <C>
Miller $40,000
Schwartz $40,000
</TABLE>
<PAGE> 31
EXHIBIT I-A
See Tab 6
<PAGE> 32
EXHIBIT I-B
See Tab 7
<PAGE> 33
EXHIBIT II
See Tab 10
<PAGE> 34
EXHIBIT III
See Tabs 8 and 9
<PAGE> 35
EXHIBIT IV
See Tabs 13 and 14
<PAGE> 36
EXHIBIT V
See Tab 12
<PAGE> 37
Michael D. Preston
91 Reddington Road
London NW3 7RR
April 6, 1993
JAMI Marketing Services, Inc.
2 Blue Hill Plaza
Box No. 1662
Pearl River, N.Y.
U.S.A.
Dear Sirs:
I hereby undertake that with effect from 1 April 1993, I will
use my best efforts to procure the transfer to Long Distance Direct Inc., of any
and all obligations with respect to the lease of motor vehicle Mercedes 560 SL,
registration number M9K-135, from JAMI Marketing Services, Inc. In the event
that the leasing company is unwilling to effect such transfer, I agree to
indemnify JAMI Marketing Services, Inc. against all costs relating thereto with
effect from 1 April 1993.
Yours faithfully,
/s/ Michael D. Preston
----------------------
Michael D. Preston
<PAGE> 38
Steven L. Lampert
9 Lansdale Road
New City, New York 10956
U.S.A.
April 6, 1993
JAMI Marketing Services, Inc.
2 Blue Hill Plaza
Box No. 1662
Pearl River, N.Y.
U.S.A.
Dear Sirs:
I hereby acknowledge my indebtedness to JAMI Marketing Services, Inc.,
in the sum of $22,000 in respect of losses incurred in relation to my
participation in a joint venture with 900 Direct. In consideration of JAMI's
formal acknowledgement that there are no other sums owing by me to it or its
affiliates or associate companies in respect of any other ventures, I hereby
agree to discharge my obligation to JAMI by six equal monthly installments, the
first such installment to be paid on the Closing Date of the purchase of the
Miller and Schwartz interests in Long Distance Direct, Inc. as defined in the
agreement for such purchases. Failure to pay any such installment shall
constitute a default under the said agreement and entitle Miller, Schwartz, and
JAMI to the acceleration rights contained in the said agreement.
Yours Faithfully,
/s/ Steven L. Lampert
----------------------
Steven L. Lampert
<PAGE> 39
We hereby undertake that none of the legal fees payable by ourselves to
Messrs. Willkie Farr & Gallagher in connection with the acquisition of the
Miller and Schwartz interests in Long Distance Direct, Inc. and Long Distance
Direct L.P. will be paid by Long Distance Direct L.P.
By: /s/ Michael D. Preston
----------------------
Michael D. Preston
By: /s/ Steven L. Lampert
----------------------
Steven L. Lampert
<PAGE> 40
SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, the receipt and sufficiency of which are hereby
acknowledged, the undersigned, Long Distance Direct L.P., a New York limited
partnership having its principal office at 1 Blue Hill Plaza, Pearl River, New
York 10965 (the "Partnership"), hereby promises to pay to the order of Michael
G. Miller, residing at 5 Sky Drive, New City, New York 10956 ("Miller"), and
Jeffrey L. Schwartz, residing at 9 Lansdale Road, New City, New York 10956
("Schwartz"; Schwartz and Miller, collectively, the "Payees"), the aggregate
principal sum of Two Hundred Fifty Thousand Dollars ($250,000) with interest as
and only as described herein.
Terms used but not defined herein shall have the meanings ascribed
thereto in the Agreement dated as of April 6, 1993 by and among the Sellers, the
Partnership and certain other entities (collectively the "Other Entities") and
Steven L. Lampert and Michael D. Preston (the "Agreement").
The Partnership hereby agrees to pay the sum of $300 to each Payee on
the first Business Day of each week commencing with the first Business Day of
the week following the Closing Date, until all amounts owed in respect of this
Note have been paid in full.
Any amounts paid by the Partnership pursuant to Sections 1.2, 1.4 or 1.5
of the Agreement shall constitute prepayments of the amounts due under this Note
and shall be credited first against any accrued and unpaid interest hereon and
then against the final payments due hereunder.
This Note may be prepaid in full or in part at any time without premium
or penalty.
All payments of principal of and interest on this Note shall be made in
any coin or currency of the United States of America as, at the respective times
of such payments, shall be legal tender for the payment of public and private
debts. Payments shall be made on a Business Day by bank or tellers check payable
one half to each Payee. As used herein, the term "Business Day" means any day
other than a Saturday, a Sunday or a day on which commercial banks in New York
City are required or authorized to be closed. If the due date for any payment
described above is not a Business Day, then the Payees shall not be entitled to
payment of the amount due until the next following Business Day, and shall not
be entitled to any interest or other payment in respect of such delay.
Any of the following shall constitute an Event of Default under this
Note: (a) default in payment when due of any payments called for hereunder, and
such default is not cured within sixty (60) days after written notice to the
Partnership, (b) a petition in bankruptcy shall have been filed by or against
the Partnership or any endorser of this Note, (c) a receiver or similar entity
shall have been appointed for the
<PAGE> 41
benefit of the creditors of the Partnership or any endorser of this Note or (d)
a default occurs in the performance by the Buyers, the Partnership or any of the
Other Entities of any obligations under the Agreement, and such default is not
cured within sixty (60) days after written notice to the Partnership. Upon the
occurrence of an Event of Default the holder of this Note may, without notice,
declare the remainder of the principal sum immediately due and payable. Failure
to exercise this right shall not constitute a waiver to exercise such right at
any other time.
The rights and remedies of the holder as provided in this Note shall be
cumulative and may be pursued singly, successively or together for payment in
the sole discretion of the holder. The failure to exercise any such right or
remedy shall not be a waiver or release of such rights or remedies or the right
to exercise any of them at another time.
The obligations evidenced by this Note are secured by a Security
Agreement dated of even date herewith between the Partnership, the Other
Entities and the Payees and JAMI. This Note is freely assignable by the holder
hereof and the rights of the Payees under the Security Agreement shall inure to
the benefit of the holder of this Note and the assigns thereof.
In the event that the amounts owed hereunder are not paid prior to the
second anniversary of the Closing Date, then interest shall be owed on any
unpaid amounts at a rate equal to the sum of (a) 2.0% plus (b) the Prime Rate
(as defined below) and shall be due and payable on the first Business Day of
each calendar quarter and shall be deemed to have commenced accruing on the
Closing Date in respect of such amount. For purposes of this Note, "Prime Rate"
shall mean (i) the annual rate of interest announced by Citibank, N.A. from time
to time as its "prime rate" in effect at its principal office in the City of New
York or (ii) if Citibank, N.A. does not announce such a rate, then the "prime
rate" published in the Wall Street Journal (New York edition). Interest shall be
computed on the basis of a 365-day year for the actual number of days elapsed
and shall change when and as the Prime Rate is changed, and any such change in
the Prime Rate shall become effective at the opening of business on the day on
which such change is adopted or published (as the case may be).
In the event that any payment is not made when due hereunder, interest
at the annual rate of the sum of (i) the Prime Rate plus (ii) 4.0 percent shall
be payable monthly on the amount of such overdue payment under this Note from
the date of the occurrence of the default until payment is made in full of such
amount. In the event that the entire principal balance of the Note is declared
immediately due and payable upon the occurrence of any Event of Default,
interest at the annual rate of the sum of (i) the Prime Rate plus (ii) 4.0
percent shall be payable upon the entire principal balance from the date of the
occurrence of the default until payment in full is made of all amounts due under
this Note.
-2-
<PAGE> 42
The undersigned agrees to pay, in addition to the principal and
interest, all costs of collection of this Note, including reasonable attorneys'
fees and disbursements.
If a law which applies to this Note and which sets maximum rates of
interest which may be charged, is finally interpreted so that the interest
collected or to be collected pursuant to this Note exceeds the permitted limits,
then: (i) such interest shall be reduced by the amount necessary to reduce the
interest to the permitted limit; and (ii) any sums already collected from the
person or persons as to whom such amount charged is determined to have exceeded
the permitted limits will be refunded to such person or persons. The holder of
this Note may choose to make this refund by reducing the principal amount owed
under this Note or by making a direct payment to such person or persons. If a
refund reduces principal, the reduction will be treated as a partial prepayment.
The Partnership waives presentment, demand for payment, notice of
dishonor and any or all notices or demands in connection with the delivery,
acceptance, performance, default or enforcement of this Note and consents to any
or all delays, extensions of time, renewals, releases of any party to this Note
and any and all waivers or modifications that may be granted or consent to by
the holder with regard to the time of payment or with respect to any other
provisions of this Note and agrees that no such action or failure to act on part
of the holder shall be construed as a waiver by the holder of, or otherwise
affect, its right to avail itself of any remedy with respect thereto.
This Note shall be governed by and construed under the law of the State
of New York as a note made in the State of New York, without regard to the
choice of law principles thereof. Unless applicable law requires a different
method, any notice that must be given to the Partnership under this Note will be
given by delivering it or mailing it by first class mail to the Partnership at
its address set forth at the beginning of this Note or at such other address as
the Partnership may give notice of to the holder of this Note. Any notice to the
holder of this Note will be given by mailing it first class mail to the holder
of this Note at the address for the holder set forth at the beginning of this
Note or at such other address as the holder may give notice of to the person
signing this Note. The party will be deemed to have received the notice 5 days
following the date of mailing.
Any judicial proceeding brought against the Partnership with respect to
any matter arising under this Note may be brought in the courts of the State of
New York and in the United States District Court for the Southern District of
New York, and the Partnership accepts for itself the jurisdiction of the
aforesaid courts, irrevocably consents to the service of any and all process in
any action or proceeding by the mailing of copies of such process to the
Partnership at its address set forth at the beginning of this Note or at such
- 3 -
<PAGE> 43
other address as the Partnership may give notice of to the holder of this Note
and irrevocably agrees to be bound by any judgment rendered thereby except
nothing herein shall be deemed to waive the Partnership's right of appeal. The
Partnership irrevocably waives to the fullest extent permitted by law any
objection that it may have now or hereafter to the laying of venue of any
judicial proceeding brought in such courts and any claim that any such judicial
proceeding has been brought in an inconvenient forum.
IN WITNESS WHEREOF, the Partnership has caused this Note to be
executed as of this 31 day of May 1993.
LONG DISTANCE DIRECT L.P.
By: LONG DISTANCE DIRECT INC.,
its General Partner
By: /s/ Steven Lampert
--------------------------------
Name: Steven Lampert
Title: President
- 4 -
<PAGE> 44
SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, Long Distance Direct L.P., a New York
limited partnership having its principal office at 1 Blue Hill Plaza, Pearl
River, New York 10965 (the "Partnership"), hereby promises to pay to the order
of JAMI Marketing Services, Inc., a Delaware corporation having its principal
office at Two Blue Hill Plaza, Pearl River, New York 10965 (the "Payee"), the
aggregate principal sum of Two Hundred Eighty Eight Thousand, Three Hundred
Thirty Three and 34/100 Dollars ($288,333.34) with interest as and only as
described herein.
Terms used but not defined herein shall have the meanings
ascribed thereto in the Agreement dated as of April 6, 1993 by and among Michael
G. Miller ("Miller"), Jeffrey L. Schwartz ("Schwartz"), the Partnership and
certain other entities (collectively the "Other Entities") and Steven L. Lampert
and Michael D. Preston (the "Agreement").
Payments of the aforementioned principal amount shall be made as
follows:
(1) $38,333.34 shall be paid to the Payees in 6 equal monthly
installments of $6,388.89 each, with the first such installment
payment to be made within 30 days of the Closing Date, and with
all 5 succeeding installment payments to be made on the monthly
anniversary of the making of the first such installment payment.
(2) Upon payment in full of all amounts owed under the
Partnership Seller Note, the Partnership agrees to pay the sum
of $600 to the Payee on the first Business Day of each week
commencing with the first Business Day of the week following the
week in which all amounts owed to the Selling Stockholders under
the Partnership Seller Note are paid in full or released.
Any amounts paid by the Partnership pursuant to Sections 1.2,
1.4 or 1.5 of the Agreement shall constitute prepayments of the amounts due
hereunder and shall be credited first against any accrued and unpaid interest
and then against the final payments due under Clause (2) above.
This Note may be prepaid in full or in part at any time without
premium or penalty.
All payments of principal of and interest on this Note shall be
made in any coin or currency of the United States of America as, at the
respective times of such payments, shall be legal tender for the payment of
public and private debts.
<PAGE> 45
Payments shall be made on a Business Day by bank or tellers check payable to the
Payee. As used herein, the term "Business Day" means any day other than a
Saturday, a Sunday or a day on which commercial banks in New York City are
required or authorized to be closed. If the due date for any payment described
above is not a Business Day, then the Payee shall not be entitled to payment of
the amount due until the next following Business Day, and shall not be entitled
to any interest or other payment in respect of such delay.
Any of the following shall constitute an Event of Default under
this Note: (a) default in payment when due of any payments called for hereunder,
and such default is not cured within sixty (60) days after written notice to the
Partnership, (b) a petition in bankruptcy shall have been filed by or against
the Partnership or any endorser of this Note, (c) a receiver or similar entity
shall have been appointed for the benefit of the creditors of the Partnership or
any endorser of this Note or (d) a default occurs in the performance by the
Buyers, the Partnership or any of the Other Entities of any obligations under
the Agreement, and such default is not cured within sixty (60) days after
written notice to the Partnership. Upon the occurrence of an Event of Default
the holder of this Note may, without notice, declare the remainder of the
principal sum immediately due and payable. Failure to exercise this right shall
not constitute a waiver to exercise such right at any other time.
The rights and remedies of the holder as provided in this Note
shall be cumulative and may be pursued singly, successively or together for
payment in the sole discretion of the holder. The failure to exercise any such
right or remedy shall not be a waiver or release of such rights or remedies or
the right to exercise any of them at another time.
The obligations evidenced by this Note are secured by a Security
Agreement dated of even date herewith between the Partnership, the Other
Entities and the Payee and Miller and Schwartz. This Note is freely assignable
by the holder hereof and the rights of the Payees under the Security Agreement
shall inure to the benefit of the holder of this Note and the assigns thereof.
In the event that the amounts owed hereunder are not paid prior
to the second anniversary of the Closing Date, then interest shall be owed on
any unpaid amounts at a rate equal to the sum of (a) 2.0% plus (b) the Prime
Rate (as defined below) and shall be due and payable on the first Business Day
of each calendar quarter and shall be deemed to have commenced accruing on the
Closing Date in respect of such amount. For purposes of this Note, "Prime Rate"
shall mean (i) the annual rate of interest announced by Citibank, N.A. from time
to time as its "prime rate" in effect at its principal office in the City of New
York or (ii) if Citibank, N.A. does not announce such a rate, then the "prime
rate" published in the Wall Street Journal (New York edition). Interest shall be
computed on the basis of a 365-day year for the actual number of days elapsed
- 2 -
<PAGE> 46
and shall change when and as the Prime Rate is changed, and any such change in
the Prime Rate shall become effective at the opening of business on the day on
which such change is adopted or published (as the case may be).
In the event that any payment is not made when due hereunder,
interest at the annual rate of the sum of (i) the Prime Rate plus (ii) 4.0
percent shall be payable monthly on the amount of such overdue payment under
this Note from the date of the occurrence of the default until payment is made
in full of such amount. In the event that the entire principal balance of the
Note is declared immediately due and payable upon the occurrence of any Event of
Default, interest at the annual rate of the sum of (i) the Prime Rate plus (ii)
4.0 percent shall be payable upon the entire principal balance from the date of
the occurrence of the default until payment in full is made of all amounts due
under this Note.
The undersigned agrees to pay, in addition to the principal and
interest, all costs of collection of this Note, including reasonable attorneys'
fees and disbursements.
If a law which applies to this Note and which sets maximum rates
of interest which may be charged, is finally interpreted so that the interest
collected or to be collected pursuant to this Note exceeds the permitted limits,
then: (i) such interest shall be reduced by the amount necessary to reduce the
interest to the permitted limit; and (ii) any sums already collected from the
person or persons as to whom such amount charged is determined to have exceeded
the permitted limits will be refunded to such person or persons. The holder of
this Note may choose to make this refund by reducing the principal amount owed
under this Note or by making a direct payment to such person or persons. If a
refund reduces principal, the reduction will be treated as a partial prepayment.
The Partnership waives presentment, demand for payment, notice
of dishonor and any or all notices or demands in connection with the delivery,
acceptance, performance, default or enforcement of this Note and consents to any
or all delays, extensions of time, renewals, releases of any party to this Note
and any and all waivers or modifications that may be granted or consent to by
the holder with regard to the time of payment or with respect to any other
provisions of this Note and agrees that no such action or failure to act on part
of the holder shall be construed as a waiver by the holder of, or otherwise
affect, its right to avail itself of any remedy with respect thereto.
This Note shall be governed by and construed under the law of
the State of New York as a note made in the State of New York, without regard to
the choice of law principles thereof. Unless applicable law requires a different
method, any notice that must be given to the Partnership under this Note will be
given by delivering it or mailing it by first class mail to the Partnership at
its address set forth at the beginning of this
- 3 -
<PAGE> 47
Note or at such other address as the Partnership may give notice of to the
holder of this Note. Any notice to the holder of this Note will be given by
mailing it first class mail to the holder of this Note at the address for the
holder set forth at the beginning of this Note or at such other address as the
holder may give notice of to the person signing this Note. The party will be
deemed to have received the notice 5 days following the date of mailing.
Any judicial proceeding brought against the Partnership with respect to
any matter arising under this Note may be brought in the courts of the State of
New York and in the United States District Court for the Southern District of
New York, and the Partnership accepts for itself the jurisdiction of the
aforesaid courts, irrevocably consents to the service of any and all process in
any action or proceeding by the mailing of copies of such process to the
Partnership at its address set forth at the beginning of this Note or at such
other address as the Partnership may give notice of to the holder of this Note
and irrevocably agrees to be bound by any judgment rendered thereby except
nothing herein shall be deemed to waive the Partnership's right of appeal. The
Partnership irrevocably waives to the fullest extent permitted by law any
objection that it may have now or hereafter to the laying of venue of any
judicial proceeding brought in such courts and any claim that any such judicial
proceeding has been brought in an inconvenient forum.
IN WITNESS WHEREOF, the Partnership has caused this Note to be executed
as of this 31 day of May 1993.
LONG DISTANCE DIRECT L.P.
By: LONG DISTANCE DIRECT INC.,
its General Partner
By: /s/ Steven Lampert
--------------------------------
Name: Steven Lampert
Title: President
- 4 -
<PAGE> 48
GUARANTY
Guaranty, dated as of May 31, 1993, given by Steven L. Lampert,
residing at 9 Lansdale Road, New City, New York 10956 (the "Guarantor"), to JAMI
Marketing Services, Inc., a Delaware organization (the "Guaranteed Party").
The Guarantor hereby guarantees to the Guaranteed Party, including its
successors and assigns, the payment, when due, by stated maturity, acceleration
or otherwise, of all amounts owed to the Guaranteed Party by Long Distance
Direct L.P., a New York limited partnership (the "Partnership"), pursuant to a
Promissory Note (the "Note") dated as of even date herewith made by the
Partnership (the "Guaranteed Obligations"); provided, however, that the
liability of the Guarantor hereunder shall not exceed $38,333.34 (the
"Guaranteed Amount"), and this Guaranty shall terminate and be of no further
force or effect upon the payment under the Note of amounts equal to or greater
than the Guaranteed Amount.
The Guarantor also agrees: that this Guaranty shall not be impaired by
any modification, supplement, extension or amendment of the Note or any other
contract or agreement now existing between the parties or to which the parties
thereto may hereafter agree, nor by any modification, release or other
alteration of any of the Guaranteed Obligations or of any security therefor, nor
by any agreements or arrangements whatever with the Partnership or anyone else;
that the liability of the Guarantor hereunder is direct and unconditional and
may be enforced without requiring the Guaranteed Party first to resort to any
other right, remedy or security; that the Guarantor shall not have any right of
subrogation, reimbursement or indemnity whatsoever; nor any right or recourse to
security for the debts and obligations of the Partnership to the Guaranteed
Party, unless and until all of said debts and obligations have been paid in
full; that if there is more than one Guarantor, the liability of the Guarantors
hereunder shall be joint and several; that if the Partnership or any Guarantor
should at any time become insolvent or make a general assignment for the benefit
of creditors, or if a petition in bankruptcy or any insolvency or reorganization
proceedings shall be filed or commenced by, against or in respect of the
Partnership or any Guarantor, any and all obligations of each Guarantor shall,
at the option of the Guaranteed Party, forthwith become due and payable without
notice; that this Guaranty is, as to each Guarantor, a continuing Guaranty; that
the death of any Guarantor shall not affect the termination of this Guaranty as
to such deceased Guarantor or as to any other Guarantor; and that nothing shall
discharge or satisfy the liability of any Guarantor hereunder except the payment
of the Guaranteed Obligations in an amount equal to or exceeding the Guaranteed
Amount.
<PAGE> 49
The Guarantor waives: notice of acceptance hereof, presentment and
protest of any instrument, and notice thereof; notice of default; and all other
notices to which Guarantor might otherwise be entitled.
This Guaranty, all acts and transactions hereunder, and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
according to the laws of the State of New York, shall be binding upon the heirs,
executors, administrators, successors and assigns of each Guarantor and shall
inure to the benefit of your successors and assigns.
Any judicial proceeding brought against the Guarantor with respect to
any matter arising under this Guaranty may be brought in the courts of the State
of New York and in the United States District Court for the Southern District of
New York, and the Guarantor accepts for itself the jurisdiction of the aforesaid
courts, irrevocably consents to the service of any and all process in any action
or proceeding by the mailing of copies of such process to the Guarantor at its
address set forth at the beginning of this Guaranty or at such other address as
the Guarantor may give notice of to the Guaranteed Party and irrevocably agrees
to be bound by any judgment rendered thereby except nothing herein shall be
deemed to waive the Guarantor's right of appeal. The Guarantor irrevocably
waives to the fullest extent permitted by law any objection that it may have now
or hereafter to the laying of venue of any judicial proceeding brought in such
courts and any claim that any such judicial proceeding has been brought in an
inconvenient forum.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed as of the date first above written.
/s/ STEVEN L. LAMPERT
- ----------------------------
STEVEN L. LAMPERT
STATE OF NEW YORK )
)ss.:
COUNTY OF ROCKLAND )
On this 1 day of June, 1993, before me personally came Steven L.
Lampert, who being by me duly sworn did depose and say he resides at 9 Lansdale
Road, New City, New York 10956, and acknowledged to me that he signed his name
thereto.
/s/ Gregory C. Hutter
---------------------------
Notary Public
GREGORY C. HUTTER
NOTARY PUBLIC, STATE OF NEW YORK
NO. 01HU4967855
QUALIFIED IN ROCKLAND COUNTY
QUALIFIED IN WESTCHESTER COUNTY
COMMISSION EXPIRES JUNE 11, 1994
-2-
<PAGE> 50
GUARANTY
Guaranty, dated as of May 31, 1993, given by Michael D. Preston,
residing at 91 Redington Road, London NW3 7RR, England (the "Guarantor"), to
JAMI Marketing Services, Inc., a Delaware organization (the "Guaranteed Party").
The Guarantor hereby guarantees to the Guaranteed Party, including its
successors and assigns, the payment, when due, by stated maturity, acceleration
or otherwise, of all amounts owed to the Guaranteed Party by Long Distance
Direct L.P., a New York limited partnership (the "Partnership"), pursuant to a
Promissory Note (the "Note") dated as of even date herewith made by the
Partnership (the "Guaranteed Obligations"); provided, however, that the
liability of the Guarantor hereunder shall not exceed $38,333.34 (the
"Guaranteed Amount"), and this Guaranty shall terminate and be of no further
force or effect upon the payment under the Note of amounts equal to or greater
than the Guaranteed Amount.
The Guarantor also agrees: that this Guaranty shall not be impaired by
any modification, supplement, extension or amendment of the Note or any other
contract or agreement now existing between the parties or to which the parties
thereto may hereafter agree, nor by any modification, release or other
alteration of any of the Guaranteed Obligations or of any security therefor, nor
by any agreements or arrangements whatever with the Partnership or anyone else;
that the liability of the Guarantor hereunder is direct and unconditional and
may be enforced without requiring the Guaranteed Party first to resort to any
other right, remedy or security; that the Guarantor shall not have any right of
subrogation, reimbursement or indemnity whatsoever; nor any right or recourse to
security for the debts and obligations of the Partnership to the Guaranteed
Party, unless and until all of said debts and obligations have been paid in
full; that if there is more than one Guarantor, the liability of the Guarantors
hereunder shall be joint and several; that if the Partnership or any Guarantor
should at any time become insolvent or make a general assignment for the benefit
of creditors, or if a petition in bankruptcy or any insolvency or reorganization
proceedings shall be filed or commenced by, against or in respect of the
Partnership or any Guarantor, any and all obligations of each Guarantor shall,
at the option of the Guaranteed Party, forthwith become due and payable without
notice; that this Guaranty is, as to each Guarantor, a continuing Guaranty; that
the death of any Guarantor shall not affect the termination of this Guaranty as
to such deceased Guarantor or as to any other Guarantor; and that nothing shall
discharge or satisfy the liability of any Guarantor hereunder except the payment
of the Guaranteed Obligations in an amount equal to or exceeding the Guaranteed
Amount.
<PAGE> 51
The Guarantor waives: notice of acceptance hereof, presentment and
protest of any instrument, and notice thereof; notice of default; and all other
notices to which Guarantor might otherwise be entitled.
This Guaranty, all acts and transactions hereunder, and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
according to the laws of the State of New York, shall be binding upon the heirs,
executors, administrators, successors and assigns of each Guarantor and shall
inure to the benefit of your successors and assigns.
Any judicial proceeding brought against the Guarantor with respect to
any matter arising under this Guaranty may be brought in the courts of the State
of New York and in the United States District Court for the Southern District of
New York, and the Guarantor accepts for itself the jurisdiction of the aforesaid
courts, irrevocably consents to the service of any and all process in any action
or proceeding by the mailing of copies of such process to the Guarantor at its
address set forth at the beginning of this Guaranty or at such other address as
the Guarantor may give notice of to the Guaranteed Party and irrevocably agrees
to be bound by any judgment rendered thereby except nothing herein shall be
deemed to waive the Guarantor's right of appeal. The Guarantor irrevocably
waives to the fullest extent permitted by law any objection that it may have now
or hereafter to the laying of venue of any judicial proceeding brought in such
courts and any claim that any such judicial proceeding has been brought in an
inconvenient forum.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed as of the date first above written.
/s/ MICHAEL D. PRESTON
- ---------------------------------
MICHAEL D. PRESTON
STATE OF NEW YORK )
)ss.:
COUNTY OF ROCKLAND )
On this 1 day of June, 1993, before me personally came Michael D.
Preston, who being by me duly sworn did depose and say he resides at 91
Redington Road, London NW3 7RR, England, and acknowledged to me that he signed
his name thereto.
/s/ GREGORY C. HUTTER
---------------------------
Notary Public
GREGORY C. HUTTER
NOTARY PUBLIC, STATE OF NEW YORK
NO. 01HU4967855
QUALIFIED IN ROCKLAND COUNTY
QUALIFIED IN WESTCHESTER COUNTY
COMMISSION EXPIRES JUNE 11, 1994
- 2 -
<PAGE> 52
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of May 31, 1993 by and between Michael G.
Miller, residing at 5 Sky Drive, New City, New York 10956, and Jeffrey L.
Schwartz, residing at 3 Glen Eagles Court, New City, New York 10956 and JAMI
Marketing Services, Inc. ("JAMI") whose principal place of business is located
at Two Blue Hill Plaza, Pearl River, New York 10965 (collectively, the "Secured
Parties"), and Long Distance Direct L.P., a New York limited partnership
("LDDLP" or the "Partnership"), Long Distance Direct, Inc., a New York
corporation (the "Company"), Cellular Direct, Inc., a New York corporation
("CDI"), Private Ventures Inc., a New York corporation ("PVI"), and Cellular
Direct L.P., a New York limited partnership ("CDLP"; the Partnership, the
Company, CDI, PVI and CDLP, each, an "Entity" and collectively, the "Entities"),
each with an address at One Blue Hill Plaza, Pearl River, New York 10965.
NOW THEREFORE, the parties hereto hereby agree as follows:
Section 1. Definitions. Terms defined in the Agreement (the "Agreement")
dated as of April 6, 1993 by and among the Secured Parties, Michael D. Preston
("Preston"), Steven L. Lampert ("Lampert") and the Entities are used herein as
defined therein, unless otherwise indicated. In addition, as used herein:
"Accounts Receivable" shall mean and include any present or future right
to payment for services rendered, or to be rendered, by any Entity, all present
and future accounts, accounts receivable, receivables, any other right of the
Entities to payment under a contract for the sale or lease of goods or the
rendering of services, which right is at the time not yet earned by performance,
books, debts, notes, bills, drafts, acceptances, choses in action, chattel
paper, instruments, documents, and other forms of obligations at any time owing
to or owned by any Entity, and the proceeds of any sale or other disposition
thereof, including all property obtained in foreclosure proceedings with respect
thereto.
"Collateral" has the meaning ascribed thereto in Section 4 hereof.
"Event of Default" has the meaning ascribed thereto in Section 6 hereof.
"Obligations" means the obligations of LDDLP under the Partnership
Seller Note and Partnership JAMI Note.
"Other Assets" shall mean and include any and all personal property,
patents, copyrights, trademarks, good will, and general intangibles and any
other assets of the Entities
<PAGE> 53
not specifically identified in the definition of Accounts Receivable or this
definition and the proceeds, whether cash or non-cash, of all of the foregoing,
including all property obtained in foreclosure proceedings with respect thereto.
"Person" means an individual, partnership, corporation, trust,
unincorporated association or other entity of any nature.
"Prime Rate" shall mean (i) the annual rate of interest announced by
Citibank, N.A. from time to time as its "prime rate" in effect at its principal
office in the City of New York or (ii) if Citibank, N.A. does not announce such
a rate, then the "prime rate" published in the Wall Street Journal (New York
edition). Interest shall be computed on the basis of a 365-day year for the
actual number of days elapsed since payment of such amounts by the Partnership
and shall change when and as the Prime Rate is changed, and any such change in
the Prime Rate shall become effective at the opening of business on the day on
which such change is adopted or published (as the case may be).
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect in the State of New York from time to time.
Section 2. Grant of Security Interest. Subject to the provisions hereof,
with respect to the Obligations the Entities hereby jointly pledge, assign and
grant ratably to the Secured Parties a lien on and security interest in all of
the Collateral, subject to the AFC Lien (as defined in Section 9)
on such Collateral.
Section 3. Representations and Warranties. Each Entity represents and
warrants to the Secured Parties that:
(a) this Agreement creates a valid security interest in the Collateral
and, when properly filed (together with the appropriate ancillary
documents) by the Secured Parties, will create a perfected security
interest in the Collateral subject only to the AFC Lien.
(b) The financial books and records relating to the Collateral and the
Collateral are located at 1 Blue Hill Plaza, Pearl River, New York 10965
and the Entities will give notice to the Secured Parties of any change
in such location.
(c) The Entity has full power and authority to execute this Security
Agreement and, except to the extent any contract relating to the
Collateral prohibits such action, to subject the Collateral to the
security interest created hereby.
-2-
<PAGE> 54
(d) The Entity will execute such financing statements, assignments,
applications or certificates of title, and other instruments and perform
such acts as the Secured Parties may reasonably request to establish,
perfect and maintain an attached perfected security interest in and lien
on the Collateral.
Section 4. Collateral. The Collateral shall consist of all of each
Entity's right, title and interest in its Accounts Receivable and Other Assets,
subject to the AFC Lien. The Collateral constitutes and will constitute security
for the payment as and when due of all indebtedness and the performance of all
obligations under Sections 1.2(b), 1.3, 1.4, 1.5, 1.6, 1.8, 1.9 and 1.10 of the
Agreement (the "Relevant Sections") and this Agreement, and, without limitation
to the foregoing, the Collateral constitutes and will constitute security for
the full and prompt payment of any and all moneys heretofore, now, or hereafter
due or owing to the Secured Parties from the Entities by reason of debts of any
kind, nature, or description at any time incurred or held by the Secured Parties
for the account or benefit of, or against, the Entities arising out of the
Relevant Sections and this Agreement, regardless of any other collateral or
security delivered or held in connection therewith. The Collateral shall be and
remain as continuing security for all costs, fees, charges, and expenses which
may be due or owing in connection therewith, all of which shall be and remain
additional liens on the Collateral until each and all of the same have been
fully paid, satisfied, and discharged. All of the payment and performance
obligations described in this paragraph shall be included in the term
"Obligations".
Section 5. Extent of Agreement. The Secured Parties hereby acknowledge
that this Agreement has been entered into by the Entities for the purposes of
attachment of a security interest only. This Agreement shall be solely for the
benefit of the Entities and the Secured Parties and shall not confer any benefit
on, nor affect the rights of, any other Person.
Section 6. Defaults. Any of the following shall constitute an Event of
Default under this Agreement: (a) default in the payment when due of any
payments called for under any of the Relevant Sections, and such default is not
cured within sixty (60) days after written notice to the Partnership, or (b) a
petition in bankruptcy shall have been filed by or against the Partnership, or
(c) a receiver or similar entity shall have been appointed for the benefit of
the creditors of the Partnership or (d) a default occurs in the performance by
the Buyers, the Partnership or any of the other Entities of any obligations
under the Agreement, and such default is not cured within sixty (60) days after
written notice to the Partnership.
-3-
<PAGE> 55
Section 7. Events of Default. During the period in which an Event of
Default shall have occurred and be continuing, the Secured Parties shall,
without demand or notice, have all of the rights and remedies with respect to
the Collateral under the Uniform Commercial Code including, without limitation,
the right to foreclose upon the Collateral pursuant to the terms of the Uniform
Commercial Code (whether or not said Code is in effect in the jurisdiction where
the rights and remedies are asserted), and such additional rights and remedies
to which a secured party is entitled under the laws in effect in any
jurisdiction where any rights and remedies hereunder may be asserted.
Section 8. Termination. When the Obligations secured hereby are paid in
full or released in writing by the Secured Parties (or their assignees), this
Agreement shall terminate.
Section 9. Subordination; Standstill; Consent; Reliance by Allstate
Financial Corporation.
(a) Notwithstanding anything to the contrary contained in this Agreement
or otherwise, and irrespective of the time, order or method of attachment or
perfection of the liens or security interests granted by the Partnership to each
of Allstate Financial Corporation ("AFC") and the Secured Parties or the time or
order of filing or recording of financing statements with respect thereto, any
and all liens or security interests which the Secured Parties may now or
hereafter have in, to or on the Collateral shall be, and hereby are made,
subordinate and junior to the liens and security interests of, and remedies
available to, AFC (the "AFC Lien") under the Accounts Receivable Factoring and
Security Agreement (as in effect from time to time, the "Factoring Agreement")
between the Partnership and AFC in, to or on the Accounts Receivable.
(b) Notwithstanding anything to the contrary contained in this Agreement
or otherwise, until all obligations of (or on behalf of) the Partnership to AFC
shall have been indefeasibly paid in full, and the Factoring Agreement shall
have been terminated by AFC, the Secured Parties shall not directly or
indirectly foreclose (or seek to foreclose) or realize (or seek to realize) upon
all or any portion of the Accounts Receivable.
(c) Notwithstanding anything to the contrary contained in this
Agreement, the Secured Parties hereby consent to the execution, delivery and
performance by the Partnership and AFC of the Factoring Agreement including,
without limitation, the transactions, liens and remedies contemplated therein
and waive any and all provisions of this Agreement to the extent necessary to
permit such execution, delivery and performance.
-4-
<PAGE> 56
(d) AFC is an express intended third party beneficiary of this Section
9. The provisions of this Section 9 are continuing provisions and all financial
accommodations by AFC to the Partnership shall be conclusively presumed to have
been made in reliance hereon. AFC may enforce this Section 9 directly against
the Secured Parties.
Section 10. Further Subordination. The Secured Parties agree to
subordinate their security interest in the Accounts Receivable to any existing,
future or successor institutional lender(s) providing financing to the
partnership in a bona fide financing transaction which is not for the purpose of
financing the obligations in whole or in part of Lampert or Preston under the
Agreement and which does not have the effect of permitting distributions to
either Lampert or Preston (except for distributions effected in the ordinary
course of business) from the Partnership.
Section 11. Covenants and Agreements of Entities. The Entities covenant
that they will perform the obligations contained in each of the following
paragraphs in accordance with the terms and conditions thereof. The rights
granted to the Secured Parties, and the obligations imposed on the Entities, in
this Section are all subject to the provisions of Section 9.
(a) Recording. The Entities shall, at their own cost and expense,
promptly and duly execute, record and file financing statements and this
Agreement and all other security agreements pertaining to the Collateral
and all such instruments and documents of further assurances including,
but not limited to, supplemental security agreements, financing
statements and continuation statements, and take such other action, as
the Secured Parties may require in order that, in the Secured Parties'
reasonable opinion, a valid lien on and security interest in the
Collateral in favor of the Secured Parties will be established,
perfected and continued in effect at all times. The Entities hereby
authorize the Secured Parties to effect such recording and filing as
aforesaid (including the filing of any financing statements or
continuation statements without the signature of the Entities where
permissible).
(b) Further Assurances. The Entities shall execute and deliver to the
Secured Parties from time to time, at the Secured Parties request, such
documents and instruments, and take such action, as the Secured Parties
may deem necessary or proper to perfect or otherwise protect the
security interests created hereby.
(c) Records of Accounts. The Entities will at all times keep accurate
and complete records of Entities'
-5-
<PAGE> 57
Accounts Receivable. At any time while any of the Obligations remain
outstanding, the Entities shall, at the request of the Secured Parties,
provide to the Secured Parties a schedule of the Entities' Accounts
Receivable describing each such account, including the name and address
of the account debtor and such other information as the Secured Parties
may request. The Entities will permit the Secured Parties or their
agents or representatives to examine the books and records of the
Entities during normal business hours.
(d) Notification to Account Debtors. The Secured Parties shall have the
right to notify the account debtors obligated on any of the Entities
Accounts Receivable directing them to make payment to the Secured
Parties and to take assume control of all proceeds of the collection of
any Accounts Receivable, which right the Secured Parties may exercise at
any time while any of the Obligations remain outstanding but only upon
the occurrence of an Event of Default hereunder. Until such time as the
Secured Parties elect to exercise such right by mailing notice thereof
to the Entities, the Entities are authorized, as the agent of the
Secured Parties, to collect and enforce said Accounts Receivable. The
costs of such collection and enforcement, including attorney's fees and
out-of-pocket expenses, shall be borne solely by the Entities whether
the same are incurred by the Secured Parties or the Entities and shall
constitute part of the Obligations secured hereby.
(e) Defense of Security Interest. The Entities shall appear in and
defend, without cost to the Secured Parties, any action or proceeding
purporting to affect the security interest hereunder or the rights or
powers of the Secured Parties and, when reasonably requested by the
Secured Parties, to commence and maintain any action or proceeding
necessary to protect such security interest and such rights or powers,
and to pay all the costs and expenses, including without limitation
attorneys fees, which the Secured Parties may incur in the event that
the Secured Parties elect to appear in, defend or commence and maintain
any such action or proceeding.
(f) Payment of Secured Parties' Expenses. The Entities shall pay,
immediately and without demand, all sums expended by the Secured Parties
in the enforcement and protection of the Secured Parties' rights
pursuant to this instrument, including without limitation attorneys'
fees and disbursements, with interest from date of expenditure at an
annual rate equal to the lesser of (i) the sum of (A) the Prime Rate
plus (B) 4.0% or (ii) the highest annual rate permitted by law. All such
sums expended shall be a lien on the Collateral and shall be deemed to
be secured hereby.
-6-
<PAGE> 58
(g) Secured Parties' Right to Act For the Entities. If there occurs an
Event of Default or an event which, with the giving of notice or passage
of time, or both, would constitute an Event of Default hereunder, then
the Secured Parties have the right, but not the obligation, without
notice and without in any way releasing the Entities from any of the
Obligations to do any or all of the following:
(i) make the payment or do the act in such manner and to such extent
as the Secured Parties may deem necessary to protect the Collateral;
(ii) appear in and defend any action or proceeding purporting to
affect the Collateral or the rights or powers of the Secured
Parties;
(iii) pay, purchase, contest or compromise any encumbrance, charge,
or lien which in the judgment of the Secured Parties appears to
affect the Collateral;
(iv) incur any liability and expend such amounts as the Secured
Parties, in their absolute discretion, may deem necessary to
accomplish any of the matters described in (i) through (iii) above,
including without limitation paying necessary expenses, employing
counsel, paying counsel's fees, and so forth.
(h) Effect of Prior Recourse to Collateral. The Secured Parties' prior
recourse to any part or all of the Collateral shall not prevent the
Secured Parties from exercising their rights or commencing any
proceedings for payment or performance of the Obligations. The Entities
hereby waive their rights, if any, to require the Secured Parties to
proceed against any or all of the Collateral prior to instituting any
proceeding or action for payment or performance of the Obligations.
(i) Conduct of Sale of Security. In the event that the Secured Parties
elect to sell any part or all of the Collateral, on one or more
occasions, the following shall apply with regard to such sale in
addition to those rights and remedies applicable under the Uniform
Commercial Code:
(i) The sale of any part or all of the Collateral shall have been
made in a commercially reasonable manner as long as it is conducted
in conformity with reasonable commercial practices for the
disposition of similar property; the sale may be conducted at such
place and time, to such person, for such price, and upon such terms
as the Secured Parties deem best, all without demand
-7-
<PAGE> 59
for performance or notice or advertisement other than, if
applicable, as may be required under the laws regulating the sale of
securities;
(ii) if applicable law requires reasonable notice of sale or other
disposition, the Entities hereby, agrees that the sending of ten
(10) Business Days notice to the Entities, in the manner as provided
in Section 12 of the place and time of any public sale or of the
time after which any private sale or other intended disposition is
to be made shall be deemed reasonable notice thereof; and
(iii) the Secured Parties may bid for and purchase at any sale the
Collateral offered for sale or any part thereof and thereby become
the owner thereof. The Secured Parties may make payment for any of
the Collateral so purchased by any means.
(j) Application of Proceeds of Sale Deficiencies. The Secured Parties
may apply the cash proceeds from any sale or other disposition of the
Collateral firstly to the reasonable expenses of retaking, holding,
preparing for sale, and selling the Collateral, including without
limitation broker's fees; secondly to reasonable attorney's fees and all
legal expenses, travel and other expenses which may be incurred by the
Secured Parties in attempting to collect the Obligations or enforce this
Agreement or in the prosecution or defense of any action or proceeding
related to the subject matter of this Agreement; and thirdly to all
unpaid Obligations. The Entities shall remain liable for, and will pay
the Secured Parties on demand, any deficiency remaining and the balance
of any expenses unpaid. Any surplus shall be paid to the Entities,
subject to any duty of the Secured Parties imposed by law to the holder
of any subordinate security interest in the Collateral known to the
Secured Parties.
(k) Power of Attorney. To effectuate the terms and provisions hereof,
the Entities hereby designate and appoint each Secured Party and its
assignees, designees or agents as attorneys-in-fact of the Entities
irrevocably and with power of substitution, with authority to do each
and every of the following acts upon an Event of Default hereunder:
(i) to sell, assign, deliver and dispose of any part of all the
Collateral, at public or private sale at the option of Secured
Party; and
(ii) to do all other acts and things necessary and advisable in the
sole discretion of each Secured Party to carry out and enforce this
Agreement.
-8-
<PAGE> 60
All acts of said attorney or designee are hereby ratified and approved.
Said attorney or designee shall not be liable for any acts of commission or
omission or for any error of judgment or mistake of act or law except for acts,
errors or mistakes for which such entity is judged grossly negligent by a court
of competent jurisdiction.
This power of attorney, being coupled with an interest, is irrevocable
while any of the Obligations are due or not satisfied or fully performed.
Section 12. Miscellaneous.
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to the choice of
law principles thereof. The parties hereto agree that any suit, action or
proceeding arising out of or relating to this Agreement may be instituted and
prosecuted in the United States District Court for the Southern District of New
York or in the New York State Supreme Court located in New York County, and the
parties hereto irrevocably submit to the jurisdiction of said courts and waive
any rights to object to or challenge the appropriateness of said forums. Service
of process shall be effected in accordance with the laws of the State of New
York.
(b) All notices, requests, consents and demands hereunder shall be in
writing and shall together with any payments be personally delivered or sent
postage prepaid to the intended party at the address set forth at the beginning
of this Agreement (unless notification of a change of address is given in
writing). The date of mailing of a notice or other statement shall be deemed the
date the notice is given or statement rendered.
(c) The terms of this Agreement may be waived, altered or amended only
in a writing signed by the parties hereto.
(d) This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto. No party may assign this Agreement
without the express written consent of the other parties.
(e) This Agreement may be executed in counterparts, which together shall
constitute one and the same instrument and any of the parties hereto may execute
this Agreement by signing any such counterpart.
(f) No delay or failure by the Secured Parties in the exercise of any
right or remedies shall constitute a waiver thereof, and no single or partial
exercise by the Secured Parties of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy.
(g) The invalidity or unenforceability of any provisions of this
Security Agreement shall not affect any
- 9 -
<PAGE> 61
other provision hereof, and this Security Agreement shall be construed in all
respects as if such invalid or unenforceable provision were omitted.
(h) All representations and warranties of the Entities and all terms,
provisions, conditions and agreements to be performed by the Entities contained
in this Agreement shall be true and correct, and satisfied, where applicable, at
the time of execution of this Agreement, and shall survive the execution of this
Agreement.
(i) This Agreement contains the entire agreement among the parties
hereto with respect to the subject matter hereof and supersedes all prior and
contemporaneous arrangements or understandings with respect thereto.
- 10 -
<PAGE> 62
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed as of the day and year first above written.
LONG DISTANCE DIRECT L.P.
By: LONG DISTANCE DIRECT INC.,
its General Partner
By:/s/ Steven Lampert
-------------------------------
Name: Steven Lampert
Title: President
CELLULAR DIRECT L.P.
By: CELLULAR DIRECT INC.,
its General Partner
By:/s/ Steven Lampert
-------------------------------
Name: Steven Lampert
Title: President
LONG DISTANCE DIRECT, INC.
By:/s/ Steven Lampert
-------------------------------
Name: Steven Lampert
Title: President
CELLULAR DIRECT, INC.
By:/s/ Steven Lampert
-------------------------------
Name: Steven Lampert
Title: President
PRIVATE VENTURES INC.
By:/s/ Steven Lampert
-------------------------------
Name: Steven Lampert
Title: President
- 11 -
<PAGE> 63
SECURED PARTIES
JAMI MARKETING SERVICES, INC.
By: /s/ Jeffrey L. Schwartz
-----------------------------
/s/ Michael G. Miller
--------------------------------
Michael G. Miller
/s/ Jeffrey L. Schwartz
--------------------------------
Jeffrey L. Schwartz
- 12 -
<PAGE> 64
This FINANCING STATEMENT is presented to a filing officer for filing pursuant
to the Uniform Commercial Code:
- -----------------------------------------------------------------------------
1. Debtor(s) (Last Name First) and address(es)
Long Distance Direct L.P., Long Distance Direct, Inc.,
Cellular Direct L.P., Cellular Direct, Inc.
Private Ventures Inc.
2 Blue Hill Plaza,
Pearl River, New York 10965
- -----------------------------------------------------------------------------
2. Secured Party(ies) and address(es)
Michael G. Miller, 5 Sky Drive,
New City, New York 10956
Jeffrey L. Schwartz, 3 Glen Eagles Court,
New City, New York 10956
JAMI Marketing Services, Inc.,
2 Blue Hill Plaza,
Pearl River, New York 10965
- ------------------------------------------------------------------------------
3. Maturity date (if any):
For Filing Officer (Date, Time, Number, and Filing Office)
- ------------------------------------------------------------------------------
4. This financing statement covers the following types (or items) of property:
See attached Security Agreement
- ------------------------------------------------------------------------------
5. Assignee(s) of Secured Party and Address(es)
- ------------------------------------------------------------------------------
This statement is filed without the debtor's signature to perfect a security
interest in collateral. (check /x/ if so)
/ / already subject to a security interest in another jurisdiction when it was
brought into this state.
/ / which is proceeds of the original collateral described above in which a
security interest was perfected:
- ------------------------------------------------------------------------------
Filed with:
1. New York State Secretary of State
2. Rockland County
- ------------------------------------------------------------------------------
Check /x/ if covered: / / Proceeds of Collateral are also covered.
/ / Products of Collateral are also covered.
No. of additional Sheets presented:
- ------------------------------------------------------------------------------
/s/ [illegible]
- ------------------------------------ -------------------------------------
By: /s/ [illegible] By: /s/ [illegible]
- ------------------------------------ -------------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
- ------------------------------------ -------------------------------------
Title Title
Debtor Copy
ORIGINATOR -- Remove this copy and forward balance of form intact for filing.
=============================================================================
This FINANCING STATEMENT is presented to a filing officer for filing pursuant
to the Uniform Commercial Code:
- -----------------------------------------------------------------------------
1. Debtor(s) (Last Name First) and address(es)
Long Distance Direct L.P., Long Distance Direct, Inc.,
Cellular Direct L.P., Cellular Direct, Inc.
Private Ventures Inc.
2 Blue Hill Plaza,
Pearl River, New York 10965
- -----------------------------------------------------------------------------
2. Secured Party(ies) and address(es)
Michael G. Miller, 5 Sky Drive,
New City, New York 10956
Jeffrey L. Schwartz, 3 Glen Eagles Court,
New City, New York 10956
JAMI Marketing Services, Inc.,
2 Blue Hill Plaza,
Pearl River, New York 10965
- ------------------------------------------------------------------------------
3. Maturity date (if any):
For Filing Officer (Date, Time, Number, and Filing Office)
- ------------------------------------------------------------------------------
4. This financing statement covers the following types (or items) of property:
See attached Security Agreement
- ------------------------------------------------------------------------------
5. Assignee(s) of Secured Party and Address(es)
- ------------------------------------------------------------------------------
This statement is filed without the debtor's signature to perfect a security
interest in collateral. (check /x/ if so)
/ / already subject to a security interest in another jurisdiction when it was
brought into this state.
/ / which is proceeds of the original collateral described above in which a
security interest was perfected:
- ------------------------------------------------------------------------------
Filed with:
1. New York State Secretary of State
2. Rockland County
- ------------------------------------------------------------------------------
Check /x/ if covered: / / Proceeds of Collateral are also covered.
/ / Products of Collateral are also covered.
No. of additional Sheets presented:
- ------------------------------------------------------------------------------
/s/ [illegible]
- ------------------------------------ -------------------------------------
By: /s/ [illegible] By: /s/ [illegible]
- ------------------------------------ -------------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
- ------------------------------------ -------------------------------------
Title Title
Debtor Copy
ORIGINATOR -- Remove this copy and forward balance of form intact for filing.
<PAGE> 65
RELEASE
KNOW ALL TO WHOM THESE PRESENTS SHALL COME OR MAY CONCERN THAT,
LONG DISTANCE DIRECT INC., a New York corporation ("LDDI"), LONG DISTANCE DIRECT
L.P., a New York limited partnership ("LDDLP"), CELLULAR DIRECT L.P. ("CDLP"),
CELLULAR DIRECT, INC. ("CDI"), PRIVATE VENTURES INC. ("PVI"), Steven L. Lampert
("Lampert") and Michael D. Preston ("Preston") (hereafter LDDI, LDDLP, CDLP,
CDI, PVI, Lampert and Preston are collectively referred to as the "RELEASOR")
for good and valuable consideration, the adequacy of which is hereby
acknowledged, received from
Michael G. Miller, a United States citizen, and Jeffrey L. Schwartz, a United
States citizen (hereafter collectively referred to as the "RELEASEE")
receipt of which is hereby acknowledged, releases and discharges the RELEASEE
and his respective heirs, executors, successors and assigns from all action,
causes of action, suits, debts, sums of money, accounts, bills, covenants,
contracts, agreements, promises, damages, judgments, executions, claims and
demands whatsoever, in law, admiralty or equity (hereafter all of the foregoing
shall be referred to as "Claims"), which against the RELEASEE, the RELEASOR or
the RELEASOR'S successors and assigns ever had, now have or hereafter can, shall
or may, have for, upon, or by reason of any matter, cause of thing whatsoever
from the beginning of the world to the date of this RELEASE, including Claims
arising out of or in connection with the Stockholders Agreement dated as of
December 1, 1991 by and among Preston, Lampert, Michael G. Miller ("Miller"),
Jeffrey L. Schwartz ("Schwartz"), Jerry Lott ("Lott") and the Company and the
Agreement of Limited Partnership dated as of April 17, 1992 by and among the
Company, Preston, Lampert, Miller, Schwartz and Lott; provided however, that
this Release shall not be effective as to any obligations or covenants of the
RELEASEE contained in the Agreement dated as of April 6, 1993 by and among
Miller, Schwartz and the RELEASOR.
This Release may not be changed orally.
This Release shall be governed by, construed and enforced in accordance with the
laws of the State of New York, United States of America, without reference to
the choice of law principles thereof.
<PAGE> 66
IN WITNESS WHEREOF, the Releasor has caused this Release to be duly
executed on May , 1993.
LONG DISTANCE DIRECT INC.
By: /s/ Steven L. Lampert
-------------------------------
LONG DISTANCE DIRECT L.P.
By: LONG DISTANCE DIRECT INC.,
its General Partner
By: /s/ Steven L. Lampert
--------------------------
CELLULAR DIRECT L.P.
By: CELLULAR DIRECT, INC.,
its General Partner
By: /s/ Steven L. Lampert
--------------------------
CELLULAR DIRECT, INC.
By: /s/ Steven L. Lampert
------------------------------
PRIVATE VENTURES INC.
By: /s/ Steven L. Lampert
-----------------------------
/s/ Steven L. Lampert
---------------------------------
Steven L. Lampert
/s/ Michael D. Preston
---------------------------------
Michael D. Preston
- 2 -
<PAGE> 67
IN PRESENCE OF:
STATE OF NEW YORK )
)ss.:
COUNTY OF ROCKLAND )
On this 1 day of June, 1993, before me personally came Steven L.
Lampert, who being by me duly sworn did depose and say he resides at 9 Lansdale
Road, New City, New York 10956, and acknowledged to me that he signed his name
thereto.
/s/ Gregory C. Hutter
--------------------------
Notary Public
GREGORY C. HUTTER
NOTARY PUBLIC, STATE OF NEW YORK
NO. 01HU4967855
QUALIFIED IN ROCKLAND COUNTY
QUALIFIED IN WESTCHESTER COUNTY
COMMISSION EXPIRES JUNE 11, 1994
IN PRESENCE OF:
STATE OF NEW YORK )
)ss.:
COUNTY OF ROCKLAND )
On this 1 day of June, 1993, before me personally came Steven L.
Lampert, who being by me duly sworn did depose and say he is the duly appointed
President of each of Long Distance Direct, Inc., Cellular Direct, Inc. and
Private Ventures Inc., and acknowledged to me that he signed his name
in such capacity.
/s/ Gregory C. Hutter
--------------------------
Notary Public
GREGORY C. HUTTER
NOTARY PUBLIC, STATE OF NEW YORK
NO. 01HU4967855
QUALIFIED IN ROCKLAND COUNTY
QUALIFIED IN WESTCHESTER COUNTY
COMMISSION EXPIRES JUNE 11, 1994
IN PRESENCE OF:
STATE OF NEW YORK )
)ss.:
COUNTY OF ROCKLAND )
On this 1 day of June, 1993, before me personally came Michael
D. Preston, who being by me duly sworn did depose and say he resides at 91
Redington Road, London NW3 7RR, England, and acknowledged to me that he signed
his name thereto.
/s/ Gregory C. Hutter
--------------------------
Notary Public
GREGORY C. HUTTER
NOTARY PUBLIC, STATE OF NEW YORK
NO. 01HU4967855
QUALIFIED IN ROCKLAND COUNTY
QUALIFIED IN WESTCHESTER COUNTY
COMMISSION EXPIRES JUNE 11, 1994
-3-
<PAGE> 68
RELEASE
KNOW ALL TO WHOM THESE PRESENTS SHALL COME OR MAY CONCERN THAT,
MICHAEL G. MILLER, a United States citizen (hereafter referred to as the
"RELEASOR")
for good and valuable consideration, the adequacy of which is hereby
acknowledged, received from
LONG DISTANCE DIRECT INC., a New York corporation ("LDDI"), LONG DISTANCE DIRECT
L.P., a New York limited partnership ("LDDLP"), CELLULAR DIRECT L.P. ("CDLP"),
CELLULAR DIRECT, INC. ("CDI"), PRIVATE VENTURES INC. ("PVI"), Steven L. Lampert
("Lampert") and Michael D. Preston ("Preston") as RELEASEE (hereafter LDDI,
LDDLP, CDLP, CDI, PVI, Lampert and Preston are collectively referred to as the
"RELEASEE")
receipt of which is hereby acknowledged, releases and discharges the RELEASEE
and, where applicable, the RELEASEE'S officers, directors, shareholders, limited
partners and general partners and their respective heirs, executors, successors
and assigns from all action, causes of action, suits, debts, sums of money,
accounts, bills, covenants, contracts, agreements, promises, damages, judgments,
executions, claims and demands whatsoever, in law, admiralty or equity
(hereafter all of the foregoing shall be referred to as "Claims"), which against
the RELEASEE, the RELEASOR or the RELEASOR'S successors and assigns ever had,
now have or hereafter can, shall or may, have for, upon, or by reason of any
matter, cause of thing whatsoever from the beginning of the world to the date of
this RELEASE, including Claims arising out of or in connection with the
Stockholders Agreement dated as of December 1, 1991 by and among Preston,
Lampert, Michael G. Miller ("Miller"), Jeffrey L. Schwartz ("Schwartz"), Jerry
Lott ("Lott") and the Company and the Agreement of Limited Partnership dated as
of April 17, 1992 by and among the Company, Preston, Lampert, Miller, Schwartz
and Lott; provided however, that this Release shall not be effective as to any
obligations of the RELEASEE contained in the Agreement (the "Agreement") dated
as of April 6, 1993 by and among Miller, Schwartz, and the RELEASEE, the
Partnership Seller Note or the Partnership JAMI Note or either Buyers Guaranty
(each as defined in the Agreement); provided, further, that this Release shall
be void and of no further force or effect as it relates to any party during such
period as such party shall have failed to make any payment when due (subject to
a cure period, if any) pursuant to the terms of the Agreement, the Partnership
JAMI Note, the Partnership Seller Note or a Buyer Guaranty, but shall be
reinstated with full force and effect (including retroactive effect) as and when
such payment shall be made in full, together with interest owed thereon, if any.
<PAGE> 69
This Release may not be changed orally.
This Release shall be governed by, construed and enforced in accordance with the
laws of the State of New York, United States of America, without reference to
the choice of law principles thereof.
IN WITNESS WHEREOF, the Releasor has caused this Release to be
duly executed on June 3, 1993.
IN PRESENCE OF: MICHAEL G. MILLER
By: /s/ Michael G. Miller
-----------------------------
STATE OF NEW YORK )
)ss.:
COUNTY OF )
On this 3rd day of June, 1993, before me personally came Michael
G. Miller, who being by me duly sworn did depose and say he resides at 5 Sky
Drive, New City, New York 10956, and acknowledged to me that he signed his name
thereto.
/s/ Geoffrey A. Bass
---------------------------------
Notary Public
GEOFFREY A. BASS
Notary Public, State of New York
No. 31-4807239
Qualified in Nassau County
Commission Expires June 30, 1994
-2-
<PAGE> 70
RELEASE
KNOW ALL TO WHOM THESE PRESENTS SHALL COME OR MAY CONCERN THAT,
JEFFREY L. SCHWARTZ, a United States citizen (hereafter referred to as the
"RELEASOR")
for good and valuable consideration, the adequacy of which is hereby
acknowledged, received from
LONG DISTANCE DIRECT INC., a New York corporation ("LDDI"), LONG DISTANCE DIRECT
L.P., a New York limited partnership ("LDDLP"), CELLULAR DIRECT L.P. ("CDLP"),
CELLULAR DIRECT, INC. ("CDI"), PRIVATE VENTURES INC. ("PVI"), Steven L. Lampert
("Lampert") and Michael D. Preston ("Preston") as RELEASEE (hereafter LDDI,
LDDLP, CDLP, CDI, PVI, Lampert and Preston are collectively referred to as the
"RELEASEE")
receipt of which is hereby acknowledged, releases and discharges the RELEASEE
and, where applicable, the RELEASEE'S officers, directors, shareholders, limited
partners and general partners and their respective heirs, executors, successors
and assigns from all action, causes of action, suits, debts, sums of money,
accounts, bills, covenants, contracts, agreements, promises, damages, judgments,
executions, claims and demands whatsoever, in law, admiralty or equity
(hereafter all of the foregoing shall be referred to as "Claims"), which against
the RELEASEE, the RELEASOR or the RELEASOR'S successors and assigns ever had,
now have or hereafter can, shall or may, have for, upon, or by reason of any
matter, cause of thing whatsoever from the beginning of the world to the date of
this RELEASE, including Claims arising out of or in connection with the
Stockholders Agreement dated as of December 1, 1991 by and among Preston,
Lampert, Michael G. Miller ("Miller"), Jeffrey L. Schwartz ("Schwartz"), Jerry
Lott ("Lott") and the Company and the Agreement of Limited Partnership dated as
of April 17, 1992 by and among the Company, Preston, Lampert, Miller, Schwartz
and Lott; provided however, that this Release shall not be effective as to any
obligations of the RELEASEE contained in the Agreement (the "Agreement") dated
as of April 6, 1993 by and among Miller, Schwartz, and the RELEASEE, the
Partnership Seller Note or the Partnership JAMI Note or either Buyers Guaranty
(each as defined in the Agreement); provided, further, that this Release shall
be void and of no further force or effect as it relates to any party during such
period as such party shall have failed to make any payment when due (subject to
a cure period, if any) pursuant to the terms of the Agreement, the Partnership
JAMI Note, the Partnership Seller Note or a Buyer Guaranty, but shall be
reinstated with full force and effect (including retroactive effect) as and when
such payment shall be made in full, together with interest owed thereon, if any.
<PAGE> 71
0419N
This Release may not be changed orally.
This Release shall be governed by, construed and enforced in accordance with the
laws of the State of New York, United States of America, without reference to
the choice of law principles thereof.
IN WITNESS WHEREOF, the Releasor has caused this Release to be
duly executed on June 3, 1993.
IN PRESENCE OF: JEFFREY L. SCHWARTZ
By: /s/ Jeffrey L. Schwartz
--------------------------
STATE OF NEW YORK )
)ss.:
COUNTY OF )
On this 3rd day of June, 1993, before me personally came Jeffrey
L. Schwartz, who being by me duly sworn did depose and say he resides at 3 Glen
Eagles Court, New City, New York 10956, and acknowledged to me that he signed
his name thereto.
/s/ Geoffrey A. Bass
---------------------------------
Notary Public
GEOFFREY A. BASS
Notary Public, State of New York
No. 31-4807239
Qualified in Nassau County
Commission Expires June 30, 1994
- 2 -
<PAGE> 72
CERTIFICATE
The undersigned, Steven L. Lampert, hereby certifies that the
representations and warranties made by him and contained in the agreement dated
as of April 6, 1993 by and among Steven Lampert, Michael Preston,
Michael Miller, Jeffrey Schwartz, Long Distance Direct L.P., Long Distance
Direct, Inc., Cellular Direct L.P., Cellular Direct, Inc. and Private Ventures
Inc. are true and correct in all respects as of the date hereof with the same
force and effect as if made on the date hereof.
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
executed as of the 31st day of May 1993.
Steven L. Lampert
/s/ Steven L. Lampert
---------------------------------
<PAGE> 73
CERTIFICATE
The undersigned, Michael D. Preston, hereby certifies that the
representations and warranties made by him and contained in the agreement dated
as of April 6, 1993 by and among Steven Lampert, Michael Preston, Michael
Miller, Jeffrey Schwartz, Long Distance Direct L.P., Long Distance Direct, Inc.,
Cellular Direct L.P., Cellular Direct, Inc. and Private Ventures Inc. are true
and correct in all respects as of the date hereof with the same force and effect
as if made on the date hereof.
IN WITNESS WHEREOF, the undersigned has caused this Certificate
to be executed as of the 31st day of May 1993.
Michael D. Preston
/s/ Michael D. Preston
-------------------------------
<PAGE> 74
CERTIFICATE
The undersigned, in his capacity as President of the undersigned
entities (or President of the General Partner of the undersigned entities),
hereby certifies that the representations and warranties made by the undersigned
and contained in the agreement dated as of April 6, 1993 by and among Steven
Lampert, Michael Preston, Michael Miller, Jeffrey Schwartz, Long Distance Direct
L.P., Long Distance Direct, Inc., Cellular Direct L.P., Cellular Direct, Inc.
and Private Ventures Inc. are true and correct in all respects as of the date
hereof with the same force and effect as if made on the date hereof.
IN WITNESS WHEREOF, the undersigned have caused this Certificate
to be executed as of the 31 day of May 1993.
LONG DISTANCE DIRECT L.P.
By: LONG DISTANCE DIRECT INC.,
its General Partner
By: /s/ Steven Lampert
------------------------------
Name: Steven Lampert
Title: President
CELLULAR DIRECT L.P.
By: CELLULAR DIRECT, INC.,
its General Partner
By: /s/ Steven Lampert
------------------------------
Name: Steven Lampert
Title: President
LONG DISTANCE DIRECT, INC.
By: /s/ Steven Lampert
------------------------------
Name: Steven Lampert
Title: President
CELLULAR DIRECT, INC.
By: /s/ Steven Lampert
------------------------------
Name: Steven Lampert
Title: President
PRIVATE VENTURES INC.
By: /s/ Steven Lampert
------------------------------
Name: Steven Lampert
Title: President
<PAGE> 75
CERTIFICATE
The undersigned, Michael G. Miller, hereby certifies that the
representations and warranties made by him and contained in the agreement dated
as of April 6, 1993 by and among Steven Lampert, Michael Preston, Michael
Miller, Jeffrey Schwartz, Long Distance Direct L.P., Long Distance Direct, Inc.,
Cellular Direct L.P., Cellular Direct, Inc. and Private Ventures Inc. are true
and correct in all respects as of the date hereof with the same force and effect
as if made on the date hereof.
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
executed as of the 31st day of May 1993.
Michael G. Miller
/s/ Michael G. Miller
-------------------------------
<PAGE> 76
CERTIFICATE
The undersigned, Jeffrey L. Schwartz, hereby certifies that the
representations and warranties made by him and contained in the agreement dated
as of April 6, 1993 by and among Steven Lampert, Michael Preston, Michael
Miller, Jeffrey Schwartz, Long Distance Direct L.P., Long Distance Direct, Inc.,
Cellular Direct L.P., Cellular Direct, Inc. and Private Ventures Inc. are true
and correct in all respects as of the date hereof with the same force and effect
as if made on the date hereof.
IN WITNESS WHEREOF, the undersigned has caused this Certificate
to be executed as of the 31st day of May 1993.
Jeffrey L. Schwartz
/s/ Jeffrey L. Schwartz
--------------------------------
<PAGE> 77
June 3, 1993
TO: THE BOARD OF DIRECTORS
LONG DISTANCE DIRECT INC.
The undersigned hereby resigns as a director and officer of Long
Distance Direct Inc., a New York Corporation.
/s/ Michael G. Miller
----------------------------
Michael G. Miller
<PAGE> 78
June 3, 1993
TO: THE BOARD OF DIRECTORS
CELLULAR DIRECT INC.
The undersigned hereby resigns as a director and officer of Cellular
Direct Inc., a New York corporation.
/s/ Michael G. Miller
----------------------------
Michael G. Miller
<PAGE> 79
June 3, 1993
TO: THE BOARD OF DIRECTORS
PRIVATE VENTURES INC.
The undersigned hereby resigns as a director and officer of Private
Ventures Inc., a New York corporation.
/s/ Michael G. Miller
----------------------------
Michael G. Miller
<PAGE> 80
June 3, 1993
TO: THE BOARD OF DIRECTORS
LONG DISTANCE DIRECT INC.
The undersigned hereby resigns as a director and officer of Long
Distance Direct Inc., a New York corporation.
/s/ Jeffrey L. Schwartz
-----------------------------------
Jeffrey L. Schwartz
<PAGE> 81
June 3, 1993
TO: THE BOARD OF DIRECTORS
CELLULAR DIRECT INC.
The undersigned hereby resigns as a director and officer of Cellular
Direct Inc., a New York corporation.
/s/ Jeffrey L. Schwartz
-----------------------------------
Jeffrey L. Schwartz
<PAGE> 82
June 3, 1993
TO: THE BOARD OF DIRECTORS
PRIVATE VENTURES INC.
The undersigned hereby resigns as a director and officer of Private
Ventures Inc., a New York corporation.
/s/ Jeffrey L. Schwartz
-----------------------------------
Jeffrey L. Schwartz
<PAGE> 83
[BLUMBERG'S LAW PRODUCTS LETTERHEAD]
STOCK POWER
FOR VALUE RECEIVED, Michael G. Miller
-------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
hereby sell, assign and transfer unto [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
( ) Shares of the Capital Stock of
------ ------------------- --------------------
Long Distance Direct, Inc. standing in my (our) name(s)
- ---------------------------------------------------
on the books of said Corporation represented by Certificate(s) No(s).
-----------
herewith, and do hereby irrevocably constitute and appoint
---------------------
attorney to transfer
- --------------------------------------------------------
the said stock on the books of said Corporation with full power of substitution
in the premises.
Dated
---------------------------------
/s/ Michael G. Miller
------------------------------
Michael G. Miller
In presence of
- ---------------------------------------
<PAGE> 84
See Legend on Reverse Side
NUMBER SHARES
2 **23.75**
[GRAPHIC]
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
LONG DISTANCE DIRECT
THE CORPORATION IS AUTHORIZED TO ISSUE 200 COMMON SHARES--NO PAR VALUE
THIS CERTIFIES THAT MICHAEL G. MILLER is the owner of
******TWENTY THREE AND SEVENTY-FIVE ONE HUNDREDS****** fully paid and
non-assessable Shares of the above Corporation transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated December 1, 1991
------------------
----------------------- ----------------------
SECRETARY-TREASURER PRESIDENT
<PAGE> 85
"Any transfer or other disposition of the shares represented by this certificate
is subject to the provisions of a Stockholders Agreement dated as of December 1,
1991, among Michael Preston, Michael G. Miller, Jeffrey L. Schwartz, Steven L.
Lampert, Jerry Lott, and Long Distance Direct Inc.
"The shares of stock represented by this certificate have not been registered
under the Securities Act of 1933 (the "Act") or any state securities laws and
may not be pledged, sold, assigned or transferred until (i) a registration
statement with respect thereto is effective under the Act and any applicable
state securities law or (ii) the Corporation receives an opinion of counsel that
such registration is not required."
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian (Minor)
TEN ENT - as tenants by the entireties ----- --------
JT TEN - as joint tenants with right of survivorship under Uniform Gifts to Minors Act (State)
and not as tenants in common ------
PLEASE INSERT SOCIAL SECURITY OR OTHER
For value received, the undersigned hereby sells, assigns and transfers unto IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- ----------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- -------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------
represented by the within Certificate, and hereby irrevocably constitutes and appoints
----------------------------
Attorney to transfer the said
- -------------------------------------------------------------------------------------
shares on the books of the within-named Corporation with full power of substitution in the premises.
Dated,
------------------------------
In presence of -----------------------------------
- -----------------------------------
</TABLE>
<PAGE> 86
[BLUMBERG'S LAW PRODUCTS LETTERHEAD]
STOCK POWER
FOR VALUE RECEIVED, Jeffrey L. Schwartz
-------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
hereby sell, assign and transfer unto [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
( ) Shares of the Capital Stock of
------ ------------------- --------------------
Cellular Direct Inc. standing in my (our) name(s)
- ---------------------------------------------------
on the books of said Corporation represented by Certificate(s) No(s).
-----------
herewith, and do hereby irrevocably constitute and appoint
---------------------
attorney to transfer
- --------------------------------------------------------
the said stock on the books of said Corporation with full power of substitution
in the premises.
Dated
---------------------------------
/s/ Jeffrey L. Schwartz
------------------------------
Jeffrey L. Schwartz
In presence of
- ---------------------------------------
<PAGE> 87
See Legend on Reverse Side
NUMBER SHARES
3 **23.75**
[GRAPHIC]
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
LONG DISTANCE DIRECT
THE CORPORATION IS AUTHORIZED TO ISSUE 200 COMMON SHARES--NO PAR VALUE
THIS CERTIFIES THAT JEFFREY L. SCHWARTZ is the owner of
******TWENTY THREE AND SEVENTY-FIVE ONE HUNDREDS****** fully paid and
non-assessable Shares of the above Corporation transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated December 1, 1991
------------------
----------------------- ----------------------
SECRETARY-TREASURER PRESIDENT
<PAGE> 88
"Any transfer or other disposition of the shares represented by this certificate
is subject to the provisions of a Stockholders Agreement dated as of December 1,
1991, among Michael Preston, Michael G. Miller, Jeffrey L. Schwartz, Steven L.
Lampert, Jerry Lott, and Long Distance Direct Inc.
"The shares of stock represented by this certificate have not been registered
under the Securities Act of 1933 (the "Act") or any state securities laws and
may not be pledged, sold, assigned or transferred until (i) a registration
statement with respect thereto is effective under the Act and any applicable
state securities law or (ii) the Corporation receives an opinion of counsel that
such registration is not required."
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian (Minor)
TEN ENT - as tenants by the entireties ----- --------
JT TEN - as joint tenants with right of survivorship under Uniform Gifts to Minors Act (State)
and not as tenants in common ------
PLEASE INSERT SOCIAL SECURITY OR OTHER
For value received, the undersigned hereby sells, assigns and transfers unto IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- ----------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- -------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------
represented by the within Certificate, and hereby irrevocably constitutes and appoints
----------------------------
Attorney to transfer the said
- -------------------------------------------------------------------------------------
shares on the books of the within-named Corporation with full power of substitution in the premises.
Dated,
------------------------------
In presence of -----------------------------------
- -----------------------------------
</TABLE>
<PAGE> 89
[BLUMBERG'S LAW PRODUCTS LETTERHEAD]
STOCK POWER
FOR VALUE RECEIVED, Michael G. Miller
-------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
hereby sell, assign and transfer unto [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
( ) Shares of the Capital Stock of
------ ------------------- --------------------
Cellular Direct Inc. standing in my (our) name(s)
- ---------------------------------------------------
on the books of said Corporation represented by Certificate(s) No(s).
-----------
herewith, and do hereby irrevocably constitute and appoint
---------------------
attorney to transfer
- --------------------------------------------------------
the said stock on the books of said Corporation with full power of substitution
in the premises.
Dated
---------------------------------
/s/ Michael G. Miller
------------------------------
Michael G. Miller
In presence of
- ---------------------------------------
<PAGE> 90
[BLUMBERG'S LAW PRODUCTS LETTERHEAD]
STOCK POWER
FOR VALUE RECEIVED, Jeffrey L. Schwartz
-------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
hereby sell, assign and transfer unto [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
( ) Shares of the Capital Stock of
------ ------------------- --------------------
Cellular Direct Inc. standing in my (our) name(s)
- ---------------------------------------------------
on the books of said Corporation represented by Certificate(s) No(s).
-----------
herewith, and do hereby irrevocably constitute and appoint
---------------------
attorney to transfer
- --------------------------------------------------------
the said stock on the books of said Corporation with full power of substitution
in the premises.
Dated
---------------------------------
/s/ Jeffrey L. Schwartz
------------------------------
Jeffrey L. Schwartz
In presence of
- ---------------------------------------
<PAGE> 91
[BLUMBERG'S LAW PRODUCTS LETTERHEAD]
STOCK POWER
FOR VALUE RECEIVED, Michael G. Miller
-------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
hereby sell, assign and transfer unto [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
( ) Shares of the Capital Stock of
------ ------------------- --------------------
Private Ventures Inc. standing in my (our) name(s)
- ---------------------------------------------------
on the books of said Corporation represented by Certificate(s) No(s).
-----------
herewith, and do hereby irrevocably constitute and appoint
---------------------
attorney to transfer
- --------------------------------------------------------
the said stock on the books of said Corporation with full power of substitution
in the premises.
Dated
---------------------------------
/s/ Michael G. Miller
------------------------------
Michael G. Miller
In presence of
- ---------------------------------------
<PAGE> 92
[BLUMBERG'S LAW PRODUCTS LETTERHEAD]
STOCK POWER
FOR VALUE RECEIVED, Jeffrey Schwartz
-------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
hereby sell, assign and transfer unto [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
( ) Shares of the Capital Stock of
------ ------------------- --------------------
Private Ventures Inc. standing in my (our) name(s)
- ----------------------------------------------
on the books of said Corporation represented by Certificate(s) No(s).
-----------
herewith, and do hereby irrevocably constitute and appoint
---------------------
attorney to transfer
- --------------------------------------------------------
the said stock on the books of said Corporation with full power of substitution
in the premises.
Dated
---------------------------------
/s/ Jeffrey Schwartz
------------------------------
Jeffrey Schwartz
In presence of
- ---------------------------------------
<PAGE> 93
June 3, 1993
The undersigned hereby sells, transfers and assigns all of his interest
in Long Distance Direct L.P., a New York limited partnership, to Steven L.
Lampert and Michael D. Preston.
/s/ Michael G. Miller
-------------------------
Michael G. Miller
<PAGE> 94
June 3, 1993
The undersigned hereby sells, transfers and assigns all of his interest
in Long Distance Direct L.P., a New York limited partnership, to Steven L.
Lampert and Michael D. Preston.
/s/ Jeffrey L. Schwartz
-------------------------
Jeffrey L. Schwartz
<PAGE> 95
June 3, 1993
The undersigned hereby sells, transfers and assigns all of his interest
in Cellular Direct L.P., a New York limited partnership, to Steven L. Lampert
and Michael D. Preston.
/s/ Michael G. Miller
-------------------------
Michael G. Miller
<PAGE> 96
June 3, 1993
The undersigned hereby sells, transfers and assigns all of his interest
in Cellular Direct L.P., a New York limited partnership, to Steven L. Lampert
and Michael D. Preston.
/s/ Jeffrey L. Schwartz
-------------------------
Jeffrey L. Schwartz
<PAGE> 97
WAIVER AND CONSENT
The undersigned, Jerry Lott, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, pursuant to Section
5.3(e) of the Agreement (the "Agreement") dated as of April 6, 1993 by and among
Steven L. Lampert, Michael D. Preston, Michael G. Miller, Jeffrey L. Schwartz,
Long Distance Direct L.P., Long Distance Direct, Inc., Cellular Direct, Inc.,
Private Ventures Inc. and Cellular Direct L.P. hereby acknowledges receipt of a
copy of the Agreement, and after review thereof:
(i) waives any and all rights he may have, now or in the future, against
the Buyers, the Selling Stockholders, or any Entity resulting from or
arising out of the execution and delivery of the Agreement, the Buyer
Guarantees, the Security Agreement, the Partnership Note or any other
document, certificate or side letter ancillary to the execution of the
Agreement or the consummation of the transactions contemplated thereby,
including, but not limited to, the rights granted to Lott under (a) Section
5 of the Stockholders Agreement, (b) Section 12 of the Partnership Agreement
and (c) any similar rights granted to Lott pursuant to the terms of any
stockholder, partnership or like agreement involving Lott and any of the
Buyers, the Selling Stockholders or any Entity; and
(ii) consents to the execution of the Agreement, the Buyer Guarantees,
the Security Agreement, the Partnership Note and any other document,
certificate or side letter ancillary to the execution of the Agreement and
the consummation of the transactions contemplated thereby.
This Waiver and Consent shall be governed by and construed in accordance
with the laws of the State of New York, without reference to the choice of law
principles thereof.
All terms used but not defined herein shall have the meanings assigned
thereto in the Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Waiver and Consent
as of the 31st day of May, 1993.
/s/ Jerry Lott
-------------------------
Jerry Lott
<PAGE> 98
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF LIMITED PARTNERSHIP
OF
LONG DISTANCE DIRECT L.P.
(Under Section 121-202 of the Revised Limited Partnership Act)
To the Department of State
State of New York
The undersigned, for the purpose of amending the Certificate of Limited
Partnership of a limited partnership previously formed pursuant to the Revised
Limited Partnership Act of the State of New York, hereby certifies:
FIRST: The name of the partnership is LONG DISTANCE DIRECT L.P.
SECOND: The date of filing of the Certificate of Limited Partnership of
the partnership with the Department of State was April 17, 1992.
THIRD: The Certificate of Limited Partnership is hereby amended in the
following respects:
(a) Paragraph THIRD, which sets forth the address to which the Secretary
of State of the State of New York shall mail a copy of any process served, is
hereby amended to read as follows:
"The Secretary of State of the State of New York is designated as the
agent upon whom process against the limited partnership may be served. The
post office address within or without the State of New York to which the
Secretary of State of the State of New York shall mail a copy of any process
against the limited partnership served upon him is One Blue Hill Plaza,
Pearl River, New York 10965."
(b) Paragraph FOURTH, which sets forth the name and business street
address of the general partner of the partnership is hereby amended to read as
follows:
"The name and the business street address of the general partner of the
partnership is:
NAME ADDRESS
---- -------
Long Distance Direct, Inc. One Blue Hill Plaza
Pearl River, New York 10965"
<PAGE> 99
IN WITNESS WHEREOF, I have subscribed this document on the date set
forth below and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by me and are true and correct.
Date: 31 May, 1993
LONG DISTANCE DIRECT, INC., General
Partner constituting the sole general
partner of the limited partnership
named in the foregoing Certificate of
Limited Partnership
By: /s/ Michael Preston
------------------------------------
Michael Preston, Vice-President
-2-
<PAGE> 1
Exhibit 10.2
-------------------------------------------
BLUE HILL PLAZA ASSOCIATES
Landlord,
and
LONG DISTANCE DIRECT, L.P.
Tenant.
-----------------
LEASE
-----------------
Premises in the Building at
One Blue Hill Plaza
Pearl River, New York
<PAGE> 2
TABLE OF CONTENTS
1 Definitions ................................................ 1
2 Demise, Term and Rent ...................................... 2
3 Preparation of Premises .................................... 2
4 Use ........................................................ 3
5 Subordination .............................................. 3
6 Assignment and Subletting .................................. 5
7 Estoppel Certificate; Memorandum ........................... 9
8 Requirements of Law ........................................ 9
9 Property Loss and Indemnification .......................... 10
10 Destruction - Fire and Other Casualty ...................... 11
11 Insurance .................................................. 11
12 Condemnation ............................................... 12
13 Repairs .................................................... 13
14 Services ................................................... 14
15 Alterations ................................................ 15
16 Escalations - Taxes, Operating Expenses .................... 16
17 Electric Energy ............................................ 21
18 Signs ...................................................... 24
19 Limitation of Landlord's Liability ......................... 24
20 Broker ..................................................... 24
21 Default - Conditions of Limitation ......................... 25
22 Re-Entry by Landlord ....................................... 26
23 Damages .................................................... 27
24 Surrender .................................................. 29
25 Access to Demised Premises ................................. 30
26 Waivers .................................................... 31
27 No Surrender, etc. ......................................... 31
28 Curing Tenant's Defaults ................................... 32
29 Notices .................................................... 32
30 Arbitration ................................................ 33
31 Relocation of Demised Premises ............................. 33
32 No Representations - Entire Agreement ...................... 34
33 Changes and Modifications .................................. 34
34 Successors and Assigns ..................................... 34
35 Inability to Perform ....................................... 34
36 Rules and Regulations ...................................... 35
37 Consents ................................................... 35
38 Partnership Tenant ......................................... 36
39 Quiet Enjoyment ............................................ 36
40 Security ................................................... 36
41 Late Charge ................................................ 37
42 Miscellaneous .............................................. 37
43 Common Areas and Parking ................................... 38
44 Fixed Rent ................................................. 40
45 Exhibit A - Floor Plan .................................... 43
46 Exhibit A - Plot Plan of Property ......................... 44
47 Exhibit B - Landlord's Work and Tenant's Work ............. 45
48 Exhibit C - Electricity Option ............................ 46
49 Exhibit D - Rules and Regulations ......................... 48
<PAGE> 3
LEASE dated the 15th day of March, 1993 between BLUE HILL PLAZA ASSOCIATES, a
New York limited partnership having its principal office at One Blue Hill Plaza,
Pearl River, NY 10965 (herein called "Landlord"), and LONG DISTANCE DIRECT,
L.P., a limited partnership, having an office at One Blue Hill Plaza, Pearl
River, New York (herein called "Tenant").
WITNESSETH:
Landlord and Tenant hereby covenant and agree as follows:
ARTICLE 1
Definitions
1.01. As used in this Lease, the following terms shall have the meanings
set forth below:
Building: The office building premises known as and by street address
One Blue Hill Plaza, Pearl River, New York 10965.
Buildings: The Building and any other office building on the Property.
Demised Premises: A portion of the fourteenth (14th) floor, specifically
Suite 1430 of the Building as outlined in red on the floor plan annexed hereto
as Exhibit A.
Landlord: Only the owner at the time in question of the Building or of a
lease of the Building, so that in the event of any transfer of title to the
Building or of Landlord's interest in a lease of the Building, the transferor
shall be and hereby is relieved and freed of all obligations of Landlord under
this Lease accruing after such transfer, and it shall be deemed without further
agreement that such transferee has assumed and agreed to perform and observe all
obligations of Landlord herein during the period it is the holder of Landlord's
interest under this Lease.
Landlord's Agents: The agents, contractors and employees of Landlord.
Managing Agent: Clifford Management Corp., One Blue Hill Plaza, Pearl
River, New York, New York, or such other party as Landlord may hereafter
designate by notice to Tenant.
Property: All of the land and improvements thereon owned or groundleased
by Landlord and comprising the Blue Hill project as shown on the plot plan
attached hereto and made a part hereof as Exhibit A-1. The foregoing shall
include, in addition, any other parcels of land or improvements or any facility
serving the project and made available by easement, agreement or otherwise.
Landlord reserves the right to add or sever the ownership or right of use to any
portion of the Property at any time, whereupon the portion so added or severed
shall be included or excluded, as the case may be, from the Property for
purposes of this Lease.
Repair: The term "repair" shall be deemed to include restoration and
replacement as may be necessary to achieve and maintain good working order and
condition.
1
<PAGE> 4
Tenant's Property: The furniture and furnishing of Tenant and the
following which are furnished and installed by or for Tenant without expense to
Landlord and without any allowance or credit to Tenant; movable partitions,
chandeliers and other hanging, standing or projecting special lighting fixtures,
special cabinet work, other business and trade fixtures,business machines,
business equipment and communications equipment, whether or not attached to or
built into the Demised Premises and which can be removed without permanent
structural damage to, or permanent defacement of, the building.
ARTICLE 2
Demise, Term and Rent
2.01. Demise: Landlord hereby leases to Tenant, and Tenant hereby hires
from Landlord, upon and subject to the terms, covenants, provisions and
conditions of this Lease, the Demised Premises.
2.02. Term: The term of this lease shall commence on March 20, 1993
(herein referred to as the "Commencement Date") and shall end on March 31, 1998
of the month in which occurs the fifth (5th) anniversary of the Commencement
Date, (such date on which the term of the lease expires is herein referred to as
the "Expiration Date") or until such term shall sooner cease and terminate as
herein provided.
2.03. Rent: The rents reserved under this Lease, which shall be payable
throughout the Term commencing with the Commencement Date, shall be and consist
of (a) fixed rent (herein called "Fixed Rent") in the amount of (1) ONE HUNDRED
ONE THOUSAND SIX HUNDRED FORTY AND 00/100 ($101,640.00) DOLLARS per year,
payable in equal monthly installments of $8,470.00 during the three (3) year
period commencing on the Commencement Date and ending on March 31, 1998 and (ii)
ONE HUNDRED THIRTEEN THOUSAND NINE HUNDRED SIXTY AND 00/100 ($113,960.00)
DOLLARS per year, payable in equal monthly installments of $9,496.67 during the
two (2) year period commencing on April 1, 1996 and ending on the Expiration
Date (except that Tenant shall pay, upon the execution and delivery of this
Lease by Tenant, the sum of $8,470.00, to be applied against the first
installment of Fixed Rent becoming due under this Lease), and (b) additional
rent (herein called "Additional Rent") consisting of all other sums of money as
shall become due from and payable by Tenant to Landlord hereunder for
non-payment of which Landlord shall have the same remedies as for a default in
the payment of Fixed Rent, all to be paid in lawful money of the United States
to Landlord at the office of the Managing Agent, or to such other person and/or
at such other place as Landlord may designate by notice to Tenant. (Fixed Rent
and Additional Rent are herein sometimes collectively called "Rent").
2.04. Rent Abatement: Notwithstanding anything in Section 2.03 of this
Article 2 to the contrary, Fixed Rent shall be partially abated; (i) during the
thirty (30) month period commencing on the Commencement Date and ending on Sept.
30, 1995 so that during this abatement period, Tenant shall pay to Landlord the
amount of $7,186.67 per month. There shall be no further rent abatements and
Fixed Rent shall be payable in accordance with Section 2.03 except as
specifically set forth in this Section 2.04.
2.05. No Setoff: Tenant shall pay Fixed Rent and Additional Rent
promptly when due without notice or demand therefor and without any abatement,
deduction or setoff for any reason whatsoever, except as may be expressly
provided in this Lease.
2
<PAGE> 5
ARTICLE 3
Preparation of Premises
3.01. Preparation of Premises:
Tenant has examined the Demised Premises and agrees to accept same in
its "as is" condition as of the date hereof and agrees that Landlord shall not
be obligated to perform any work, supply any materials or incur any cost or
expense to prepare same for Tenant's occupancy. Landlord shall, however, at
Tenant's sole cost and expense, which amount shall be $10,000 which shall be
paid by Tenant to Landlord upon execution of this Lease, paint the Demised
Premises and shampoo the carpeting.
3.02. Possession. If Landlord is unable to give possession of the
Demised Premises on the Commencement Date because of the holding-over or
retention of possession by any tenant, undertenant or occupant, or because of
the fact that a temporary or permanent Certificate of Occupancy has not been
procured, or for any other reason (including, but not limited to, the occurrence
of any of the events described in Section 35.01), Landlord shall not be subject
to any liability for failure to give possession on the Commencement Date and the
validity of this Lease shall not be impaired under such circumstances, nor shall
the same be construed in any way to extend the term of this Lease, but the Fixed
Rent and Additional Rent payable hereunder shall be abated (provided Tenant is
not responsible for the inability to obtain possession) until Landlord has given
notice to Tenant that the Demised Premises are ready for Tenant's occupancy.
Tenant hereby waives the provisions of Section 223-a of the Real Property Law of
the State of New York, and agrees that the provisions of this Article are
intended to constitute "an express provision to the contrary" within the meaning
of said Section 223-a.
ARTICLE 4
Use
4.01. Tenant's Business. Tenant shall use and occupy the Demised
Premises for general and executive offices, and for no other purpose.
4.02. Permits. If any governmental license or permit, other than a
Certificate of Occupancy, shall be required for the proper and lawful conduct of
Tenant's business in the Demised Premises, or any part thereof. Tenant, at its
expense, shall duly procure and thereafter maintain such license or permit and
submit the same to inspection of Landlord. Tenant shall at all times comply with
the terms and conditions of each such license or permit.
4.03. Restrictions. Tenant shall not at any time use or occupy, or
suffer or permit anyone to use or occupy, the Demised Premises, or do anything
to be done in the Demised Premises, in any manner (a) which violates the
Certificate of Occupancy for the Demised Premises or for the Building; (b) which
causes or is liable to cause injury to the Building or any equipment, facilities
or systems therein; (c) which constitutes a violation of the laws and
requirements of any public authorities or the requirements of insurance bodies;
(d) which impairs or tends to impair the character, reputation or appearance of
the Building as a first-class office building; (e) which impairs or tends to
impair the proper and economic maintenance, operation and repair of the Building
and/or its equipment, facilities or systems; (f) which annoys or inconveniences
or tends to annoy or inconvenience other tenants or occupants of the Building;
or (g) which increases pedestrian traffic in and out of the Demised Premises or
the Building above a reasonable level.
3
<PAGE> 6
ARTICLE 5
Subordination
5.01. Superior Leases and Mortgages. This Lease, and all rights of
Tenant hereunder, are and shall be subject and subordinate to all ground leases,
overriding leases and underlying leases affecting the Building or the Property
now or hereafter existing and to all mortgages which may now or hereafter affect
the Building, the Property or any of such leases, whether or not such mortgages
shall also cover other lands, buildings or leases, to each and every advance
made or hereafter to be made under such mortgages, and to all renewals,
modifications, replacements and extensions of such leases and such mortgages and
spreaders and consolidations of such mortgages. This Section shall be
self-operative and no further instrument of subordination shall be required. In
confirmation of such subordination, Tenant shall promptly execute, acknowledge
and deliver any instrument that Landlord, the lessor under any such lease or the
holder of any such mortgage or any of their respective successors in interest
may reasonably request to evidence such subordination, and if Tenant fails to
execute, acknowledge or deliver any such instrument within ten (10) days after
request therefor, Tenant hereby irrevocably constitutes and appoints Landlord as
Tenant's attorney-in-fact, coupled with an interest, to execute and deliver any
such instrument for and on behalf of Tenant. Any lease to which this Lease is,
at the time referred to, subject and subordinate is herein called "Superior
Lease" and the lessor of a Superior Lease or its successor in interest is herein
called "Superior Lessor"; and any mortgage to which this Lease is, at the time
referred to, subject and subordinate is herein called "Superior Mortgage" and
the holder of a Superior Mortgage is herein called "Superior Mortgagee".
5.02. Notice. If any act or omission of Landlord would give Tenant the
right, immediately or after lapse of a period of time, to cancel or terminate
this Lease, or to claim a partial or total eviction, Tenant shall not exercise
such right (a) until it has given written notice of such act or omission to
Landlord and to any Superior Mortgagee or Superior Lessor whose names shall
previously have been furnished to Tenant, and (b) until a reasonable period for
remedying such act or omission shall have elapsed following the giving of such
notice and following the time when such Superior Mortgagee or Superior Lessor
shall have become entitled under such Superior Mortgage or Superior Lease, as
the case may be, to remedy the same (which reasonable period shall in no event
be less than the period to which Landlord would be entitled under this Lease or
otherwise, after similar notice, to effect such remedy), provided such Superior
Mortgagee or Superior Lessor shall with due diligence give Tenant notice of
intention to, and commence and continue to, remedy such act or omission.
5.03. Attornment. If any Superior Lessor or Superior Mortgagee shall
succeed to the rights of Landlord under this Lease, whether through possession
or foreclosure action or delivery of a new lease or deed, then at the request of
such party so succeeding to Landlord's rights (herein called "Successor
Landlord") and upon such Successor Landlord's written agreement to accept
Tenant's attornment, Tenant shall attorn to and recognize such Successor
Landlord as Tenant's landlord under this Lease and shall promptly execute and
deliver any instrument that such Successor Landlord may reasonably request to
evidence such attornment. Upon such attornment this Lease shall continue in full
force and effect as a direct lease between the Successor Landlord and Tenant
upon all of the terms, conditions and covenants as are set forth in this Lease,
except that the Successor Landlord shall not (a) be liable for any previous act
or omission of Landlord under this Lease; (b) be subject to any offset, not
expressly provided for in this Lease, which theretofore shall have accrued to
Tenant against Landlord; or (c) be bound by any previous modification of this
Lease or by any previous prepayment of more than one month's Fixed Rent, unless
such modification or repayment shall have been expressly
4
<PAGE> 7
approved in writing by the Successor Landlord (or predecessor in interest).
ARTICLE 6
Assignment and Subletting
6.01. Consent Required. Tenant covenants and agrees that neither this
Lease, nor the estate hereby granted, nor the interest of Tenant in any sublease
or the rentals thereunder, shall be assigned, mortgaged, pledged, encumbered or
otherwise transferred by Tenant, Tenant's legal representatives, or successors
in interest by operation of law or otherwise, and that neither the Demised
Premises nor any part thereof shall be encumbered in any manner by reason of any
act or omission on the part of Tenant, or shall be sublet or offered or
advertised for subletting, or be used or occupied or permitted to be used or
occupied or utilized for desk space, or for mailing privileges, by anyone other
than Tenant, except as and subject to the conditions expressly provided in the
following Sections of this Article or as expressly consented to in writing by
Landlord. A transfer of fifty (50%) percent or greater interest (whether stock,
partnership interest or otherwise) of Tenant shall be deemed to be an assignment
of this Lease, either in one transaction or in any series of transactions within
a twelve (12) month period.
6.02. Collection of Rent, etc. If this Lease be assigned, whether or not
in violation of the provisions of this Lease, Landlord may collect rent from the
assignee. If the Demised Premises or any part thereof be sublet or be used or
occupied by anyone other than Tenant whether or not in violation of this Lease,
Landlord may, after default by Tenant, collect Rent from the subtenant or
occupant. In either event, Landlord may apply the net amount collected to Rent,
but no such assignment, subletting; occupancy or collection shall be deemed a
waiver of any of the provisions of Section 6.01, or the acceptance of the
assignee, subtenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of Tenant's obligations under this Lease. The
consent by Landlord to an assignment, mortgaging, pledging, encumbering,
transfer, use, occupancy or subletting pursuant to any provision of this Lease
shall not in any way be considered to relieve Tenant from obtaining the express
consent of Landlord to any other or further assignment, mortgaging, pledging,
encumbering, transfer, use, occupancy or subletting. References in this Lease to
use or occupancy by anyone other than Tenant shall not be construed as limited
to subtenants and those claiming under or through subtenants but as including
also licensees or others claiming under or through Tenant, immediately or
remotely. The listing of any name other than that of Tenant on any door of the
Demised Premises or on any directory or in any elevator in the Building, or
otherwise, shall not operate to vest in the person so named any right or
interest in this Lease or in the Demised Premises, or be deemed to constitute,
or serve as a substitute for, or any waiver of, any prior consent of Landlord
required under this Article. Neither any assignment of Tenant's interest in this
Lease, nor any subletting, occupancy or use of the Demised Premises, or any part
thereof; by any person other than Tenant, nor any collection of rent by Landlord
from any person other than Tenant, as provided in this Article, nor any
application of any such rent, as provided in this Article shall, under any
circumstances, relieve Tenant of any of its obligations under this Lease. No
assignment of this Lease whether made with Landlord's consent or without
Landlord's consent as provided in Section 6.03 hereof shall be effective until
and unless the assignee shall execute an instrument in form and substance
reasonably satisfactory to Landlord or deliver to Landlord an agreement or
certificate of merger (to the same legal effect) whereby such assignee assumes
and agrees to perform all of the obligations, terms, provisions, covenants and
agreements contained in this Lease as though such assignee were the tenant named
herein, and a copy of such assignment and assumption is delivered to Landlord.
5
<PAGE> 8
6.03. Landlord's Options. If Tenant shall at any time or times during
the Term desire to assign this Lease or sublet all or part of the Demised
Premises, Tenant shall give notice thereof to Landlord, which notice shall be
accompanied by (a) a conformed or photostatic copy of the proposed assignment or
sublease, the effective or commencement date of which shall be at least sixty
(60) days after the giving of such notice, (b) a statement setting forth in
reasonable detail the identity of the proposed assignee or subtenant, the nature
of its business and its proposed use of the Demised Premises, and (c) current
financial information with respect to the proposed assignee or subtenant,
including without limitation, its most recent financial report. Such notice
shall be deemed an offer from Tenant to Landlord whereby Landlord may at its
option (i) terminate this Lease (if the proposed transaction is an assignment of
this Lease or a sublease of all or substantially all of the Demised Premises),
or (ii) terminate this Lease with respect to the space covered by the proposed
sublease (if the proposed transaction is a sublease of part of the Demised
Premises). Said options may be exercised by Landlord by notice to Tenant at any
time within sixty (60) days after such notice has been given by Tenant to
Landlord; and during such sixty (60) day period Tenant shall not assign this
Lease or sublet such space to any person.
6.04. Termination of Lease. If Landlord exercises its option to
terminate this Lease in the case where Tenant desires either to assign this
Lease or sublet all or substantially all of the Demised Premises, then, this
Lease shall end and expire on the date that such assignment or sublet was to be
effective or commence, as the case may be, and Fixed Rent and Additional Rent
shall be paid and apportioned to such date.
6.05. Partial Termination. If this Lease is terminated with respect to a
portion of the Demised Premises pursuant to Section 6.04, Landlord, at the cost
and expense of Tenant, shall make such alterations as may be required to
physically separate such terminated space from the remainder of the Demised
Premises and shall make such repairs and alterations as may be required to
restore to tenantable condition any part of the remainder of the Demised
Premises which is physically affected by such separation. Tenant shall afford
Landlord and its tenants, assignees or undertenants reasonably appropriate means
of ingress and egress to and from such terminated space, and Landlord and Tenant
shall execute and deliver a supplementary agreement modifying this Lease, as of
the day following such termination, by eliminating such terminated space from
the Demised Premises, reducing the Fixed Rent by the amount allocable to such
part of the Demised Premises and appropriately modifying the other terms and
provisions of this Lease to reflect the elimination of such terminated space
from the Demised Premises.
6.06. Consent Not Unreasonably Withheld. In the event Landlord does not
exercise any of its options pursuant to Section 6.03 or terminate this Lease in
whole or in part, and provided that Tenant is not in default of any of Tenant's
obligations under this Lease, then Landlord's consent (which must be in writing
and in form satisfactory to Landlord) to the proposed assignment or sublease
shall not be unreasonably withheld, provided that the following conditions are
complied with:
(a) In Landlord's judgment the proposed assignee or subtenant is
engaged in a business and the Demised Premises, or the relevant part
thereof, will be used in a manner which (i) is in keeping with the then
standards of the Building; (ii) is limited to the use expressly
permitted under Section 4.01 and (iii) will not cause an undue amount of
traffic in the Building or impose any additional burden upon Landlord in
the operation of the Building or providing services and utilities;
(b) The proposed assignee or subtenant is a reputable person of
good character and with sufficient financial worth considering the
responsibility involved, and Landlord has been furnished with reasonable
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proof thereof;
(c) Neither (i) the proposed assignee or sublessee nor (ii) any
person which, directly or indirectly, controls, is controlled by, or is
under common control with, the proposed assignee or sublessee, is then
an occupant of any part of the Building or the Property;
(d) The proposed assignee or sublessee is not a person with whom
Landlord is then negotiating or has within the last six (6) months
negotiated to lease space in the Building or the Property, and Landlord
does not have any comparable space in the Building for rent:
(e) The form of the proposed sublease shall be satisfactory to
Landlord and shall comply with the applicable provisions of this
Article;
(f) There shall not be more than two (2) occupants (including
Landlord or its designee) of the Demised Premises as originally demised
hereunder;
(g) The amount of the aggregate rent to be paid by the proposed
subtenant is not less than the then current market rent per rentable
square foot for the Demised Premises as though the Demised Premises were
vacant, and the rental and other terms and conditions of the sublease
are the same as those contained in the proposed sublease furnished to
Landlord pursuant to Section 6.03: 6
(h) Tenant shall reimburse Landlord on demand for any costs that
may be incurred by Landlord in connection with said assignment or
sublease, including, without limitation, the cost of making
investigations as to the acceptability of the proposed assignee or
subtenant and reasonable legal fees incurred in connection with the
granting of any requested consent;
(i) Tenant shall not have (i) advertised or publicized in any way
the availability of the Demised Premises or any portion thereof without
prior notice to and approval by Landlord, nor shall any advertisement
state the proposed rental, (ii) listed the Demised Premises or any
portion thereof for subletting, whether through a broker, agent,
representative, or otherwise, at a rental rate less than the Fixed Rent
and Additional Rent at which Landlord is then offering to lease other
space in the Building; and
(j) The Managing Agent shall serve as Tenant's exclusive agent in
connection with the assignment or sublease transaction and Tenant shall
pay a commission to the Managing Agent in accordance with its then rates
provided same are competitive.
6.07. Tenant Remains Liable. Each subletting pursuant to this Article
shall be subject to all of the covenants, agreements, terms, provisions and
conditions contained in this Lease. Notwithstanding any such subletting and/or
acceptance of Rent by Landlord from any subtenant, Tenant shall and will remain
fully liable for the payment of Fixed Rent and Additional Rent due and to become
due hereunder and for the performance of all the covenants, agreements, terms
provisions and conditions contained in this Lease on the part of Tenant to be
performed and all acts and omissions of any licensee or subtenant or anyone
claiming under or through any subtenant which shall be in violation of any of
the obligations of this Lease, shall be deemed to be a violation by Tenant.
Tenant further agrees that notwithstanding any such subletting, no other and
further subletting of the Demised Premises or any part thereof by Tenant or any
person claiming through or under Tenant shall or will be made except upon
compliance with
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and subject to the provisions of this Article.
6.08. Conditions of Subletting. With respect to each and every sublease
or subletting authorized by Landlord under the provisions of this Lease, it is
further agreed as follows:
(a) No subletting shall be for a term ending later than one day
prior to the Expiration Date;
(b) No sublease shall be valid, and no subtenant shall take
possession of the Demised Premises or any part thereof, until an
executed counterpart of such sublease in recordable form has been
delivered to Landlord; and
(c) Each sublease shall provide that it is subject and subordinate
to this Lease and to the matters to which this Lease is or shall be
subordinate, and that in the event of termination, re-entry or
dispossess by Landlord under this Lease, Landlord may, at its option,
terminate such sublease or take over all of the right, title and
interest of Tenant, as sublessor, under such sublease, and such
subtenant shall, at Landlord's option, attorn to Landlord pursuant to
the then executory provisions of such sublease, except that Landlord
shall not (i) be liable for any previous act or omission of Tenant under
such sublease, (ii) be subject to any offset, not expressly provided in
such sublease, which theretofore accrued to such subtenant against
Tenant, or (iii) be bound by any previous modification of such sublease
(unless consented to by Landlord) or by any previous prepayment of more
than one month's rent.
6.09. Consideration to Landlord. If Landlord shall give its consent to
any assignment of this Lease or to any sublease, Tenant shall, in consideration
therefor, pay to Landlord, as Additional Rent:
(a) In the case of an assignment, an amount equal to all sums and
other consideration paid to Tenant by an assignee for or by reason of or
in any way connected with such assignment (including, but not limited
to, sums paid for the sale or rental of Tenant's equipment, furniture,
furnishings or other personal property, less, in the case of a sale
thereof, the then net unamortized or undepreciated cost thereof
determined on the basis of Tenant's federal income tax returns); and
(b) In the case of a sublease, any rent, additional charge or
other consideration payable under the sublease to Tenant by the
subtenant which is in excess of Fixed Rent and Additional Rent accruing
during the term of the sublease in respect of the subleased space (at
the rate per square foot payable by Tenant hereunder) pursuant to the
terms thereof (including but not limited to sums paid for the sale or
rental of Tenant's equipment, furniture or other personal property,
less, in the case of the sale thereof, the then net unamortized or
undepreciated cost thereof determined on the basis of Tenant's federal
income tax returns).
The sums payable under this section 6.09(b) shall be paid to Landlord as and
when payable by the subtenant to Tenant.
6.10. Joint and Several Liability. The joint and several liability
hereunder of Tenant herein named, or any immediate or remote successor in
interest of said Tenant, as assignor, with each assignee subsequent to it for
the obligations of Tenant hereunder in each instance provided for in this
Article shall not be discharged, released or impaired in any respect by any
agreement or stipulation made between Landlord or any grantee or assignee by way
of mortgage, or
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otherwise, of Landlord and any such assignee, extending the time of, or
modifying, any of the obligations of this Lease, or by any waiver or failure of
Landlord to enforce any of the obligations of this Lease, or of the same as
affected by any such agreement or stipulation, but shall remain in full force
and effect, and Tenant herein named and its successors in interest preceding
such assignment shall continue liable hereunder until the expiration of the
Term. To charge Tenant herein named and Its successors in interest preceding any
such assignment no demand shall be required, nor shall there be required any
notice of any default with respect to any of the obligations of this Lease, or
of the same as affected by such agreement or stipulation, if any, said Tenant
and each of its said successors in interest hereby expressly waiving any such
demand or notice, except that if Tenant herein named or any such successor in
interest, at or about the time of making its assignment, or thereafter, gives
written notice to Landlord expressly referring to this Section and demanding
notice of default, Landlord shall give said Tenant or such successor in interest
the same or equivalent notice of default and opportunity to cure as the Tenant
in possession shall be entitled to receive under this Lease.
ARTICLE 7
Estoppel Certificate; Memorandum
7.01. Delivery of Certificate. Tenant shall, without charge at any time
and from time to time, within ten (10) days after request by Landlord, certify
by written instrument duly acknowledged and delivered to any proposed or actual
mortgagee, assignee of any mortgage or purchaser, or any other person, firm or
corporation specified by Landlord:
(a) That this Lease is unmodified and in full force and effect
(or, if there has been any modification, that the same is in full force
and effect as modified and stating the modification);
(b) Whether or not there are then existing any set-offs, or
defenses against the enforcement of any of the agreements, terms,
covenants or conditions hereof upon the part of Tenant to be performed
or complied with (and, if so specifying the same); and
(c) The dates, if any, to which the Rent has been paid in advance.
7.02. Memorandum of Lease. At the request of Landlord, Tenant shall
promptly execute, acknowledge and deliver a memorandum in form satisfactory to
Landlord with respect to this Lease, or any amendment of or other agreement
supplementary to this Lease, sufficient for recording.
ARTICLE 8
Requirements of Law
8.01. Compliance. Tenant, at Tenant's sole cost and expense, shall
promptly comply with all present and future laws, orders and regulations of all
governmental authorities having jurisdiction and all orders, rules and
regulations of the New York Board of Fire Underwriters or any similar body which
shall impose any violation, order or duty (collectively, "Regulations") upon
Landlord or Tenant with respect to the Demised Premises or the use or occupancy
thereof, except that nothing herein shall require Tenant to make structural
repairs or alterations unless Tenant has by its manner of use of the Demised
Premises or method of operation therein violated any Regulations. Tenant may,
after securing Landlord to Landlord's satisfaction against all damages,
interest, penalties and expenses, including, but not
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limited to, attorney's fees, by cash deposit or by surety bond In an amount and
In a company satisfactory to Landlord, contest and appeal any such Regulations
provided same is done with all reasonable promptness and provided such appeal
shall not subject Landlord to prosecution for a criminal offense or constitute a
default under any lease or mortgage under which Landlord may be obligated, or
which may encumber the Demised Premises, the Building or the Property or cause
the Demised Premises, the Building or the Property to be condemned or vacated.
8.02. Prohibitions. Tenant shall not do or permit any act or thing to be
done in or to the Demised Premises which is contrary to law, or which will
invalidate or be in conflict with public liability, fire or other policies of
insurance at any time carried by or for the benefit of Landlord with respect to
the Demised Premises or the Building or which shall or might subject Landlord to
any liability or responsibility to any person or for property damage, nor shall
Tenant keep anything in the Demised Premises except as now or hereafter
permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance
Rating Organization or other authority having jurisdiction, and then only in
such manner and such quantity so as not to increase the rate for fire insurance
applicable to the Building, nor use the Demised Premises in a wrongful manner
which will increase the insurance rate for the Building or any property located
therein over that in effect prior to the commencement of Tenant's occupancy. If
by reason of Tenant's failure to comply with the provisions of this Article the
fire insurance rate shall, be higher than it otherwise would be, then Tenant
shall reimburse Landlord, as Additional Rent hereunder, for that portion of all
fire insurance premiums thereafter paid by Landlord which shall have been
charged because of such failure by Tenant, and shall make such reimbursement
upon the first day of the month following such outlay by Landlord.
8.03. Insurance Rates. In any action or proceeding wherein Landlord and
Tenant are parties, a schedule or "makeup" of rates for the Building or Demised
Premises issued by the New York Fire Insurance Exchange, or other body making
fire insurance rates applicable to the Building or the Demised Premises, shall
be conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rate then applicable.
ARTICLE 9
Property Loss and Indemnification
9.01. Limitation of Liability. Landlord or Landlord's Agents shall not
be liable for any damage to property of Tenant or of others entrusted to
employees of the Building, nor for loss of or damage to any property of Tenant
by theft or otherwise, nor for injury or damage to persons or property resulting
from any cause of whatsoever nature, unless caused by or due to the negligence
of Landlord or Landlord's Agents, nor shall Landlord or Landlord's Agents be
liable for any such damage caused by other tenants or persons in, upon or about
the Building or caused by operations in construction of any private, public or
quasi-public work.
9.02. Tenant's Indemnification. Tenant shall indemnify and hold harmless
Landlord and Landlord's Agents from and against any and all claims arising from
or in connection with (a) the conduct or management of the Demised Premises or
of any business therein, or any work or thing whatsoever done, or any condition
created (other than by Landlord) in or about the Demised Premises during the
Term or during the period of time, if any, prior to the Commencement Date that
Tenant may have been given access to the Demised Premises: (b) any act, omission
or negligence of Tenant, Tenant's Agents or any subtenants or licensees or their
partners, officers, agents, employees or contractors: (c) any accident, injury
or damage whatsoever (unless caused solely by Landlord's negligence) occurring
in, at or upon the Demised Premises; and (d) any breach or default by Tenant in
the full
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and prompt payment and performance of Tenant's obligations under this Lease;
together with all costs, expenses and liabilities incurred in or in connection
with each such claim or action or proceeding brought thereon, including, without
limitation, all attorneys' fees and expenses. In case any action or proceeding
be brought against Landlord or Landlord's Agents by reason of any such claim,
Tenant,upon notice from Landlord, shall resist and defend such action or
proceeding (by counsel reasonably satisfactory to Landlord).
ARTICLE 10
Destruction - Fire and Other Casualty
10.01. Repairs. If the Demised Premises shall be damaged by fire or
other casualty, Tenant shall give immediate notice thereof to Landlord and this
Lease shall continue in full force and effect except as hereinafter set forth.
If the Demised Premises are rendered partially unusable by fire or other
casualty, the damage thereto shall be repaired by Landlord with reasonable
dispatch after collection of the insurance proceeds attributable to such damage,
subject to delays due to causes beyond Landlord's control, and Fixed Rent, until
such repairs shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the Demised Premises which is
unusable. Landlord, however, shall have no obligation to repair any damage to
Tenant's Property or Tenant's Work or any other property or effects of Tenant.
If the Demised Premises are totally damaged or rendered wholly unusable by fire
or other casualty then the Fixed Rent shall be proportionately paid up to the
time of the casualty and thenceforth shall cease until the date when the Demised
Premises shall have been repaired and restored by Landlord, subject to
Landlord's right to elect not to restore the same as hereinafter provided.
10.02. Termination. If the Demised Premises are rendered wholly unusable
(whether or not the Demised Premises are damaged in whole or in part) or if the
Building shall be so damaged that Landlord shall decide to demolish it or not to
rebuild it, then, in either of such events, Landlord may elect to terminate this
Lease by written notice to Tenant given within one hundred eighty (180) days
after such fire or casualty. Such notice shall specify a date for the expiration
of this Lease, and upon the date specified the Term shall expire as fully and
completely as if such date were the date set forth above for the termination of
this Lease and Tenant shall forthwith quit, surrender and vacate the Demised
Premises, without prejudice however, to Landlord's rights and remedies against
Tenant under the Lease provisions in effect prior to such termination, and any
Rent owing shall be paid up to the date of termination and any payments of Rent
made by Tenant which were on account of any period subsequent to such date shall
be returned to Tenant. less Landlord shall serve a termination notice as
provided for herein, Landlord shall make repairs and restoration as herein set
forth with reasonable dispatch after collection of the insurance proceeds as
provided in Section 10.01.
10.03. Tenant's Property. Tenant acknowledges that Landlord will not
carry insurance on Tenant's Property or on Tenant's business records or other
property of Tenant or Tenant's Agents, and Tenant agrees that Landlord will not
be obligated to repair any damage thereto or to replace the same.
10.04. Waiver. Tenant hereby waives the provisions of Section 227 of
the Real Property Law (and any successor law of like import) and agrees that the
provisions of this Article shall control in lieu thereof.
ARTICLE 11
Insurance
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11.01. Liability Insurance. Tenant shall provide after taking possession
of the Demised Premises and shall keep in force during the Term for the benefit
of Landlord and Tenant a comprehensive policy of liability insurance protecting
Landlord and Tenant against any liability whatsoever occasioned by accident on
or about the Demised Premises or appurtenances thereof. Such policy is to be
written by good and solvent insurance companies satisfactory to Landlord, and
the limits of liability thereunder shall not be less than One Million Dollars
($1,000,000) in respect of any one person, Three Million Dollars ($3,000,000) in
respect of any one accident, and One Million Dollars ($1,000,000) in respect of
property damage. Such insurance may be carried under a blanket policy covering
the Demised Premises and other locations of Tenant provided such blanket policy
complies with the above amounts of insurance for the Demised Premises and the
other requirements provided above. Prior to the time such insurance is first
required to be carried by Tenant, and thereafter, at least fifteen (15) days
prior to the expiration of any such policy Tenant agrees to deliver to Landlord
either a duplicate original of the aforesaid policy or a certificate evidencing
such insurance provided said certificate contains an endorsement that such
insurance is primary and not excess over or contributory with any other
insurance available to Landlord or its affiliated companies, and such insurance
may not be cancelled except upon ten (10) days' notice to Landlord, together
with evidence of payment of the premium therefor.
11.02. Waiver of Subrogation. Tenant shall secure an appropriate clause
in, or an endorsement upon, each insurance policy obtained by it and covering or
applicable to the Demised Premises or the personal property, fixtures and
equipment located therein or thereon, pursuant to which the insurance company
waives subrogation or permits the insured, prior to any loss, to agree with a
third party to waive any claim it might have against said third party without
invalidating the coverage under the insurance policy. The waiver of subrogation
or permission for waiver of any claim shall extend to Landlord and Landlord's
Agents. Tenant hereby releases Landlord and Landlord's Agents in respect of any
claim (including a claim for negligence) which it might otherwise have against
Landlord or Landlord's Agents for loss, damage or destruction with respect to
Tenant's Property by fire or other casualty (including rental value, or business
interest, as the case may be) occurring during the term of this Lease and
normally covered under a fire insurance policy with extended coverage
endorsement.
ARTICLE 12
Condemnation
12.01. Total Taking. If all or substantially all of the Building shall
be lawfully condemned or taken in any manner for any public or quasi-public use,
this Lease shall cease and terminate as of the date of the vesting of title in
the condemnor.
12.02. Partial Taking. If less than all of the Building shall be so
condemned or taken, but if such taking shall substantially affect the Demised
Premises or the means of access thereto, or if such condemnation or taking shall
be of a substantial part of the Demised Premises, then Landlord shall have the
right to terminate this Lease and the term and estate hereby granted by the
delivery of written notice to Tenant within thirty (30) days following the date
of actual vesting of title in the condemnor. Such termination shall take effect
as of the date of actual vesting of title in the condemnor or thirty (30) days
after the giving of such notice of termination, whichever is later. If Landlord
shall not so elect to terminate, this Lease shall be and remain unaffected by
such condemnation or taking, except that, effective as of the date of the
vesting of title in the condemnor, Fixed Rent shall be reduced in the proportion
which the area of the part of the Demised Premises so condemned or taken bears
to the total area of the Demised Premises prior to such condemnation or taking.
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12.03. Award. In the event of the termination of this Lease in
accordance with this Article, Rent shall be prorated and paid to the effective
date of the termination. Tenant, whether or not this Lease be cancelled pursuant
to this Article, shall not be entitled to claim or receive any part of any award
or compensation which may be issued or rendered in any such condemnation
proceeding or as a result of such condemnation or taking, and shall not be
entitled to claim or receive any damages against Landlord, whether the same be
for the value of the unexpired term of this Lease or otherwise.
ARTICLE 13
Repairs
13.01. Tenant's Repairs. Tenant shall take good care of the Demised
Premises and the fixtures and appurtenances therein and, at Tenant's cost and
expense, make all non-structural repairs thereto as and when needed to preserve
them in good working order and condition, reasonable wear and tear, obsolescence
and damage from the elements, fire or other casualty excepted. Notwithstanding
the foregoing, all damage or injury to the Demised Premises or to any other part
of the Building, or to its fixtures, equipment and appurtenances, whether
requiring structural or non-structural repairs, caused by or resulting from the
following shall be repaired promptly by Tenant at its sole cost and expense:
(a) the performance or existence of Tenant's Work or
Alterations;
(b) the installation, use or operation of Tenant's Property
in the Demised Premises;
(c) the moving of Tenant's Property in or out of the
Building; or
(d) the act, omission, misuse or neglect of Tenant, Tenant's
Agents or any subtenant.
All the aforesaid repairs shall be of quality or class equal to the original
work or construction. If Tenant fails after ten (10) days' notice to proceed
with due diligence to make repairs required to be made by it, the same may be
made by Landlord at the expense of Tenant, and the expenses thereof incurred by
Landlord shall be collectible as Additional Rent after rendition of a bill or
statement therefor. Tenant shall give Landlord prompt notice of any defective
condition in any plumbing, heating system or electrical lines located in,
servicing or passing through the Demised Premises and following such notice,
Landlord shall remedy the condition with due diligence but at the expense of
Tenant if repairs are necessitated by damage or injury attributable to Tenant or
Tenant's Agents.
13.02. Abatement. Neither (i) the making by Landlord, Tenant or others
of any decorating, repairs, alterations, additions or improvements in or to the
Building or the Demised Premises, nor (ii) the failure of Landlord or others to
make any such decorations, repairs, alterations, additions or improvements, nor
(iii) any damage to the Demised Premises or to the property of Tenant, nor any
injury to any persons, caused by other tenants or persons in the Building, or by
operations in the construction of any private, public or quasi-public work, or
by any other cause, nor (iv) any latent defect in the Building or in the Demised
Premises, nor (v) any temporary or permanent closing, darkening or bricking up
of windows of the Demised Premises for any reason whatsoever including, but not
limited to, Landlord's own acts, nor (vi) any inconvenience or annoyance to
Tenant or injury to or interruption of Tenant's business by reason of any of the
events or occurrences referred to in the foregoing subdivisions (i) through (v),
shall constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or
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impose any liability upon Landlord, or Landlord's Agents or any Superior Lessor
or Superior Mortgagee other than such liability as may be imposed upon Landlord
by law for Landlord's negligence or the negligence of Landlord's Agents in the
operation or maintenance of the Building or for the breach by Landlord of any
express covenant of this Lease on Landlord's part to be performed.
The provisions of this Article with respect to the making of repairs
shall not apply in the case of fire or other casualty which are dealt with in
Article 10.
ARTICLE 14
Services
14.01. Building Services. As long as Tenant is not in default under any
of the covenants of this Lease, Landlord shall provide:
(a) necessary elevator facilities during "Business Hours" (defined
to mean from 8:00 a.m. to 6:00 p.m.) on "Business Days" (defined to mean
all days except Saturday, Sunday and days observed by the Federal or
State government as legal holidays), and have one elevator subject to
call at all other times;
(b) heat to the Demised Premises when and as required by law
during Business Hours on Business Days;
(c) water for ordinary lavatory purposes, but if Tenant uses or
consumes water for any other purpose or in unusual quantities (of which
fact Landlord shall be the sole judge), Landlord may install a water
meter at Tenant's expense, which meter Tenant shall thereafter maintain
at Tenant's expense in good working order and repair, to register such
water consumption, and Tenant shall pay for water consumed as shown on
said meter as Additional Rent as and when bills are rendered, and on
Tenant'S default in making such payment, Landlord may pay such charges
and collect the same from Tenant as Additional Rent. Such a meter shall
also be installed and maintained at Tenant's expense if required by law
or governmental order. Tenant, if a water meter is so installed, shall
pay its proportionate share of sewer rent and all other rents and
charges which are now or hereafter assessed, imposed or may become a
lien on the Building;
(d) cleaning service for the Demised Premises on Business Days
provided that the Demised Premises are kept in order by Tenant. Tenant
shall pay Landlord the cost of removal of any of Tenant's refuse and
rubbish and Tenant shall pay to Landlord on demand the costs incurred by
Landlord for extra cleaning work in the Demised Premises required
because of (i) misuse or neglect on the part of Tenant or its employees
or visitors, or (ii) use of portions of the Demised Premises for
preparation, serving or consumption of food or beverages, data
processing or reproducing operations, private lavatories or toilets or
other special purposes requiring greater or more difficult cleaning work
than office areas;
(e) air-conditioning/cooling from May 15th through September 30th
during Business Hours on Business Days; and
(f) ventilation during Business Hours on Business Days, except
when air-conditioning/cooling is being furnished as aforesaid.
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14.02. After Hours. If Tenant requires heat, air-conditioning/cooling or
ventilation at times other than during Business Hours on Business Days, Landlord
will furnish the same upon not less than forty-eight (48) hours advance
notice,and Tenant shall pay to Landlord upon demand Landlord's then established
charges therefor as Additional Rent.
14.03. Limitation of Liability. Landlord shall have no responsibility or
liability for failure to supply the services agreed to herein. Landlord reserves
the right to stop the services of the heating, elevators, plumbing,
air-conditioning, power systems or cleaning or other services, if any, when
necessary by reason of accident or for repairs, alterations, replacements or
improvements necessary or desirable in the judgment of Landlord for as long as
may be reasonably required by reason thereof or by reason of any of the events
described in Section 35.01.
ARTICLE 15
Alterations
15.01. Requirements. Tenant may from time to time, at its expense, make
such alterations (herein called "Alterations") in and to the Demised Premises,
excluding structural changes, as Tenant may reasonably consider necessary for
the conduct of its business in the Demised Premises, provided and upon condition
that:
(a) the outside appearance of the Building shall not be affected;
(b) the Alterations are to the interior of the Demised Premises
and no part of the Building outside of the Demised Premises shall be
affected;
(c) the proper functioning of the mechanical, electrical, sanitary
and other service systems of the Building shall not be adversely
affected and the usage of such systems by Tenant shall not be increased;
(d) before proceeding with any Alteration, Tenant shall submit to
Landlord for Landlord's approval plans and specifications for the work
to be done, and Tenant shall not proceed with such work until it obtains
Landlord's approval;
(e) Tenant shall pay to Landlord upon demand the reasonable cost
and expense of Landlord in (i) reviewing said plans and specifications
and (ii) inspecting the Alterations to determine whether the same are
being performed in accordance with the approved plans and specifications
and all laws and requirements of public authorities, including, without
limitation, the fees of any architect or engineer employed by Landlord
for such purpose;
(f) before proceeding with any Alteration Tenant shall obtain and
deliver to Landlord either (i) a performance bond and a labor and
materials payment bond (issued by a corporate surety licensed to do
business in New York), each in an amount equal to one hundred twenty
five (125%) percent of the cost of the Alteration as estimated by a
reputable contractor designated by Landlord and in form satisfactory to
Landlord, or (ii) such other security as shall be satisfactory to
Landlord;
(g) Tenant shall fully and promptly comply with and observe the
rules and regulations of Landlord then in force with respect to the
making of Alterations; and
(h) with respect to Alteration or improvement work costing more
than $5,000, Tenant agrees to pay to Landlord or Landlord's managing
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agent, as Additional Rent, promptly upon being billed therefor, a sum
equal to fifteen (15%) percent of the cost of such work or Alteration,
for Landlord's indirect costs, field supervision and coordination in
connection with such work.
Tenant agrees that any review or approval by Landlord of any plans and/or
specifications with respect to any Alteration and any inspection thereof are
solely for Landlord's benefit, and without any representation or warranty
whatsoever to Tenant with respect to the adequacy, correctness or efficiency
thereof or otherwise.
15.02. Permits. Tenant, at its expense, shall obtain all necessary
governmental permits and certificates for the commencement and prosecution of
Alterations and for final approval thereof upon completion, and shall cause
Alterations to be performed in a good and workmanlike manner, using new
materials and equipment at least equal in class to the better of (i) the
original installations of the Building, or (ii) the then standards for the
Building established by Landlord. Alterations shall be performed by contractors
first approved by Landlord provided, however, that any Alterations in or to the
mechanical, electrical, sanitary, heating, ventilating, air-conditioning or
other systems of the Building shall be performed only by the contractor(s)
designated by Landlord. Alterations shall be performed in such manner as not to
unreasonably interfere with or delay and as not to impose any additional expense
upon Landlord in the maintenance, repair or operation of the Building; and if
any such additional expense shall be incurred by Landlord as a result of
Tenant's performance of any Alterations, Tenant shall pay such additional
expense upon demand. Throughout the performance of Alterations, Tenant, at its
expense, shall carry, or cause to be carried, workmen's compensation insurance
in statutory limits and general liability insurance, with completed operation
endorsement, for any occurrence in or about the Building, under which Landlord
shall be named an insured, in such limits as Landlord may reasonably require,
with insurers reasonably satisfactory to Landlord. Tenant shall furnish Landlord
with reasonably satisfactory evidence that such insurance is in effect at or
before the commencement of Alterations and, on request, at reasonable intervals
thereafter during the continuance of Alterations. If any Alterations shall
involve the removal of any fixtures, equipment or other property in the Demised
Premises which are not Tenant's Property, such fixtures, equipment or other
property shall be promptly replaced at Tenant's expense with new fixtures,
equipment or other property of like utility and at least equal value unless
Landlord shall otherwise expressly consent.
15.03. Violations. Tenant, at its expense, and with diligence and
dispatch, shall procure the cancellation or discharge of all notices of
violation arising from or otherwise connected with Alterations, or any other
work, labor, services or materials done for or supplied to Tenant, or any person
claiming through or under Tenant,which shall be issued by public authority
having or asserting jurisdiction. Tenant shall defend, indemnify and save
harmless Landlord from and against any and all mechanics' and other liens and
encumbrances filed in connection with Alterations, or any other work, labor,
services or materials done for or supplied to Tenant, or any person claiming
through or under Tenant, including without limitation, security interests in any
materials, fixtures or articles so installed in and constituting part of the
Demised Premises and against all costs, expenses and liabilities incurred in
connection with any such lien or encumbrance or any action or proceeding brought
thereon. Tenant, at its expense, shall procure the satisfaction or discharge of
record of all such liens and encumbrances within fifteen (15) days after the
filing thereof. Notice is hereby given that Landlord shall not be liable for any
work performed or to be performed at the Demised Premises for Tenant or for any
subtenant, or for any materials furnished or to be furnished at the Demised
Premises for Tenant or any subtenant, upon credit, and that no mechanic's or
other lien for such work or materials shall attach to or affect the estate or
interest of Landlord in and to the Demised Premises.
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15.04. Labor Strife. Tenant shall not, at any time prior to or during
the Term, directly or indirectly employ, or permit the employment of, any
contractor, mechanic or laborer in the Demised Premises, whether in connection
with any Alterations or otherwise, if such employment will interfere or cause
any conflict with other contractors, mechanics, or laborers engaged in the
construction, maintenance or operation of the Building by Landlord, Tenant or
others. In the event of any such interference or conflict, Tenant, upon demand
of Landlord, shall cause all contractors, mechanics or laborers causing such
interference or conflict to leave the Building immediately,
ARTICLE 16
Escalations - Taxes, Operating Expenses
16.01. Definitions. As used in this Article 16 the following definitions
shall apply:
(a) "Tax Year" shall mean each period of twelve months commencing
January 1st in which occurs any part of the Term or such other period of
twelve months occurring during the Term as hereafter may be adopted as
the fiscal year for real estate tax purposes by the Town taxing
authority having jurisdiction over the Property.
(b) "Operating Year" shall mean each calendar year, subsequent to
the calendar year 1993, in which occurs any part of the Term.
(c) "Tenant's Proportionate Share" shall mean .56 percent (subject
to adjustment in the event of changes to the Buildings pursuant to
Section 1.01).
(d) "Real Estate Taxes" shall mean the taxes and assessments
(including special or extraordinary assessments) imposed upon the
Property, including without limitation the School Tax and the State,
County, Town Tax. If, due to a future change in the method of taxation,
any franchise, income, profit or other tax, however designated, shall be
levied against Landlord in substitution, in whole or in part, for or in
lieu of any tax which would otherwise constitute a Real Estate Tax, such
franchise, income, profit or other tax shall be deemed to be a Real
Estate Tax for the purposes hereof and shall be deemed to be included in
the term "Real Estate Taxes".
(e) "Real Estate Tax Base" shall mean the sum of (i) one half of
the sum of (a) the School Tax with respect to the Property for the
period commencing July 1, 1992 and ending June 30, 1993 and (b) the
School Tax with respect to the Property for the period commencing July
1, 1993 and ending June 30, 1994, and (ii) the State, County and Town
Tax with respect to the Property for the period commencing January 1,
1993 and ending December 31, 1993 (as same may be reduced by appropriate
proceeding).
(f) "Escalation Statement" shall mean a statement in writing
signed by Landlord setting forth the amount payable by Tenant for a
specified Tax year or Operating Year (as the case may be) pursuant to
this Article 16.
16.02. Tax Escalation. If the Real Estate Taxes for any Tax Year shall
be greater than the Real Estate Tax Base, then Tenant shall pay to Landlord as
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Additional Rent an amount equal to Tenant's Proportionate Share of such excess
(herein called the "Tax Payment").
16.03. Tax Payments. Before or after the start of each Tax Year Landlord
shall furnish to Tenant an Escalation Statement setting forth Landlord's
estimate of the Tax Payment with respect to such Tax Year. Real Estate Taxes are
currently due on January 1 (Town Tax) and September 1 (School Tax) of each Tax
Year. In order to provide for tax escalation payments on account of and to be
applied towards the Tax Payment required to be made to Landlord pursuant to
Section 16.02 hereof, Tenant shall make payments on account of the Tax Payments,
in accordance with such Escalation Statement, for each Tax year in twelve
monthly installments beginning six months prior to such Tax Year each in an
amount equal to one-twelfth of the Tax Payment provided, however, the
installments to be paid for the months of December preceding each Tax Year and
August of each Tax Year shall be adjusted to reflect the Real Estate Taxes
payable by Landlord as of January 1 and September 1 of such Tax Year. The
installment for each calendar month shall be due in advance on the first day of
each month. After the expiration of each Tax Year, Landlord shall furnish to
Tenant a statement with respect to the Real Estate Taxes paid by Landlord for
such Tax Year. If the Tax Payment to be made by Tenant pursuant to Section 16.02
hereof shall be greater than (resulting in an underpayment) or less than
(resulting in an overpayment) the aggregate of all the installments paid on
account to Landlord by Tenant for such Tax Year, then promptly after the receipt
of the statement submitted by Landlord after such Tax Year, Tenant shall in the
case of underpayment pay to Landlord an amount equal to such underpayment or
Landlord shall in the case of an overpayment either (i) pay to Tenant an amount
equal to such overpayment, or (ii) credit against the next installments of
Additional Rent due from Tenant pursuant to this Article 16 an amount equal to
such overpayment. If an Escalation Statement is furnished to Tenant after the
commencement of the twelve month period in respect of which such Escalation
Statement is rendered, Tenant shall, within fifteen (15) days thereafter pay to
Landlord an amount equal to those installments of the Tax Payment payable as
provided in this Section 16.03 during the period prior to the first day of the
month next succeeding the month in which the applicable statement has been
furnished. If during the term of this Lease, Taxes are required to be paid
(either to the appropriate taxing authorities or as tax escrow payments to a
superior mortgagee) in full or in monthly, quarterly, or other installments, on
any other date or dates than as presently required (or additional or substitute
impositions, levies or charges constituting Taxes are required to be paid), then
at Landlord's option, Tenant's Tax Payments shall be correspondingly accelerated
or revised so that said Tenant's Tax Payments are due at least thirty (30) days
prior to the date payments are due to the taxing authorities or the superior
mortgagee. The benefit of any discount for any early payment or prepayment of
Taxes shall accrue solely to the benefit of Landlord and such discount shall not
be subtracted from Taxes.
If the real estate tax fiscal year of the relevant taxing
authorities shall be changed during the term of this Lease, any Taxes for such
fiscal year, a part of which is included within a particular Tax Year and a part
of which is not so included, shall be apportioned on the basis of the number of
days in such fiscal year included in the particular Tax Year for the purpose of
making the computations under this Section 16.03.
16.04. Survival. Payments shall be made pursuant to this Article 16
notwithstanding the fact that an Escalation Statement is furnished to Tenant
after the Expiration Date.
16.05. Reduction of Tax Base. If the Real Estate Tax Base is reduced as
a result of an appropriate proceeding or otherwise, Landlord shall give notice
to Tenant of the amount by which the Tax Payments previously made were less
than the Tax Payments required to be made under this Article, and Tenant shall
pay the
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amount of the deficiency within ten (10) days after demand therefor.
16.06. Tax Refunds, Reductions.
(a) If Landlord shall receive a refund of Real Estate Taxes for
any Tax Year, Landlord shall either pay to Tenant, or permit Tenant to credit
against subsequent payments under this Article, Tenant's Proportionate Share of
the net refund (after deducting from such total refund the costs and expenses,
including, but not limited to, appraisal, accounting and legal fees of obtaining
the same); provided, however, such payment or credit to Tenant shall in no event
exceed Tenant's Tax Payment paid for such Tax Year.
(b) In case the Real Estate Taxes for any Tax Year or part
thereof shall be reduced before Tenant shall have paid Tenant's Proportionate
Share of any excess thereof in respect of such Tax Year pursuant to Section
16.03(a) hereof, the Real Estate Taxes for such Tax Year shall be deemed to
include any expenses, including counsel fees, incurred by Landlord in connection
with obtaining such reduction.
16.07. Tax Proration. If a Tax Year ends after the Expiration Date or
other termination of this Lease, the Tax Payment therefor shall be prorated to
correspond to that portion of such Tax Year occurring within the Term.
16.08. Operating Expenses. (a) For the purpose of paragraph (a) through
(f) of this Section 16.08:
(1) "Operating Expenses" shall mean the total of all the costs and
expenses incurred or borne by Landlord in connection with the operation
and maintenance of the Property, the curbs, sidewalks and plazas
adjoining the same and the services provided tenants therein, including
all expenses incurred as a result of Landlord's compliance with any of
its obligations hereunder. Operating Expenses shall include, without
being limited to, the following: (i) salaries, wages, medical, surgical,
union and general welfare benefits (including, without limitation, group
life insurance) and pension payments of employees of the Managing Agent
or Landlord engaged in the repair, operation and maintenance of the
Property; (ii) payroll taxes, workmen's compensation, uniforms, dry
cleaning and related expenses for the employees referred to in
subdivision (i); (iii) the cost of all charges for gas, steam, heat,
ventilation, air-conditioning and water (including sewer rental) and
other utilities furnished to the Property (including, without
limitation, the common areas thereof), together with any taxes on any
such utilities; (iv) the cost of all charges for rent, casualty, war
risk (if obtainable from the United States government) and liability and
fidelity insurance with regard to the Property and the maintenance
and/or operation thereof; (v) the cost or rentals of all building and
cleaning supplies, tools, materials and equipment, and sales and other
taxes thereon and charges for telephone for the Property; (vi) the cost
of all charges for management, window and other cleaning and janitorial
services for the Property; (vii) the cost of electric current for the
Buildings (for the purposes of this subparagraph (vii), the cost of
electric current for the Buildings shall be deemed to mean the cost of
all electricity purchased, including any taxes thereon or fuel or other
adjustments in connection therewith, for use in the Buildings other than
that which is furnished to the demised space of tenants in the
Buildings, the parties agreeing that fifty (50%) percent of the
Buildings' payments to the public utility for the purchase of
electricity (subject to adjustment in accordance with the last paragraph
of this subsection 16.08(a)) shall be deemed to be payment for electric
current for the Buildings); (viii) the cost relating to the elevators
and escalators; (ix) the cost relating to protection and security; (x)
the
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cost relating to lobby decorations and interior and exterior landscape
maintenance; (xi) repairs, replacements and improvements which are
appropriate for the continued operation of the Property as a first class
office complex with parking; (xii) painting of non-tenanted areas;
(xiii) professional and consulting fees; (xiv) association fees or dues;
(xv) charges of independent contractors; (xvi) repairs and replacements
made by Landlord at its expense; (xvii) rents and additional rents
(other than Taxes) under Superior Leases; (xviii) alterations and
improvements to the Property made by reason of the laws and requirements
of any public authorities or the requirements of insurance bodies; (xix)
management fees or, if no managing agent is employed by Landlord, a sum
in lieu thereof which is not in excess of the then prevailing rates for
management fees of other first class office buildings in Rockland
County; (xx) reasonable legal, accounting and other professional fees
incurred in connection with the operation, maintenance and management of
the Property and (xxi) all other charges properly allocable to the
repair, operation and maintenance of the Property in accordance with
generally accepted accounting principles.
(2) "Operational Year" shall mean each calendar year after the
Base Year as hereinafter defined.
(3) "Base Year" shall be the calendar year 1993.
(4) "Tenant's Proportionate Share of Increase" shall mean the
percentage set forth in Section 16.01(c) multiplied by the increase in
Operating Expenses for an Operational Year over Operating Expenses for
the Base Year.
(5) "Tenant's Projected Share of Increase" shall mean Tenant's
Proportionate Share of Increase for the prior Operational Year and the
reasonably estimated increase in costs for the current Operational Year
divided by twelve (12) and payable monthly by Tenant to Landlord as
Additional Rent.
If Landlord shall purchase any item of capital equipment or make any
capital expenditure designed to result in savings or reductions in Operating
Expenses, then the coast thereof shall be included in Operating Expenses. The
costs of capital equipment or capital expenditures are so to be included in
Operating Expenses for the Operational Year in which the costs are incurred and
subsequent Operational Years on a straight line basis to the extent that such
items are amortized over such period of time as reasonably can be estimated as
the time in which such savings or reductions in Operating Expenses are expected
to equal Landlord's costs for such capital equipment or capital expenditure,
with an interest factor equal to the prime rate of the Chemical Bank of New York
at the time of Landlord's having incurred said costs. If Landlord shall lease
any such item of capital equipment designed to result in savings or reductions
in Operating Expenses, then the rental and other cost paid or incurred in
connection with such leasing shall be included in Operating Expense for the
Operational Year in which they were incurred.
If during all or part of an Operational Year, Landlord shall not furnish
any particular items(s) of work or service (which would constitute an Operating
Expense hereunder) to portions of the Building (including without limitation the
Demised Premises) due to the fact that such portions are not occupied or leased,
or because such item or work or service is not required or desired by the tenant
(including without limitations Tenant) of such portion, or such tenant is itself
obtaining and providing such item of work or service, or for any other reason,
then, for the purposes of computing the Additional Rent payable pursuant to
paragraphs
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(b) and (c) hereof, the amount of the expenses for such items(s) for such period
shall be deemed to be increased by an amount equal to the additional operating
and maintenance expenses which would reasonably have been incurred during such
period by Landlord if it had at its own expense furnished such items(s) or work
or services to such portions of the Building.
(b) After the expiration of the Base Year and any Operational Year,
Landlord shall furnish Tenant a written detailed statement of the Operating
Expenses incurred for such Base Year or Operational Year. Within thirty (30)
days after receipt of such statement for any Operational Year, setting forth
Tenant's Proportionate Share of Increase, Tenant shall pay same to Landlord as
Additional Rent. The statement of Operating Expenses required to be furnished
under this paragraph (b) shall be certified by an officer of Landlord or the
Managing Agent.
(c) Commencing with the first Operational Year after Landlord shall be
entitled to receive Tenant's Proportionate Share of Increase, Tenant shall pay
to Landlord as Additional Rent for the then Operational Year Tenant's Projected
Share of Increase. If the statement furnished by Landlord to Tenant pursuant to
paragraph (b) of this Section 16.08 at the end of the then Operational Year
shall indicate that Tenant's Projected Share of Increase exceeded Tenant's
Proportionate Share of Increase, Landlord shall forthwith either (i) pay the
amount of excess directly to Tenant concurrently with the notice or (ii) permit
Tenant to credit the amount of such excess against the subsequent payment of
Rent due hereunder. If such statement furnished by Landlord to Tenant hereunder
shall indicate that Tenant's Proportionate Share of Increase exceeded Tenant's
Projected Share of Increase for the then Operational Year, Tenant shall
forthwith pay the amount of such excess to Landlord.
(d) Every statement given by Landlord pursuant to paragraph (b) of this
Section shall be conclusive and binding upon Tenant unless (i) within sixty (60)
days after the receipt of such statement Tenant shall notify Landlord that it
disputes the correctness thereof, specifying the particular respects in which
the statement is claimed to be incorrect, and (ii) if such dispute shall not
have been settled by agreement, Tenant shall submit the dispute to arbitration
within ninety (90) days after receipt of the statement. Pending the
determination of such dispute by agreement or arbitration as aforesaid, Tenant
shall, within thirty (30) days after receipt of such statement, pay Additional
Rent in accordance with Landlord's statement and such payment shall be without
prejudice to Tenant's position. If the dispute shall be determined in Tenant's
favor, Landlord shall forthwith pay Tenant the amount of Tenant's overpayment of
Additional Rent resulting from compliance with Landlord's statement.
(e) In the event (i) that the Expiration Date or other termination of
this Lease shall be a day other than the last day of an Operational Year, or
(ii) of any increase or decrease in the space comprising the Demised Premises
(as may be provided herein), then in each such event in applying the provisions
of this Section with respect to any Operational Year in which such event shall
have occurred, adjustments shall be made to reflect the occurrence of such event
on a basis consistent with the principles underlying the provisions of this
Section taking into consideration (y) the portion of such Operational Year which
shall have elapsed prior to the date of such expiration or termination date or,
(z) in the case of any such increase or decrease, the portion of the Demised
Premises to which the same relates.
(f) Payments shall be made pursuant to this Section notwithstanding the
fact that a statement pursuant to paragraph (b) is furnished to Tenant after the
expiration of the Term.
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ARTICLE 17
Electric Energy
17.01. Electric Inclusion. Landlord shall furnish to Tenant as an
additional service included in the Fixed Rent payable hereunder, the electric
energy which Tenant requires in the Demised Premises on a "rent inclusion"
basis, through the presently installed electrical facilities for Tenant's
reasonable use in the Demised Premises for lighting, light office equipment and
the usual small business machines, including small copying machines. Landlord
shall not in anywise be liable or responsible to Tenant for any loss or damage
or expense which Tenant may sustain or incur if either the quantity or character
of electric service is changed or is no longer available or suitable for
Tenant's requirements.
17.02. (a) Tenant acknowledges and agrees (i) that the Fixed Rent
hereinabove set forth in this lease includes an Electricity Rent Inclusion
Factor (as hereinafter defined), of $9,240.00 to compensate Landlord for the
electrical wiring and other installations necessary for, and for its obtaining
and redistribution of, electric current as an additional service; and (ii) that
said Electricity Rent Inclusion Factor (hereinafter called "ERIF"), which shall
be subject to periodic adjustments as herein provided, has been partially based
upon Tenant's estimated connected electrical load and hours of use thereof for
ordinary lighting and light office equipment, during ordinary business hours.
The "Electricity Rent Inclusion Factor" shall mean the amount determined by
applying the estimated connected electrical load and usage thereof in the
Demised Premises (as determined by the electrical consultant as hereinafter
provided) to the rate charged for such load and usage in the service
classification in effect on September 1, 1991 pursuant to which Landlord then
purchased electric current for the entire Building from the public utility
corporation, which, as set forth in this Section 17.02, Landlord and Tenant
initially agree is $9,240.00. If the cost to Landlord of electricity shall have
been, or shall be, increased subsequent to September 1, 1991 (whether such
increase occurs prior to or during the term of this Lease), by change in
Landlord's electric rates, charges, fuel adjustment, or service classifications,
or by taxes or charges of any kind imposed thereon, or for any other such
reason, then the aforesaid ERIF portion of the Fixed Rent shall be increased in
the same percentage.
(b) Any such percentage increase in Landlord's cost due to a change in
Landlord's electric rate charges, etc., shall be computed by the application of
the average consumption (energy and demand) of electricity for the entire
Building for the twelve (12) full months immediately prior to the rate change,
other change in cost, or any changed methods of or rules on billing for same, on
a consistent basis to the new rate and/or service classifications and the
immediately prior existing rate and/or service classifications. If the average
consumption of electricity for the entire Building for said prior twelve (12)
full months cannot reasonably be applied and used with respect to changed
methods of or rules on billing, then the percentage increase shall be computed
by the use of the average consumption (energy and demand) for the entire
Building for the first three (3) months under such changed methods of or rules
on billing, projected to a full twelve (12) months; and that same consumption,
so projected, shall be applied to the rate and/or service classifications which
existed immediately prior to the changed methods of or rules on billing. The
parties acknowledge that they understand that it is anticipated that existing
electric rates, charges, etc., may be changed by virtue of time-of-day rates or
other methods of or rules on billing, and that the foregoing reference to
changes in methods of or rules on billing is intended to include any such
change. The parties agree that the reputable, independent electrical consultant,
selected by Landlord (hereinafter called "Landlord's electrical consultant")
shall determine the percentage for the changes in the ERIF based on changes in
Landlord's electric rate, charges, etc.
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17.03. (a) The parties agree that Landlord's electrical consultant may
from time to time make surveys in the Demised Premises covering the electrical
equipment and fixtures and use of current therein, and the connected electrical
load and usage portion of the ERIF shall be changed in accordance with such
survey, and the ERIF automatically redetermined, accordingly, by Landlord's
electrical consultant. The Fixed Rent shall be appropriately adjusted effective
as of the date of any such change in connected load and usage, as disclosed by
said survey. In no event, is the originally specified $9,240.00 ERIF portion of
the Fixed Rent (as adjusted by any electricity cost increases of Landlord after
September 1, 1991) to be reduced.
(b) The determination of change in the ERIF by Landlord's
electrical consultant shall be binding and conclusive on Landlord and on Tenant
from and after the delivery of copies of such determination to Landlord and
Tenant, unless within thirty (30) days after the delivery of such copies. Tenant
disputes such determination. If Tenant disputes the determination, it shall, at
its own expense, obtain from a reputable, independent electrical consultant its
own survey of Tenant's electrical lighting and power load and hours of use
thereof, and a determination of such change in the ERIF in accordance with the
provisions of this Article 17. Tenant's consultant and Landlord's electrical
consultant then shall seek to agree on a finding of such determination of such
change in the ERIF. If they cannot agree, they shall choose a third reputable
electrical consultant whose cost shall be shared equally by Land and Tenant, to
make a similar survey, and the determination of such ERIF change by such third
electrical consultant shall be controlling. (If they cannot agree on such third
consultant, within ten (10) days, then either party may apply to the Supreme
Court in the County of New York for the appointment of such third consultant.)
However, pending such determination, Tenant shall pay to Landlord the amount of
ERIF as determined by Landlord's electrical consultant, provided, however, if
the amount of ERIF determined as aforesaid is different from that determined by
Landlord's electrical consultant, then Landlord and Tenant shall make adjustment
for any deficiency owed by Tenant or overage paid by Tenant pursuant to the
decision of Landlord's electrical consultant.
17.04. Landlord's Right to Discontinue. Landlord reserves the right to
discontinue furnishing electric energy to Tenant at any time upon sixty (60)
days' written notice to Tenant, and from and after the effective date of such
termination, Landlord shall no longer be obligated to furnish Tenant with
electric energy, provided, however, that such termination date may be extended
for a time reasonably necessary for Tenant to make arrangements to obtain
electric service directly from the public utility company servicing the
Building. If Landlord exercises such right of termination, this Lease shall
remain unaffected thereby and shall continue in full force and effect; and
thereafter Tenant shall diligently arrange to obtain electric service directly
from the public utility company servicing the Building, and may utilize the then
existing electric feeders, risers and wiring serving the Demised Premises to the
extent of Tenant's then authorized connected load. Landlord shall be obligated
to pay no part of any cost required for Tenant's direct electric service.
Commencing with the date when Tenant receives such direct service, and as long
as Tenant shall continue to receive such service, the Fixed Rent payable under
this Lease shall be reduced to what the Fixed Rent would then have been but for
the adjustments under this Article 17 and for the inclusion therein of the
original ERIF payable by Tenant pursuant to this Lease.
17.05. Submetered Electric. landlord shall have the option at any time
to elect to furnish electric energy (subject to Section 17.04 hereof) on a
submetered basis, in accordance with Exhibit C annexed hereto and made a part
hereof. In the event that Landlord shall exercise the option contained in this
Section 17.05, the Fixed Rent set forth herein shall be reduced in the manner
described in Section 17.04 hereof.
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17.06. Failure of Supply. Landlord shall not be liable in any way to
Tenant for any failure or defect in the supply or character of electric energy
furnished to the Demised Premises by reason of any requirement, act or omission
of the public utility serving the Building with electricity or for any other
reason not attributable to Landlord. Landlord shall furnish and install the
replacement lighting tubes, lamps, bulbs and ballasts in the Demised Premises,
at Tenant's expense.
17.07. Capacity. Tenant's use of electric energy in the Demised Premises
shall not at any time exceed the capacity of any of the electrical conductors
and equipment in or otherwise serving the Demised Premises. In order to insure
that such capacity is not exceeded and to avert possible adverse effect upon the
Building's electric service, Tenant shall not, without Landlord's prior consent
in each instance (which shall not be unreasonably withheld), connect any
fixtures, appliances or equipment to the Building's electric distribution system
or make any alteration or addition to the electric system of the Demised
Premises existing on the Commencement Date. Should Landlord grant such consent,
all additional risers or other equipment required therefor shall be provided by
Landlord and the cost thereof shall be paid by Tenant to Landlord on demand.
ARTICLE 18
Signs
18.01. If Tenant shall cause or permit any sign or other object to be
placed on or affixed to any part of the Building not within the Demised Premises
without Landlord's written permission. Landlord shall have the right, in
addition to any other rights or remedies, without notice or liability to Tenant,
to remove and dispose of any such sign or other object and to make any repairs
necessitated by such removal, all at Tenant's sole cost and expense, and
Landlord's cost and expense in performing such removal and repair shall be
deemed Additional Rent payable with the next installment of Fixed Rent due
hereunder.
ARTICLE 19
Limitation of Landlord's Liability
19.01. Tenant shall look solely to the estate and interest of Landlord
in the Building for the satisfaction of Tenant's remedies for the collection of
any judgment (or other judicial process) requiring the payment of money by
Landlord in the event of any default or breach by Landlord with respect to any
of the terms, covenants and conditions of this Lease to be observed or performed
by Landlord, and no other property or assets of Landlord or any of the partners,
shareholders or other principals of Landlord shall be subject to levy, execution
or other enforcement procedure for the satisfaction of Tenant's remedies under
or with respect to either this Lease, the relationship of Landlord and Tenant
hereunder or Tenant's use and occupancy of the Demised Premises.
ARTICLE 20
Broker
20.01. Tenant covenants, warrants and represents that Robert M.
Kligerman and Coldwell Banker Schlott, Inc. were the sole brokers who negotiated
and brought about the consummation of this Lease, and that no discussions or
negotiations were had with any other broker concerning the leasing of space in
the Building. Based on the foregoing warranty and representation, Landlord has
agreed to pay a commission only Robert M. Kligerman and Coldwell Banker Schlott,
Inc. in
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connection with the consummation of this Lease and Tenant agrees to indemnify,
defend and hold Landlord harmless from and against any claim for a brokerage
commission or other compensation arising out of any discussions or negotiations
had by Tenant with this or any other broker.
ARTICLE 21
Default -- Conditions of Limitation
21.01. Bankruptcy. This Lease and the Term and estate hereby granted are
subject to the limitation that whenever Tenant, or any guarantor of Tenant's
obligations under this Lease, shall make an assignment of the benefit of
creditors, or shall file a voluntary petition under any bankruptcy or insolvency
shall be filed against Tenant or such guarantor under any bankruptcy or
insolvency law, or whenever a petition shall be filed by or against Tenant or
such guarantor under the reorganization provisions of the United States
Bankruptcy Act or under the provisions of any law of like import, or whenever a
petition shall be filed by Tenant or such guarantor under the arrangement
provisions of any law of like import, or whenever a permanent receiver of
Tenant, or such guarantor, or of or for the property of Tenant, or such
guarantor, shall be appointed, then Landlord (a) if such event occurs without
the acquiescence of Tenant, or such guarantor, as the case may be, at any time
after the event continues for sixty (60) days or (b) in any other case at any
time after the occurrence of any such event, may give Tenant a notice of
intention to end the term of this Lease at the expiration of said five (5) days
from the date of service of such notice of intention, and upon the expiration of
said five (5) day period this Lease and the Term and estate hereby granted,
whether or not the Term shall theretofore have commenced, shall terminate with
the same effect as if that day were the Expiration Date, but Tenant shall remain
liable for damages as provided in Article 23.
If, at any time, (a) Tenant shall be comprised of two or more persons,
or (b) Tenant's interest in this Lease shall have been assigned, the word
"Tenant", as used in this Section shall be deemed to include any such person,
Tenant herein named and each assignor and assignee and not merely the Tenant in
possession. Any monies received by Landlord from or on behalf of Tenant during
the pendency of any proceeding of the types referred to in this Section shall be
deemed paid as compensation for the use and occupation of the Demised Premises
and the acceptance of any such compensation by Landlord shall not be deemed an
acceptance of Rent or a waiver on the part of Landlord of any rights hereunder.
21.02. Events of Default. This Lease and the Term and estate hereby
granted are subject to the further limitations that:
(a) if Tenant shall default in the payment of any Fixed Rent or
Additional Rent, and such default shall continue for five (5) days, or
(b) if Tenant shall, whether by action or inaction, be in default of any
of its obligations under this Lease (other than a default in the payment of
Fixed Rent or Additional Rent) and such default shall continue and not be
remedied within fifteen (15) days after Landlord shall have given to Tenant a
notice specifying the same, or, in the case of a default which cannot with due
diligence be cured with a period of fifteen (15) days and the continuance of
which for the period required for cure will not subject Landlord to criminal
penalty or to prosecution for a crime or termination of any Superior Lease or
foreclosure of any Superior Mortgage, if Tenant shall not, (i) within said
fifteen (15) day period advise Landlord of Tenant's intention to take all steps
necessary to remedy such default, (ii) duly commence within said fifteen (15)
day period, and thereafter diligently prosecute to completion, all steps
necessary to remedy the default and (iii) complete such remedy within a
reasonable
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time after the date of said notice of Landlord, or
(c) if any event shall occur or any contingency shall arise whereby this
Lease or the estate hereby granted or the unexpired balance of the term hereof
would, by operation of law or otherwise, devolve upon or pass to any person,
firm or corporation other than Tenant, except as expressly permitted by Article
6, or
(d) if Tenant shall vacate or abandon the Demised Premises, or
(e) if there shall be any default by Tenant (or any person which,
directly or indirectly, controls, is controlled by, or is under common control
with Tenant) under any other lease with Landlord (or any person which, directly
or indirectly, controls, is controlled by, or is under common control with
Landlord) which shall not be remedied within the applicable grace period, if
any, provided therefor under such other lease, then in any of said cases
Landlord may give to Tenant a notice of intention to end the Term of this Lease
at the expiration of five (5) days from the date of the service of such notice
of intention, and upon the expiration of said five (5) days this lease and the
Term and estate hereby granted, whether or not the Term shall theretofore have
commenced, shall terminate with the same effect as if that day were the
Expiration Date, but Tenant shall remain liable for damages as provided in
Article 23.
ARTICLE 22
Re-Entry by Landlord
22.01. Summary Dispossess. If Tenant shall default in the payment of any
Fixed Rent or Additional Rent and such default shall continue for five (5) days
or if this Lease shall terminate as provided in Article 21, Landlord or
Landlord's agents and employees may immediately or at any time thereafter
re-enter the Demised Premises, or any part thereof, either by summary dispossess
proceedings or by any suitable action or proceeding at law, or by force or
otherwise, without being liable to indictment, prosecution or damages therefor,
and may repossess the same, and may remove any person therefrom, to the end that
Landlord may have, hold and enjoy the Demised Premises. The word "re-enter", as
used herein, is not restricted to its technical meaning. If this Lease is
terminated under the provisions of Article 21, or if Landlord shall re-enter the
Demised Premises under the provisions of this Article, or in the event of the
termination of this Lease, or of re-entry, by or under any summary dispossess or
other proceeding or action or any provisions of law by reason of default
hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the
Fixed Rent and Additional Rent payable up to the time of such termination of
this Lease, or of such recovery of possession of the Demised Premises by
Landlord, as the case may be, and shall also pay to Landlord damages as provided
in Article 23.
22.02. Waivers. Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant, including creditors, does hereby waive any and
all rights and privileges so far as is permitted by law which Tenant and all
such persons might otherwise have under any present or future law (a) to the
service of any notice of intention to re-enter or to institute legal proceedings
to that end, (b) to redeem the Demised Premises, (C) to re-enter or repossess
the Demised Premises, or (d) to restore the operation of this Lease, after
Tenant shall have been dispossessed by a judgment or by warrant of any court or
judge, or after any re-entry by Landlord, or after any expiration or termination
of this Lease and the Term, whether such dispossess, re-entry, expiration or
termination shall be by operation of law or pursuant to the provisions of this
Lease.
22.03. Injunctive Relief. In the event of a breach or threatened breach
by Tenant of any of its obligations under this Lease, Landlord shall also have
the right
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of injunction. The special remedies to which Landlord may resort hereunder are
cumulative and are not intended to be exclusive of any other remedies to which
Landlord may lawfully be entitled at any time and Landlord may invoke any remedy
allowed at law or in equity as if specific remedies were not provided for
herein.
22.04. Retention of Monies. If this Lease shall terminate under the
provisions of Article 21, or if Landlord shall re-enter the Demised Premises
under the provisions of this Article, or in the event of the termination of this
Lease, or of re-entry, by or under any summary dispossess or other proceeding or
action or any provisions of law by reason of default hereunder on the part of
Tenant, Landlord shall be entitled to retain all monies, if any, paid by Tenant
to Landlord, whether as advance rent, security or otherwise, but such monies
shall be credited by Landlord against any Fixed Rent or Additional Rent due from
Tenant at the time of such termination or re-entry or, at Landlord's option,
against any damages payable by Tenant under Article 23 or pursuant to law.
ARTICLE 23
Damages
23.01. Acceleration, Reletting. If this Lease is terminated under the
provisions of Article 21, or if Landlord shall re-enter the Demised Premises
under the provisions of Article 22, or in the event of the termination of this
Lease, or of re-entry, by or under any summary dispossess or other proceeding or
action or any provision of law by reason of default hereunder on the part of
Tenant, Tenant shall pay to Landlord as damages, at the election of Landlord,
either:
(a) a sum which at the time of such termination of this Lease or at
the time of any such re-entry by Landlord, as the case may be,
represents the then value of the excess, if any, of (i) the aggregate
amount of the Fixed Rent and the Additional Rent under Articles 2 and 16
which would have been payable by Tenant (conclusively presuming the
Additional Rent under Article 16 to be the same as was payable for the
prior year, or if less than 365 days have then elapsed since the
Commencement Date, the partial year immediately preceding such
termination or re-entry) for the period commencing with such earlier
termination of this Lease or the date of any such re-entry, as the case
may be, and ending with the date contemplated as the Expiration Date
hereof if this Lease had not so terminated or if Landlord had not so
re-entered the Demised Premises, over (ii) the aggregate rental value of
the Demised Premises for the same period, or
(b) sums equal to the Fixed Rent and the Additional Rent which
would have been payable by Tenant had this Lease not so terminated, or
had Landlord not so re-entered the Demised Premises, payable upon the
due dates therefor specified herein following such termination or such
re-entry and until the date contemplated as the Expiration Date hereof
if this Lease had not so terminated or if Landlord had not so
re-entered the Demised Premises provided, however, that if Landlord
shall relet the Demised Premises during said period, Landlord shall
credit Tenant with the net rents received by Landlord from such
reletting, such net rents to be determined by first deducting from the
gross rents as and when received by Landlord from such reletting the
expenses incurred or paid by Landlord in terminating this Lease or in
re-entering the Demised Premises and in securing possession thereof, as
well as the expenses of reletting, including, without limitation,
altering and preparing the Demised Premises for new tenants, brokers'
commissions, legal fees, and all other expenses properly chargeable
against the Demised Premises and the rental therefrom, it being
understood that any such reletting may be for a period
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shorter or longer than the remaining Term, but in no event shall Tenant
be entitled to receive any excess of such net rents over the sums
payable by Tenant to Landlord hereunder nor shall Tenant be entitled in
any suit for the collection of damages pursuant to this subdivision to a
credit in respect of any net rents from reletting, except to the extent
that such net rents are actually received by Landlord. If the Demised
Premises or any part thereof shall be relet in combination with other
space, then proper apportionment on a square foot basis shall be made of
the rent received from such reletting and of the expenses of reletting.
If the Demised Premises or any part thereof be relet by Landlord for the
unexpired portion of the Term, or any part thereof, before presentation of proof
of such damages to any court, commission or tribunal, the amount of rent
reserved upon such reletting shall, prima facie, be the fair and reasonable
rental value for Demised Premises, or part thereof, so relet during the term of
the reletting. Landlord shall not be liable in any way whatsoever for its
failure or refusal to relet the Demised Premises or any part thereof, or if the
Demised Premises or any part thereof are relet, for its failure to collect the
rent under such reletting, and no such refusal or failure to relet or failure to
collect rent shall release or affect Tenant's liability for damages or otherwise
under this Lease.
23.02. Successive Suits, etc. Suit or suits for the recovery of such
damages, or any installments thereof, may be brought by Landlord from time to
time at its election, and nothing contained herein shall be deemed to require
Landlord to postpone suit until the date when the Term of this Lease would have
expired if it had not been so terminated under the provisions of Article 21, or
under any provision of law, or had Landlord not re-entered the Demised Premises.
Nothing herein contained shall be construed to limit or preclude recovery by
Landlord against Tenant of any sums or damages to which, in addition to the
damages particularly provided above, Landlord may lawfully be entitled by reason
of any default hereunder on the part of Tenant. Nothing herein contained shall
be construed to limit or prejudice the right of Landlord to prove for and obtain
as damages by reason of the termination of this Lease or re-entry on the Demised
Premises for the default of Tenant under this Lease an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, such damages are to be proved whether or not
such amount be greater, equal to, or less than any of the sums referred to in
Section 23.01.
23.03. Condition of Premises. In addition, if this Lease is terminated
under the provisions of Article 21, or if Landlord shall re-enter the Demised
Premises under the provisions of Article 22, Tenant agrees that:
(a) the Demised Premises then shall be in the same condition as that in
which Tenant has agreed to surrender the same to Landlord at the expiration of
the term hereof;
(b) Tenant shall have performed prior to any such termination any
covenant of Tenant contained in this Lease for the making of any Alteration or
for restoring or rebuilding the Demised Premises or the Building, or any part
thereof; and
(c) for the breach of any covenant of Tenant set forth above in this
Section 23.03, Landlord shall be entitled immediately, without notice or other
action by Landlord, to recover, and Tenant shall pay, as and for liquidated
damages therefor, the cost of performing such covenant (as estimated by an
independent contractor selected by Landlord).
23.04. Interest. In addition to any other remedies Landlord may have
under this Lease, and without reducing or adversely affecting any of Landlord's
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rights and remedies under Article 21, if any Fixed Rent, Additional Rent or
damages payable hereunder by Tenant to Landlord is not paid within five (5) days
after demand therefor, the same shall bear interest at the rate of one and
one-half percent (1 1/2%) per month or the maximum rate permitted by law,
whichever is less, from the due date thereof until paid, and the amount of such
interest shall be Additional Rent hereunder.
ARTICLE 24
Surrender
24.01. Condition of Premises. (a) On the last day of the Term or upon
any earlier termination of this Lease, or upon any re-entry by Landlord upon the
Demised Premises, Tenant shall, at its own expense, quit and surrender the
Demised Premises to Landlord broom clean, in good order, condition and repair,
except for ordinary wear and tear and such damage or destruction as Landlord is
required to repair or restore under the Lease. Tenant shall remove from the
Demised Premises all of Tenant's Property and all personal property and personal
effects of all persons claiming through or under Tenant, and shall pay the cost
of repairing all damage to the Building and the Demised Premises occasioned by
such removal.
(b) All alterations, installations, additions and improvements made
and installed by Tenant, or at Tenant's expense, upon or in the Demised Premises
which are of a permanent nature and which cannot be removed without damage to
the Demised Premises or Building shall become and be the property of Landlord,
and shall remain upon and be surrendered with the Demised Premises as a part
thereof at the end of the term of this Lease, except that Landlord shall have
the right and privilege at any time up to twenty (20) days prior to the
expiration of the term of the Lease to serve notice upon Tenant that any of such
alterations, installations, additions and improvements shall be removed and, in
the event of service of such notice. Tenant will, at Tenant's own cost and
expense, remove the same in accordance with such request, and restore the
Demised Premises to its original condition, ordinary wear and tear and casualty
excepted.
24.02. Sunday, Holidays. If the date of termination of this Lease shall
fall on a Sunday or a Holiday, then Tenant's obligations under Section 24.01
shall be performed on or prior to the Saturday or business day immediately
preceding such Sunday or Holiday.
24.03. Tenant's Property. Any Tenant's Property or other personal
property (other than money, securities, documents, or other valuables) which
shall remain in the Demised Premises after termination of this Lease shall be
deemed to have been abandoned and either may be retained by Landlord as its
property or may be disposed of in such manner as Landlord may see fit; provided,
however, that, notwithstanding the foregoing, Tenant will, upon request of
Landlord made not later than thirty (30) days after the date of termination of
this Lease, promptly remove from the Demised Premises any Tenant's Property or
other personal property at Tenant's own expense. If such Tenant's Property or
other personal property or any part thereof shall be sold, Landlord may receive
and retain the proceeds of such sale and apply the same, at its option, against
the expenses of the sale, cost of moving and storage, any arrears of Fixed Rent
or Additional Rent and damages to which Landlord may be entitled hereunder or
pursuant to law. Any excess proceeds shall be the property of Landlord. Any
expense incurred by Landlord in removing or disposing of such Tenant's Property
or other personal property shall be reimbursed to Landlord by Tenant on demand.
24.04. Indemnification. If the Demised Premises are not surrendered upon
the termination of this Lease, Tenant shall indemnify Landlord against loss,
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liability claims, damage, cost and expense, resulting from delay by Tenant in so
surrendering the Demised Premises as provided in Section 24.01, including any
claims made by any succeeding tenant founded on such delay.
24.05. Last Month. If, during the last month of the Term, Tenant shall
have removed all or substantially all of Tenant's Property from the Demised
Premises, Landlord may immediately enter and alter, renovate and redecorate the
Demised Premises, without elimination, diminution or abatement of Rent, or
incurring liability to Tenant for any compensation, and such acts shall have no
effect upon this Lease.
24.06. Survival. Tenant's obligations under this Article shall survive
the termination of this Lease.
ARTICLE 25
Access to Demised Premises
25.01. Landlord's Rights. Landlord and Landlord's Agents shall have the
following rights in and about the Demised Premises: (i) to enter the Demised
Premises at all times to examine the Demised Premises or for any of the purposes
set forth in this Article or for the purpose of performing any obligation of
Landlord under this Lease or exercising any right or remedy reserved to Landlord
in this Lease, and if Tenant or Tenant's Agents shall not be personally present
or shall not open and permit an entry into the Demised Premises at any time when
such entry shall be necessary or permissible, to use a master key or to forcibly
enter the Demised Premises; (ii) to erect, install, use and maintain pipes,
ducts and conduits in and through the Demised Premises; (iii) to exhibit the
Demised Premises to others; (iv) to make such decorations, repairs, alterations,
improvements or additions, or to perform such maintenance, including, but not
limited to, the maintenance of all heating, air-conditioning, elevator,
plumbing, electrical and other mechanical facilities, as Landlord may deem
necessary or desirable; (v) to take all materials into and upon the Demised
Premises that may be required in connection with any such decorations, repairs,
alterations, improvements, additions or maintenance; and (vi) to install on the
inside of the windows a film or other similar substance to reduce the usage of
energy in the Building.
25.02. Portions Reserved. All parts (except surfaces facing the interior
of the Demised Premises) of all walls, windows and doors bounding the Demised
Premises (including exterior Building walls, core corridor walls, doors and
entrances), all balconies, terraces and roofs adjacent to the Demised Premises,
all space in or adjacent to the Demised Premises used for shafts, stacks,
stairways, chutes, pipes, conduits, ducts, fan rooms, heating, air-conditioning,
plumbing, electrical and other mechanical facilities, service closets and other
Building facilities, and the use thereof, as well as access thereto through the
Demised Premises for the purposes of operation, maintenance, alteration and
repair, are hereby reserved to Landlord. Landlord also reserves the right at any
time to change the arrangement or location of entrances, passageways, doors,
doorways, corridors, elevators, stairs, toilets and other public parts of the
Building, provided any such change does not permanently and unreasonably
obstruct Tenant's access to Demised Premises. Nothing contained in this Article
shall impose any obligation upon Landlord with respect to the operation,
maintenance, alteration or repair of the Demised Premises or the Building.
25.03. Third Party Access. Landlord and Landlord's Agents shall have the
right to permit access to the Demised Premises, whether or not Tenant shall be
present, to any receiver, trustee, assignee for the benefit of creditors,
sheriff, marshall or court officer entitled to, or reasonably purporting to be
entitled to, such access for the purpose of taking possession of, or removing
any property of Tenant
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or any other occupant of the Demised Premises, or for any other lawful purpose,
or by any representative of the fire, police, building, sanitation or other
department of the Town, Village, County, City, State or Federal Governments.
Neither anything contained in this Section, nor any action taken by Landlord
under this Section, shall be deemed to constitute recognition by Landlord that
any person other than Tenant has any right or interest in this Lease or the
Demised Premises.
25.04. No Eviction. The exercise by Landlord or Landlord's Agent of any
right reserved to Landlord in this Article shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations under this
Lease, or impose any liability upon Landlord, or Landlord's Agents, or upon any
Superior Lessor or Superior Mortgagee by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business, or otherwise.
ARTICLE 26
Waivers
26.01. Order of Payment. If Tenant is in arrears in payment of Fixed
Rent or Additional Rent, Tenant waives Tenant's right, if any, to designate the
items which any payments made by Tenant are to be credited, and Tenant agrees
that Landlord may apply any payments made by Tenant to such items as Landlord
sees fit, irrespective of and notwithstanding any designation or request by
Tenant as to the items which any such payments shall be credited.
26.02. Trial by Jury. Landlord and Tenant hereby waive trial by jury in
any action, proceeding or counterclaim brought by either against the other or
any matter whatsoever arising out of or in any way connected with this Lease,
the relationship of Landlord and Tenant and Tenant's use or occupancy of the
Demised Premises.
26.03. Counterclaims. Tenant shall not interpose any counterclaim of any
kind in any summary proceeding commenced by Landlord for nonpayment of Rent.
ARTICLE 27
No Surrender, etc.
27.01. Delivery of Keys, etc. No act or thing done by Landlord or
Landlord's Agents during the Term shall constitute a valid acceptance of a
surrender of the Demised Premises or any remaining portion of the Term except a
written instrument accepting such surrender, executed by Landlord. No employee
of Landlord or the Managing Agent shall have any authority to accept the keys of
the Demised Premises prior to the termination of this Lease, and the delivery of
such keys to any such employee shall not operate as a termination of this Lease
or a surrender of the Demised Premises; however, if Tenant desires to have
Landlord sublet the Demised Premises for Tenant's account, Landlord or
Landlord's Agents are authorized to receive said keys for such purposes without
releasing Tenant from any of its obligations under this Lease, and Tenant hereby
relieves Landlord of any liability for loss of, or damage to, any of Tenant's
Property or other effects in connection with such subletting. The failure of
Landlord to seek redress for breach or violation of, or to insist upon the
strict performance of, any term, covenant or condition of this Lease on Tenant's
part to be observed or performed shall not prevent a subsequent act or omission
which would have originally constituted a breach or violation of such term,
covenant or condition from having all the force and effect of an original breach
or violation. The receipt by Landlord of Rent with
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knowledge of the breach or violation by Tenant of any term, covenant or
condition of this Lease on Tenant's part to be observed or performed shall not
be deemed a waiver of such breach or violation. Landlord's failure to enforce
any Rules or Regulations against Tenant or against any other occupant of the
Building shall not be deemed a waiver of any such Rules or Regulations. No
provision of this Lease shall be deemed to have been waived by Landlord unless
such waiver shall be set forth in a written instrument executed by Landlord. No
payment by Tenant or receipt by Landlord of a lesser amount than the aggregate
of all Fixed Rent and Additional Rent then due, no endorsement or statement on
any check and no letter accompanying any check or other Rent payment in any such
lesser amount and no acceptance of any such check or other such payment by
Landlord shall constitute an accord and satisfaction, and Landlord may accept
any such check or payment without prejudice to Landlord's right to recover the
balance of such Rent or to pursue any other legal remedy.
ARTICLE 28
Curing Tenant's Defaults
28.01. Right to Cure. If Tenant shall default in the performance of any
of Tenant's obligations under this Lease, Landlord, without thereby waiving such
default, may (but shall not be obligated to) perform the same for the account
and at the expense of Tenant, without notice in a case of emergency, and in any
other case only if such default continues after the expiration of fifteen (15)
days from the date Landlord gives Tenant notice of the default.
28.02. Reimbursement. Bills for any expenses incurred by Landlord in
connection with any such performance by it for the account of Tenant, and bills
for all costs, expenses and disbursements of every kind and nature whatsoever,
including reasonable counsel fees, involved in collecting or endeavoring to
collect the Fixed Rent or Additional Rent or any part thereof or enforcing or
endeavoring to enforce any rights against Tenant or Tenant's obligations
hereunder, under or in connection with this Lease or pursuant to law, including
any such cost, expense and disbursement involved in instituting and prosecuting
summary proceedings or in recovering possession of the Demised Premises after
default by Tenant or upon the expiration or sooner termination of this Lease,
and interest on all sums advanced by Landlord under this Article at the rate of
one and one-half percent (1 1/2%) per month or the maximum rate permitted by
law, whichever is less, may be sent by Landlord to Tenant monthly, or
immediately, at Landlord's option, and such amounts shall be due and payable in
accordance with the terms of such bills as Additional Rent.
ARTICLE 29
Notices
29.01. Any notice, statement, request, demand, consent, approval or
other communication required or permitted to be given, rendered or made by
either party to the other, pursuant to this Lease or pursuant to any applicable
law or requirement of public authority, shall be in writing (whether or not so
stated elsewhere in this Lease) and shall be deemed to have been properly given,
rendered or made only if sent by registered or certified mail, return receipt
requested, posted in a United States post office station or letter box in the
continental United States, addressed to the other party at the address
hereinabove set forth (except that after the Commencement Date, Tenant's
address, unless Tenant shall give notice to the contrary, shall be the
Building), and shall be deemed to have been given, rendered or made on the day
so mailed, unless outside of the State of New York, in which case it shall be
deemed to have been given, rendered or made on the first business day after the
day so mailed. Either party may, by notice as aforesaid, designate a
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different address or addresses for notices, statements, demands, consents,
approvals or other communications intended for it. A copy of each notice, etc.
to Landlord shall be sent to the Managing Agent at its address set forth in
Article 1 (or any different address of which Tenant has been given like notice).
ARTICLE 30
Arbitration
30.01. Express Provision. Landlord may at any time request arbitration,
and Tenant may at any time when it is not in default in the payment of any Fixed
Rent and Additional Rent request arbitration, of any matter in dispute where
arbitration is expressly provided for in this Lease. The party requesting
arbitration shall do so by giving notice to that effect to the other party,
specifying in said notice the nature of the dispute, and said dispute shall be
determined in the City of New York, by three (3) arbitrators, in accordance with
the rules then obtaining of the American Arbitration Association (or any
organization which is the successor thereto). The award in such arbitration may
be enforced on the application by either party by the order or judgment of a
court of competent jurisdiction.
30.02. Fees. The fees and expenses of any arbitration shall be borne by
the parties equally, but each party shall bear the expense of its own attorneys
and experts and the additional expenses of presenting its own proof.
ARTICLE 31
Relocation of Demised Premises
31.01. Substitute Premises. Landlord may, at its option, before or after
the Commencement Date, elect by notice to Tenant to substitute for the Demised
Premises other office space in the Building (herein called the "Substitute
Premises") designated by Landlord, provided that the Substitute Premises
contains at least the same usable square foot area as the Demised Premises and
has a configuration substantially similar to that of the Demised Premises.
Landlord's notice shall be accompanied by a plan of the Substitute Premises, and
such notice or the plan shall set forth the usable square foot area of the
Substitute Premises. Tenant shall vacate and surrender the Demised Premises and
shall occupy the Substitute Premises promptly (and, in any event, not later than
15 days) after Landlord has substantially completed the work to be performed by
Landlord in the Substitute Premises pursuant to Section 31.02. Tenant shall pay
the same Fixed Rent and Additional Rent under Articles 2 and 16 with respect to
the Substitute Premises as were payable with respect to the Demised Premises,
without regard to the usable square foot area of the Substitute Premises.
31.02. Landlord's Expense. Tenant shall not be entitled to any
compensation for any inconvenience or interference with Tenant's business, nor
to any abatement or reduction of Fixed Rent or Additional Rent, but Landlord
shall, at Landlord's expense, do the following: (i) furnish and install in the
Substitute Premises fixtures, equipment, improvements and appurtenances at least
equal in kind and quality to those contained in the Demised Premises at the time
such notice of substitution is given by Landlord, (ii) provide to Tenant
personnel to perform under Tenant's direction the moving of Tenant's Property
from the Demised Premises to the Substitute Premises, (iii) promptly reimburse
Tenant for Tenant's actual and reasonable out-of-pocket costs incurred by Tenant
in connection with the relocation of any telephone or other communications
equipment from the Demised Premises to the Substitute Premises, and (iv)
promptly reimburse Tenant for any other actual and reasonable out-of-pocket
costs incurred by Tenant in connection with Tenant's move from the Demised
Premises to the Substitute Premises provided such costs are approved by Landlord
in advance, which approval shall not be
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unreasonably withheld. Tenant agrees to cooperate with Landlord so as to
facilitate the prompt completion by Landlord of its obligations under this
Section and the prompt surrender by Tenant of the Demised Premises. Without
limiting the generality of the preceding sentence, Tenant agrees (i) to provide
to Landlord promptly any approvals or instructions, and any plans and
specifications or any other information reasonably requested by Landlord and
(ii) to promptly perform in the Substitute Premises any work to be performed by
Tenant to prepare the same for Tenant's occupancy.
31.03. Lease Modified. From and after the date that Tenant shall
actually vacate and surrender the Demised Premises to Landlord, this Lease (i)
shall no longer apply to the Demised Premises, except with respect to
obligations which accrued on or prior to such surrender date; and (ii) shall
apply to the Substitute Premises as if the Substitute Premises had been the
space originally demised under this Lease.
ARTICLE 32
No Representations -- Entire Agreement
32.01. Tenant expressly acknowledges and agrees that Landlord has not
made and is not making, and Tenant, in executing and delivering this Lease, is
not relying upon, any warranties, representations, promises or statements,
except to the extent that the same are expressly set forth in this Lease or in
any other written agreement which may be made between the parties concurrently
with the execution and delivery of this Lease and shall expressly refer to this
Lease. All understandings and agreements heretofore had between the parties are
merged in this Lease and any other written agreement(s) made concurrently
herewith, which alone fully and completely express the agreement of the parties
and which are entered into after full investigation, neither party relying upon
any statement or representation not embodied in this Lease or any other written
agreement(s) made concurrently herewith.
ARTICLE 33
Changes and Modifications
33.01. No agreement shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this Lease, in whole
or in part, unless such agreement is in writing, refers expressly to this Lease
and is signed by the party against whom enforcement of the change, modification,
waiver, release, discharge, termination or effectuation of the abandonment is
sought.
If any Superior Mortgagee shall require any modification of this Lease,
Tenant shall, at Landlord's request, promptly execute and deliver to Landlord
such instrument effecting such modification as Landlord shall require, provided
that such modification does not adversely affect in any material respect any of
the Tenant's rights under this Lease.
ARTICLE 34
Successors and Assigns
34.01. Except as otherwise expressly provided in this Lease, the
obligations of this Lease shall bind and benefit the successors and assigns of
the parties hereto with the same effect as if mentioned in each instance where a
party is named or referred to; provided, however, that (a) no violation of the
provisions of Article 6 shall operate to vest any rights in any successor or
assignee of Tenant and (b) the provisions of this Article shall not be construed
as modifying the conditions of limitation contained in Article 21.
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ARTICLE 35
Inability to Perform
35.01. The obligations of Tenant hereunder shall be in no wise affected,
impaired or excused, nor shall Landlord have any liability whatsoever to Tenant,
because (a) Landlord is unable to fulfill, or is delayed in fulfilling, any of
its obligations under this Lease by reason of strike, other labor trouble,
governmental preemption or priorities or other controls in connection with a
national or other public emergency or shortages of fuel, supplies or labor
resulting therefrom, or any other cause, whether similar or dissimilar, beyond
Landlord's reasonable control; or (b) of any failure or defect in the supply,
quantity or character of electricity or water furnished to the Demised Premises
by reason of any requirement, act or omission of the public utility or others
serving the Building with electric energy, steam, oil, gas or water, or for any
other reason whether similar or dissimilar, beyond Landlord's reasonable
control.
ARTICLE 36
Rules and Regulations
36.01. Tenant and its employees and agents shall faithfully observe and
strictly comply with the Rules and Regulations annexed hereto and made a part
hereof as Exhibit D, and such reasonable changes therein (whether by
modification, elimination or addition) as Landlord hereafter may make and
communicate in writing to Tenant which do not unreasonably affect the conduct of
the permitted use of the Demised Premises. Tenant's right to dispute the
reasonableness of any changes in the Rules and Regulations shall be deemed
waived unless asserted by notice to Landlord within thirty (30) days after the
date upon which Landlord shall have given notice to Tenant of the adoption of
any such changes in which case such dispute shall be determined by arbitration
pursuant to Article 30. In case of any conflict or inconsistency between the
provisions of this Lease and any Rules and Regulations as originally promulgated
or as changed, the provisions of this Lease shall control. Landlord shall have
no duty or obligation to enforce any Rule or Regulation, or any term, covenant
or condition of any other lease, against any other tenant or occupant of the
Building, and Landlord shall have no liability to Tenant for any violation of
the same by any other tenant or occupant of the Building.
ARTICLE 37
Consents
37.01. Express Provision. The provisions of this Article shall apply
only in cases where either party hereto shall have specifically agreed not to
unreasonably withhold its consent or approval as provided in this Lease, or
where this Lease expressly provides that a judgment, opinion, requirement, act,
sum of money or time limit be reasonable.
37.02. Consent and Approval. If a party considers that the other party
has unreasonably withheld or delayed a consent it shall so notify the other
party within ten (10) days after receipt of notice of denial of the requested
consent or, in case notice of denial is not received, within ten (10) days after
the expiration of the time period during which a reply to a request should have
been given, or if no specific time period is provided, within twenty (20) days
after making its request for the consent, and within ten (10) days after giving
the first-mentioned notice may submit the question of whether the withholding or
delaying of such consent is unreasonable to determination by arbitration in the
manner provided in Article 30. A consent shall not be deemed to have been
unreasonably withheld or delayed unless the aggrieved party complies with the
foregoing procedure and it shall be so
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determined by arbitration as aforesaid. In the event of such determination the
requested consent shall be deemed to have been granted for all purposes of this
Lease. The party who shall have refused or failed to give such consent shall not
have any liability to the other party therefor, each party hereby waiving any
claim for damages which it may have against the other based upon any assertion
that the other party has unreasonably refused or failed or delayed to give a
requested consent. The only remedy for an alleged unreasonable withholding or
delaying of consent by either party shall be as provided in this Section.
ARTICLE 38
Partnership Tenant
38.01. If Tenant is a partnership (or is comprised of two or more
persons, individually and as co-partners of a partnership) or if Tenant's
interest in this Lease shall be assigned to a partnership (or to two or more
persons, individually and as co-partners of a partnership) pursuant to Article 6
(any such partnership and such persons being referred to in this Section as
"Partnership Tenant"), the following provisions of this Section shall apply to
such Partnership Tenant: (i) the liability of each of the parties comprising
Partnership Tenant shall be joint and several, (ii) each of the parties
comprising Partnership Tenant hereby consents in advance to, and agrees to be
bound by, any modifications which may hereafter be given by Partnership Tenant
or by any of the parties comprising Partnership Tenant, (iii) any bills,
statements, notices, demands, requests or other communications given or rendered
to Partnership Tenant or to any of the parties comprising Partnership Tenant
shall be deemed given or rendered to Partnership Tenant and to all such parties
and shall be binding upon Partnership Tenant and all such parties, and (iv) if
Partnership Tenant shall admit new partners, all of such new partners shall, by
their admission to Partnership Tenant, be deemed to have assumed performance of
all of the terms, covenants and conditions of this Lease on Tenant's part to be
observed and performed.
ARTICLE 39
Quiet Enjoyment
39.01. If and so long as Tenant pays the Fixed Rent and Additional Rent
and performs and observes all the terms, covenants and conditions hereof on the
part of Tenant to be performed and observed, Tenant shall quietly enjoy the
Demised Premises during the Term without hindrance or molestation by any one
claiming by, through or under Landlord, subject, however, to the terms of this
Lease.
ARTICLE 40
Security
40.01. Tenant has deposited with Landlord the sum of $16,940.08 as
security for the full and faithful performance and observance by Tenant of
Tenant's covenants and obligations under this Lease. If Tenant defaults in the
full and prompt payment and performance of any of Tenant's covenants and
obligations under this Lease, including, but not limited to, the payment of
Fixed Rent and Additional Rent, Landlord may use, apply or retain the whole or
any part of the security so deposited and the interest accrued thereon, if any,
to the extent required for the payment of any Fixed Rent and Additional Rent or
any other sums as to which Tenant is in default or for any sum which Landlord
may expend or may be required to expend by reason of Tenant's default in respect
of any of the terms, covenants and conditions of this Lease, including, but not
limited to, any damages or deficiency in the reletting of the Demised Premises,
whether such damages or
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deficiency accrue before or after summary proceedings or other re-entry by
Landlord. If Landlord shall so use, apply or retain the whole or any part of the
security or the interest accrued thereon, if any, Tenant shall upon demand
immediately deposit with Landlord a sum equal to the amount so used, applied or
retained as security as aforesaid. If Tenant shall fully and faithfully comply
with all of Tenant's covenants and obligations under this Lease, the security or
any balance thereof, with the interest thereon, if any, to which Tenant is
entitled, shall be returned or paid over to Tenant after the date on which this
Lease shall expire or sooner end or terminate, and after delivery to Landlord of
entire possession of the Demised Premises. In the event of any sale of
Landlord's interest in the Building or leasing of the Building, Landlord shall
have the right to transfer the security and interest thereon, if any, to which
Tenant is entitled, to the vendee or lessee and Landlord shall thereupon be
released by Tenant from all liability for the return or payment thereof; and
Tenant shall look solely to the new landlord for return or payment of the same;
and the provisions hereof shall apply to every transfer or assignment made of
the same to a new landlord. Tenant shall not assign or encumber or attempt to
assign or encumber the monies deposited herein as security or any interest
thereon to which Tenant is entitled, and neither Landlord nor its successors or
assigns shall be bound by any such assignment, encumbrance, attempted assignment
or attempted encumbrance.
ARTICLE 41
Late Charge
41.01. In the event that any payment of Fixed Rent or Additional Rent
required to be made by Tenant under this Lease shall be received by Landlord
more than ten (10) days after the same is due (the due date for payments of
Fixed Rent is the first day of each month), a late charge of four cents (4 cts)
for each dollar so overdue may be charged by Landlord for each month, or
fraction of each month, from its due date until paid, for the purpose of
defraying the expenses incurred in handling delinquent payments. It is
understood that the late charge payable under this Article is in addition to the
payment of interest on overdue payments pursuant to Section 23.04.
ARTICLE 42
Miscellaneous
42.01. Governing Law. Irrespective of the place of execution or
performance, this Lease shall be governed by and construed in accordance with
the laws of the State of New York.
42.02. Severability. If any provision of this Lease or the application
thereof to any person or circumstances shall, for any reason and to any extent,
be invalid or unenforceable, the remainder of this Lease and the application of
that provision to other persons or circumstances shall not be affected but
rather shall be enforced to the extent permitted by law.
42.03. Captions. The table of contents, captions, headings and titles in
this Lease are solely for convenience of reference and shall not affect its
interpretation.
42.04. Tenant's Covenants. Each covenant, agreement, obligation or other
provision of this Lease on Tenant's part to be performed shall be deemed and
construed as a separate and independent covenant of Tenant, not dependent on any
other provisions of this Lease.
42.05. Gender. All terms and words used in this Lease, regardless of the
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number of gender in which they are used, shall be deemed to include any other
number and any other gender as the context may require.
42.06. Tenant's Occupancy of Other Space. Tenant shall not occupy any
space in the Buildings (by assignment, sublease or otherwise) other than the
Demised Premises, except with the prior written consent of Landlord in each
instance.
42.07. Excavation. If an excavation shall be made upon land adjacent to
or under the Building, or shall be authorized to be made, Tenant shall afford to
the person causing or authorized to cause such excavation, license to enter the
Demised Premises for the purpose of performing such work as said person shall
deem necessary or desirable to preserve and protect the Building from injury or
damage and to support the same by proper foundations, without any claim for
damages or liability against Landlord and without reducing or otherwise
affecting Tenant's obligations under this Lease.
42.08. Construction. This Lease shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Lease to be drafted.
42.09. Notice of Accident. Tenant shall give notice to Landlord,
promptly after Tenant learns thereof, of (a) any accident in or about the
Demised Premises or the Building for which Landlord might be liable, (b) any
fire in the Demised Premises, (c) all damage to or defects in the Demised
Premises including fixtures, equipment and appurtenances thereof for the repair
of which Landlord might be responsible and (d) all damage to or defects in any
parts or appurtenances of the air-conditioning, elevator, plumbing, electrical,
sanitary, mechanical or other service or utility systems located in or passing
through the Demised Premises.
42.10. Window Cleaning. Neither Tenant or Tenant's Agents or employees
will require, permit, suffer or allow the cleaning of any window in the Demised
Premises from the outside (within the meaning of Section 202 of the New York
Labor Law) except in compliance with all applicable Regulations.
42.11. No Offer to Lease. This Lease is not to be construed as an offer
to lease and shall not in any way bind Landlord until such time as Landlord
shall have executed this Lease and made delivery thereof to Tenant.
42.12. Name of Building. Landlord may adopt any name for the Building,
and Landlord reserves the right to change the name and/or address of the
Building at any time.
ARTICLE 43
Common Areas and Parking
43.01. Landlord shall provide and shall make available from time to time
within the boundaries of the Property such parking facilities, driveways,
entrances and exits thereto, landscape and planted areas, and other improvements
and facilities, as Landlord shall at any time and from time to time deem
appropriate (all the foregoing being collectively referred to in this Lease as
"Common Areas"). Tenant and its officers, employees, agents, customers and
invitees shall have a nonexclusive right, in common with Landlord and all others
to whom Landlord has granted or may hereafter grant rights, to use the Common
Areas. The Common Areas shall at all times be subject to the exclusive control
and management of Landlord, and Landlord shall have the right from time to time
to establish, modify and enforce reasonable rules and regulations with respect
to the Common Areas, and Tenant agrees, after notice thereof, to abide by such
rules and regulations and
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to cause its officers, employees, agents, customers and invitees to conform
thereto. Landlord shall construct, operate, manage, equip, repair, landscape,
and maintain the Common Areas for their intended purposes in such manner as
Landlord shall, in Landlord's sole discretion, from time to time determine.
Landlord's rights respecting the Common Areas shall include (but shall not be
limited to) the following:
(i) to construct, maintain and operate lighting facilities
serving the Common Areas;
(ii) from time to time to change the area, level, location and
arrangement of parking areas and other Common Area facilities, to make
installations therein and to move or remove such installations, and to
change the location of, or permanently diminish or discontinue the use
of, any portion of the Common Areas;
(iii) to restrict parking by tenants, their officers, agents,
employees, customers and invitees, to designated areas;
(iv) to discontinue, or restrict the use of, any portion of the
Common Areas to such extent, and for such period of time, as may in the
opinion of Landlord's counsel be necessary to prevent a dedication
thereof or the accrual of any rights to any person or the public
therein;
(v) to temporarily suspend the use of all, or any portion of,
the Common Areas: and
(vi) to take any other action with respect to the Common Areas,
as Landlord, in his sole discretion, shall determine to be advisable.
43.02. Tenant's right to use the Common Areas shall be deemed to be a
license coterminous with this Lease, and Landlord shall not be subject to any
liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent by reason of Landlord's exercise of any right or rights
respecting Common Areas reserved pursuant to Section 43.01 hereof, nor shall the
exercise of any such right be deemed a constructive or actual eviction.
43.03. With respect to the parking of vehicles at the Property:
(a) If Landlord elects to designate a specific parking area for
Tenant's use, Tenant shall require its personnel and visitors to park
their vehicles only in parking spaces designated by Landlord for
Tenant's use for its personnel and visitors on a "first come, first
served" basis. Landlord reserves the right at all times to redesignate
such parking spaces. Tenant, its personnel and visitors shall not at any
time park any trucks or delivery vehicles in any of the parking areas.
In accordance herewith, Landlord shall provide Tenant with two (2)
reserved parking spaces.
(b) All parking spaces and any other parking areas used by
Tenant, its personnel and visitors will be at their own risk, and
Landlord shall not be liable for any injury to person or property, or
for loss or damage to any automobile or its contents, resulting from
theft, collision, vandalism or any other cause whatsoever.
(c) There shall be no overnight parking, and Tenant shall, and
shall cause its personnel and visitors to, remove their automobiles from
the parking area at the end of the working day. If any automobile owned
by Tenant or by its personnel or visitors remains in the parking area
overnight and the same interferes with the cleaning or maintenance of
said area (snow or otherwise), any costs or liabilities incurred by
Landlord in
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removing said automobile to effectuate cleaning or maintenance, or any
damages resulting to said automobile or to Landlord's equipment or
equipment owned by others by reason of the presence of or removal of
said automobile during such cleaning or maintenance shall be paid by
Tenant to Landlord, as additional rent on the rent payment date next
following the submission of a bill therefor.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.
WITNESS: LANDLORD:
BLUE HILL PLAZA ASSOCIATES
By: BNB Associates Limited Partnership,
general partner
By: Blue Hill Corp., General Partner
By /s/
--------------------------------
WITNESS: TENANT:
LONG DISTANCE DIRECT, INC.
By /s/
--------------------------------
Tenant's Federal Tax Identification Number is _____________.
CORPORATE TENANT ACKNOWLEDGMENT
STATE OF NEW YORK )
: ss.:
COUNTY OF )
On this __________ day of _____________, 19__, before me, personally
came _______________________________________, to me known, who being duly sworn,
did depose and say that he resides in _______________________, to me known, who
being by me duly sworn, did depose and say that he resides in _________________,
City of __________________ State of _______________________, that he is the
_______________ of _________________ , the corporation described in and which
executed the foregoing Lease, as Tenant; and that he signed his name thereto by
order of the Board of Directors of said corporation.
-------------------
Notary Public
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INDIVIDUAL TENANT ACKNOWLEDGMENT
STATE OF NEW YORK )
: ss.:
COUNTY OF )
On this day of __________, 19__, before me, personally came ___________,
to me known, and known to me to be the individual described in and who executed
the foregoing Lease, as Tenant, and he duly acknowledged to me that he executed
the same.
-------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF )
On this day of __________, 19__, before me, personally came ___________,
to me known, and known to me to be the individual described in and who executed
the foregoing Lease, as Tenant, and to me acknowledged that he is a general
partner in the firm of BLUE HILL PLAZA ASSOCIATES, and that he executed the same
individually and as a general partner of said firm.
-------------------
Notary Public
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EXHIBIT A
FLOOR PLAN
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EXHIBIT A-1
PLOT PLAN OF PROPERTY
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EXHIBIT B
LANDLORD'S WORK AND TENANT'S WORK
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EXHIBIT C
ELECTRICITY OPTION
(a) If Landlord elects to supply electric current to the demised
premises, Tenant agrees that electric current will be supplied by Landlord and
Tenant will pay Landlord or Landlord's designated agent, as additional rent for
the supplying of electric current, the sum of (i) an amount computed by applying
Tenant's consumption and demand for the billing period in question (as measured
by the meter(s) installed in the demised premises for that purpose) to the rates
in Service Classification No.4 of Consolidated Edison Company of New York, Inc.
then in effect (or any successor rate classification pursuant to which Landlord
purchases electricity for the building of which the demised premises forms a
part), plus, (ii) fifteen (15) percent of such amount. Where more than one (1)
meter measures the service of Tenant in the building of which the demised
premises forms a part, the service rendered through each meter may be computed
and billed separately in accordance with the rates herein. Bills therefor shall
be rendered at such times as Landlord may elect and the amount, as computed from
a meter, shall be deemed to be, and be paid as, additional rent within twenty
(20) days of rendition thereof. If any tax is imposed on Landlord's receipt from
the sale or resale of electric energy or gas or telephone service to Tenant by
any federal, state or municipal authority, Tenant covenants and agrees that
where permitted by law, Tenant's pro rate share of such taxes shall be passed on
to, and included in the bill of, and paid by, Tenant to Landlord. In no event
shall the cost to Tenant for the supply of electric energy be less than 115% of
the aggregate cost to Landlord for the supply of electric energy to Tenant at
the demised premises (including any meter company charges, taxes, fuel
adjustment charges and other charges and expenses to which Landlord is subject).
If any meters or other equipment must be installed to furnish electric service
to the demised premises on a submetered basis, as herein provided, the same
shall be installed by Landlord at Tenant's expense, and Tenant shall pay
therefor within thirty (30) days after demand by Landlord.
(b) Landlord shall not be liable in any way to Tenant for any failure or
defect in the supply or character of electric energy, steam or other utilities
furnished to the demised premises by reason of any requirement, act or omission
of the public utility serving the Building with electricity or steam or other
utilities or for any other reason. Tenant's use of electric energy in the
demised premises shall not at any time exceed the capacity of any of the
electrical conductors, machinery and equipment in or otherwise serving the
demised premises. In order to ensure that such capacity is not exceeded and to
avert possible adverse effect upon the electric service in the Building, Tenant
agrees not to connect any additional electrical equipment, fixtures, machinery
or appliances of any type to the Building electric distribution system, other
than lamps, typewriters and other small office machines which consume comparable
amounts of electricity, without Landlord's prior written consent, which consent
shall not be unreasonably withheld. Any additional risers, feeders, or other
equipment proper or necessary to supply Tenant's electrical requirements, upon
written request of Tenant, will be installed by Landlord's, at the sole cost and
expense of Tenant, if, in Landlord's sole judgment, the same are necessary and
will not cause permanent damage or injury to the Building or the demised
premises, or cause or create a dangerous or hazardous condition or entail
excessive or unreasonable alterations, repair or expense or interfere with or
disturb other tenants or occupants.
(c) Landlord reserves the right to discontinue furnishing electric
energy to Tenant at any time upon sixty (60) days' written notice to Tenant, and
from and after the effective date of such termination, Landlord shall no longer
be obligated to furnish Tenant with electric energy, provided, however, that
such termination date may be extended for a time reasonably necessary for Tenant
to make arrangements to obtain electric service directly from the public utility
company servicing the
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Building. If Landlord exercises such right of termination, this lease shall
remain unaffected thereby and shall continue in full force and effect, and
thereafter Tenant shall diligently arrange to obtain electric service directly
from the public utility company servicing the Building, and may utilize the then
existing electric feeders, risers and wiring serving the demised premises to the
extent available and safely capable of being used for such purpose and only to
the extent of Tenant's then authorized connected load. Landlord shall be
obligated to pay no part of any cost required for Tenant's direct electric
service.
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EXHIBIT D
RULES AND REGULATIONS
1. The rights of each tenant in the entrances, corridors, elevators and
escalators servicing the Building are limited to ingress to and egress from such
tenant's premises for the tenant and its employees, licensees and invitees, and
no tenant shall use, or permit the use of, the entrances, corridors, escalators
or elevators for any other purpose. No tenant shall invite to the tenant's
premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, escalators, elevators and other facilities of the Building
by any other tenants. Fire exits and stairways are for emergency use only, and
they shall not be used for any other purpose by the tenants, their employees,
licensees or invitees. No tenant shall encumber or obstruct, or permit the
encumbrance or obstruction of any of the sidewalks, plazas, entrances,
corridors, escalators, elevators, fire exits or stairways of the Building.
Landlord reserves the right to control and operate the public portions of the
Building and the public facilities, as well as facilities furnished for the
common use of the tenants, in such manner as it in its reasonable judgment deems
best for the benefit of the tenants generally.
2. Landlord may refuse admission to the Building outside of Business
Hours on Business Days (as such terms are defined in the Lease to which this
Exhibit is attached) to any person not known to the watchman in charge or not
having a pass issued by Landlord or the tenant whose premises are to be entered
or not otherwise properly identified, and Landlord may require all persons
admitted to or leaving the Building outside of Business Hours on Business Days
to provide appropriate identification. Tenant shall be responsible for all
persons for whom it issues any such pass and shall be liable to Landlord for all
acts or omissions of such persons. Any person whose presence in the Building at
any time shall, in the judgment of Landlord, be prejudicial to the safety,
character or reputation of the Building or of its tenants may be denied access
to the Building or may be ejected therefrom. During any invasion, riot, public
excitement or other commotion, Landlord may prevent all access to the Building
by closing the doors or otherwise for the safety of the tenants and protection
of property in the Building.
3. No tenant shall obtain or accept for use in its premises ice,
drinking water, food, beverage, towel, barbering, bootblacking, floor polishing,
cleaning or other similar services from any persons reasonably prohibited in
writing from furnishing such services. Such services shall be furnished only at
such hours, and under such reasonable regulations, as may be fixed by Landlord
from time to time.
4. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with other
tenants, caused by tenant or its employees, agents, contractors, licensees or
invitees, shall be paid by such tenant.
5. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades or screens which are
different from the standards adopted by Landlord for the Building shall be
attached to or hung in, or used in connection with, any exterior window or door
of the premises of any tenant, without the prior written consent of Landlord.
Such curtains, blinds, shades or screens must be of a quality, type, design and
color, and attached in the manner approved by Landlord.
6. No lettering, sign, advertisement, notice or object shall be
displayed in or on the exterior windows or doors, or on the outside of any
tenant's premises,
47
<PAGE> 50
or at any point inside any tenant's premises where the same might be visible
outside of such premises, without the prior written consent of Landlord. In the
event of the violation of the foregoing by any tenant, Landlord may remove the
same without any liability, and may charge the expense incurred in such removal
to the tenant violating this rule. Interior signs, elevator cab designations and
lettering on doors and the Building directory shall, if and when approved by
Landlord, be inscribed, painted or affixed for each tenant by Landlord at the
expense of such tenant, and shall be of a size, color and style acceptable to
Landlord.
7. The sashes, sash doors, skylights, windows and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by any tenant, nor shall any
bottles, parcels or other articles be placed on the window sills or on the
peripheral air conditioning enclosures, if any.
8. No showcases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors or
vestibules.
9. No bicycles, vehicles, animals, fish or birds of any kind shall be
brought into or kept in or about the premises of any tenant or the Building.
10. No noise, including, but not limited to, music or the playing of
musical instruments, recordings, radio or television, which, in the judgment of
Landlord, might disturb other tenants in the Building, shall be made or
permitted by any tenant. Nothing shall be done or permitted in the premises of
any tenant which would impair or interfere with the use or enjoyment by any
other tenant of any other space in the Building.
11. No tenant, nor any tenant's contractors, employees, agents, visitors
or licensees, shall at any time bring into or keep upon the premises or the
Building any flammable, combustible, explosive or otherwise dangerous fluid,
chemical or substance.
12. No additional locks or bolts of any kind shall be placed, upon any
of the doors or windows in any tenant's premises and no lock on any door therein
shall be changed or altered in any respect. Additional keys for a tenant's
premises and toilet rooms shall be procured only from Landlord who may make a
reasonable charge therefor. Each tenant shall, upon the termination of its
tenancy, turn over to Landlord all keys of stores, offices and toilet rooms,
either furnished to, or otherwise procured by, such tenant, and in the event of
the loss of any keys furnished by Landlord, such tenant shall pay to Landlord
the cost thereof.
13. All removals, or the carrying in or out of any safes, freight,
furniture, packages, boxes, crates or any other object or matter of any
description must take place during such hours and in such elevators, and in such
manner as Landlord or its agent may determine from time to time. The persons
employed to move safes and other heavy objects shall be reasonably acceptable to
Landlord and, if so required by law, shall hold a Master's Rigger's license.
Arrangements will be made by Landlord with any tenant for moving large
quantities of furniture and equipment into or out of the Building. All labor and
engineering costs incurred by Landlord in connection with any moving specified
in this rule, including a reasonable charge for overhead and profit, shall be
paid by Tenant to Landlord, on demand.
14. Landlord reserves the right to inspect all objects and matter to be
brought into the Building and to exclude from the Building all objects and
matter which violate any of these Rules and Regulations or the lease of which
this Exhibit is a part. Landlord may require any person leaving the Building
with any package or other object or matter to submit a pass, listing such
package or object or matter,
48
<PAGE> 51
from the tenant from whose premises the package or object or matter is being
removed, but the establishment and enlargement of such requirement shall not
impose any responsibility on Landlord for the protection of any tenant against
the removal of property from the premises of such tenant. Landlord shall in no
way be liable to any tenant for damages or loss arising from the admission,
exclusion or ejection of any person to or from the premises or the Building
under the provisions of this Rule or of Rule 2 hereof.
15. No tenant shall occupy or permit any portion of its premises to be
occupied as an office for a public stenographer or public typist, or for the
possession, storage, manufacture, or sale of liquor, narcotics, dope, tobacco in
any form, or as a barber, beauty or manicure shop, or as a school. No tenant
shall use its premises or any part thereof or permit the same to be used, for
manufacturing or the sale at retail or auction of merchandise, goods or property
of any kind.
16. Landlord shall have the right to prohibit any advertising or
identifying sign by any tenant which, in Landlord's reasonable judgment, tends
to impair the reputation of the Building or its desirability as a building for
others, and upon written notice from Landlord, such tenant shall refrain from
and discontinue such advertising or identifying sign.
17. Landlord shall have the right to prescribe the weight and position
of safes and other objects of excessive weight, and no safe or other object
whose weight exceeds the lawful load for the area upon which it would stand
shall be brought into or kept upon any tenant's premises. If, in the judgment of
Landlord, it is necessary to distribute the concentrated weight of any heavy
object, the work involved in such distribution shall be done at the expense of
the tenant and in such manner as Landlord shall determine.
18. No machinery or mechanical equipment other than ordinary portable
business machines may be installed or operated in any tenant's premises without
Landlord's prior written consent which consent shall not be unreasonably
withheld or delayed, and in no case (even where the same are of a type so
excepted or as so consented to by Landlord) shall any machines or mechanical
equipment be so placed or operated as to disturb other tenants; but machines and
mechanical equipment which may be permitted to be installed and used in a
tenant's premises shall be so equipped, installed and maintained by such tenant
as to prevent any disturbing noise, vibration or electrical or other
interference from being transmitted from such premises to any other area of the
Building.
19. Landlord, its contractors, and their respective employees, shall
have the right to use, without charge therefor, all light, power and water in
the premises of any tenant while cleaning or making repairs or alterations in
the premises of such tenant.
20. No premises of any tenant shall be used for lodging or sleeping or
for any immoral or illegal purpose.
21. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of their regular duties, unless under
special instructions from Landlord.
22. Canvassing, soliciting and peddling in the Building are prohibited
and each tenant shall cooperate to prevent the same.
23. No tenant shall cause or permit any unusual or objectionable odors
to emanate from its premises which would annoy other tenants or create a public
or private nuisance. No cooking shall be done in the premises of any tenant
except as
49
<PAGE> 52
is expressly permitted in such tenant's lease.
24. Nothing shall be done or permitted in any tenant's premises, and
nothing shall be brought into or kept in any tenant's premises, which would
impair or interfere with any of the Building's services or the proper and
economic heating, cleaning or other servicing of the Building or the premises,
or the use or enjoyment by any other tenant of any other premises, nor shall
there be installed by any tenant any ventilating, air-conditioning, electrical
or other equipment of any kind which, in the reasonable judgment of Landlord,
might cause any such impairment or interference.
25. No acids, vapors or other materials shall be discharged or permitted
to be discharged into the waste lines, vents or flues of the Building which may
damage them. The water and wash closets and other plumbing fixtures in or
serving any tenant's premises shall not be used for any purpose other than the
purposes for which they designed or constructed, and no sweepings, rubbish,
rags, acids, or other foreign substances shall be deposited therein. All damages
resulting from any misuse of the fixtures shall be borne by the tenants who, or
whose servants, employees, agents, visitors, or licensees shall have, caused the
same. Any cuspidors or containers or receptacles used as such in the premises of
any tenant or for garbage or similar refuse, shall be emptied, cared for and
cleaned by and at the expense of such tenant.
26. All entrance doors in each tenant's premises shall be left locked
and all windows shall be left closed by the tenant when the tenant's premises
are not in use. Entrance doors shall not be left open at any time. Each tenant,
before closing and leaving its premises at any time, shall turn out all lights.
27. Hand trucks not equipped with rubber tires and side guards shall not
be used within the Building.
28. All windows in each tenant's premises shall be kept closed, and all
blinds therein above the ground floor shall be lowered as reasonably required
because of the position of the sun, during the operation of the Building
air-conditioning system to cool or ventilate the tenant's premises. If Landlord
shall elect to install any energy saving film on the windows of the premises or
to install energy saving windows in place of the present windows Tenant shall
cooperate with the reasonable requirements of Landlord in connection with such
installation and permit Landlord to have access to the tenant's premises at
reasonable times during Business Hours to perform such work.
29. Tenant shall not install any resilient tile or similar floor
covering in the Demised Premises except in such manner as may be approved by
Landlord.
30. Tenant's employees shall not loiter around the hallways, stairways,
elevators, front, roof or any other part of the Building used in common by the
occupants thereof.
31. If the Demised Premises become infested with insects or vermin,
Tenant, at its sole cost and expenses, shall cause the Demised Premises to be
exterminated, from time to time, to the satisfaction of Landlord, and shall
employ such exterminators therefor as shall be approved by Landlord.
32. Tenant shall not install nor permit to be installed any vending
machines.
33. No tenant shall cause unnecessary labor by reason of carelessness
and indifference to the preservation of good order and cleanliness in its
premises and in the Building.
50
<PAGE> 53
34. A directory on the first floor will be provided by Landlord, on
which the names of tenants will be placed by Landlord.
35. No tenant, or any employee of any tenant, shall go upon the roof of
the Building without the written consent of Landlord.
36. No article shall be fastened to or holes drilled or nails or screws
driven into the walls or partitions, nor shall the walls or partitions be
painted, papered or otherwise covered or in any way marked or broken, nor shall
any attachment be made to the electric-lighting wires of the Building for
storing of electricity, or for the running of motors or other purposes, nor
shall any tenant use any other method of heating than that provided by Landlord,
without the written consent of Landlord. No mechanic shall be allowed in or
about the Building other than those employed by the Managing Agent, without the
written consent of Landlord first having been obtained.
37. Landlord reserves the right rescind, alter or waive any role or
regulation at any time prescribed for the Building when, in its reasonable
judgment, it deems it necessary, desirable or proper for its best interest and
for the best interests of the tenants generally, and no alteration or waiver of
any rule or regulation in favor of one tenant shall operate as an alteration or
waiver in favor of any other tenant. Landlord shall not be responsible to any
tenant for the non-observance or violation by any other tenant of any of the
rules and regulations at any time prescribed for the Building.
51
<PAGE> 54
FIRST MODIFICATION OF LEASE
FIRST MODIFICATION OF LEASE dated the 1st day of Oct., 1994, between
BLUE HILL PLAZA ASSOCIATES, a New York limited partnership, having an address at
One Blue Hill Plaza, Pearl River, New York, 10965 (hereinafter called
"Landlord"), and LONG DISTANCE DIRECT, INC., a New York Corporation, having an
office at One Blue Hill Plaza, Pearl River, New York (hereinafter called
"Tenant").
WITNESSETH:
WHEREAS:
A. Landlord and Tenant have heretofore entered into a certain Lease,
dated March, 1993 (such Lease as the same may have been and may hereafter be
amended is hereinafter called the "Lease"), with respect to a portion of the
fourteenth (14th) floor (hereinafter called the "Old Demised Premises") in the
building (hereinafter called the "Building") known as One Blue Hill Plaza, Pearl
River, New York, for a term ending on March 31, 1998, or on such earlier date
upon which said term may expire or be terminated pursuant to any conditions or
limitations or other provisions of the Lease or pursuant to law;
B. The parties hereto desire to modify the Lease to provide for the
addition of certain premises and in certain other respects.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, the parties hereto hereby modify said Lease as follows:
1. All terms contained in this First Modification of Lease (the
"Agreement") shall, for the purposes hereof, have the same meaning ascribed to
them in the Lease.
2. All of the terms and conditions as are in effect as of
September 30, 1994, shall remain in full force and effect except that effective
as of October 1, 1994 (the "Adjustment Date") and for the remainder of the term
of the Lease, there shall be added to the Old Demised Premises the following
additional space on the fourteenth (14th) floor of the Building, to wit:
The portion of the fourteenth (14th) floor of the Building
substantially as shown hatched on the floor plan annexed hereto as Exhibit A
(the "Additional Space") (the Demised Premises, as referred to in the Lease,
shall be deemed to include the Old Demised Premises and the Additional Space for
all purposes except where either the specific term "Additional Space" or ""Old
Demised Premises" is referred to).
Landlord does hereby lease to Tenant and Tenant does hereby
hire from Landlord the Additional Space subject and subordinate to all superior
leases and superior mortgages as provided in the Lease and upon and subject to
all the covenants, agreements, terms, and conditions of the Lease as
supplemented by this First Modification of Lease.
3. The addition of the Additional Space as provided in Paragraph
3 hereof shall be on the same terms and conditions of the Lease as modified
hereby, except that effective as of the Adjustment Date and for the remainder of
the term of the Lease (as hereby modified):
(i) (a) The annual rental rate payable (the "Fixed Rent")
pursuant to Section 2.03 of the Lease shall be THIRTY-THREE THOUSAND EIGHT
HUNDRED SEVENTY-FOUR AND 50/100 ($33,874.50) DOLLARS per year, payable in equal
monthly installments of $2,822.88, during the period commencing on the
Adjustment
<PAGE> 55
Date and ending on the Expiration Date.
(b) Notwithstanding anything in Subparagraph (a) of this
Article 3(i) to the contrary, provided Tenant is not in default of any terms or
provisions of the Lease, the Fixed Rent attributable to the Additional Space
only shall be partially abated during the four (4) month period (the "Partial
Abatement Period") commencing on the Adjustment Date and ending January 31,
1995, so that, during this First Partial Abatement Period, Tenant shall pay
$256.63 per month. There shall be no abatements of rent in connection with the
Old Demised Premises and no further rent abatements in connection with the
Additional Space. Accordingly, Fixed Rent in accordance with the Lease, as
modified by this First Modification of Lease, shall be due and payable except as
specifically abated in this Article (3)(i)(b).
(ii) The amount that is included in the Fixed Rent and which
is allocable to Tenant's electric energy costs as set forth in Section 17.02 of
the Lease shall be increased by $3,079.50 per year, thereby increasing the
amount set forth in said Section 17.02 to $12,319.50 per year, which amount may
be subject to further adjustments in accordance with Article 17 of the Lease.
(iii) With respect to the definitions as set forth in Article
16 of the Lease as same relate only to the Additional Space as herein set forth,
it being understood that the escalations applicable to the Old Demised Premises
shall be calculated in accordance with the definitions as previously agreed to
as if this Agreement did not exist, the following definitions shall apply:
(A) The term "Operating Year" as set forth in Section 16.01(b) of the
Lease, for purposes of the Additional Space only, shall mean, "each calendar
year, subsequent to the calendar year 1996, in which occurs any part of the
Term."
(B) The term "Tenants Proportionate Share" as set forth in Section
16.01(c) of the Lease for purposes of the Additional Space only shall mean,
.19%.
(C) The term "Real Estate Tax Base" as set forth in Section 16.01(e)
of the Lease for purposes of the Additional Space only shall mean, the sum of
(a) the School Tax payable with respect to the Property for the period
commencing July 1, 1994 and ending June 30, 1995, and (b) one-half of the sum of
(x) the amount which is payable by Landlord for the State, County, and Town Tax
with respect to the Property for the period commencing January 1, 1994 and
ending December 31, 1994, and (y) the amount which is payable by Landlord for
the State, County and Town Tax with respect to the Property for the period
commencing January 1, 1995 and ending December 31, 1995 (as same may be reduced
by appropriate proceeding).
(D) The term "Base Year" as set forth in Section 16.08(a)(3) of the
Lease for purposes of the Additional Space only shall mean calendar year 1996.
(iv) Landlord and Tenant agree that all escalations as per
Article 16 of the Lease applicable to the Additional Space shall be computed in
accordance with the definitions and amended language as set forth in paragraph
(iii) of this Article 3. Notwithstanding, however, the escalations relating to
the Old Demised Premises shall be computed in accordance with the original
definitions and provisions as set forth in Article 16 of the Lease as if this
Agreement did not exist.
4. Tenant has inspected the Additional Space and agrees to accept
same in its "as is" condition and agrees further that Landlord shall have no
obligations to perform any work or incur any cost or expense in preparation for
Tenant's occupancy. In addition, Tenant is occupying the Old Demised Premises
and accepts same in its "as is" condition and agrees that Landlord shall have no
obligation to perform any work nor incur any cost or expense in preparation for
Tenant's continued occupancy.
5. Tenant shall deposit with Landlord the additional sum of
$5,645.00 as
<PAGE> 56
security deposit in connection with the Additional Space, so that the total
amount on deposit shall be $22,585.08 as security for the Demised Premises. This
deposit will be held as the Security Deposit applicable to the Demised Premises
in connection with the terms set forth in Article 40 of the Lease.
6. Tenant covenants, represents and warrants that Tenant has had
no dealings or communications with any broker or agent in connection with the
consummation of this Agreement other than Clifford Real Estate Services, Inc.
(who is representing Landlord) and Tenant covenants and agrees to pay, hold
harmless and indemnify Landlord from and against any and all costs, expense
(including reasonable attorney's fees) or liability for any compensation,
commissions or charges claimed by any other broker or agent with whom Tenant has
had dealings or communications with respect to this Agreement.
7. Except as modified by this Agreement, the Lease and all
covenants, agreements, terms and conditions thereof shall remain in full force
and effect and are hereby in all respects ratified and confirmed.
8. The covenants, agreements, terms and conditions contained in
this Agreement shall bind and inure to the benefit of the parties hereto and
their respective successors and, except as otherwise provided in the Lease as
hereby modified, to their respective assigns.
9. This Agreement may not be changed or terminated orally but only
by an Agreement in writing signed by the party against which enforcement of any
waiver, change, termination, modification or discharges is sought.
IN WITNESS WHEREOF, the parties hereto have executed the First Modification of
Lease as of the day and year first above written.
BLUE HILL PLAZA ASSOCIATES, Landlord
BY: BNB ASSOCIATES LIMITED PARTNERSHIP,
General Partner
BY: BLUE HILL CORP., General Partner
ATTEST:
/s/
- ------------------------- ----------------------------------------
ATTEST: LONG DISTANCE DIRECT, INC., Tenant
/s/ J. Kehoe /s/
- ------------------------- ----------------------------------------
J. Kehoe
<PAGE> 1
Exhibit 10.3
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Title Page
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
CONTRACT TARIFF NO. 2507
TITLE PAGE
This Contract Tariff applies to AT&T Software Defined Network Services
consisting of: AT&T Custom Software Defined Network Service, AT&T Global
Software Defined Network Service, AT&T Distributed Network Service, AT&T 800
Services consisting of: AT&T 800 Service-Domestic, AT&T 800 Service-Mexico,
AT&T 800 Service-Canada, AT&T 800 Service-Puerto Rico and the U.S. Virgin
Islands, AT&T 800 READYLINE Service-Domestic, AT&T 800 READYLINE
Service-Overseas, AT&T 800 READYLINE Service-Canada, AT&T 800 READYLINE
Service-Mexico, AT&T 800 READYLINE Service-Puerto Rico and the U.S. Virgin
Islands, AT&T MEGACOM 800 Service-Domestic, AT&T MEGACOM 800 Service-Overseas,
AT&T 800 MEGACOM Service-Mexico, AT&T 800 MEGACOM Service-Puerto Rico and the
U.S. Virgin Islands, AT&T 800 MEGACOM Service-Canada and AT&T Terrestrial 1.544
Mbps Local Channel Services for interstate or foreign communications in
accordance with the Communications Act of 1934, as amended.
Telecommunication services provided under this Contract Tariff are furnished by
means of wire, radio, satellite, fiber optics or any suitable technology or
combination of technologies.
<PAGE> 2
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Page 1
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
CONTRACT TARIFF NO. 2507
CHECK SHEET
The Title Page and Pages 1 through 15 inclusive of this tariff are effective as
of the date shown.
TABLE OF CONTENTS
Page
----
Check Sheet .......................................................... 1
List of Concurring, Connecting and Other Participating Carriers ...... 1
Explanation of Symbols - Coding of Tariff Revisions .................. 1
Trademarks and Service Marks ......................................... 2
Explanation of Abbreviations ......................................... 2
Contract Summary ..................................................... 3
LIST OF CONCURRING, CONNECTING AND OTHER PARTICIPATING CARRIERS
CONCURRING CARRIERS - NONE
CONNECTING CARRIERS - NONE
OTHER PARTICIPATING CARRIERS - NONE
EXPLANATION OF SYMBOLS - CODING OF TARIFF REVISIONS
Revisions to this tariff are coded through the use of symbols. These symbols
appear in the right margin of the page. The symbols and their meanings are:
R - to signify reduction.
I - to signify increase.
C - to signify changed regulation.
T - to signify a change in text but no change in rate or regulation.
S - to signify reissued matter.
M - to signify matter relocated without change.
N - to signify new rate or regulation.
D - to signify discontinued rate or regulation.
Z - to signify a correction.
Other marginal codes are used to direct the tariff reader to a footnote for
specific information. Codes used for this purpose are lower case letters of the
alphabet, e.g., x, y and z. These codes may appear beside the page revision
number in the page header or in the right margin opposite specific text.
<PAGE> 3
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Page 2
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
TRADEMARKS AND SERVICE MARKS - The following marks, to the extent, if any, used
throughout this tariff, are trademarks and service marks of AT&T Corp.
Trademarks Service Marks
---------- -------------
None ACCUNET
Gold
MEGACOM
READYLINE
EXPLANATION OF ABBREVIATIONS
Adm. - Administrator
IOCs - Inter Office Channels
kbps - kilobits per second
Mbps - Megabits per second
<PAGE> 4
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Page 3
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
CONTRACT TARIFF NO. 2507
1. SERVICES PROVIDED:
A. AT&T Software Defined Network (SDN) Services (AT&T Tariff F.C.C. No. 1)
consisting of:
1. Custom SDN
2. Global Software Defined Network (GSDN) Service
B. AT&T Distributed Network (DNS) Service (AT&T Tariff F.C.C. No. 1)
C. AT&T 800 Services (AT&T Tariff F.C.C. Nos. 2 and 14) consisting of:
1. AT&T 800 Service-Domestic
2. AT&T 800 Service-Mexico
3. AT&T 800 Service-Canada
4. AT&T 800 Service-Puerto Rico and the U.S. Virgin Islands
5. AT&T 800 READYLINE Service-Domestic
6. AT&T 800 READYLINE Service-Overseas
7. AT&T 800 READYLINE Service-Canada
8. AT&T 800 READYLINE Service-Mexico
9. AT&T 800 READYLINE Service-Puerto Rico and the U.S. Virgin Islands
10. AT&T MEGACOM 800 Service-Domestic
11. AT&T MEGACOM 800 Service-Overseas
12. AT&T MEGACOM 800 Service-Mexico
13. AT&T MEGACOM 800 Service-Puerto Rico and the U.S. Virgin Islands
14. AT&T MEGACOM 800 Service-Canada
D. AT&T Terrestrial 1.544 Mbps Local Channel Services (AT&T Tariff F.C.C. No.
11)
2. CONTRACT TERM; RENEWAL OPTIONS - For each of the Services Provided under
this Contract Tariff, the date on which the term of this Contract Tariff begins
is referred to as the Customer's Initial Service Date (CISD). For AT&T SDN,
AT&T DNS and AT&T 800 Services the term is four years and the CISD is the first
day of the Customer's first full billing cycle for each of these services under
this Contract Tariff. This Contract Tariff may be renewed for an additional one
year.
3. MINIMUM COMMITMENTS/CHARGES
A. AT&T SDN AND AT&T DNS SERVICES -
1. MINIMUM REVENUE COMMITMENTS - The following Minimum Semi-annual
Revenue Commitments (MSARCs) and Minimum Annual Revenue Commitments (MARCs)
apply to the AT&T SDN and DNS Services provided under this Contract Tariff. Of
the MSARCs for Domestic and International Services, the amounts specified in
Section 3.A.1.(b), following, must be from New Business Locations. If the
Customer elects to renew for 1 year, the Customer will have the same
requirements as year 4 but will not be eligible for the credits specified in
6.C.1.(h) through (k).
<PAGE> 5
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Page 4
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
3.A.1. MINIMUM REVENUE COMMITMENTS (CONTINUED)
a) AT&T SDN AND DNS SERVICES - The SDN and DNS MSARCs for domestic and
international AT&T SDN Service Direct Dial (1+) and AT&T DNS Service Direct Dial
(1+) usage charges, after the application of the discounts specified in Section
5.B. and the credits specified in Sections 6.C.1.(b), (c) and (d) following, and
prior to the application of the discounts specified in Section 5.A. and credits
in Section 6.C.1.(h), (i), (j) and (k) is $2,400,000 for each successive
semi-annual period of the Contract Tariff Term and the combined SDN and DNS MARC
is $4,800,000 per year and must be satisfied by SDN and DNS qualified usage.
If the Customer fails to meet the AT&T SDN and DNS Services MSARC in any
semi-annual period of the Contract Tariff term, the Customer will be billed a
shortfall charge equal to the difference between the AT&T SDN and DNS Services
MSARC and the actual billed charges that apply to satisfy the SDN and DNS MSARCs
for that semi-annual period, excluding shortfall charges. The shortfall charge
shall be calculated after the completion of each semi-annual period during the
term of this Contract Tariff and billed the following month. On each anniversary
of the CISD, if the Customer's actual AT&T SDN and DNS usage charges for the
preceding year, excluding any shortfall charges, meets the AT&T SDN and DNS MARC
in the preceding year, then any AT&T SDN and DNS MSARC shortfall charge applied
for the preceding year will be applied as a credit to the next full billing
month following the anniversary of the CISD. If the credit exceeds the amount of
the final bill, the amount in excess will be refunded to the Customer. If the
Customer fails to meet the AT&T SDN and DNS MSARC in any semi-annual period of
the Contract Tariff term, the Customer will be ineligible for any credits listed
in Section 6.C.1.(h) through (k) following, for that period.
b) NEW BUSINESS USAGE - The New Business MSARC is $240,000 for each
successive semi-annual period, and the New Business MARC is $480,000 per year,
and must be satisfied by DNS Service Direct Dial (1+) usage charges from New
Business Locations and SDN Service Direct Dial (1+) usage charges rated under
Rate Schedules B and B-PV from New Business Locations, after the application of
the discounts specified in Section 5.B.1.(a), 2.(a), 3.(a) and the credits
specified in Section 6.C.1.(b), following, and prior to the application of the
discounts specified in Section 5.A.1. and credits in Sections 6.C.1.(h) and (i)
following. With respect to DNS provided under this Contract Tariff, New Business
Locations are 1) locations that are converted to DNS under this Contract Tariff
at which, during the 180 days prior to conversion, AT&T was not the
presubscribed
<PAGE> 6
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs 1st Revised Page 5
Bridgewater, NJ 08807 Cancels Original Page 5
Issued: September 1, 1995 Effective: September 8, 1995
** All material on this page is reissued unless otherwise noted **
3.A.1. MINIMUM REVENUE COMMITMENTS (CONTINUED)
Primary Interexchange Carrier (PIC) for more than 50% of the switched
access lines converted; or 2) existing DNS locations which the Customer Cx
informs AT&T are to be treated as New Business Locations at the CISD or no ..
later than 30 days after the CISD provided that the combined discounted DNS
usage charges for all such identified DNS locations, during the three full ..
billing months prior to the date the CISD, did not exceed $120,000.00. Cx
With respect to SDN Service provided under this Contract Tariff, a New
Business Location is a location that was converted to SDN Service under
this Contract Tariff at which, during the 180 days prior to conversion,
AT&T was not the Interexchange Carrier for any of the lines converted.
Except as provided for above with respect to DNS, locations that were
included on the Customer's DNS or SDN networks prior to the Customer
ordering service under this Contract Tariff may not be considered New
Business Locations. If the Customer fails to meet the New Business MSARC
in any semi-annual period of the Contract Tariff Term, the Customer will
be billed a shortfall charge equal to the difference between the New
Business MSARC and the actual billed charges that are to satisfy New
Business for that semi-annual period. On each anniversary of the CISD,
if the Customer's actual New Business DNS usage meets the New Business
DNS MARCs for the previous year, then any New Business DNS shortfall
charge applied for the preceding year will be applied as a credit to the
next full billing month following the anniversary of the CISD.
B. AT&T 800 SERVICES - The 800 Service Minimum Semi-Annual Revenue
Commitment (MSARC) is $600,000 for each successive semi-annual period of the
Contract Tariff term and must be satisfied by AT&T 800 Services usage charges,
after application of the AT&T 800 Services discounts specified in Section 5.C.
If the Customer fails to meet the 800 Services MSARC in any semi-annual period
of the Contract Tariff term, the Customer will be billed a shortfall charge
equal to the difference between the 800 Services MSARC and the actual billed
charges for that semi-annual period.
If the Customer fails to meet the 800 Services MSARC in any semi-annual period
of the Contract Tariff term, the Customer will be ineligible for any credits
listed in Section 6.C.2.(c) and (d) following for that period.
MATERIAL FILED UNDER CONTRACT TARIFF TRANSMITTAL NO. 3903 IS SCHEDULED TO
BECOME EFFECTIVE ON SEPTEMBER 8, 1995.
X ISSUED ON NOT LESS THAN FIVE DAYS' NOTICE UNDER AUTHORITY OF SPECIAL
PERMISSION NO. 93-86
<PAGE> 7
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Page 6
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
4. CONTRACT PRICE
A. AT&T SDN SERVICES
1. The Contract Price for the AT&T SDN Service provided under this Contract
Tariff is the same as the undiscounted Recurring and Nonrecurring Rates and
Charges specified in AT&T Tariff F.C.C. No. 1, as amended from time to time.
B. AT&T DNS SERVICES
1. The Contract Price for the AT&T DNS Service provided under this Contract
Tariff is the same as the undiscounted Recurring and Nonrecurring Rates and
Charges specified in AT&T Tariff F.C.C. No. 1, as amended from time to time.
C. AT&T 800 SERVICES
1. The Contract Price for the AT&T 800 Services provided under this Contract
Tariff is the same as the undiscounted Recurring and Nonrecurring Rates and
Charges specified in AT&T Tariff F.C.C. Nos. 2 and 14, as amended from time to
time.
D. AT&T LOCAL CHANNEL SERVICES
1. The Contract Price for the AT&T Local Channel Services provided under this
Contract Tariff is the same as the undiscounted Recurring and Nonrecurring Rates
and Charges specified in AT&T Tariff F.C.C. No. 11, as amended from time to
time.
5. DISCOUNTS - The following discounts are the only discounts for the Services
Provided under this Contract Tariff. No other discounts apply.
A. AT&T SDN SERVICES
1. DOMESTIC SDN DIRECT DIAL SERVICE
(a) BASE DISCOUNTS - AT&T will apply the following discounts to the monthly
usage charges for domestic Direct Dial SDN usage charges, as specified below, in
lieu of and in the same method as the SDN Term and Volume Plan (TVP) as
specified in AT&T Tariff F.C.C. No. 1:
<TABLE>
<CAPTION>
SDN Total Monthly Usage Charges Discount
---------------------------------------------- --------
<S> <C> <C> <C>
on amounts above $0 to $15,000.00 0%
on amounts above $15,000.00 to $30,000.00 17%
on amounts above $30,000.00 to $300,000.00 29%
on amounts above $300,000.00 to $800,000.00 32%
on amounts over $800,000.00 0%
</TABLE>
<PAGE> 8
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Page 7
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
5.A. AT&T SDN SERVICES (CONTINUED)
2. DOMESTIC INTERSTATE SDN DIRECT DIAL SERVICE
(a) ADDITIONAL DISCOUNTS - AT&T will apply an additional 3% discount to the
monthly domestic interstate SDN Direct Dial (1+) usage charges on amounts up to
$600,000.00 excluding Calling Card and Software Defined Data Network (SDDN)
usage, after the application of the discount specified in Section 5.A.1.(a),
preceding.
3. SDN INTERNATIONAL CALLING CAPABILITY
(a) BASE DISCOUNTS - AT&T will apply the following discounts to the monthly
usage charges for SDN International Calling Capability usage charges, as
specified below:
<TABLE>
<CAPTION>
SDN Total Monthly Usage Charges Discount
--------------------------------------------------- --------
<S> <C> <C>
on amounts above $0 to $10,000.00 0%
on amounts above $10,000.00 to $20,000.00 5%
on amounts above $20,000.00 to $30,000.00 10%
on amounts above $30,000.00 to $300,000.00 12.5%
on amounts above $300,000.00 to $500,000.00 15%
on amounts over $500,000.00 0%
</TABLE>
B. AT&T DNS SERVICES
1. DOMESTIC DNS NEW BUSINESS DISCOUNT
(a) BASE DISCOUNTS - All domestic interstate DNS Direct Dial (1+) usage
charges from New Business Locations will receive a discount of 14%, which will
be applied on a per call basis, prior to the application of any other discounts.
2. DOMESTIC DNS DISCOUNTS
(a) BASE DISCOUNTS - The following discounts will be applied monthly to
domestic DNS Direct Dial (1+) usage charges, after the application of the
discount in Section 5.B.1.(a), preceding, if applicable.
0% discount on the amounts between $0 and $10,000.00
10% discount on the amounts between $10,000.00 and $20,000.00
29% discount on the amounts between $20,000.00 and $1,000,000.00
0% discount on the amounts over $1,000,000.00
<PAGE> 9
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Page 8
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
5.B. AT&T DNS SERVICES (CONTINUED)
3. INTERNATIONAL DNS DISCOUNTS
(a) BASE DISCOUNTS - The following discounts apply to the Customer's monthly
international DNS Direct Dial (1+) usage charges:
0% discount on the amounts between $0 and $5,000.00
12% discount on the amounts between $5,000.01 and $15,000.00
16% discount on the amounts between $15,000.01 and $60,000.00
18% discount on the amounts between $60,000.01 and $200,000.00
20% discount on the amounts between $200,000.00 and $400,000.00
0% discount on the amounts over $400,000.00
The discounts in 5.B.2.(a), and 5.B.3.(a), preceding, shall be determined
using the Method of Determining Discount for DNS, as specified in AT&T Tariff
F.C.C. No. 1.
C. AT&T 8OO SERVICES
1. BASE DISCOUNTS
(a) The Customer will receive a 23% discount on all AT&T 800 Services usage
charges.
(b) The Customer will receive the same monthly discounts as the Revenue
Volume Pricing Plan (RVPP).
6. CLASSIFICATIONS, PRACTICES AND REGULATIONS
A. Except as otherwise provided in this Contract Tariff, the rates and
regulations that apply to the Services Provided specified in Section 1. are as
set forth in the AT&T tariffs that are referenced in Section 1., as such tariffs
are amended from time to time.
B. MONITORING CONDITIONS - The Customer must satisfy the following Service
Requirements which will be monitored on each monthly, semi-annual and annual
anniversary of the CISD, as required, or at the time the Customer elects to
discontinue without liability pursuant to Section 6.D.
1. AT&T SDN AND AT&T DNS SERVICES
(a) During each month of the term of this Contract Tariff no more than 50%
of the total switched access lines used to provide DNS under this Contract
Tariff at a New Business Location may be lines for which AT&T was the
presubscribed Primary Interexchange Carrier during the 180 days prior to the
conversion to DNS under this Contract Tariff. Compliance will be monitored at
the end of each month. This monitoring condition does not apply to locations
identified by the Customer as New Business Locations pursuant to Section
3.A.1.(b)(2) preceding.
<PAGE> 10
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Page 9
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
6.B.1. AT&T SDN AND AT&T DNS SERVICES (CONTINUED)
(b) During the first year, no more than 50% of the Customer's usage from
locations added after the CISD for DNS and SDN Service, provided under this
Contract Tariff, can be domestic AT&T SDN Services Direct Dial (1+) usage.
(c) During each semi-annual period in the second year, no more than 40% of
the usage from locations added during that year for DNS and SDN Service,
provided under this Contract Tariff, can be domestic AT&T SDN Services Direct
Dial (1+) usage in the preceding semi-annual period. Compliance will be
monitored at the end of the 18th and 24th months of the Contract Tariff Term.
(d) During each semi-annual period after the second year, no more than 20% of
the Customer's usage from locations added during each year for DNS and SDN
Service, provided under this Contract Tariff, can be domestic AT&T SDN Services
Direct Dial (1+) usage in the preceding semi-annual period. Compliance will be
monitored at the end of the 30th, 36th, 42nd, 48th and 54th months of the
Contract Tariff Term.
If the Customer fails to satisfy the Monitoring Condition in Section 6.B.1.(a)
for any New Business Location, such location shall thereafter no longer qualify
as a New Business Location and the discount and credits specified in Section
5.B.1.(a), preceding and 6.C.1.(b) and (h), following, will no longer apply
with respect to that location for the remainder of the Contract Tariff Term.
If the Customer fails to satisfy the Monitoring Conditions in 6.B.1.(b), (c) or
(d), the Customer will be billed an amount equal to all discounts, specified in
Section 5., preceding and the credits specified in Sections 6.C.1.(b) through
(d) and (h) through (k) following, applied for the preceding 12 month period if
the monitoring conditions were not satisfied in year 1, or semi-annual period if
the monitoring conditions were not met in years two through 4, and if
applicable, year 5.
2. AT&T 800 SERVICES - NONE
C. PROMOTIONS, CREDITS AND WAIVERS
The Customer is ineligible for any promotions, credits or waivers for the
Services Provided under this Contract Tariff, which are filed or which may be
filed in the AT&T tariffs specified in Section 1.
<PAGE> 11
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs 1st Revised Page 10
Bridgewater, NJ 08807 Cancels Original Page 10
Issued: July 19, 1995 Effective: July 28, 1995
** All material on this page is reissued unless otherwise indicated. **
6.C. PROMOTIONS, CREDITS AND WAIVERS (CONTINUED)
The following credits and waivers will be applied to the Customer's bill for the
Services Provided under this Contract Tariff. If the sum of all credits
applicable in the final month of the Contract Tariff term exceeds the amount of
the Customer's final bill, the amount in excess will be refunded to the
Customer. If at the end of the Contract Tariff term the Customer has not fully
used any or all of the waiver(s) specified in this Section, the residual value
of any such waiver(s) will be set to zero and will not be applied to any other
AT&T services.
1. AT&T SDN AND AT&T DNS SERVICES
(a) CARRIER CHANGE CHARGE CREDIT - AT&T will reimburse the Customer up to a
maximum of $5.00, not to exceed $5,000, each month during the term of this
Contract Tariff, for the Local Exchange Company (LEC) carrier change charge for
each switched access line that the Customer converts from another Interexchange
Carrier used to access AT&T DNS and SDN Services provided under this Contract
Tariff.
(b) DOMESTIC DNS NEW BUSINESS CREDIT - AT&T will apply a credit to the
Customer's DNS bill, for domestic interstate DNS Direct Dial (1+) usage charges
from New Business Locations in the billing month following the initial
application of the discounts in Sections 5.B.1.(a) and 5.B.2.(a), preceding,
in an amount equal to the difference between: a) the Customer's total
undiscounted domestic interstate DNS Direct Dial (1+) usage charges from New
Business locations for the preceding month multiplied by 38.8% and b) the
previously applied DNS Discounts under Sections 5.B.1.(a) and 5.B.2.(a),
above, for such usage in that month.
(c) DOMESTIC DNS CREDIT - AT&T will apply a credit to the Customer's DNS
bill, for domestic interstate DNS Direct Dial (1+) usage charges that did not
qualify as New Business Locations in the billing month following the initial
application of the discounts in Section 5.B.2.(a), preceding, in an amount
equal to the difference between: a) the Customer's total undiscounted domestic
interstate DNS Direct Dial (1+) usage charges
from locations that did not qualify as New Business Locations for the Cx
preceding month multiplied by 33.3% and b) the previously applied Domestic DNS
Discounts under Section 5.B.2.(a), above, for such usage in that month.
(d) INTERNATIONAL DNS CREDIT - AT&T will apply a credit equal to 7% of the
Customer's discounted international DNS Direct Dial (1+) billed usage charges.
This credit will be applied to the Customer's DNS bill in the billing month
following the month in which the discounted monthly international DNS Direct
Dial (1+) usage charges were billed.
x ISSUED ON NOT LESS THAN 5 DAYS' NOTICE UNDER AUTHORITY OF SPECIAL PERMISSION
NO. 93-86. MATERIAL FILED UNDER CONTRACT TARIFF TRANSMITTAL NO. 3903 IS
SCHEDULED TO BECOME EFFECTIVE ON JULY 28, 1995.
<PAGE> 12
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Page 11
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
6.C.1. AT&T SDN AND AT&T DNS SERVICES (CONTINUED)
(e) AT&T will waive the Nonrecurring Installation Charge for one AT&T SDN
Database Partition.
(f) AT&T will waive the AT&T DNS Service Establishment Charge for one DNS
Network.
(g) AT&T will waive the Nonrecurring Installation Charges for AT&T
Terrestrial 1.544 Mbps Local Channels and Voice Grade Local Channels and the
associated Access Coordination Functions, not to exceed 10, ordered within 180
days after the Customer's initial Service Date and installed within 30 days
after the date ordered, provided that such Local Channels are not connected
through an Office Function. Such Local Channels and Access Coordination
Functions must remain installed for a minimum of 12 months. If this requirement
is not met, the Customer will be billed the amount waived at the time of
discontinuance or at the time an Office Function is provided.
(h) DNS BONUS NEW BUSINESS USAGE CREDIT - For each semi-annual period during
the term of this Contract Tariff, the Customer will receive a credit, which will
be applied to the Customer's DNS bill in the second month following the end of
the semi-annual period, in an amount, not less than zero, equal to: (a) the
billed monthly usage charges for the semi-annual period from the New Business
Locations for domestic interstate direct dial (1+) DNS calling under this
Contract Tariff after the application of the discounts in Sections 5.B.1.(a)
and 5.B.2.(a) and the credit in Section 6.C.2.(b), preceding, minus (b) the
number of billed minutes for domestic interstate direct dial (1+) calling from
New Business Locations during that semi-annual period multiplied by $0.1290. If,
in any semi-annual period during the term of the Contract Tariff, the Customer
meets or exceeds 130% of the New Business Usage MSARCs in Section 3.A.1.
preceding after the application of the discounts in Sections 5.B.1.(a) and
5.B.2.(a) and the credit in Section 6.C.2.(b), then this credit will be
calculated by multiplying by $0.1250 in lieu of $0.1290, above. If, in any
semi-annual period during the term of the Contract Tariff, the Customer meets or
exceeds 150% of the New Business Usage MSARCs in Section 3.A.1. preceding after
the application of the discounts in Sections 5.B.1.(a) and 5.B.2.(a) and the
credit in Section 6.C.2.(b), then this credit will be calculated by multiplying
by $0.1210 in lieu of $0.1290.
(i) DNS BONUS USAGE CREDIT - For each semi-annual period during the term of
this Contract Tariff, the Customer will receive a credit, which will be applied
to the Customer's DNS bill in the second month following the end of the
semi-annual period, in an amount, not less than zero, equal to: (a) the billed
monthly usage charges for the semi-annual period from locations other than New
Business Locations for domestic interstate direct dial (1+) DNS calling under
this Contract Tariff after the application of the discounts in Section
5.B.2.(a) and the credit in Section 6.C.2.(c), preceding, minus (b) the number
of billed minutes for domestic interstate direct dial (1+) DNS calling from
locations other than New Business Locations calling during that semi-annual
period multiplied by $0.1420.
<PAGE> 13
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs 1st Revised Page 12
Bridgewater, NJ 08807 Cancels Original Page 12
Issued: September 1, 1995 Effective: September 8, 1995
** All material on this page is reissued unless otherwise noted **
6.C.2. AT&T SDN AND AT&T DNS SERVICES (CONTINUED)
(j) SDN BONUS USAGE CREDIT - For each semi-annual period during the term of
this Contract Tariff, the Customer will receive a credit, which will be applied
to the Customer's SDN bill in the second month following the end of the
semi-annual period, in an amount, not less than zero, equal to: (a) the billed
monthly usage charges for the semi-annual period for domestic interstate direct
dial (1+) SDN Schedule A Usage after the application of the discounts in
Sections 5.A.1.(a) and 5.A.2.(a), preceding, minus (b) the number of billed
minutes for domestic interstate direct dial (1+) SDN Schedule A Usage calling
during that semi-annual period multiplied by $0.1460.
(k) SDN BONUS USAGE CREDIT - For each semi-annual period during the term of
this Contract Tariff, the Customer will receive a credit, which will be applied
to the Customer's SDN bill in the second month following the end of the
semi-annual period, in an amount, not less than zero, equal to (a) the billed
monthly usage charges during the semi-annual period for domestic interstate
direct dial (1+) SDN Schedule B Usage after the application of the discounts in
Sections 5.A.1.(a) and 5.A.2.(a) , preceding, minus (b) the number of billed
minutes for domestic interstate direct dial (1+) SDN Schedule B Usage calling
during that semi-annual period multiplied by $0.1020.
(l) AT&T will apply a credit of $15,000 to the Customer's SDN bill in Nx
the 7th full billing month following the CISD provided the Customer has met ..
the MSARCs as specified in Section 3., preceding, for the preceding 6-month ..
period. Nx
2. AT&T 800 SERVICES
(a) AT&T will waive the nonrecurring installation charges for all 800 numbers
that are converted to AT&T 800 Services under this Contract Tariff and that
were not served by AT&T during the 90-day period prior to conversion to AT&T 800
Service under this Contract Tariff, when these numbers (a) are ordered and
installed within the first 24 months after the Customer's subscription to this
Contract Tariff, and (b) remain in service for a period of not less than 12
months. If the Customer discontinues any of these 800 Numbers prior to the end
of the 12 month period, the Customer will be billed for the associated waived
nonrecurring charges.
MATERIAL FILED UNDER CONTRACT TARIFF TRANSMITTAL NO. 3903 IS SCHEDULED TO BECOME
EFFECTIVE ON SEPTEMBER 8, 1995.
x ISSUED ON NOT LESS THAN FIVE DAYS' NOTICE UNDER AUTHORITY OF SPECIAL
PERMISSION NO. 93-86
<PAGE> 14
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Page 13
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
6.C.2. AT&T 800 SERVICES (CONTINUED)
(b) A non-recurring charge of $100 per location applies for each 800 number
that is transferred to this Contract Tariff from a CSTP II. AT&T will waive this
charge for the first 10 locations moved from a CSTP II to this Contract Tariff.
(c) AT&T 800 READYLINE SERVICES USAGE CREDIT - For each semi-annual period
during the term of this Contract Tariff, the Customer will receive a credit,
which will be applied to the Customer's AT&T 800 Service bill in the second
month following the end of the semi-annual period review period, in an amount,
not less than zero, equal to: (a) the billed monthly usage charges for the
semi-annual period for domestic interstate AT&T READYLINE 800 usage after the
application of the discounts in Sections 5.C.1.(a) and 5.C.1.(b) preceding,
minus (b) the number of billed minutes for domestic interstate AT&T READYLINE
800 switched usage for that semi-annual period multiplied by $0.1880.
(d) AT&T MEGACOM 800 SERVICES USAGE CREDIT - For each semi-annual period
during the term of this Contract Tariff, the Customer will receive a credit,
which will be applied to the Customer's AT&T MEGACOM 800 Service bill in the
second month following the end of the semi-annual period, in an amount, not less
than zero, equal to: (a) the billed monthly usage charges for the semi-annual
period for domestic interstate AT&T MEGACOM 800 Services usage after the
application of the discounts in Sections 5.C.1.(a) and 5.C.1.(b), preceding,
minus (b) the number of billed minutes for domestic interstate AT&T MEGACOM 800
Services usage for that semi-annual period multiplied by $0.1610.
D. DISCONTINUANCE - In lieu of any Discontinuance With or Without Liability
provisions that are specified in the AT&T Tariffs referenced in Section 1., the
following provisions shall apply.
The Customer may discontinue this Contract Tariff prior to the end of the
Contract Tariff Term, provided the Customer replaces this Contract Tariff with
other newly subscribed AT&T services applicable to Contract Tariffs or another
newly subscribed AT&T Contract Tariff for the Services Provided under this
Contract Tariff, with equal or greater volume or revenue commitments and with a
term equal to or greater than the remaining term. The Customer will be billed an
amount equal to the difference between (1) the AT&T SDN and DNS Services MSARCs
specified in Section 3. for the Semi-Annual Period in which the Customer
discontinues, divided by 6, times the number of months the Customer was in this
Contract Tariff that Semi-Annual Period and (2) the actual undiscounted SDN and
DNS Services charges incurred for that Semi-Annual Period. The Customer will
also be billed an amount equal to the difference between (1) the AT&T 800
Services MSARCs specified in Section 3. for the Semi-Annual Period in which the
Customer discontinues, divided by 6, times the number of months the Customer was
in this Contract Tariff that Semi-Annual Period and (2) the actual discounted
AT&T 800 Services charges incurred for that Semi-Annual Period.
<PAGE> 15
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Page 14
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
6.D. DISCONTINUANCE - (CONTINUED)
If the Customer discontinues this Contract Tariff for any reason other than
specified above prior to the expiration of the Contract Tariff Term, Termination
Charges will apply. The Termination Charge for AT&T SDN and DNS Services will be
an amount equal to the unsatisfied MSARCs for the Semi-Annual Period in which
the Customer discontinues and the MSARCs for each Semi-Annual Period remaining
in the Contract Tariff Term. The Termination Charge for AT&T 800 Services will
be an amount equal to 50% of the unsatisfied MSARC for the Semi-Annual Period in
which the Customer discontinues and the MSARC for each Semi-Annual Period
remaining in the Contract Tariff Term.
In addition, if the Customer discontinues this Contract Tariff for any reason
prior to the expiration of the Contract Tariff term, the Customer will be billed
an additional Termination Charge. The initial amount of the additional
Termination Charge shall be equal to $1,495,000. If the Customer discontinues
this Contract Tariff in the second year of the Contract Tariff term, the
additional Termination Charge, will be reduced by $373,750.00. If the Customer
discontinues this Contract Tariff in the third year of the Contract Tariff term,
the additional Termination Charge, will be reduced by $747,500.00. If the
Customer discontinues this Contract Tariff in the fourth year of the Contract
Tariff term, or if applicable the fifth year, no additional Termination Charge
will apply.
6.E. OTHER REQUIREMENTS
1. DNS BILLING GUARANTEE - AT&T guarantees that it will bill Customers for 99%
of DNS calls, excluding DNS Card Calls, within 90 days after the date the call
is placed. The billing date is the date on the Customer's regular monthly DNS
bill. The guarantee does not apply to rebilling of calls that were previously
billed but not paid for.
2. PAYMENT OF CHARGES - In addition to the provisions specified in AT&T Tariff
F.C.C. No. 1 for Payment of Charges, all payments for bills rendered to the
Customer are due within 30 days after the bill date. If payment is not received
within five days after the due date, AT&T will, upon five days prior written
notice, not provision any new orders for SDN or DNS locations provided under
this Contract Tariff until payment is received. In the event that AT&T stops
provisioning pursuant to this provision, the Customer nonetheless will remain
liable to fulfill all commitments under this Contract Tariff. If the services
provided under this Contract Tariff are disconnected as the result of the
Customer's failure to pay the bill and/or required deposit, the Customer will be
deemed to have discontinued with liability and will be subject to the provisions
in Section 6.D. preceding. The Termination Charge described in Section 6.D.
preceding, will apply in addition to all charges due for services provided
through the date of disconnection.
3. The Customer will receive a single monthly bill for the AT&T SDN Service
provided under this Contract Tariff, regardless of the number of Customer
Premises on the network, for the duration of the Contract Tariff term.
<PAGE> 16
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 2507
Adm. Rates and Tariffs Original Page 15
Bridgewater, NJ 08807
Issued: July 14, 1995 Effective: July 28, 1995
** All material on this page is new. **
6. CLASSIFICATIONS, PRACTICES AND REGULATIONS (CONTINUED)
F. AVAILABILITY - This Contract Tariff has been developed for Customers who: 1)
had an existing AT&T SDN Service Term Plan within the previous 12-month period
prior to the Customer ordering service under this Contract Tariff or, 2) had
existing AT&T DNS Service within the 6-month period prior to the Customer
ordering service under this Contract Tariff and 3) are current in payment to
AT&T at the time of ordering service under this Contract Tariff, for all AT&T
tariffed telecommunications services. This Contract Tariff is available to any
similarly situated Customer who orders service within 90 days after the
effective date of this Contract Tariff for initial installation of the Services
Provided under this Contract Tariff within 30 days after the date ordered.
<PAGE> 17
[AT&T LOGO]
CONTRACT TARIFF ORDER FORM
CUSTOMER AT&T
-------- ----
1. NAME: Long Distance Direct, Inc. 7. STREET: 55 Corporate Drive
2. STREET: 1 Blue Hill Plaza 8. CITY: Bridgewater
3. CITY: Pearl River, NY 10965 9. STATE & ZIP: NJ 08807
4. STATE & ZIP: 10. ATT'N: Mr. Tom Umholtz
5. ATT'N: Mr. Steve Lampert
1. CUSTOMER hereby orders and AT&T agrees to provide communications services
(the "Services") pursuant to a Contract Tariff ("CT"), which AT&T will file with
the FCC consistent with the attached tariff pages. The Services will be provided
in accordance with the rates, terms and conditions described in the CT and,
except as provided in the CT, the rates, terms and conditions in Applicable
Tariffs pertaining to the Services. Applicable Tariffs are the AT&T tariffs
referenced in the CT, as such tariffs may be revised from time to time.
2. CUSTOMER may, as its sole remedy, cancel its order without liability before
the CT becomes effective if, without the consent of Customer: (a) AT&T fails to
file the CT within thirty (30) days after the effective date of this Agreement;
(b) the CT as filed is not consistent with the attached tariff pages; or (c) the
CT does not go into effect within 120 days after filing. In no event, however,
shall CUSTOMER have a right to cancel its order under this Section for any
condition that is caused by CUSTOMER.
3. CUSTOMER may be required to pay a deposit or advance payment before service
is provided pursuant to the terms of the CT and the Applicable Tariffs. If
CUSTOMER fails to pay any such required deposit or advance payment within 30
days after AT&T's request for such payment, CUSTOMER will be deemed to have
canceled this order.
4. In the event of any inconsistency between the terms of any Applicable
Tariff and the CT, the terms of the CT shall prevail. In the event of any
inconsistency between the terms of this Agreement and any Applicable Tariff or
the CT, the terms of the Applicable Tariff or the CT shall prevail. Nothing
contained in this Agreement shall require AT&T to take any action prohibited or
omit to take any action required by the FCC or any other regulatory authorities.
5. EXCEPT FOR ANY WARRANTIES EXPRESSLY MADE IN THE CT OR THE APPLICABLE
TARIFFS, AT&T EXCLUDES ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. AT&T'S LIABILITY TO CUSTOMER IS SUBJECT TO THE LIMITATIONS
STATED IN THE CT AND APPLICABLE TARIFFS.
6. This Agreement shall be governed by the law of the State of New York
(excluding its choice of law principles), or applicable federal statues.
7. If any provision of the CT is held to be invalid or unenforceable, then
AT&T and CUSTOMER shall cooperate to develop a mutually agreeable replacement
for such provision. If the parties are unable to reach agreement on a
replacement for the CT provision within 30 days after the provision is held to
be invalid or unenforceable (or within such additional time as the parties agree
in writing), then this Agreement shall be immediately terminated. CUSTOMER shall
remain liable for all charges and liabilities for services provided under the CT
prior to such termination.
8. Neither party shall publish or use any advertising, sales promotions, press
releases or other publicity matters which use the other party's corporate or
trade names, logos, trademarks, trade dress, or service marks (or which use
confusingly similar corporate or trade names, logos, trademarks, trade dress, or
service marks) without the prior written approval of the other party, except to
the limited extent as may be permissible under applicable law. Neither party is
licensed hereunder to conduct business under the other party's corporate or
trade names, logos, trademarks, trade dress, or service marks (or under any
confusingly similar corporate or trade names, logos, trademarks, trade dress, or
service marks).
9. AT&T's relationship with CUSTOMER under this Agreement shall be that of an
independent contractor.
10. Notices pursuant to this Agreement shall be in writing to the addresses
specified above.
11. This Agreement, the CT, and the Applicable Tariffs constitute the entire
agreement between the parties with respect to the Services. This Agreement
supersedes all prior agreements, proposals, representations, statements, or
understandings, whether written or oral, concerning the Services or the rights
and obligations relating to the Services. No change, modification or waiver of
any of the terms of this Agreement, except for revisions to the Applicable
Tariffs, shall be binding unless reduced to writing and signed by authorized
representatives of both parties hereto and, to the extent required by law, filed
with the FCC.
12. Each party represents and warrants that the person executing this Agreement
on its behalf is fully authorized to do so.
ORDERED BY CUSTOMER: ACCEPTED BY AT&T:
- ------------------- ----------------
11. SIGNATURE: /s/ Steve Lampert 15. SIGNATURE: /s/ J. M. Colby
12. PRINTED NAME: Steve Lampert 16. PRINTED NAME: Janice Colby
13. TITLE: President 17. TITLE: Sales Vice President
14. DATE: 7/28/95 18. DATE: 7-25-95
<PAGE> 18
RELEASE AND
SETTLEMENT AGREEMENT
This Release and Settlement Agreement ("Agreement") is entered into this
Thursday of July 6th, 1995 by and between AT&T Corp. ("AT&T") and Long Distance
Direct, Inc. ("Customer").
Recitals
WHEREAS, Customer has subscribed to certain AT&T telecommunication
services furnished pursuant to Contract Tariffs 1081 and 1495 (the "Former
Services"); and
WHEREAS, disputes have arisen regarding the Former Services, including
but not limited to alleged errors and delays in AT&T's provisioning and billing
and an unintentional blocking of Customer's 800 Service on or about June 15,
1995; and
WHEREAS, AT&T and Customer now wish to resolve these disputes.
Terms of Settlement
THEREFORE, in consideration of the mutual promises contained herein, the
parties agree as follows:
1. Service Migration
(a) Customer shall subscribe to service provided by AT&T pursuant to
Contract Tariff 2507, attached to this Agreement as Exhibit A (the "New
Service").
(b) Customer's Former Services shall be disconnected upon commencement
of the New Service.
(c) The New Service shall be for a term of 48 months as provided in
Contract Tariff 2507.
(d) AT&T shall credit Customer for all shortfall and termination charges
billed to but not paid by Customer pursuant to tariff with respect to the Former
Services. Customer shall not receive any credits or refunds for charges incurred
or paid on or before the Effective Date of this Agreement except with respect to
said shortfall and termination charges. Customer shall, however, receive a
credit in the amount of one hundred eighteen thousand, seven hundred
seventy-seven dollars and thirteen cents ($118,777.13) to resolve the disputes
more
<PAGE> 19
particularly described above regarding the Former Services and the unintentional
blocking of Customer's 800 Service.
(e) Customer shall remain liable for all usage charges incurred with
respect to the Former Services on or before the commencement of the New Service.
In order to resolve Customer's outstanding balance for inbound usage charges
incurred with respect to the Former Services, Customer shall pay said balance in
guaranteed funds to AT&T according to the following schedule:
(1) $64,408.72 no later than June 30, 1995;
(2) $64,408.72 no later than July 31, 1995;
(3) $64,408.72 no later than August 30, 1995;
(4) $64,408.72 no later than September 29, 1995;
(5) $64,408.72 no later than October 30, 1995;
(6) $64,408.72 no later than November 30, 1995;
(7) $64,408.72 no later than December 29, 1995; and
(8) $322,043.59 no later than January 31, 1996.
2. Release
In return for accepting this Agreement, Customer, on behalf of itself
and its employees, agents, shareholders, officers, directors (in their
individual and representative capacities) subsidiaries, predecessors,
affiliates, parent corporations, if any, joint ventures, successors and assigns,
heirs, executors, administrators and trustees ("Releasors"), hereby discharges
and releases AT&T and AT&T's past and present employees, agents, shareholders,
officers, directors (in their individual and representative capacities),
subsidiaries, predecessors, affiliates, parent corporations, if any, joint
ventures, successors and assigns, heirs, executors, administrators and trustees,
("Releasees") from any and all rights, claims, damages, actions, judgments,
obligations, attorneys' fees, indemnities, subrogations, duties, demands,
controversies or liabilities, at law or in equity, known or unknown, matured or
unmatured, foreseeable or unforeseeable, arising from the beginning of the world
until and including the Effective Date of this Agreement, which Releasors now
have or ever had against Releasees on or before said Effective Date.
3. Breach of Agreement
In the event that Customer does not comply with Section 1 of this
Agreement, AT&T may, at its option and without further notice to Customer,
commence an action against Customer to recover all amounts then owed and
outstanding.
2
<PAGE> 20
4. Entire Agreement
In addition to Customer's subscription to the New Service pursuant to
Contract Tariff ____, this Agreement is the sole, only, entire and complete
agreement of the parties relating in any way to the subject matter hereof. No
statements, promises or representations have been made by any party to any other
party, or are relied upon, and no consideration has been or is offered,
promised, expected or held out, other than as stated in this Agreement. There
are no oral or written collateral agreements. All prior discussions and
negotiations have been, and are, merged and integrated into, and are superseded
by, this Agreement.
5. Ownership of Claim
The parties hereto warrant that they have not assigned or transferred,
in any manner, to any person or entity, any right or interest to which they may
be entitled regarding the disputes between the parties more particularly
identified above. Each party warrants and represents to the other party that it
is the owner and holder of all rights concerning the claims that are subject to
this Agreement.
6. No Admission of Liability
This Agreement, the contents thereof, or its execution shall not be
construed as any admission of liability by either party.
7. Legal Counsel
Each of the parties represents that in the execution of this Agreement,
and the negotiations leading thereto, it had the opportunity to consult legal
counsel of its own selection. Prior to the execution of this Agreement by each
party, the party's attorney, if any, reviewed this Agreement, made any desired
changes and advised the party with respect to the advisability of making the
settlement and release provided herein and of executing this Agreement.
8. Applicable Law
This Agreement shall be construed in accordance with and be governed by
the internal laws of the State of New York in effect as of the date of
execution.
3
<PAGE> 21
9. Enforcement of Agreement
If any action at law or in equity, including an action for declaratory
or injunctive relief, is brought to enforce or interpret the provisions of this
Agreement, the prevailing party shall be entitled to all of its costs in
prosecuting or defending said action, including reasonable attorneys' fees,
which may be set by the court in which the action for enforcement is brought, or
in a separate action for that purpose, in addition to any other relief to which
the prevailing party may be entitled.
10. Confidentiality
The parties agree to keep both the fact of and the consideration for
this Agreement confidential and agree not to disclose it to others (unless
required by a court or regulatory agency of competent jurisdiction or for
purposes of financial reporting). Customer further agrees that, if asked about
the dispute described herein, Customer will respond only that the dispute has
been resolved satisfactorily.
11. Miscellaneous
(a) The delay or failure of a party to exercise any right, power or
privilege hereunder or failure to strictly enforce any breach or default shall
not constitute a waiver with respect thereto and no waiver of any such right,
power, privilege, breach or default on any one occasion shall constitute a
waiver thereof on any subsequent occasion unless clear and express notice
thereof in writing is provided.
(b) If any provision of this Agreement is held to be invalid or
unenforceable, all other provisions shall nevertheless continue in full force
and effect.
4
<PAGE> 22
IN WITNESS WHEREOF, the parts have affixed their signatures effective
as of the date first above written.
AT&T CORP. LONG DISTANCE DIRECT, INC.
By: /s /J. M. Colby By: /s/ Steve Lampert
------------------------- -------------------------
(Signature) (Signature)
Sales V.P. - President
------------------------- -------------------------
(Name and Title) (Name and Title)
7-25-95 7/28/95
------------------------- -------------------------
(Date Executed) (Date Executed)
5
<PAGE> 1
Exhibit 10.4
(superseded by Contract
dated 3/96)
[MCI LOGO]
MCI TELECOMMUNICATIONS
CORPORATION
205 North Michigan Avenue
Suite 3200
Chicago, Illinois 60601
312 856 2121
August 2, 1995
VIA FEDERAL EXPRESS
Mr. Steven Lampert
Chief Executive Officer
Long Distance Direct, Inc.
1 Blue Hill Plaza
Pearl River, New York 10965
Dear Mr. Lampert:
Enclosed please find two (2) originals each of the Carrier Agreements for Long
Distance Direct, Inc. Please have all originals signed and return them to me for
MCI signature.
If you have any questions, please call me directly at 312/616-3066.
Sincerely,
/s/ Kelleye Martin Chube
Kelleye Martin Chube
KMC/tmm
Enclosure
cc: Art Fox (MCI)
<PAGE> 2
MCI CARRIER SERVICES
MCI CARRIER AGREEMENT
LONG DISTANCE DIRECT, INC.
<PAGE> 3
ORIGINAL
CARRIER AGREEMENT
TERMS AND CONDITIONS
This Carrier Agreement (the "Agreement") is between MCI
TELECOMMUNICATIONS CORPORATION ("MCI") and LONG DISTANCE DIRECT, INC.
("Customer"), a resale common carrier subject to the Communications Act of 1934.
1. Scope of Agreement.
(a) MCI shall provide to Customer certain specified domestic interstate
service(s), international services, and intrastate common carriage
service(s). For domestic interstate and international services, this
Agreement incorporates by reference the terms of MCI Tariff FCC No. 1
("Tariff"), which is on file with the Federal Communications Commission
and which may be modified from time to time by MCI in accordance with
law and thereby affect the service(s) furnished Customer, except that
the following terms and conditions shall supplement or, to the extent
inconsistent, supersede Tariff terms and conditions and shall remain in
effect throughout the Service Term. For intrastate services, this
Agreement incorporates by reference each applicable state tariff filed
by MCI, which may be modified by MCI from time to time, and thereby
affect the service(s) furnished Customer. This Agreement is entered
pursuant to Section 211(a) of the Communications Act of 1934.
(b) Capitalized terms not otherwise defined in this Agreement shall
have the meanings assigned to them in the Tariff.
2. Monthly Commitment.
(a) During each of the first six (6) months of the Agreement Customer
shall have no minimum usage requirements.
(b) Commencing on the seventh full monthly billing period under this
Agreement, during each of the next two (2) monthly billing periods,
Customer's Monthly Usage shall equal or exceed Twenty-Five Thousand
Dollars ($25,000).
(c) For purposes of this Agreement Paragraphs 2(a) and 2(b) combined
shall comprise the "Ramp Period" (as more fully described in Paragraph
14 below).
(d) During each of the next consecutive monthly billing periods
following the Ramp Period, Customer's Monthly Usage shall equal or
exceed the applicable commitment amounts identified below:
<TABLE>
<CAPTION>
Months Monthly Commitment
------ ------------------
<S> <C>
9-10 $100,000
11-12 $250,000
13-14 $400,000
</TABLE>
MCI CONFIDENTIAL
<PAGE> 4
(e) Commencing with the fifteenth full monthly billing period,
Customer's "Monthly Usage" shall equal or exceed Five Hundred Thousand
Dollars ($500,000) ("Monthly Commitment") during each monthly billing
period of the Service Term (as more fully described in Paragraph 14
below).
(f) In the event Customer's Carrier Identification Code ("CIC") is not
80% percent loaded upon the completion of the Ramp period, MCI and
Customer shall promptly meet to discuss the extension of the Ramp
period.
Monthly Usage shall mean Customer's domestic interstate usage of: MCI
Carrier Network Service at the rates identified in Paragraph 4 below,
MCI Carrier Operator Service, MCI Directory Assistance, MCI Debit Card
Units, MCI Card Service, networkMCI Conferencing, after application of
discounts earned hereunder, but not including any applicable taxes (and
gross receipts taxes) and tax-related surcharges on MCI Services.
Monthly Usage also includes usage of: (i) International Service
(including MCI Service terminating in Canada and Mexico) at the rates
set forth below but before any of the discounts earned under this
Agreement, and International 800 DAL Service at standard tariffed rates
less discounts earned under this Agreement (hereinafter "International
Services"), but not including any applicable taxes (and gross receipts
taxes) and tax-related surcharges on MCI International Services; and
(ii) intrastate MCI Services at standard tariffed rates after
application of any applicable tariffed discounts (hereinafter
"Intrastate Services") but not including any applicable taxes (and
gross receipts taxes) and tax-related surcharges on MCI Intrastate
Services.
(g) (1) During the seventh and eighth months of the Ramp period, if
Customer's Monthly Usage is less than Twenty Five Thousand Dollars
($25,000), for that month Customer will pay an underutilization charge
(which Customer agrees is reasonable) equal to the difference between
Twenty Five Thousand Dollars ($25,000) and the amount of MCI services
purchased in that month.
(2) After the eighth month of the Ramp Period, if Customer's
Monthly Usage is less than the applicable Monthly Commitments
identified above in months 9-10, 11-12 or 13-14, for that month
Customer will pay an underutilization charge (which Customer agrees is
reasonable) equal to the difference between the applicable Monthly
Commitment and the amount of MCI services purchased in that month.
(h) Commencing on the fifteenth monthly billing period, if Customer's
Monthly Usage is less than the Monthly Commitment identified above, for
that month(s) Customer will pay the Customer's actual combined monthly
recurring and usage charges for MCI services at standard MCI tariffed
rates, and an underutilization charge (which Customer agrees is
reasonable)
MCI CONFIDENTIAL
2
<PAGE> 5
equal to fifteen percent (15%) of the difference between the Monthly
Commitment under paragraph 2(e) and Customer's Monthly Usage capped
at the Monthly Commitment.
3. Carrier Network Service
(a) In order to be eligible to purchase MCI Carrier Network
Service:
1) Except in areas where service origination is not
available from access providers via a Carrier Identification
Code ("CIC"), Customer must originate all traffic via
Customer's own CIC. Customer shall pay all charges associated
with the installation of Customer's CIC in all Local Exchange
Carrier ("LEC") end offices.
2) Customer shall comply with Section 64.1100 of the
FCC's Rules and Regulations, as well as other applicable law
or regulation pertaining to the sale and delivery of
telecommunications service(s) to Customer's customers. MCI
shall not be liable to Customer's customers for any claim,
liability or expense asserted by those customers in connection
with Customer's sale or delivery of such service(s), including
the unauthorized conversion of a customer's Primary
Interexchange Carrier ("PIC") designation to Customer's CIC.
In the event Customer violates any FCC or other applicable law
or regulation pertaining to the sale or delivery of Customer's
service(s) and a final order is entered by the appropriate
governmental body, MCI may terminate this Agreement on not
less than five (5) days written notice. In addition, Customer
shall take or pay the amount billed plus the difference
between the amount billed in any month and the Monthly
Commitment. Customer shall indemnify and hold MCI harmless
from any actions, claims, suits or damages arising out of
Customer's violation or alleged violation of any FCC or other
applicable law or state regulation, and Customer shall pay all
attorney fees and costs incurred by MCI in connection with
such actions, claims, suits or damages.
3) Customer agrees that it will obtain and maintain
any and all approvals to resell MCI Carrier Network Service
hereunder from the FCC, including requirements imposed by
Section 214 of the Communications Act of 1934, as amended, and
state regulatory bodies.
MCI CONFIDENTIAL
3
<PAGE> 6
4) Customer agrees to sell and bill MCI Carrier
Network Service under its own name, identity or mark, and
Customer further agrees not to reference MCI's name or marks
in any context involving its furnishing of service(s) to the
public except as provided herein. Customer agrees to abide by
the "Use of Name Guidelines" contained in Exhibit D hereto. In
reselling MCI Services under this Agreement, Customer will
observe the highest standard of integrity and fair dealing
with members of the public. Customer will do nothing to
discredit, dishonor, reflect adversely upon or, in any manner,
injure the reputation of MCI. Furthermore, Customer agrees to
indemnify MCI for any actions, claims, suits or damages
arising out of any allegation that if proved would cause
Customer to be in breach of this provision and Customer shall
also pay all attorney's fees and costs incurred by MCI due to
any actions, claims, suits or damages arising out of such
allegation.
5) Except as set forth in Paragraph 10 herein,
Customer shall have sole responsibility for interacting with
its customers in all matters pertaining to service, including
the placing and handling of service orders, service
installation, operation and termination, dispute handling and
resolution, and billing and collection matters. MCI shall
incur no obligation, nor shall it be deemed to have any
obligation, to interact with Customer's customers for any
reason or purpose. Customer shall cooperate with MCI as
necessary to address and resolve service-related issues and
problems and shall impose upon its customers an obligation to
cooperate, with Customer in addressing and resolving
service-related issues and problems.
(b) Without limitation, if Customer fails to abide by the
requirements in Paragraph 3(a) above, such failure shall be
regarded as a material breach of this Agreement and MCI may
terminate this Agreement on five (5) business days written
notice.
(c) Customer agrees that MCI may use the National Leads
Information System ("NLIS") or an appropriate internal MCI
system to determine Working Telephone Number ("WTN")
historical data regarding MCI and non-MCI PICs and Customer
understands that such systems are not error free. MCI will not
be liable to Customer for errors made in determining WTN in
reliance on information contained in NLIS or internal MCI
systems.
MCI CONFIDENTIAL
4
<PAGE> 7
(d) Customer understands and accepts that, as part of MCI's normal
business policy and practices and its obligations under law,
MCI will engage in extensive marketing efforts in attempt to
sell its services to the public and that such efforts will
result in active competition with Customer for the business of
users who are Customer's customers or prospects. Accordingly,
Customer further understands and accepts that such competition
by MCI is in all respects fair and proper and that Customer
shall not complain, nor be heard to complain, of business lost
to MCI. Under no circumstance shall any inference be derived
that MCI's entry into this Agreement with Customer means that
MCI will restrict its efforts to compete against Customer in
any way.
(e) Customer understands and accepts that no fiduciary
relationship arises by virtue of this Agreement and that,
accordingly, MCI incurs none of the obligations that arise in
such relationship as an incident of its fulfilling its
obligations under this Agreement. Further, Customer
understands and accepts that MCI is not an insurer of profits
for Customer, nor does MCI guarantee the success of Customer's
business as a result of Customer's receipt of service(s) under
this Agreement.
(f) Customer agrees that if its end-user makes a call using 10XXX
access (utilizing Customer's CIC), from an ANI which Customer
did not provide to MCI to enter into MCI's Billing and Order
Entry systems, MCI will bill the call through the LEC at MCI
tariffed rates, and MCI's name will appear as the service
provider on the LEC invoice. Furthermore, Customer agrees its
sales and marketing channels will only market 10XXX access as
a dialing option from ANIs that the end-user had PIC'd to the
Customer's CIC, in areas where the Customer's CIC is pointed
to MCI for termination.
4. Carrier Network Service Rates.
(a) INTERSTATE RATES. For Carrier Network Service, except for
international service for which Customer shall pay the rates
contained herein or tariff rates if rates are not contained
herein, subject to the discounts contained in Paragraphs 4(i)
and (j), during the Ramp Period and for as long as Customer
achieves the Monthly Commitment, Customer will pay in addition
to all installation charges, access and access-related
charges, applicable surcharges, taxes and tax-related charges,
the following non-distance sensitive "postalized" rate per
minute as determined by Customer's overall monthly usage:
MCI CONFIDENTIAL
5
<PAGE> 8
<TABLE>
<CAPTION>
Domestic Non-Dedicated
Interstate Outbound
Monthly Usage Day Rate Non-Day Rate
------------- -------- ------------
<S> <C> <C>
$ 0 - $499,999 Tariff Tariff
$500,000 + $0.1335 $0.1185
</TABLE>
<TABLE>
<CAPTION>
Domestic Non-Dedicated
Interstate 800
Monthly Usage Day Rate Non-Day Rate
------------- -------- ------------
<S> <C> <C>
$ 0 - $499,999 Tariff Tariff
$500,000 + $0.1455 $0.1305
</TABLE>
<TABLE>
<CAPTION>
Domestic Dedicated Interstate
Outbound
Monthly Usage Rate
------------- ----
<S> <C>
$ 0 - $499,999 Tariff
$500,000 + $.0950
</TABLE>
<TABLE>
<CAPTION>
Domestic Dedicated Interstate
Inbound
Monthly Usage Rate
------------- ----
<S> <C>
$ 0 - $499,999 Tariff
$500,000 + $.1084
</TABLE>
"Standard MCI tariffed rates" for Carrier Network Services shall be deemed
to be tariffed Option G and Option F rates.
Customer is not eligible for any other tariffed discounts on such
services.
(b) INTERSTATE OUTBOUND - EXTENDED CALL COVERAGE FOR ALASKA, PUERTO RICO, THE
U.S. VIRGIN ISLANDS AND HAWAII. Customer will pay interstate rates at the
switched to switched or dedicated to switched base rates Option G, Section
C.3.0932 of the Tariff with associated maximizer discounts in Paragraphs
4(i) and (j). Customer is not eligible for any other tariffed discounts on
such service.
(c) INTERSTATE 800 - EXTENDED CALL COVERAGE FOR ALASKA, PUERTO RICO, THE U.S.
VIRGIN ISLANDS AND HAWAII. Customer will pay interstate rates at the 800
Business Line Termination or Dedicated Termination Rates Option F, Section
C.3.08213 of the Tariff with associated maximizer discounts in Paragraphs
4(i) and (j). Customer is not eligible for any other tariffed discounts on
such service.
MCI CONFIDENTIAL
6
<PAGE> 9
(d) INTRASTATE RATES (OUTBOUND). Customer shall pay for outbound intrastate
service tariffed rates for switched to switched or dedicated to
switched base rates in each applicable MCI state tariff. The discounts
contained in Paragraphs 4(i) and (j) will be supplemented by MCI with
an additional discount of fifteen percent (15%). The discounts will be
calculated on all intrastate outbound usage less taxes and tax-related
surcharges. The resulting amounts will be applied to Customer's
interstate usage only. Customer is not eligible for any other tariffed
discounts on such service.
(e) INTRASTATE 800. For inbound intrastate service (800) Customer will pay
the 800 Business Line Termination or Dedicated Termination Base Rates
in each applicable MCI state tariff. MCI shall apply the maximizer
discounts in Paragraphs 4 (i) and (j) and an additional discount of
fifteen percent (15%). The discounts will be calculated on all
intrastate 800 usage less taxes and tax-related surcharges. The
resulting amounts will be applied to Customer's interstate usage only.
Customer is not eligible for any other standard tariffed discounts on
such service.
(f) INTERNATIONAL 800. For inbound international service (800), Customer
will pay international 800 rates at the Tariffed 800 Base Rates Option
F, Section C.3.07314 with associated maximizer discounts in Paragraphs
4(i) and (j). Customer is not eligible for any other standard tariffed
discounts on such service.
(g) INTERNATIONAL DEDICATED OUTBOUND SERVICE. For international dedicated
outbound service, Customer shall receive the rates in Exhibit A less
$.0300 on each country rate. Where country rates are not contained in
Exhibit A, Customer will pay international rates at the Tariffed Base
Rates Option C.3.073 with associated maximizer discounts in Paragraph
4(j). Customer is not eligible for any other standard tariffed
discounts on such service.
(h) INTERNATIONAL NON-DEDICATED CARRIER NETWORK SERVICE. Customer shall
receive the rates set forth in Exhibit A for all usage of Non-Dedicated
International Carrier Network Service. Where country rates are not
contained in Exhibit A, Customer will pay tariff rates less tariff
discounts. All of the rates contained in this Paragraph 4(h) shall
receive the associated maximizer discounts in Paragraph 4(j). Customer
is not eligible for any other standard tariffed discounts on such
service.
MCI CONFIDENTIAL
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<PAGE> 10
(i) NON-DEDICATED MARKETING MAXIMIZER DISCOUNTS. Customer will receive an
additional discount on all usage of non-dedicated MCI Carrier Network
Service less taxes and tax-related surcharges based on the number of
non-MCI ANIs or WTNs (ANIs or WTNs that have not been PICed to MCI for
at least the previous ninety (90) days) that Customer converts to MCI.
Each month MCI will calculate the overall cumulative total of non-MCI
ANIs or WTNs converted to MCI and then apply a discount to Customer's
usage as follows:
<TABLE>
<CAPTION>
Percentage of MCI Percentage of Non-Dedicated
Customer Numbers Sold Usage Eligible for 20%
by Customer Maximizer Discount
<S> <C>
20% or less 100%
21% - 25% 95%
26% - 30% 90%
31% - 40% 80%
41% - 50% 70%
51% - 60% 60%
</TABLE>
(j) DEDICATED MARKETING MAXIMIZER DISCOUNTS. Customer will receive an
additional discount on all usage of dedicated MCI Carrier Network
Service less taxes and tax-related surcharges based on the number of
non-MCI DALs that Customer converts to MCI. Each month MCI will
calculate the overall cumulative total of non-MCI DALs converted to MCI
and then apply a discount to Customer's usage as follows:
<TABLE>
<CAPTION>
Percentage of MCI
Customer DALs Sold Percentage of Dedicated Usage
by Customer Eligible for 20% Maximizer
Discount
<S> <C>
20% or less 100%
21% - 25% 95%
26% - 30% 90%
31% - 40% 80%
41% - 50% 70%
51% - 60% 60%
</TABLE>
(k) If Customer's dedicated Carrier Network Services usage exceeds twenty
percent (20%) of Customer's total Carrier Network Services usage, then
the dedicated Carrier Network Services usage in excess of such twenty
percent (20%) shall not receive the Maximizer Discount provided
pursuant to paragraph 4(j).
MCI CONFIDENTIAL
8
<PAGE> 11
(l) During the Ramp Period of the Agreement, MCI will not measure converted
MCI ANIs, WTNs or DALs for the purpose of applying the Maximizer
Discount. All ANI's, WTNs and DALs will receive the twenty percent
(20%) Maximizer Discount. In the month following the end of the Ramp
Period, MCI will begin to measure and apply the above formula based on
a monthly average of ANI's, WTN's or DAL's to be installed to date.
(m) DIRECTORY ASSISTANCE. For switched to switched and dedicated to
switched directory assistance, Customer shall pay $0.40. In each month
in which Customer's total number of directory assistance calls exceed
twenty five thousand (25,000), the above postalized rate for directory
assistance shall be reduced by $0.0100.
5. ANI MANAGEMENT RESPONSIBILITIES. On or before the thirtieth (30th) day
after the close of the billing cycle, MCI will provide Customer with a
list of ANIs, including traffic minutes and number of calls associated
with ANIs associated with Customer's Carrier Network Services Account
("MCI Active ANI List"). Within thirty (30) days after Customer's
receipt of the MCI Active ANI List, Customer shall provide to MCI, in
writing, with a report of all ANIs in the billing cycle covered by the
MCI Active ANI List that were either: (1) ordered by Customer to be
added by MCI to the Customer's account, but which were not added to
Customer's Network Account; or (2) on the MCI Active ANI list but which
Customer had requested be deleted. For any ANI not timely included by
Customer in the Customer ANI Report: (1) Customer shall be liable to
MCI for charges associated with said ANI; and (2) MCI shall not be
liable to Customer for any costs, claims or damages resulting from
failure to implement Customer's directions with respect to said ANI.
6. Detention Facilities. Customer may not use MCI Carrier Network Services
in conjunction with the provision of communications services to any
detention facility, including, but not limited to, any local, state or
federal prison.
7. Additional Rates.
(a) Debit Card Units.
1) Customer may utilize MCI for the debit card platform and
transport of Customer's domestic interstate and international
termination debit card traffic. In order to qualify for the below
rates, Customer must purchase at least fifty thousand (50,000) domestic
interstate and/or international termination debit card units, as
defined in the Tariff ("Debit Card Units"). The below rates shall
include access to the MCI debit card platform, transport, order entry
MCI CONFIDENTIAL
9
<PAGE> 12
and debit card activation. Customer will pay the following applicable
postalized rate as determined by the number of Debit Card Units
purchased by Customer in each individual purchase, and not determined
by the aggregate number of Debit Card Units purchased throughout the
Service Term:
<TABLE>
<CAPTION>
Debit Card Units Rate Per
Purchased Unit
--------- ----
<S> <C>
50,000 - 149,999 $0.1950
150,000 - 299,999 $0.1900
300,000 - 449,999 $0.1850
450,000 - 599,999 $0.1800
600,000 + $0.1750
</TABLE>
2) Customer's total available Debit Card Units will only be reduced by
the Debit Card Units utilized by completed calls (calls that are answered at the
ultimate destination).
3) In addition to the above rates, Customer shall pay an additional Six
Hundred Dollar ($600) charge for each customized script identifying Customer to
its end-users.
4) Customer shall be solely responsible for all card fulfillment,
customer service and any operator services.
5) Customer shall not include MCI's name or logo on any Customer debit
card.
(b) networkMCI Conferencing.
1) For domestic interstate Dial-Out and 800 Meet Me networkMCI
Conferencing Service, Customer shall pay the following non-distance sensitive
("postalized") rates per minute for each bridge port (inclusive of tariff set-up
fees) used during all conference calling and calculated on monthly usage:
<TABLE>
<CAPTION>
Monthly Per Minute
Forum Usage Rate Per Bridge Port
----------- --------------------
<S> <C>
$ 0 - $10,000 $ 0.2800
$10,000 - $20,000 $ 0.2750
$20,000 - $30,000 $ 0.2700
$30,000 - $40,000 $ 0.2650
$40,000 - $50,000 $ 0.2600
$50,000+ $ 0.2550
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 13
2) For domestic interstate unattended networkMCI Conferencing Service,
Customer shall pay the following postalized rates per minute for each bridge
port (inclusive of tariff set-up fees) used during all conference calling and
calculated on monthly usage:
<TABLE>
<CAPTION>
Monthly Per Minute
networkMCI Usage Rate Per Bridge Port
---------------- --------------------
<S> <C>
$ 0 - $10,000 $0.2200
$10,000 - $20,000 $0.2162
$20,000 - $30,000 $0.2125
$30,000 - $40,000 $0.2087
$40,000 - $50,000 $0.2050
$50,000+ $0.2012
</TABLE>
3) For domestic interstate Local Meet Me networkMCI Conferencing
Service, Customer shall pay a per minute rate of $0.19 for each bridge port
(inclusive of tariff set-up fees) used during all conference calling.
4) In order to receive the rates set forth in subsections 7(b) (1),
7(b) (2) and 7(b) (3) above, Customer must fulfill the following criteria
throughout the term:
(a) Customer shall provide an 800 line exclusively used for customer
service purposes; and
(b) Customer shall provide an 800 line to the MCI Conference Center
exclusively used for reservations; and
(c) Customer shall provide its own customer service personnel and
access.
5) MCI shall provide to Customer: (i) generic branding for inbound
conference calls; and (ii) customized branding for inbound calls for reservation
services. However, MCI shall not provide billing services to Customer's
end-users.
6) The rates provided herein are in lieu of any tariff promotions or
discounts.
7) Set up charges in Tariff will be waived. All other ancillary charges
in Tariff will not be waived.
(c) MCI Card Service and Associated Enhanced Services.
Customer will receive the discounts for MCI Card Service and Associated
Enhanced Services set forth in Exhibit B.
MCI CONFIDENTIAL
11
<PAGE> 14
(d) MCI Carrier Operator Services.
Customer will receive the rates, service terms and conditions
for MCI Carrier Operator Services as set forth in Attachment 2.
8. Installation Waivers.
Customer shall receive a credit of up to Three Hundred Thirty
Thousand Dollars ($330,000), which shall be applied to the one-time
installation (including CIC installation) and other one-time
non-recurring MCI-billed tariffed charges associated with the
implementation of Carrier Network Services.
9. Revenue Achievement Bonus Program.
(a) If Customer's total Monthly Usage during the Ramp Period
and Service Term equals or exceeds Twenty One Million Five Hundred
Seventy Five Thousand Dollars ($21,575,000) ("Credit Minimum"),
Customer shall receive a one-time credit in an amount equal to one
month's Monthly Usage of MCI Services. Such credit shall not exceed
Customer's Monthly Commitment.
(b) If the credit provided pursuant to the paragraph above is
earned prior to the conclusion of the Service Term, each time
Customer's total aggregate Monthly Usage earned thereafter equals or
exceeds Fourteen Million Eight Hundred Ninety Five Thousand Dollars
($14,895,000), Customer will receive a one-time credit equal to one
month's Monthly Usage of MCI Services. Such credit will be based on the
invoice in which Customer's usage equals or exceeds such amount and
will be applied to Customer's next available invoice.
(c) Customer may only receive one credit pursuant to Paragraph
9(a) or (b) during any consecutive twelve (12) month period ("Annual
Period"). Credits earned in one Annual Period may not be carried
forward to the next Annual Period. Each credit shall equal no more than
Customer's Monthly Commitment or Five Hundred Thousand Dollars
($500,000), whichever is less. The credits set forth in Paragraphs 9(a)
and (b) above shall be applied to Customer's domestic interstate and
international usage charges (exclusive of applicable taxes, surcharges,
and pass-through access/egress (or related) charges) for MCI Services
hereunder.
MCI CONFIDENTIAL
12
<PAGE> 15
10. Security.
Nothing contained herein shall limit or be interpreted to
limit MCI's right, as provided for in Section B-7.04 of MCI Tariff FCC
No. 1, to require, in MCI's sole discretion, security from Customer,
and Customer's failure or refusal to provide such security upon MCI's
reasonable request therefor may result in the cancellation of this
Agreement and Customer's service for cause pursuant to Section B-11.01
of the Tariff. The security arrangements provided for hereunder shall
survive the expiration of the Service Term, as defined herein, and
shall remain in effect so long as Customer remains a user or has any
outstanding balance due for use of MCI Service(s).
11. Payment.
(a) Customer shall pay MCI for all MCI service(s) provided during the
usage month within twenty five (25) days from the last day of the usage
month. If Customer has received MCI's invoice, Customer will pay MCI
the amount invoiced. If Customer has not received MCI's invoice for the
services provided prior to the date when Customer must pay MCI,
Customer will pay MCI an amount estimated to be billed for services
provided during the prior month ("Estimated Payment"). At the
initiation of this Agreement, if Customer has not received MCI's
invoice prior to the date when Customer must pay MCI for services
provided during the first month of this Agreement, the Estimated
Payment will be equal to Customer's estimate of its prior month's
usage. For each month thereafter, the Estimated Payment will be equal
to the amount of the prior MCI invoice, or invoices which reflect one
month's total usage of MCI services received by the Customer.
(b) Within ten (10) days of the date of MCI's invoice, MCI and Customer
will reconcile the Estimated Payment with the MCI invoice amount for
such month. MCI shall credit any Estimated Payment amount in excess of
the MCI invoice amount for such month on the next available invoice.
Immediately after reconciliation, Customer shall pay MCI any amount the
Estimated Payment was less than the MCI invoice amount for such month.
(c) Customer's failure to pay the invoiced amount in full within said
twenty five (25) day period may result in the exercise by MCI of its
rights under the security provisions contained in Paragraph 5,
immediately above, or in such Paragraph as it may be amended during the
service term.
MCI CONFIDENTIAL
13
<PAGE> 16
(d) For each month that Customer pays the amount invoiced within said
twenty five (25) day period described above, Customer shall receive a
discount equal to one percent (1%) of the amount invoiced (less charges
for installation, taxes, tax-related surcharges, any other applicable
surcharges, charges for access and access-related charges, including,
without limitation, access charges in the Tariff) in such month which
discount shall be applied to Customer's total monthly domestic
interstate usage for MCI services under this Agreement appearing on the
next month's invoice.
12. Dispute Resolution.
(a) Except as otherwise provided herein, any claims arising out of or
related to this Agreement, shall be made within one hundred and twenty
(120) days of their occurrence. If such claims cannot be resolved by
negotiation, they shall be settled by binding arbitration in accordance
with the rules contained in MCI Tariff FCC No. 1 ("Arbitration Rules").
Neither party may seek injunctive relief of any kind prior to the
confirmation of an arbitration award, except that MCI may seek
injunctive relief against Customer for violation of Paragraphs 3(a)2),
3) and 4), herein. Any claims made after one hundred and twenty (120)
days of the occurrence giving rise to such claims shall be barred.
(b) Either MCI or Customer may initiate arbitration by providing
written demand for arbitration, a copy of this Agreement and the
administrative fee required by the Arbitration Rules to the Endispute
(or if Endispute is not available to the American Arbitration
Association) office located in Washington, D.C. A copy of such notice
shall also be provided to the other party. The remaining cost of the
arbitration, including the fees and expenses of the arbitrator, shall
be shared equally by the parties unless the arbitration award provides
otherwise. Each party shall bear the cost of preparing and presenting
its case.
(c) One (1) arbitrator shall be appointed in accordance with the
Arbitration Rules within sixty (60) days of the submission of the
demand for arbitration, unless both parties otherwise agree in writing.
The Arbitrator shall designate the time and place for the hearing
within thirty (30) days of his or her appointment. MCI and the Customer
agree that the Arbitrator's authority to grant relief shall be subject
to the provisions of this Agreement, the United States Arbitration Act,
9 U.S.C. 1-16 et. seq. ("USAA"), the ABA-AAA Code of Ethics for
Arbitrators in Commercial Disputes, MCI Tariff FCC No. 1, substantive
law, and the Communications Act of 1934, 47 U.S.C. 151 et. seq. The
Arbitrator's decision shall follow the plain meaning of the relevant
documents, and shall be final and
MCI CONFIDENTIAL
14
<PAGE> 17
binding.
(d) MCI and the Customer agree to undertake all reasonable steps to
expedite the arbitration process.
(e) Notwithstanding any other provision of this Agreement,
interpretation and construction of this Paragraph shall be governed by
the USAA. MCI and the Customer further agree that judgment may be
entered upon the award in any court having jurisdiction thereof, and
that all post-award proceedings shall be governed by the USAA.
13. Termination for Insolvency.
In the event Customer becomes or is declared insolvent or
bankrupt, is the subject of any proceeding related to its liquidation,
insolvency or for the appointment of a receiver or similar officer for
it, makes an assignment for the benefit of all or substantially all of
its creditors, or enters into an agreement for the composition,
extension, or readjustment of all or substantially all of its
obligations, MCI may, by giving seven (7) business days written notice
thereof to Customer, terminate this Agreement without liability or
obligation, in whole or in part, as of a date specified in such notice
of termination.
14. Term.
The Ramp Period under this Agreement shall begin on the first
day of the first full month following the execution of this Agreement
by MCI ("Effective Date"). The service term shall begin on the first
day of the first full month following the eight (8) month Ramp Period
and will continue for a period of thirty six (36) months thereafter
("Service Term"). In the event Customer's CIC is not 80% loaded as
identified in Paragraph 2(f) above, MCI and Customer shall promptly
meet to discuss the extension of the Ramp Period. In the event the Ramp
Period is extended, the Service Term shall commence upon the completion
of the revised Ramp Period. Nothing contained herein, however, shall
modify or be deemed to modify MCI's right to terminate this Agreement
either as provided herein, or as authorized in Section B-11.01 of the
Tariff, immediately upon notice to Customer if Customer fails or
refuses to provide alternative or additional security requested
pursuant to Section B-7.04 of the Tariff, or to terminate provision of
service for any other cause as provided for in Section B-11.01 of the
Tariff or as otherwise provided for in this Agreement.
MCI CONFIDENTIAL
15
<PAGE> 18
15. Termination at Will.
During the first six (6) months of the Service Term, either
party may terminate this Agreement without liability by giving the
other party thirty (30) days written notice. However, if the first six
(6) months of the Service Term expires without such notice being given,
this Agreement shall remain in full force and effect.
16. Expiration of Term.
Unless the Service Term has been extended in writing by the
parties, upon expiration of the Service Term or termination of this
Agreement, Customer shall be fully subject to all the terms and
conditions, including standard tariffed rates, set forth in the Tariff
for MCI service(s) received by Customer after such expiration.
17. Termination Liability.
If Customer terminates this Agreement during the Service Term
or MCI terminates this Agreement during the Service Term for Customer's
breach, Customer will pay MCI within thirty (30) days of the effective
date of such termination an amount equal to fifteen percent (15%), of
the aggregate of Customer's remaining Monthly Commitments, or a pro
rata portion thereof for any partial month, for each month remaining in
the Service Term after termination. In addition to the above liability
for early termination, Customer shall pay the termination liability for
early termination of all tariffed discount plans in which the Customer
has enrolled. Customer shall also pay termination charges associated
with any applicable product subcommitments contained in this Agreement.
Customer shall also repay any installation credits or payments received
pursuant to Paragraph 8 herein.
18. Nondisclosure.
Customer shall not disclose to any third party during the
Service Term, or during the three (3) year period thereafter, any of
the terms and conditions set forth in this Agreement unless such
disclosure is lawfully required by any federal governmental agency or
is otherwise required to be disclosed by law or is necessary in any
proceeding establishing rights and obligations under this Agreement.
MCI reserves the right to terminate this Agreement immediately upon
delivering written notice to Customer of any unpermitted third party
disclosure hereunder.
MCI CONFIDENTIAL
16
<PAGE> 19
19. Notices.
Notices to be given pursuant to this Agreement shall be in
writing, delivered personally or by facsimile, telex, telegram, MCI
Mail, professional courier or certified, registered or express mail,
postage prepaid to the respective addresses set forth herein (or at
such other addresses as shall be given in writing by either party to
the other). All notices, requests, demands or communications shall be
deemed effective upon the earlier of: (a) the date such notice has been
received; or (b) the next calendar day if sent by facsimile, telex,
telegram or MCI Mail; or (c) the third calendar day after delivery to a
professional courier service; or (d) five (5) calendar days after
deposit with the United States Postal Service if sent by certified or
registered mail, return receipt requested.
If to MCI:
MCI Telecommunications Corporation
205 North Michigan Avenue
Suite 3200
Chicago, Illinois 60601
ATTN: Legal Affairs Department
FACSIMILE NUMBER: 312-819-6745
If to Customer:
Long Distance Direct, Inc.
1 Blue Hill Plaza
Pearl River, New York 10965
ATTN: Steven Lampert, Chief Executive Officer
FACSIMILE NUMBER: 914-620-1889
20. Letter of Agency.
Customer shall appoint MCI as its agent in the Letter of
Agency attached hereto and incorporated herein as Attachment 1.
21. Surcharge Exemption.
When applicable, Customer shall certify that any special
access lines used in connection with services under this Agreement
terminate in a device not capable of interconnecting MCI's service with
the local exchange network and thus are surcharge exempt from the
special access surcharge.
MCI CONFIDENTIAL
17
<PAGE> 20
22. Tax Exemption.
When applicable, Customer shall certify that it is exempt from
federal, state, and/or local taxes.
23. Predominant Carrier.
(a) Customer agrees to use MCI as its carrier for at least eighty
percent (80%) of Customer's needs for services as measured by revenue
that are either MCI services or interexchange carrier services during
the Service Term provided that this condition shall not: (i) require
any termination of an existing contract not terminable by Customer; or
(ii) prevent Customer from obtaining at any time service(s) not
available from MCI at certain locations.
(b) After the Effective Date of this Agreement, but not more than once
semi-annually, MCI may request, and Customer shall promptly provide to
MCI in writing or in a machine readable format as specified by MCI,
Customer records, data and invoices pertaining to its total long
distance telecommunications usage for the most recent six (6) month
period preceding the request. MCI may review this information for the
sole purpose of determining Customer's compliance with the predominant
carrier provision herein, or as it may be amended by the parties.
(c) In each monthly billing period of the Service Term in which
Customer fails to satisfy the predominant carrier requirement set forth
herein, Customer shall not be entitled to any of the postalized rates
set forth in this Agreement and Customer's use of MCI service(s) shall
be discounted that month solely pursuant to the applicable tariffed MCI
discount rate, if any, associated with Customer's actual usage level
for that monthly billing period.
24. Governing Law.
This Agreement, including all matters relating to the
validity, construction, performance and enforcement thereof, shall be
governed by the laws of the State of New York without giving reference
to its principles of conflicts of law, except to the extent the
Communications Act of 1934, as amended, and as interpreted and applied
by judicial and regulatory authorities including the Federal
Communications Commission, applies.
MCI CONFIDENTIAL
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<PAGE> 21
25. Assignment.
This Agreement shall be binding on Customer and its respective
successors and assigns. Customer may not assign this Agreement, whether
by operation of law or otherwise, without the prior written consent of
MCI and any unpermitted attempted assigned shall be void. MCI may
terminate this Agreement without liability on ten (10) business days
written notice in the event that Customer undergoes a merger involving
a change of control, or divests itself of all or a substantial portion
of its telecommunications business or undergoes a change of fifty one
percent (51%) or more of its ownership or management or leverage or
sale occurs involving fifty one percent (51%) or more of Customer's
assets or Customer's base.
26. No Waiver.
No waiver of any of the provisions of this Agreement shall be
binding unless it is in writing and signed by both parties. The failure
of either party to insist on the strict enforcement of any provision of
this Agreement shall not constitute a waiver of any provision and all
terms shall remain in full force and effect.
27. Length of Offer; Entire Agreement; Amendments.
This offer shall remain open and be capable of being accepted
by Customer until AUGUST 11, 1995. Any and all prior or contemporaneous
offers, agreements, representations and understandings made to
Customer, whether written or oral, shall be superseded by this offer.
Exclusive of any tariff modifications initiated by MCI, once this
Agreement has been executed, any amendments hereto must be made in
writing and signed by both parties.
IN WITNESS WHEREOF, the parties hereto each acting with proper authority have
executed this Agreement.
MCI TELECOMMUNICATIONS CORPORATION
By: /s/ Jon McGuire
----------------------------
Jon McGuire
Vice President,
Title: Business Markets
--------------------------
Date: 8/11/95
----------------------------
LONG DISTANCE DIRECT, INC.
By: /s/ Steve Lampert
----------------------------
(Signature)
Title: President
----------------------------
Date: 8/4/95
----------------------------
MCI CONFIDENTIAL
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<PAGE> 22
EXHIBIT A
NO SUBCOMMITMENT RATES
<TABLE>
<CAPTION>
PEAK PerMin OFF-PEAK PerMin 80/20 NetBlend
Cntry 1st18 Addl 6 4MnCall 1st18 Addl6 4MnCall Blend 20%dsc
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Antigua 0.3341 0.1114 1.1137 0.2615 0.0872 0.8717 1.0653 0.8522
Argentin 0.3169 0.1056 1.0562 0.2557 0.0852 0.8524 1.0154 0.8123
Austral 0.2114 0.0705 0.7048 0.2114 0.0705 0.7048 0.7048 0.5638
Austria 0.2870 0.0957 0.9566 0.2235 0.0745 0.7451 0.9143 0.7315
Bahamas 0.2294 0.0765 0.7646 0.2294 0.0765 0.7646 0.7646 0.6117
Bahrain 0.5541 0.1847 1.8470 0.4195 0.1398 1.3982 1.7572 1.4058
Banglad 0.8323 0.2774 2.7744 0.5413 0.1804 1.8042 2.5804 2.0643
Barbad 0.3158 0.1053 1.0525 0.2476 0.0825 0.8252 1.0071 0.8056
Belgium 0.3417 0.1139 1.1390 0.3366 0.1122 1.1220 1.1356 0.9085
Belize 0.4401 0.1467 1.4671 0.3741 0.1247 1.2471 1.4231 1.1385
Bermuda 0.2347 0.0782 0.7823 0.1835 0.0612 0.6115 0.7482 0.5985
Bolivia 0.4694 0.1565 1.5648 0.3686 0.1229 1.2286 1.4976 1.1980
Brazil 0.2967 0.0989 0.9890 0.2693 0.0898 0.8978 0.9707 0.7766
BrVirgIs 0.3788 0.1263 1.2627 0.3216 0.1072 1.0721 1.2245 0.9796
CaymanIs 0.3687 0.1229 1.2289 0.2884 0.0961 0.9613 1.1753 0.9403
Chile 0.3708 0.1236 1.2360 0.2840 0.0947 0.9466 1.1781 0.9425
China 0.7719 0.2573 2.5728 0.5808 0.1936 1.9359 2.4454 1.9564
Colombia 0.3157 0.1052 1.0524 0.2690 0.0897 0.8965 1.0212 0.8170
Cos Rica 0.3784 0.1261 1.2613 0.3045 0.1015 1.0150 1.2120 0.9696
CzechRep 0.4160 0.1387 1.3866 0.3366 0.1122 1.1221 1.3337 1.0670
Denmark 0.3527 0.1176 1.1756 0.2840 0.0947 0.9467 1.1298 0.9039
Dom Rep 0.3033 0.1011 1.0109 0.2431 0.0810 0.8102 0.9707 0.7766
Ecuador 0.4192 0.1397 1.3973 0.3403 0.1134 1.1344 1.3447 1.0758
Egypt 0.5179 0.1726 1.7263 0.3884 0.1295 1.2945 1.6399 1.3120
El Salva 0.3627 0.1209 1.2089 0.2926 0.0975 0.9753 1.1622 0.9297
Finland 0.3728 0.1243 1.2428 0.3657 0.1219 1.2189 1.2380 0.9904
France 0.1715 0.0572 0.5718 0.1715 0.0572 0.5718 0.5718 0.4574
Germany 0.1915 0.0638 0.6383 0.1915 0.0638 0.6383 0.6383 0.5106
Greece 0.4051 0.1350 1.3504 0.3435 0.1145 1.1449 1.3093 1.0474
Grenada 0.3596 0.1199 1.1987 0.3050 0.1017 1.0167 1.1623 0.9298
Guam 0.5437 0.1812 1.8122 0.4383 0.1461 1.4611 1.7420 1.3936
Guatema 0.5334 0.1778 1.7782 0.4641 0.1547 1.5469 1.7319 1.3855
Haiti 0.3433 0.1144 1.1442 0.3004 0.1001 1.0014 1.1156 0.8925
Hondur 0.4415 0.1472 1.4717 0.3499 0.1166 1.1663 1.4106 1.1285
Hong Kg 0.2004 0.0668 0.6680 0.1958 0.0653 0.6525 0.6649 0.5319
Hungary 0.4470 0.1490 1.4900 0.3499 0.1166 1.1664 1.4253 1.1402
India 0.6111 0.2037 2.0369 0.5677 0.1892 1.8922 2.0080 1.6064
Indones 0.6217 0.2072 2.0724 0.4887 0.1629 1.6290 1.9837 1.5870
Ireland 0.3183 0.1061 1.0610 0.3178 0.1059 1.0594 1.0607 0.8485
Israel 0.3529 0.1176 1.1763 0.2939 0.0980 0.9797 1.1370 0.9096
Italy 0.2696 0.0899 0.8986 0.2382 0.0794 0.7939 0.8777 0.7021
Jamaica 0.3936 0.1312 1.3119 0.3048 0.1016 1.0161 1.2527 1.0022
Japan 0.1795 0.0598 0.5984 0.1795 0.0598 0.5984 0.5984 0.4787
Jordan 0.4912 0.1637 1.6372 0.4912 0.1637 1.6372 1.6372 1.3098
Korea 0.3191 0.1064 1.0638 0.3191 0.1064 1.0638 1.0638 0.8511
Kuwait 0.4681 0.1560 1.5603 0.3948 0.1316 1.3159 1.5114 1.2091
Lebanon 0.7689 0.2563 2.5630 0.6613 0.2204 2.2042 2.4912 1.9930
Luxembg 0.3913 0.1304 1.3044 0.3045 0.1015 1.0149 1.2465 0.9972
Malays 0.5947 0.1982 1.9824 0.4722 0.1574 1.5741 1.9007 1.5206
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nether 0.1955 0.0652 0.6516 0.1955 0.0652 0.6516 0.6516 0.5213
NetAnt 0.3378 0.1126 1.1260 0.2870 0.0957 0.9566 1.0921 0.8737
New Zea 0.5791 0.1930 1.9305 0.5726 0.1909 1.9087 1.9261 1.5409
Nicarag 0.4481 0.1494 1.4935 0.3504 0.1168 1.1680 1.4284 1.1427
Nigeria 0.4131 0.1377 1.3770 0.3483 0.1161 1.1611 1.3338 1.0670
Norway 0.3310 0.1103 1.1032 0.3310 0.1103 1.1032 1.1032 0.8826
Pakist 0.7817 0.2606 2.6056 0.5986 0.1995 1.9952 2.4836 1.9868
Panama 0.3873 0.1291 1.2909 0.3109 0.1036 1.0364 1.2400 0.9920
Parag 0.5028 0.1676 1.6760 0.3948 0.1316 1.3160 1.6040 1.2832
Peru 0.4255 0.1418 1.4185 0.3755 0.1252 1.2518 1.3851 1.1081
Philip 0.5343 0.1781 1.7809 0.4625 0.1542 1.5417 1.7330 1.3864
Poland 0.4278 0.1426 1.4259 0.3670 0.1223 1.2234 1.3854 1.1083
Portug 0.4367 0.1456 1.4557 0.3453 0.1151 1.1508 1.3947 1.1158
Russia 0.5798 0.1933 1.9327 0.4905 0.1635 1.6351 1.8732 1.4985
SaudiAr 0.4407 0.1469 1.4689 0.3717 0.1239 1.2389 1.4229 1.1383
Singa 0.5015 0.1672 1.6717 0.5015 0.1672 1.6717 1.6717 1.3374
So Afr 0.3765 0.1255 1.2548 0.2966 0.0989 0.9886 1.2016 0.9613
Spain 0.2751 0.0917 0.9169 0.2323 0.0774 0.7744 0.8884 0.7107
Sweden 0.3083 0.1028 1.0276 0.3083 0.1028 1.0276 1.0276 0.8221
Switzer 0.2085 0.0695 0.6950 0.2033 0.0678 0.6775 0.6915 0.5532
Taiwan 0.3191 0.1064 1.0638 0.3191 0.1064 1.0638 1.0638 0.8511
Thailnd 0.5947 0.1982 1.9822 0.4725 0.1575 1.5749 1.9007 1.5206
Turkey 0.4174 0.1391 1.3913 0.3527 0.1176 1.1756 1.3482 1.0785
Ukraine 0.7474 0.2491 2.4912 0.6323 0.2108 2.1076 2.4145 1.9316
UK 0.1356 0.0452 0.4521 0.1356 0.0452 0.4521 0.4521 0.3617
Uruguay 0.4511 0.1504 1.5037 0.3539 0.1180 1.1795 1.4388 1.1511
U.A.E. 0.4675 0.1558 1.5582 0.4675 0.1558 1.5582 1.5582 1.2466
Venez 0.2290 0.0763 0.7634 0.1955 0.0652 0.6518 0.7410 0.5928
Vietnam 0.7712 0.2571 2.5707 0.7045 0.2348 2.3484 2.5262 2.0210
Yemen 0.5440 0.1813 1.8132 0.4600 0.1533 1.5335 1.7572 1.4058
Zaire 0.5428 0.1809 1.8093 0.4071 0.1357 1.3568 1.7188 1.3750
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 24
EXHIBIT B
MCI FEATURE CARD SERVICE AND
ASSOCIATED ENHANCED SERVICES DISCOUNTS
A. MCI Feature Card Service Discounts.
1) Customer shall receive the following effective discounts on
its usage of domestic interstate MCI Feature Card Service (only
accessed by dialing an MCI-provided 800 number other than (800)
950-1022 in accordance with Section C-A.05, Footnote 2, of the Tariff
or any successor tariffed provision) as determined by Customer's MCI
Feature Card Monthly Usage:
<TABLE>
<CAPTION>
Total
Monthly Usage Discount
------------- --------
<S> <C>
$10,000 - $ 24,999 12%
$25,000 - $ 49,999 21%
$50,000 - $149,999 31%
$150,000 - $249,999 34%
$250,000 - $499,999 35%
$500,000+ 37%
</TABLE>
2) The following interstate MCI Feature Card surcharges shall
be charged on all direct dial MCI Feature Card calls.
<TABLE>
<CAPTION>
Direct
From To Dial
- ---- -- ----
<S> <C> <C>
United States U.S., Puerto Rico
("U.S.") and U.S. Virgin
Islands $0.25
Puerto Rico U.S. $0.25
U.S. Virgin U.S. $0.25
Islands
U.S., Puerto Rico Canada
and U.S. Virgin
Islands $0.25
U.S., Puerto Rico International Locations
and U.S. Virgin Other than Canada $1.25
Islands
Canada U.S., Puerto Rico and
U.S. Virgin Islands $1.00
Canada International Locations $1.25
</TABLE>
3) The above discounts shall apply only to Customer's usage
charges for domestic interstate MCI Feature Card Service provided
pursuant to the Tariff but not to charges for monthly recurring, MCI
Feature Card surcharges, installation, taxes or surcharges applicable
to MCI Service(s), Directory Assistance, MCI intrastate charges and
charges for local access/egress services or facilities associated with
MCI Feature Card Service.
MCI CONFIDENTIAL
22
<PAGE> 25
4) The above discounts for MCI Feature Card Service are in
lieu of any tariffed discounts including, without limitation, the
discounts for MCI Feature Card Service available under MCI VIP, MCI VIP
Plus, MCI MOD and MCI CAS Service.
5) For MCI Feature Card Service (only accessed by dialing an
MCI- provided 800 number other than (800) 950-1022), Customer shall pay
MCI for the fulfillment costs associated with Customer's usage of MCI
Feature Card Service plus pay MCI an administrative charge for handling
fulfillment in an amount equal to fifteen percent (15%) of the
fulfillment costs.
6) For MCI Feature Card Service (only accessed by dialing an
MCI- provided 800 number other than (800) 950-1022), MCI shall provide
the fraud detection procedures set forth in Exhibit C, attached hereto
and incorporated herein by reference. Customer shall be responsible for
all fraud associated with its usage of MCI Feature Card Service, except
as set forth in Exhibit C.
B. Discounts on Associated Enhanced Services.
1) Customer will be entitled to the following applicable
incremental discounts on Customer's usage of Enhanced Services
(International PRISM I, including service terminating in Canada and
Mexico, International CNS, International 800, Carrier Operator
Services, Connections Card and networkMCI Conferencing Service) as
determined by Customer's Enhanced Services Monthly Usage (as defined
below) :
<TABLE>
<CAPTION>
Enhanced Services
Monthly Usage Discount
------------- --------
<S> <C>
$ 0 - $ 9,999 0%
10,000 - 24,999 2%
25,000 - 49,999 3%
50,000 - 99,999 4%
100,000 - 199,999 5%
200,000+ 6%
</TABLE>
The above discounts shall apply only to Customer's usage of Enhanced Services
provided pursuant to MCI's standard terms and conditions for such services, but
not to charges for installation, taxes or surcharges, and charges for local
access/egress services or facilities associated with Enhanced Services.
2) Enhanced Services Monthly Usage shall mean Customer's
monthly combined recurring and usage charges for Enhanced Services at
standard pricing but not including taxes (and gross receipts taxes),
surcharges, and any charges for tariffed services.
MCI CONFIDENTIAL
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<PAGE> 26
EXHIBIT C
MCI CONNECTION CARD FRAUD DETECTION PROCEDURES
====================
All calling card calls will be validated by MCI to permit only those calls
authorized or facilitated by Long Distance Direct, Inc. or legitimate card
holders. MCI will, at the direction of Customer, preclude all calls utilizing
expired or terminated calling card numbers compared against an authorized list
provided by Customer and will be responsible for all fraudulent use,
unauthorized use, misuse, or abuse of calling cards occurring after MCI receives
actual notice of the expiration or termination of a calling card or receives
specifically detailed written notification concerning any card which has been
lost, stolen, compromIsed or which Customer has reason to believe is or may be
used fraudulently. MCI will deactivate a calling card within four (4) hours of
receipt by MCI's Consumer Markets Fraud Detection of a request by Customer.
In addition, all calling card calls will be monitored by MCI for fraudulent use,
unauthorized use, misuse or abuse on a twenty four (24) hour a day, seven (7)
days a week basis. MCI shall establish fraud prevention, detection and
minimization procedures so that fraudulent use arising from lost or stolen
calling cards and potential disruption to authorized card holders will be
minimized.
MCI will not hold the Customer responsible for "service fraud" associated with
the unauthorized use of an MCI calling card. "Service fraud" can best be
described as unauthorized use of an MCI calling card following the involuntary
theft or loss of a card which was not intentionally facilitated or impliedly
authorized by Customer or an authorized user. "Service fraud" often follows the
theft of a wallet, purse or briefcase, or sometimes is the result of "shoulder
surfing" (thieves observing/recording authorization codes) which occurs at
payphones located in airports, bus terminals, train stations and the like. MCI
shall not be responsible for losses caused by fraudulent information submitted
by a card holder in subscribing for calling card services or for usage which was
intentionally facilitated or impliedly authorized by an authorized user.
In the event that MCI is unable to contact Customer of suspected abuse of the
calling card, in order to minimize potential abuse, MCI will deactivate any
calling card which has exceeded established fraud detection parameters or which
MCI has reason to believe is or may be used fraudulently.
MCI CONFIDENTIAL
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<PAGE> 27
EXHIBIT D
USE OF NAME GUIDELINES
MCI has developed the following guidelines to aid MCI Carrier Network Services
customers in determining the proper use of MCI's name, logo, trademarks and
service marks and the proper characterization of the MCI/Reseller relationship.
Resellers are not authorized to use MCI's name, its trademarks, servicemarks or
logo in any manner including use in advertising, promotional materials,
stationery, business cards, billing and signage. For example, Resellers MAY NOT
make in words or in substance the following statements:
"Network services provided by MCI"
"Authorized/Endorsed/Sponsored/Approved by MCI"
"Authorized Provider of MCI Services"
"Affiliate, or partner, or co-marketer with MCI"
If resellers wish to make any reference to MCI, they may ONLY make the following
declarative statement:
"Reseller's services utilize the MCI network"
However, the following conditions apply to this statement:
o This statement may not be used in ANY manner that is likely to create
confusion or to give the impression that MCI sponsors, endorses, or is
in any way affiliated with the Reseller;
o This statement may only be used as a declarative statement in any
printed or oral communication and may not be used as a headline or in
any advertising slogan or banner. In order to use this statement, the
Reseller's company name must appear or be verbalized prominently in the
written or oral communication;
o The statement may only appear once in each written promotional or
advertising piece. The MCI name may not be used in the same type style
that MCI uses and must not otherwise resemble the MCI name and/or logo;
o In any event, whenever the statement above is used, the type size for
this verbiage as it appears in any printed material may not exceed 1/8
of one (1) inch and cannot be larger, bolder, or a different color or
type style than the adjacent text.
In summary, this policy means no Reseller may state explicitly or implicitly
that it:
o Is an authorized agent, reseller, partner or co-marketer with MCI; or
o Provides MCI services; or
o Is affiliated with, authorized, sponsored by, or endorsed by MCI; or
o Has a special relationship with MCI.
MCI CONFIDENTIAL
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<PAGE> 28
MCI is aggressive about protecting its trademark, service mark and corporate
name. In the past, we have not hesitated to bring appropriate legal action to
protect our rights and we shall continue to be vigilant to ensure that these
guidelines are followed.
MCI CONFIDENTIAL
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<PAGE> 29
ATTACHMENT 1
LETTER OF AGENCY
ATTENTION: Concerned Local Operating Companies, AT&T and other Common
Carriers and All Equipment Vendors
The undersigned appoints MCI Telecommunications Corporation or any of its
affiliated companies ("MCI") as agent for the purpose of ordering, in connection
with MCI's provision of service to the undersigned, changes in and/or
maintenance on specific telecommunications service that you provide to the
undersigned including, without limitation, removing, adding to or rearranging
such telecommunications service.
You are hereby released from any and all liability for making pertinent
information available to MCI and for following MCI's instructions with respect
to any changes to or maintenance on the undersigned's telecommunications
service. You may deal directly with MCI on all matters pertaining to
telecommunications service and should follow instructions with respect thereto.
This authorization will remain in effect until modified or rescinded in writing
by the undersigned.
Signed this 4 day of August, 1995.
BY:
/s/
- --------------------------------
Authorized Customer Signature
President
- --------------------------------
Title
Long Distance Direct, Inc.
Company Name
<PAGE> 30
ATTACHMENT 2
MCI CARRIER OPERATOR SERVICES
Customer is interested in buying MCI Carrier Operator Services for resale and
MCI is interested in providing such services to Customer. In order to accomplish
those purposes the parties hereby agree as follows:
1. Operator Services.
(a) "Operator Service Calls" mean long distance calls dialed with the
0+, 01+ or 00- dialing pattern (and excluding calls dialed with the
950-XXXX and 800 dialing patterns).
(b) Customer shall not use any service mark or trademark of MCI or refer
to MCI in connection with any service provided hereunder without the
prior written approval of MCI.
(c) Call Originating Identification Information. MCI must receive
electronic call origination identification ANI information for each call
carried hereunder. If the Originating Site uses Feature Group D local
access service, the required call origination identification information
is automatically supplied by the local exchange company. If the
Originating Site uses a type of local access service other than Feature
Group D local access service, the Originating Site shall cause
electronic call origination identification information (in a form
acceptable to MCI) to be supplied to MCI at the initiation of each call.
(d) Emergency Calls.
(1) Each Originating Site shall configure its system so that 911
emergency calls, where available, and similar emergency calls,
will be automatically routed to the appropriate party or
clearing house without the intervention of MCI. Emergency calls
which do reach a MCI operator shall be handled in accordance
with MCI standard operating procedures.
(2) If Customer or MCI provides an emergency number database,
Customer agrees to indemnify and hold MCI harmless from any and
all claims, damages, fines, penalties and any other liabilities
(including attorney fees) arising out of the inaccuracy of any
information or the inadequacy of any procedure or personnel.
(e) Private Payphones.
(1) Private payphone lines must be classed as "07" COCOT.
(2) All payphones must have Billed Number Screening ("BNS"),
if available. If BNS is not available, the Customer will
be responsible for calls billed to any lines without BNS.
(3) Unless otherwise permitted by law, all 0- calls must be
passed to the Local Exchange Carrier ("LEC").
MCI CONFIDENTIAL
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<PAGE> 31
(4) Payphones must not block 950-XXXX or 1-800-XXX-XXXX calls.
(5) All payphones must have "011" blocking at the central
office, if available. If international blocking is not
available, or if Customer chooses not to block "011"
calls, then Customer assumes responsibility for any
international fraud.
(6) For Premises Telephones located in condominiums, Customer
shall be liable for all charges attributable to the
failure of Customer to secure screening which prevents 1+
10XXX domestic and international dialing and which
indicates to operators that the telephone is restricted to
prohibit billing to the original ANI.
(7) Customer shall be responsible for any fraud resulting from
its purchase and use of MCI Carrier Operator Services.
(f) Compliance. Customer will comply with applicable federal, state
and local laws and regulations, including without
limitation,laws and regulations relating to operator service
during the term of this Agreement.
(g) Authority.
(1) Customer warrants that it is authorized to select the
operator services carrier for the telephones served by Customer
pursuant to this Agreement. Customer agrees that if any other
party makes any claims against MCI for commissions from such
telephones, Customer will be responsible for any such claim.
Customer shall indemnify MCI and hold MCI harmless from any
loss, cost or expense resulting from such claim and will pay
MCI's reasonable attorney's fees resulting from any such claim.
(2) If Customer is an agent of the premises owner or telephone
owner for the Premises Telephones, Customer shall obtain the
written agreement of each premises owner and telephone owner for
each Premises Telephone authorizing Customer to select the
operator service carrier for the Premises Telephones and
Customer will submit a copy of such authorization to MCI upon
request. MCI may take steps to confirm compliance with this
provision, including, without limitation, contacting premises
owners and telephone owners whose telephones are submitted by
Customer.
(h) Liability.
Except in cases involving proved willful or wanton misconduct,
MCI's liability to Customer is limited to its obligation to
provide service as described herein. MCI SHALL NOT BE LIABLE FOR
ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE
LOSS OR DAMAGE OF ANY KIND, INCLUDING LOST PROFITS (WHETHER OR
NOT MCI WAS AWARE OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE), BY
REASON OF ANY ACT OR OMISSION IN ITS PERFORMANCE UNDER THIS
AGREEMENT. Customer shall indemnify and hold MCI harmless
against any and all claims, losses, liabilities, damages, costs
or expenses arising out of or related to this Agreement and
shall pay MCI's reasonable attorney's fees resulting from any
such claim.
MCI CONFIDENTIAL
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<PAGE> 32
2. Rates. The rates in the following schedule shall be charged on
Customer's usage of MCI Carrier Operator Services. The automated rate
will be charged from the time a call reaches a node until the call is
terminated. The live rate will be charged in addition to automated rates
for the portion of each call that is handled by a live operator.
<TABLE>
<CAPTION>
Automated Live
Monthly Attempts Rate/Sec. Rate/Sec.
---------------- --------- ---------
<S> <C> <C>
0 - 50,000 $0.00059 $0.01291
50,001 - 100,000 $0.00058 $0.01272
100,001 - 200,000 $0.00056 $0.01253
200,001 - 500,000 $0.00054 $0.01234
500,001 - 1,000,000 $0.00053 $0.01215
1,000,001 - 1,500,000 $0.00051 $0.01196
1,500,000 + $0.00049 $0.01177
</TABLE>
For calls terminated by MCI, Customer shall pay MCI an additional charge
for call termination rated at Customer's domestic interstate
non-dedicated outbound rate specified in Paragraph 4(a) of the Agreement
based on an eighteen (18) second minimum and rounded to six (6) second
increments.
3. Rate Quotes. If Customer has provided the appropriate rate information,
MCI will provide real-time rate quotes to callers. However, Customer
shall indemnify MCI and hold MCI harmless from any and all claims,
damages, fines, penalties or other liabilities (including attorney fees)
arising from the inaccuracy of any information or the inadequacy of any
procedures or personnel.
4. Customer Service. Customer agrees that all customer service calls (i.e.,
billing disputes, troubles, general inquiries) shall be routed to
Customer's customer service via a Customer-provided 800 number.
5. Language Assistance. Customer agrees that if, on a monthly basis, calls
utilizing MCI Carrier Operator Services language assistance exceed
thirty percent (30%), Customer shall pay two times the Tariff rate for
all calls exceeding thirty percent (30%).
6. Brand. Customer agrees that it will resell MCI Carrier Operator Services
in its own name only.
7. Service Delivery. Customer agrees that it will receive and deliver all
MCI Carrier Operator Services calls from/to one of the three (3) MCI
automated nodes via an MCI TDS-1.5 or TDS-45 circuit.
8. Billing. Customer agrees to be responsible for all end-user billing for
operator services and further agrees that if MCI provides rating and/or
recording services for billing, Customer shall indemnify and hold MCI
harmless from any and all claims, damages, fines, penalties or other
liabilities (including attorney fees) arising from the inaccuracy of any
information or the inadequacy of any procedures or personnel.
9. Forecasting. Customer agrees to provide a written monthly forecast for
automated and live MCI Carrier Operator Services to be received by MCI
no later than ten (10) days prior to the beginning of each month.
MCI CONFIDENTIAL
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<PAGE> 33
10. Force Majeure. If because of force majeure, MCI is unable wholly or in
part to carry out any of its obligations under this Agreement, such
obligations shall be suspended for the duration of the event of force
majeure. During the continuance of such force majeure, MCI shall incur
no liability by reason of its failure to perform the obligation so
suspended, provided, however, that the disabling effect of such force
majeure shall be eliminated as soon as and to the extent reasonably
possible. The term "force majeure" as used herein shall include switch,
radio or cable failure, cable cut, acts of God, riots, insurrection,
war, labor dispute, fire, flood, explosion, orders or acts of military
or civil authority, and any other cause beyond MCI's reasonable control.
11. Complete Agreement. This is the entire agreement of the parties with
respect to its subject matter and supersedes all prior agreements and
understandings, whether written or oral, concerning the subject matter.
This Agreement cannot be amended, or assigned by Customer, except by a
written agreement signed by both parties.
MCI CONFIDENTIAL
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<PAGE> 34
Exhibit 10.4
(supersedes contract
dated 8/95)
March 13, 1996
Mr. Steven Lampert
Long Distance Direct, Inc.
1 Blue Hill Plaza
Pearl River, NY 10965
Dear Steve;
Enclosed, please find the long awaited contract. There are two copies. Please
review the contract carefully and direct any questions to me at 914-251-2033.
After signing the contract, please forward BOTH copies back to me at the
following address:
Arthur Fox
MCI
5 International Drive
Rye Brook, New York, 10573
MCI will forward back one of the original contracts back to you upon
co-signature by MCI.
Thank You,
Art Fox
<PAGE> 35
Memorandum
[MCI LOGO]
Date To Dept./Loc.
March 29, 1996 Art Fox 2812/029
Subject From Dept./Loc.
Long Distance Direct Marlene Szach 6330/500
/s/ Marlene
MCI PRIVILEGED AND CONFIDENTIAL
DO NOT DISTRIBUTE
Attached is an original of the Long Distance Direct, Inc. Carrier Agreement.
Please deliver this original to the Customer, keep a copy for your files.
MS/ms
Attachment
cc: Jeannine Cordero
Julie Griffin
Legal Department - Chicago (w/original)
<PAGE> 36
CARRIER AGREEMENT
TERMS AND CONDITIONS
This Carrier Agreement (the "Agreement") is between MCI
TELECOMMUNICATIONS CORPORATION ("MCI") and LONG DISTANCE DIRECT, INC.
("Customer"), a resale common carrier subject to the Communications Act of 1934.
1. Scope of Agreement.
(a) MCI shall provide to Customer certain specified domestic interstate
service(s), international services, and intrastate common carriage
service(s). For domestic interstate and international services, this
Agreement incorporates by reference the terms of MCI Tariff FCC No. 1
("Tariff"), which is on file with the Federal Communications Commission
and which may be modified from time to time by MCI in accordance with
law and thereby affect the service(s) furnished Customer, except that
the following terms and conditions shall supplement or, to the extent
inconsistent, supersede Tariff terms and conditions and shall remain in
effect throughout the Service Term. For intrastate services, this
Agreement incorporates by reference each applicable state tariff filed
by MCI, which may be modified by MCI from time to time, and thereby
affect the service(s) furnished Customer. This Agreement is entered
pursuant to Section 211(a) of the Communications Act of 1934.
(b) Capitalized terms not otherwise defined in this Agreement shall have
the meanings assigned to them in the Tariff.
2. Monthly Commitment.
(a) During each of the first five (5) months of the Agreement Customer
shall have no minimum usage requirements.
(b) During the sixth (6th) through eighth (8th) monthly billing periods
under this Agreement, Customer's Monthly Usage shall equal or exceed Two
Hundred Fifty Thousand Dollars ($250,000).
(c) During the ninth (9th) through tenth (10th) monthly billing periods
under this Agreement, Customer's Monthly Usage shall equal or exceed
Five Hundred Thousand Dollars ($500,000).
(d) During the eleventh (11th) through twelfth (12th) monthly billing
periods under this Agreement, Customer's Monthly Usage shall equal or
exceed Seven Hundred Fifty Thousand Dollars ($750,000).
(e) During the thirteenth (13th) monthly billing period through the
remainder of the Service Term of this Agreement, Customer's Monthly
Usage shall equal or exceed One Million Dollars ($1,000,000).
MCI CONFIDENTIAL
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<PAGE> 37
(f) For purposes of this Agreement Paragraphs 2(a), 2(b), 2(c) and 2(d)
combined shall comprise the "Ramp Period" (as more fully described in
Paragraph 14 below) . Additionally, each such dollar amount set forth in
the subparagraphs above shall be referred to as the "Monthly
Commitment".
(g) In the event Customer's Carrier Identification Code ("CIC") is not
80% percent loaded upon the completion of the fourth (4th) monthly
billing period of the Ramp Period, MCI and Customer shall promptly meet
to discuss the extension of the Ramp Period.
(h) Monthly Usage shall mean Customer's domestic interstate usage of:
MCI Carrier Network Service at the rates identified in Paragraph 4
below, MCI Carrier Operator Service, MCI Directory Assistance, MCI Debit
Card Units, MCI Card Service, networkMCI Conferencing, MCI PRISM I
Service and MCI 800 DAL Service after application of discounts earned
hereunder, but not including any applicable taxes (and gross receipts
taxes) and tax-related surcharges on MCI Services. Monthly Usage also
includes usage of: (i) International Service (including MCI Service
terminating in Canada and Mexico) at the rates set forth below but
before any of the discounts earned under this Agreement, and
International 800 DAL Service at standard tariffed rates less discounts
earned under this Agreement (hereinafter "International Services"), but
not including any applicable taxes (and gross receipts taxes) and
tax-related surcharges on MCI International Services; and (ii)
intrastate MCI Services at standard tariffed rates after application of
any applicable tariffed discounts (hereinafter "Intrastate Services")
but not including any applicable taxes (and gross receipts taxes) and
tax-related surcharges on MCI Intrastate Services.
(i) During and after the Ramp Period, if Customer's Monthly Usage is
less than the applicable Monthly Commitment identified above, for that
month Customer will pay the Customer's actual combined monthly recurring
and usage charges for MCI services at standard MCI tariffed rates less
applicable tariffed discounts, and an underutilization charge (which
Customer agrees is reasonable) equal to fifteen percent (15%) of the
difference between the Monthly Commitment and Customer's Monthly Usage
capped at the Monthly Commitment.
(j) During any three (3) monthly billing periods of the Service Term
("Quarter") in which Customer's total aggregate Monthly Usage equals or
exceeds an amount equal to three (3) times the applicable Monthly
Commitment or Customer's aggregate Monthly Usage of CNS Outbound
International Service equals or exceeds an amount equal to three (3)
times the CNS International Subcommitment, Customer shall receive a
credit in an amount equal to any underutilization charges paid by
Customer during such Quarter for the Monthly Commitment or CNS
International Subcommitment, whichever is applicable. The credit shall
be applied to Customer's domestic interstate
MCI CONFIDENTIAL
3
<PAGE> 38
invoiced usage charges (excluding taxes, surcharges and pass-through
access/egress (or related) charges) appearing on Customer's monthly
invoice following such Quarter.
(k) (i) During each monthly billing period of the twelve (12) month Ramp
Period in which Customer's Monthly Usage exceeds the Monthly Commitment,
for such month, Customer shall receive a credit equal to the amount by
which Customer's Monthly Usage exceeds the Monthly Commitment. However,
in no event, shall the aggregate value of such credit(s) during the
twelve (12) month Ramp Period exceed One Million Dollars ($1,000,000).
(ii) If at the conclusion of the twelve (12) month Ramp Period,
Customer's aggregate credit amount equals or exceeds Seven Hundred Fifty
Thousand Dollars ($750,000), Customer shall be eligible to receive the
credit(s) for two (2) additional monthly billing periods. However, in no
event shall the aggregate value of the credits received during such two
(2) additional monthly billing periods exceed the difference between the
aggregate value of the credit at the conclusion of month twelve (12) of
the Ramp Period and One Million Dollars ($1,000,000).
(iii) The credits set forth in Paragraphs 2(k)(i) and 2(k) (ii) above
shall be applied to Customer's Monthly Usage charges (exclusive of
applicable taxes, surcharges, and pass-through access/egress(or related)
charges) for MCI Services hereunder.
3. Carrier Network Service
(a) In order to be eligible to purchase MCI Carrier Network
Service:
1) Except in areas where service origination is not
available from access providers via a Carrier Identification
Code ("CIC"), Customer must originate all traffic via Customer's
own CIC. Customer shall pay all charges associated with the
installation of Customer's CIC in all Local Exchange Carrier
("LEC") end offices.
2) Customer shall comply with Section 64.1100 of the FCC's
Rules and Regulations, as well as other applicable law or
regulation pertaining to the sale and delivery of
telecommunications service(s) to Customer's customers. MCI shall
not be liable to Customer's customers for any claim, liability
or expense asserted by those customers in connection with
Customer's sale or delivery of such service(s), including the
unauthorized conversion of a customer's Primary Interexchange
Carrier ("PIC") designation to Customer's CIC. In the event
Customer violates any FCC or other applicable law or regulation
pertaining to the sale or delivery of Customer's service(s) and
a final order is entered by the appropriate governmental body,
MCI may terminate this Agreement on not less than five (5) days
written notice.
MCI CONFIDENTIAL
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<PAGE> 39
In addition, Customer shall take or pay the amount billed plus the
difference between the amount billed in any month and the Monthly
Commitment. Customer shall indemnify and hold MCI harmless from any
actions, claims, suits or damages arising out of Customer's violation or
alleged violation of any FCC or other applicable law or state
regulation, and Customer shall pay all attorney fees and costs incurred
by MCI in connection with such actions, claims, suits or damages.
3) Customer agrees that it will obtain and maintain any and all
approvals to resell MCI Carrier Network Service hereunder from the FCC,
including requirements imposed by Section 214 of the Communications Act
of 1934, as amended, and state regulatory bodies.
4) Customer agrees to sell and bill MCI Carrier Network Service
under its own name, identity or mark, and Customer further agrees not to
reference MCI's name or marks in any context involving its furnishing of
service(s) to the public except as provided herein. Customer agrees to
abide by the "Use of Name Guidelines" contained in Exhibit D hereto. In
reselling MCI Services under this Agreement, Customer will observe the
highest standard of integrity and fair dealing with members of the
public. Customer will do nothing to discredit, dishonor, reflect
adversely upon or, in any manner, injure the reputation of MCI.
Furthermore, Customer agrees to indemnify MCI for any actions, claims,
suits or damages arising out of any allegation that if proved would
cause Customer to be in breach of this provision and Customer shall also
pay all attorney's fees and costs incurred by MCI due to any actions,
claims, suits or damages arising out of such allegation.
5) Except as set forth in Paragraph 11 herein, Customer shall
have sole responsibility for interacting with its customers in all
matters pertaining to service, including the placing and handling of
service orders, service installation, operation and termination, dispute
handling and resolution, and billing and collection matters. MCI shall
incur no obligation, nor shall it be deemed to have any obligation, to
interact with Customer's customers for any reason or purpose. Customer
shall cooperate with MCI as necessary to address and resolve
service-related issues and problems and shall impose upon its customers
an obligation to cooperate, with Customer in addressing and resolving
service-related issues and problems.
MCI CONFIDENTIAL
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<PAGE> 40
(b) Without limitation, if Customer fails to abide by the requirements in
Paragraph 3(a) above, such failure shall be regarded as a material
breach of this Agreement and MCI may terminate this Agreement on five
(5) business days written notice.
(c) Customer agrees that MCI may use the National Leads Information System
("NLIS") or an appropriate internal MCI system to determine Working
Telephone Number ("WTN") historical data regarding MCI and non-MCI PICs
and Customer understands that such systems are not error free. MCI will
not be liable to Customer for errors made in determining WTN in reliance
on information contained in NLIS or internal MCI systems.
(d) Customer understands and accepts that, as part of MCI's normal business
policy and practices and its obligations under law, MCI will engaqe in
extensive marketing efforts in attempt to sell its services to the
public and that such efforts will result in active competition with
Customer for the business of users who are Customer's customers or
prospects. Accordingly, Customer further understands and accepts that
such competition by MCI is in all respects fair and proper and that
Customer shall not complain, nor be heard to complain, of business lost
to MCI. Under no circumstance shall any inference be derived that MCI's
entry into this Agreement with Customer means that MCI will restrict its
efforts to compete against Customer in any way.
(e) Customer understands and accepts that no fiduciary relationship arises
by virtue of this Agreement and that, accordingly, MCI incurs none of
the obligations that arise in such relationship as an incident of its
fulfilling its obligations under this Agreement. Further, Customer
understands and accepts that MCI is not an insurer of profits for
Customer, nor does MCI guarantee the success of Customer's business as a
result of Customer's receipt of service(s) under this Agreement.
(f) Customer agrees that if its end-user makes a call using 1OXXX access
(utilizing Customer's CIC), from an ANI which Customer did not provide
to MCI to enter into MCI's Billing and Order Entry systems, MCI will
bill the call through the LEC at MCI tariffed rates, and MCI's name will
appear as the service provider on the LEC invoice. Furthermore, Customer
agrees its sales and marketing channels will only market 1OXXX access as
a dialing option from ANIs that the end-user had PIC'd to the Customer's
CIC, in areas where the Customer's CIC is pointed to MCI for
termination.
MCI CONFIDENTIAL
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<PAGE> 41
4. Carrier Network Service Rates.
(a) INTERSTATE RATES. For Carrier Network Service, except
for international service for which Customer shall pay
the rates contained herein or tariff rates if rates are
not contained herein, subject to the discounts contained
in Paragraphs 4(1) and (m), during the Ramp Period and
for as long as Customer achieves the Monthly Commitment,
Customer will pay in addition to all installation
charges, access and access-related charges, applicable
surcharges, taxes and tax-related charges, the following
non-distance sensitive "postalized" rate per minute as
determined by Customer's overall monthly usage:
<TABLE>
<CAPTION>
Domestic Non-Dedicated
Interstate Outbound
Monthly Usage Day Rate Non-Day Rate
------------- -------- ------------
<S> <C> <C>
$ 0 - $999,999 Tariff Tariff
$1,000,000 - 1,499,999 $0.1188 $0.1093
$1,500,000 + $0.1175 $0.1075
<CAPTION>
Domestic Non-Dedicated
Interstate 800
Monthly Usage Day Rate Non-Day Rate
------------- -------- ------------
<S> <C> <C>
$ 0 - $999,999 Tariff Tariff
$1,000,000 - 1,499,999 $0.1275 $0.1162
$1,500,000 + $0.1262 $0.1143
<CAPTION>
Domestic Dedicated Interstate
Outbound
Monthly Usage Rate
------------- --------
<S> <C>
$ 0 - $999,999 Tariff
$1,000,000 - 1,499,999 $0.0900
$1,500,000 + $0.0890
<CAPTION>
Domestic Dedicated Interstate
Inbound
Monthly Usage Rate
------------- --------
<S> <C>
$ 0 - $999,999 Tariff
$1,000,000 - 1,499,999 $0.1061
$1,500,000 + $0.1052
</TABLE>
"Standard MCI tariffed rates" for Carrier Network Services shall be deemed to be
tariffed Option G and Option F rates.
Customer is not eligible for any other tariffed discounts on such services.
MCI CONFIDENTIAL
7
<PAGE> 42
(b) INTERSTATE OUTBOUND - EXTENDED CALL COVERAGE FOR ALASKA, PUERTO RICO,
THE U.S. VIRGIN ISLANDS AND HAWAII. Customer will pay interstate rates
at the switched to switched or dedicated to switched base rates Option
G, Section C.3.0932 of the Tariff with associated maximizer discounts in
Paragraphs 4(1) and (m). Customer is not eligible for any tariffed
discounts on such service.
(c) INTERSTATE 800 - EXTENDED CALL COVERAGE FOR ALASKA, PUERTO RICO, THE
U.S. VIRGIN ISLANDS AND HAWAII. Customer will pay interstate rates at
the 800 Business Line Termination or Dedicated Termination Rates Option
F, Section C.3.08213 of the Tariff with associated maximizer discounts
in Paragraphs 4(1) and (m). Customer is not eligible for any tariffed
discounts on such service.
(d) INTRASTATE RATES (OUTBOUND). Customer shall pay for outbound intrastate
service tariffed rates for switched to switched or dedicated to switched
base rates in each applicable MCI state tariff. The discounts contained
in Paragraphs 4(1) and (m) will be supplemented by MCI with an
additional discount of fifteen percent (15%). The discounts will be
calculated on all intrastate outbound usage less taxes and tax-related
surcharges. The resulting amounts will be applied to Customer's
interstate usage only. Customer is not eligible for any other tariffed
discounts on such service. Credits may not exceed Customer's interstate
usage and may not be carried forward .
(e) INTRASTATE 800. For inbound intrastate service (800) Customer will pay
the 800 Business Line Termination or Dedicated Termination Base Rates in
each applicable MCI state tariff. MCI shall apply the maximizer
discounts in Paragraphs 4(1) and (m) and an additional discount of
fifteen percent (15%). The discounts will be calculated on all
intrastate 800 usage less taxes and tax-related surcharges. The
resulting amounts will be applied to Customer's interstate usage only.
Customer is not eligible for any other standard tariffed discounts on
such service. Credits may not exceed Customer's interstate usage and may
not be carried forward.
(f) CARRIER NETWORK SERVICE OUTBOUND INTERNATIONAL SUBCOMMITMENT.
1) During each monthly billing period of the Service Term,
Customer's usage of all MCI Carrier Network Services Outbound
International service (net of taxes and tax-related surcharges)
(excluding MCI service terminating in Canada and Mexico) shall equal or
exceed One Hundred Thousand Dollars ($100,000) ("CNS International
Subcommitment"). This CNS International Subcommitment shall be measured
at the rates set forth in Paragraphs (j) and (k). If Customer fails to
equal or exceed such subcommitment, Customer will pay Customer's
MCI CONFIDENTIAL
8
<PAGE> 43
actual combined monthly recurring and usage charges for MCI Carrier
Network Services Outbound International services (excluding MCI service
terminating in Canada and Mexico) at standard MCI Tariff rates less
applicable Tariff discounts, and an underutilization charge equal to
fifteen percent (15%) of the difference between the CNS International
Subcommitment and Customer's Carrier Network Services Outbound
International usage (excluding MCI service terminating in Canada and
Mexico) billed at Tariff rates less applicable Tariff discounts.
(g) INTERNATIONAL OUTBOUND TERMINATING IN MEXICO. For international outbound
service terminating in Mexico, Customer shall pay a postalized rate per
minute of $0.100 for the U.S. portion and international rates at the
Tariff Base Rates Option G, less a thirteen percent (13%) discount.
Customer shall not receive any maximizer discount for this service.
Customer is not eligible for any tariff discounts.
(h) INTERNATIONAL OUTBOUND TERMINATING IN CANADA. For international outbound
service terminating in Canada, Customer shall pay a postalized rate per
minute of $0.2000.
(i) INTERNATIONAL 800. For inbound international service (800), Customer
will pay international 800 rates at the Tariffed 800 Base Rates Option
F, Section C.3.07314 with associated maximizer discounts in Paragraphs
4(1) and (m). Customer is not eligible for any tariffed discounts on
such service.
(j) INTERNATIONAL DEDICATED OUTBOUND SERVICE. For international dedicated
outbound service, Customer shall receive the rates in Exhibit A less
$.0300 per minute on each country rate. Where country rates are not
contained in Exhibit A, Customer will pay international rates at the
Tariffed Base Rates Option C.3.073 with associated maximizer discounts
in Paragraph 4(m). Customer is not eligible for any tariffed discounts
on such service except as provided herein.
(k) INTERNATIONAL NON-DEDICATED CARRIER NETWORK SERVICE. Customer shall
receive the rates set forth in Exhibit A for all usage of Non-Dedicated
International Carrier Network Service. Where country rates are not
contained in Exhibit A, Customer will pay Tariff rates less Tariff
discounts. All of the rates contained in this Paragraph 4(k) shall
receive the associated maximizer discounts in Paragraph 4(1). Customer
is not eligible for any other standard tariffed discounts on such
service except as provided herein.
(1) NON-DEDICATED MARKETING MAXIMIZER DISCOUNTS. Customer will receive an
additional discount on all usage of non-dedicated MCI Carrier Network
Service less taxes and tax-related surcharges based on the number of
non-MCI ANIs or WTNs (ANIs
MCI CONFIDENTIAL
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<PAGE> 44
or WTNS that have not been PICed to MCI for at least the previous ninety (90)
days) that Customer converts to MCI. Each month MCI will calculate the overall
cumulative total of non-MCI ANIs or WTNs converted to MCI and then apply a
discount to Customer's usage as follows:
<TABLE>
<CAPTION>
Percentage of MCI Percentage of Non-Dedicated
Customer Numbers Sold Usage Eligible for 20%
by Customer Maximizer Discount
----------- ------------------
<S> <C>
20% or less 100%
21% - 25% 95%
26% - 30% 90%
31% - 40% 80%
41% - 50% 70%
51% - 60% 60%
</TABLE>
(m) DEDICATED MARKETING MAXIMIZER DISCOUNTS. Customer will receive an
additional discount on all usage of dedicated MCI Carrier Network
Service less taxes and tax-related surcharges based on the number of
non-MCI DALs that Customer converts to MCI. Each month MCI will
calculate the overall cumulative total of non-MCI DALs converted to MCI
and then apply a discount to Customer's usage as follows:
<TABLE>
<CAPTION>
Percentage of MCI Percentage of Dedicated Usage
Customer DALs Sold Eligible for 20%
by Customer Maximizer Discount
----------- ------------------
<S> <C>
20% or less 100%
21% - 25% 95%
26% - 30% 90%
31% - 40% 80%
41% - 50% 70%
51% - 60% 60%
</TABLE>
(n) If Customer's dedicated Carrier Network Services usage exceeds twenty
percent (20%) of Customer's total Carrier Network Services usage, then
the dedicated Carrier Network Services usage in excess of such twenty
percent (20%) shall not receive the Maximizer Discount provided pursuant
to Paragraph 4(m).
(o) During the Ramp Period of the Agreement, MCI will not measure converted
MCI ANIs, WTNS or DALs for the purpose of applying the Maximizer
Discount. All ANI's, WTNs and DALs will receive the twenty percent (20%)
Maximizer Discount. In the month following the end of the Ramp Period,
MCI will begin to measure and apply the above formula based on a monthly
average of ANI's, WTN's or DAL's to be installed to date.
MCI CONFIDENTIAL
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<PAGE> 45
(p) INTERNATIONAL OPTIMIZER.
1) In addition to the other rates and discounts for MCI CNS
International Service (excluding CNS International Service terminating
in Canada and Mexico) contained herein, and in each month in which
Customer equals or exceeds the International Subcommitment, Customer
shall receive an additional three percent (3%) monthly discount on
Customer's net monthly usage charges for MCI CNS International Service
terminating in the five (5) countries (excluding Canada or Mexico) with
the largest amount of MCI CNS International Service usage; provided,
however, in no event shall the amount of Customer's total MCI CNS
International Service usage receiving such three percent (3%) discount
exceed thirty percent (30%) of Customer's total MCI CNS International
Service usage (excluding usage to Canada and Mexico) for that month.
(q) DIRECTORY ASSISTANCE. For switched to switched and dedicated to switched
directory assistance, Customer shall pay $0.38. In each month in which
Customer's total number of directory assistance calls exceed twenty five
thousand (25,000), the above postalized rate for directory assistance
shall be reduced by $0.0100.
(r) HIGH TELCO COSTS. On a monthly basis, for CNS, MCI shall determine
Customer's minutes of use originating from or terminating to the
specific local exchange carriers identified in Schedule B below for the
following traffic types ("LEC Minutes"):
- CNS international, interstate, intrastate and intralata
outbound switched to switched and switched to dedicated;
and
- CNS interstate, intrastate and intralata inbound switched
to switched.
For the same CNS traffic types above, MCI shall determine the total CNS
minutes of use originating from or terminating to the United States,
Puerto Rico and the U.S. Virgin Islands regardless of the originating
and terminating local exchange carrier. These minutes of use shall be
referred to as "Total Minutes."
If LEC Minutes exceed twenty percent (20%) of Total Minutes ("20% Cap")
in any month, Customer shall pay the following per minute surcharge in
Schedule A in such month for each LEC Minute that exceeds the 20% Cap
based on the local exchange carrier territory in Schedule B in which the
call originates and/or terminates. The per minute surcharges listed in
MCI CONFIDENTIAL
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<PAGE> 46
Schedule A shall apply to each switched end of the call originating or
terminating in the LECS listed in Schedule B. For example, for a CNS
outbound interstate switched to switched minute originating in a Kansas
area served by Pioneer and terminating in a Wisconsin area served by
Urbane Tel, Customer shall pay a per minute surcharge of $O.063 ($O.030
plus $0.033).
The per minute surcharge shall be calculated by multiplying the
applicable per minute surcharge in Schedule A by the percentage
exceeding the 20% Cap times the minutes of the phone call. For example,
assuming Customer has 1,000 Total Minutes with 300 LEC Minutes (this
equals 30% LEC Minutes with 10% or one- third (1/3) of the LEC Minutes
exceeding the 20% Cap), the per minute surcharge for a 10 minute CNS
switched to switched call originating in the Southwestern Bell Telco
Region and terminating in the Ameritech Telco Region would be calculated
as follows:
($0.030 + $0.033) x 1/3 x 10 minutes = $0.2098 surcharge for
this call.
SCHEDULE A
<TABLE>
<CAPTION>
PER MINUTE SURCHARGE
Telco Region Originating Terminating
------------ ----------- -----------
<S> <C> <C>
Southwestern Bell $0.030 $0.033
Bell South $0.030 $0.033
Pac Bell $0.030 $0.035
US West $0.030 $0.035
Ameritech $0.030 $0.033
NYNEX $0.020 $0.020
Bell Atlantic $0.005 $0.005
<CAPTION>
SCHEDULE B
TELCO REGIONS
Southwestern Bell
-----------------
State Company
----- -------
<S> <C>
Arkansas Century
Arkansas Mountain Home
Kansas Pioneer
Missouri Fidelity
Missouri Lissouri Tel
Oklahoma Pioneer
Texas Sugarland
Texas San Marcos
Texas Eastex
Texas Etex
Texas Fort Bend
Texas Guadalupe
</TABLE>
MCI CONFIDENTIAL
12
<PAGE> 47
<TABLE>
<CAPTION>
<S> <C>
Texas Hill Country
Texas Kerrville
Texas Lufkin Conroe
Bell South
----------
State Company
----- -------
Alabama Gulf
Alabama Monroeville
Alabama Peoples
Alabama Southland
Alabama GTE South
Mississippi Home
N. Carolina Citizen
N. Carolina Concord
N. Carolina GTE South
N. Carolina Heins
N. Carolina Lexington
N. Carolina North State
N. Carolina Skyline
N. Carolina Star Tel
N. Carolina Surry
N. Carolina AllTel of KY
Florida St.Joseph Tel
Florida Centel of FL
Florida United of FL
Florida GTE South
Georgia Coastal Utilities
Georgia Standard
Georgia AllTel of GA
Kentucky AllTel of KY
Kentucky Bandenburg
Kentucky Foothills Rural
Kentucky Mountain Rural
Kentucky South Central Rural
Kentucky West KY Rural
Kentucky GTE South
Louisiana Central LA
Louisiana Coastal Tel. & Elec.
Louisiana East Ascension
Louisiana Lafourche
Louisiana Evangeline
S. Carolina Chester Tel
S. Carolina Farmers tel
S. Carolina Fort Mill
S. Carolina Hargray Tel
S. Carolina Home
S. Carolina Lancaster Tel
S. Carolina Rock Hill
S. Carolina GTE South
Tennessee Ben Lomand Rural
Tennessee Concord Tel
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 48
<TABLE>
<CAPTION>
<S> <C>
Tennessee Dekalb
Tennessee Millington
Tennessee N. Central Rural
Tennessee Twin Lakes Tel
PacBell
-------
State Company
----- -------
California Citizens Telecom
California Sierra Tel
California Roseville Tel
Nevada Mid America
Nevada Great Plains Tel
US West
-------
State Company
----- -------
Iowa Northwest Iowa
Iowa Jefferson Tel
Iowa Iowa Network
Iowa South Slope Tel
Minnesota Minn. Equal Access
Minnesota Mankato Citizens Tel
Minnesota East Otter Tail
South Dakota Brookings Municipal
Washington Pacific Telecom
Washington Ellensburg Tel
Ameritech
-------
State Company
----- -------
Illinois Harrisonville
Illinois Illinois Consolidated
Illinois Mt. Pulaski
Indiana NW Indiana Tel
Michigan CC&S Telephone
Michigan Century of Michigan
Michigan Climax Tel
Ohio Champaign Tel
Ohio Chilicothe
Wisconsin Century of Wisconsin
Wisconsin Mid-Plaines Tel
Wisconsin Monroe County
Wisconsin Northwest Tel
Wisconsin Solon Springs
Wisconsin Urban Tel
Wisconsin Wood County Tel
NYNEX
-------
State Company
----- -------
Maine Island Tel
Maine Hampden Tel
Maine Hartland
Maine St. Albany's Tel
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 49
<TABLE>
<CAPTION>
<S> <C>
Maine Somerset Tel
Maine Warren Tel
Maine West Penobscot
New Hampshire Chichester Tel
New Hampshire Keasarge Tel
New Hampshire Meriden Tel
Vermont Ludow Tel
Vermont Northfield Tel
Vermont Perkinsville Tel
New York Ausable Valley Tel
New York Edwards Tel
New York Citizens
New York Highland Tel, NY
New York Oriskany Falls Tel
New York Port Byron Tel
New York Rochester Tel
New York Seneca-Gorham Tel, NY
New York Sylvan Lake NY
Bell Atlantic
State Company
----------------- ----------------------
New Jersey United Tel
Pennsylvania Breezewood Tel
Pennsylvania Brookville Tel
Pennsylvania Canton Telephone
Pennsylvania Enterprise Tel
Pennsylvania GTE of PA
Pennsylvania Contel of PA
Pennsylvania Alltel Penna Inc
Pennsylvania Lakewood Rural
Pennsylvania Murrysville Tel
Pennsylvania Oswayo River Tel
Pennsylvania Quaker State Tel
Pennsylvania Sugar Valley Tel
Pennsylvania United Tel of PA
Virginia Amellia Tel Corp
Virginia Contel VA
Virginia Va Hot Springs
Virginia Central Tel of VA
West Virginia Mountain State Tel
West Virginia Inter Mountain Telco WV
Virginia GTE South
</TABLE>
(s) RELI. Customer shall receive the rates, terms and
conditions for MCI's RELI Service as set forth in Exhibit
E.
5. ANI Management Responsibilities. On or before the thirtieth (30th) day
after the close of the billing cycle, MCI will provide Customer with a
list of ANIs, including traffic minutes and number of calls associated
with ANIs associated
MCI CONFIDENTIAL
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<PAGE> 50
with Customer's Carrier Network Services Account ("MCI Active ANI
List"). Within thirty (30) days after Customer's receipt of the MCI
Active ANI List, Customer shall provide to MCI, in writing, with a
report of all ANIs in the billing cycle covered by the MCI Active ANI
List that were either: (1) ordered by Customer to be added by MCI to the
Customer's account, but which were not added to Customer's Network
Account; or (2) on the MCI Active ANI list but which Customer had
requested be deleted. For any ANI not timely included by Customer in the
Customer ANI Report: (1) Customer shall be liable to MCI for charges
associated with said ANI; and (2) MCI shall not be liable to Customer
for any costs, claims or damages resulting from failure to implement
Customer's directions with respect to said ANI.
6. Detention Facilities. Customer may not use MCI Carrier Network Services
in conjunction with the provision of communications services to any
detention facility, including, but not limited to, any local, state or
federal prison.
7. Additional Rates.
Customer shall receive the following rates during the Service Term for
MCI Services which terminate at a switch owned and operated by Customer.
During the Ramp Period, Customer shall receive the rates set forth below
and where Monthly Usage levels are provided, Customer shall receive the
rates at the Monthly Usage level of One Million Dollars ($1,000,000) to
One Million Four Hundred Ninety Nine Thousand Nine Hundred Ninety Nine
Dollars ($1,499,999) unless Customer's usage falls into a higher Monthly
Usage level, in which case Customer shall receive the rates for that
level. For MCI Services that require a subcommitment, Customer shall
receive the rates and discounts associated with Customer's subcommitment
level during the Ramp Period. Customer shall pay standard tariff rates
less applicable tariff discounts for all Intrastate Services.
Rates set forth in this Paragraph 7 do not include charges for
installation, taxes, tax-related surcharges, any other applicable
surcharges, charges for access and access-related charges (including,
without limitation, access charges in the Tariff, which are additional)
except as otherwise provided. Rates are in lieu of any discounts,
promotions, surcharges, and credits otherwise applicable pursuant to the
Tariff.
As a promotional offering to Customer for executing this Agreement on or
before the final date this offer is capable of acceptance, as specified
in Paragraph 27 of the Agreement, Customer shall pay MCI a monthly
recurring Central Office Connection charge of One Hundred Dollars ($100)
per circuit
MCI CONFIDENTIAL
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<PAGE> 51
and a monthly recurring Access Coordination charge of Fifty Dollars
($50) per circuit for MCI T-1 digital gateway access circuits installed
prior to the Effective Date of this Agreement and currently utilized by
Customer, and for MCI T-1 digital gateway access circuits installed
pursuant to this Agreement. Such charges shall be in effect for the term
of this Agreement, after which Customer shall pay standard tariffed
rates for such circuits.
(a) Domestic Interstate MCI PRISM I Service.
1) Except as provided in Paragraph 7(a)2), for domestic
interstate switched outbound service originating via dedicated access
from a Customer-owned location(s) to an MCI point of presence, except
for service terminating to Alaska, Hawaii, Puerto Rico, and the U.S.
Virgin Islands for which Customer shall pay Tariff rates less applicable
Tariff discounts, Customer will pay the following applicable
non-distance sensitive ("postalized") rate per minute as determined by
Customer's Monthly Usage:
<TABLE>
<CAPTION>
Rate
Monthly Usage Per Minute
------------- ----------
<S> <C>
$0 to $999,999 Tariff
$1,000,000 to $1,499,999 $0.0560
$1,500,000 and above $0.0555
</TABLE>
2) Customer shall pay the postalized rate per minute as
determined by Customer's Monthly Usage as set forth below for domestic
interstate MCI PRISM I Service terminating in the following Number Plan
Area Codes ("NPAs"):
<TABLE>
<CAPTION>
NPA STATE MAJOR CITY
--- ----- ----------
<S> <C> <C>
714 California Irvine
909 California Los Angeles
310 California Los Angeles
213 California Los Angeles
510 California Oakland
916 California Sacramento
619 California San Diego
415 California San Francisco
408 California San Jose
818 California Sherman Oaks
202 District of Columbia
302 Delaware Dover
410 Maryland Baltimore
301 Maryland Rockville
201 New Jersey Newark
215 Pennsylvania Philadelphia
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 52
<TABLE>
<CAPTION>
<S> <C> <C>
610 Pennsylvania Philadelphia
412 Pennsylvania Pittsburgh
703 Virginia Arlington
504 Virginia Arlington
804 Virginia Richmond
304 West Virginia Charleston
216 Ohio Cleveland
614 Ohio Columbus
513 Ohio Cincinnati
419 Ohio Toledo
313 Michigan Detroit
810 Michigan Detroit
517 Michigan Lansing
616 Michigan Grand Rapids
312 Illinois Chicago
708 Illinois Chicago
630 Illinois Chicago
309 Illinois Peoria
414 Wisconsin Milwaukee
608 Wisconsin Madison
812 Indiana Evansville
219 Indiana South Bend
317 Indiana Indianapolis
</TABLE>
<TABLE>
<CAPTION>
Postalized Rates
----------------
Monthly Usage Rate Per Minute
------------- ---------------
<S> <C>
$0 to $999,999 Tariff
$1,000,000 to $1,499,999 $0.0520
$1,500,000 and above $0.0515
</TABLE>
(b) Domestic Interstate MCI 800 DAL Service.
1) Except as provided in Paragraph 7(b)2) below, for domestic
interstate inbound services terminating via dedicated access from an MCI
point of presence to Customer-owned location(s), except for service
originating from Alaska, Hawaii, Puerto Rico, and the U.S. Virgin
Islands for which Customer shall pay Tariff rates less applicable Tariff
discounts, Customer will pay the following applicable postalized rate
per minute as determined by Customer's Monthly Usage:
<TABLE>
<CAPTION>
Rate
Monthly Usage Per Minute
------------- ----------
<S> <C>
$0 to $999,999 Tariff
$1,000,000 to $1,499,999 $0.0716
$1,500,000 and above $0.0710
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 53
2) Customer shall pay the postalized rate per minute as
determined by Customer's Monthly Usage as set forth below for domestic
interstate MCI 800 DAL Service originating in the following NPAs:
<TABLE>
<CAPTION>
NPA STATE MAJOR CITY
--- ----- ----------
<S> <C> <C>
714 California Irvine
909 California Los Angeles
310 California Los Angeles
213 California Los Angeles
510 California Oakland
916 California Sacramento
619 California San Diego
415 California San Francisco
408 California San Jose
818 California Sherman Oaks
202 District of Columbia
302 Delaware Dover
410 Maryland Baltimore
301 Maryland Rockville
201 New Jersey Newark
215 Pennsylvania Philadelphia
610 Pennsylvania Philadelphia
412 Pennsylvania Pittsburgh
703 Virginia Arlington
540 Virginia Arlington
804 Virginia Richmond
304 West Virginia Charleston
216 Ohio Cleveland
614 Ohio Columbus
513 Ohio Cincinnati
419 Ohio Toledo
313 Michigan Detroit
810 Michigan Detroit
312 Illinois Chicago
708 Illinois Chicago
630 Illinois Chicago
414 Wisconsin Milwaukee
317 Indiana Indianapolis
205 Alabama Montgomery
334 Alabama Montgomery
305 Florida Miami
954 Florida Miami
813 Florida Tampa
941 Florida Tampa
904 Florida Jacksonville
404 Georgia Atlanta
770 Georgia Atlanta
502 Kentucky Louisville
504 Louisiana New Orleans
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 54
<TABLE>
<CAPTION>
<S> <C> <C>
601 Mississippi Jackson
919 North Carolina Raleigh
910 North Carolina Raleigh
704 North Carolina Charlotte
803 South Carolina Columbia
615 Tennessee Nashville
</TABLE>
<TABLE>
<CAPTION>
Postalized Rates
----------------
Monthly Usage Rate Per Minute
------------- ---------------
<S> <C>
$0 to $999,999 Tariff
$1,000,000 to $1,499,999 $0.0685
$1,500,000 and above $0.0680
</TABLE>
3) The above rates for MCI 800 DAL Service do not include any
feature charges described in the Tariff, including, but not limited to,
any 800 Service Management System ("SMS") charges or RESP ORG charges,
which may be additional. Except as provided below, Customer shall pay
Tariff rates for feature charges associated with MCI 800 DAL Service.
For the features identified below, Customer shall pay Tariff rates
except that for each Corporate I.D., Customer shall pay a maximum of:
$300 per month, per Corporate I.D. for monthly charges
$100 per month, per Corporate I.D. for installation charges
$300 per month, per Corporate I.D. for change order charges
<TABLE>
<CAPTION>
Feature
-------
<S> <C>
Point of Call Routing Most Available Agent Routing
Day of Week Routing MCI Rules Based Routing
Time Interval Routing Tailored Call Coverage
Holiday Routing MCI Profile Routing
MCI Quota Routing DNIS
Percentage Allocation Routing Id Codes (per 100)
Sequential Allocation Routing
</TABLE>
(c) Domestic Debit Card Units
1) Customer shall utilize MCI for the debit card platform and
transport of Customer's domestic interstate termination of debit
card traffic. Debit card units shall be as defined in the Tariff
(hereinafter "Debit Card Units") . The rates below shall include
access to the MCI debit card platform, transport, order entry
and debit card activation. Customer shall pay the following rate
per Debit Card Unit, as determined by the number of Debit Card
Units purchased by Customer in each individual purchase, and not
determined by the aggregate number of
MCI CONFIDENTIAL
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<PAGE> 55
Debit Card Units purchased throughout the Service Term.
<TABLE>
<CAPTION>
Total Units Total Monthly Commitment
Per Order $100,000+
--------- ---------
<S> <C>
50,000 - 300,000 $0.170
Above 300,000 - 600,000 $0.160
Above 600,000 - 900,000 $0.150
Above 900,000 - 2,000,000 $0.140
Above 2,000,000 - 5,000,000 $0.130
</TABLE>
Customer shall order a minimum of Fifty Thousand (50,000) Units per
order.
2) Customer's Debit Card Units will only be reduced by the Debit Card
Units utilized by completed calls (calls that are answered at the
ultimate destination).
3) In addition to the above rates, Customer shall pay an additional Six
Hundred Dollar ($600.00) charge for each customized script identifying
Customer to its end user.
4) Customer shall be solely responsible for all card fulfillment,
customer service and any operator services except as provided in
Paragraph 7(c)7) below.
5) Customer shall not include MCI's name or logo on any Customer debit
card.
6) The rates and credits set forth above shall apply only to Carrier
Domestic Debit Card Orders.
7) If Customer chooses Operator Services for its end users, Customer
will be charged an additional $0.01 per unit for each debit card order.
(d) networkMCI Conferencing.
1) For domestic interstate Dial-Out and 800 Meet Me networkMCI
Conferencing Service, Customer shall pay the following non-distance
sensitive ("postalized") rates per minute for each bridge port
(inclusive of tariff set-up fees) used during all conference calling and
calculated on monthly usage:
MCI CONFIDENTIAL
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<PAGE> 56
<TABLE>
<CAPTION>
Monthly Per Minute
Forum Usage Rate Per Bridge Port
----------- --------------------
<S> <C>
$ 0 - $10,000 $0.2800
$10,000 - $20,000 $0.2750
$20,000 - $30,000 $0.2700
$30,000 - $40,000 $0.2650
$40,000 - $50,000 $0.2600
$50,000+ $0.2550
</TABLE>
2) For domestic interstate unattended networkMCI Conferencing
Service, Customer shall pay the following postalized rates per minute
for each bridge port (inclusive of tariff set-up fees) used during all
conference calling and calculated on monthly usage:
<TABLE>
<CAPTION>
Monthly Per Minute
networkMCI Usage Rate Per Bridge Port
---------------- --------------------
<S> <C>
$ 0 - $10,000 $0.2200
$10,000 - $20,000 $0.2162
$20,000 - $30,000 $0.2125
$30,000 - $40,000 $0.2087
$40,000 - $50,000 $0.2050
$50,000+ $0.2012
</TABLE>
3) For domestic interstate Local Meet Me networkMCI
Conferencing Service, Customer shall pay a per minute rate of $0.19 for
each bridge port (inclusive of tariff set-up fees) used during all
conference calling.
4) In order to receive the rates set forth in subsections
7(d)(1), 7(d)(2) and 7(d)(3) above, Customer must fulfill the following
criteria throughout the term:
(a) Customer shall provide an 800 line exclusively used for
customer service purposes; and
(b) Customer shall provide an 800 line to the MCI Conference
Center exclusively used for reservations; and
(c) Customer shall provide its own customer service personnel
and access.
5) MCI shall provide to Customer: (i) generic branding for
inbound conference calls; and (ii) customized branding for inbound calls
for reservation services. However, MCI shall not provide billing
services to Customer's end-users.
6) The rates provided herein are in lieu of any tariff
promotions or discounts.
MCI CONFIDENTIAL
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<PAGE> 57
7) Set up charges in Tariff will be waived. All other ancillary
charges in Tariff will not be waived.
(e) MCI Card Service and Associated Enhanced Services.
Customer will receive the discounts for MCI Card Service and
Associated Enhanced Services set forth in Exhibits B and C.
(f) MCI Carrier Operator Services.
Customer will receive the rates, service terms and conditions
for MCI Carrier Operator Services as set forth in Attachment 2.
(g) Domestic Interstate Directory Assistance.
1) For domestic interstate Directory Assistance, Customer will
pay, in addition to all applicable federal, state and local taxes and
surcharges, $0.35 per call.
2) In each month in which Customer's total number of Directory
Assistance calls exceeds twenty five thousand (25,000), the above
postalized rate for Directory Assistance shall be reduced by $0.0100.
8. Installation Waivers.
Customer shall receive a credit of up to Six Hundred Eighty
Thousand Dollars ($680,000) less amounts awarded to Customer pursuant to
the installation waiver provision set forth in the MCI Carrier Agreement
effective September 1, 1995 and is hereby terminated upon the Effective
Date of this Agreement. Such credit herein shall be applied to the
one-time installation (including CIC installation) and other one-time
non-recurring MCI-billed tariffed charges associated with the
implementation of Carrier Network Services. In no event shall the value
of such credit for each: (i) TDS 1.5 circuit exceed $2,500; or (ii)
TDS-45 circuit exceed $5,000. Additionally, from this installation
waiver credit, MCI will reimburse Customer on a monthly basis for PIC
change charges not to exceed Five Dollars ($5.00) per PIC.
9. Revenue Achievement Bonus Program.
(a) If Customer's total Monthly Usage during the Ramp Period and
Service Term equals or exceeds Forty Four Million Six Hundred Fifty Five
Thousand Dollars ($44,655,000) ("Credit Minimum"), Customer shall
receive a one-time credit in an amount equal to one month's Monthly
Usage of MCI Services. Such credit shall not exceed Customer's Monthly
Commitment.
MCI CONFIDENTIAL
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<PAGE> 58
(b) If the credit provided pursuant to the paragraph above is
earned prior to the conclusion of the Service Term, each time Customer's
total aggregate Monthly Usage earned thereafter equals or exceeds Thirty
Million Nine Hundred Fifteen Thousand Dollars ($30,915,000), Customer
will receive a one-time credit equal to one month's Monthly Usage of MCI
Services. Such credit will be based on the invoice in which Customer's
usage equals or exceeds such amount and will be applied to Customer's
next available invoice.
(c) Customer may only receive one credit pursuant to Paragraph
9(a) or (b) during any consecutive twelve (12) month period ("Annual
Period"). Credits earned in one Annual Period may not be carried forward
to the next Annual Period. Each credit shall equal no more than One
Million Dollars ($1,000,000). The credits set forth in Paragraphs 9(a)
and (b) above shall be applied to Customer's domestic interstate and
international usage charges (exclusive of applicable taxes, surcharges,
and pass-through access/egress (or related) charges) for MCI Services
hereunder.
10. Security.
Nothing contained herein shall limit or be interpreted to limit
MCI's right, as provided for in Section B-7.04 of MCI Tariff FCC No. 1,
to require, in MCI's sole discretion, security from Customer, and
Customer's failure or refusal to provide such security upon MCI's
reasonable request therefor may result in the cancellation of this
Agreement and Customer's service for cause pursuant to Section B-11.01
of the Tariff. The security arrangements provided for hereunder shall
survive the expiration of the Service Term, as defined herein, and shall
remain in effect so long as Customer remains a user or has any
outstanding balance due for use of MCI service(s).
11. Payment.
(a) Customer shall pay MCI for all MCI service(s) provided during the
usage month within twenty five (25) days from the last day of the usage
month. If Customer has received MCI's invoice, Customer will pay MCI the
amount invoiced. If Customer has not received MCI's invoice for the
services provided prior to the date when Customer must pay MCI, Customer
will pay MCI an amount estimated to be billed for services provided
during the prior month ("Estimated Payment") . At the initiation of this
Agreement, if Customer has not received MCI's invoice prior to the date
when Customer must pay MCI for services provided during the first month
of this Agreement, the Estimated Payment will be equal to
MCI CONFIDENTIAL
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<PAGE> 59
Customer's estimate of its prior month's usage. For each month
thereafter, the Estimated Payment will be equal to the amount of the
prior MCI invoice, or invoices which reflect one month's total usage of
MCI services received by the Customer.
(b) Within ten (10) days of the date of MCI'S invoice, MCI and Customer
will reconcile the Estimated Payment with the MCI invoice amount for
such month. MCI shall credit any Estimated Payment amount in excess of
the MCI invoice amount for such month on the next available invoice.
Immediately after reconciliation, Customer shall pay MCI any amount the
Estimated Payment was less than the MCI invoice amount for such month.
(c) Customer's failure to pay the invoiced amount in full within said
twenty five (25) day period may result in the exercise by MCI of its
rights under the security provisions contained in Paragraph 10,
immediately above, or in such Paragraph as it may be amended during the
Ramp Period and Service Term.
(d) For each month that Customer pays the amount invoiced within said
twenty five (25) day period described above, Customer shall receive a
discount equal to one percent (1%) of the amount invoiced (less charges
for installation, taxes, tax-related surcharges, any other applicable
surcharges, charges for access and access-related charges, including,
without limitation, access charges in the Tariff) in such month which
discount shall be applied to Customer's total monthly domestic
interstate usage for MCI services under this Agreement appearing on the
next month's invoice.
12. Dispute Resolution.
(a) Except as otherwise provided herein, any claims arising out of or
related to this Agreement, shall be made within one hundred and twenty
(120) days of their occurrence. If such claims cannot be resolved by
negotiation, they shall be settled by binding arbitration in accordance
with the rules contained in MCI Tariff FCC No. 1 ("Arbitration Rules").
Neither party may seek injunctive relief of any kind prior to the
confirmation of an arbitration award, except that MCI may seek
injunctive relief against Customer for violation of Paragraphs 3(a)2),
3) and 4), herein. Any claims made after one hundred and twenty (120)
days of the occurrence giving rise to such claims shall be barred.
(b) Either MCI or Customer may initiate arbitration by providing written
demand for arbitration, a copy of this Agreement and the administrative
fee required by the Arbitration Rules to the Endispute (or if Endispute
is not
MCI CONFIDENTIAL
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<PAGE> 60
available to the American Arbitration Association) office located in
Washington, D.C. A copy of such notice shall also be provided to the
other party. The remaining cost of the arbitration, including the fees
and expenses of the arbitrator, shall be shared equally by the parties
unless the arbitration award provides otherwise. Each party shall bear
the cost of preparing and presenting its case.
(c) One (1) arbitrator shall be appointed in accordance with the
Arbitration Rules within sixty (60) days of the submission of the demand
for arbitration, unless both parties otherwise agree in writing. The
Arbitrator shall designate the time and place for the hearing within
thirty (30) days of his or her appointment. MCI and the Customer agree
that the Arbitrator's authority to grant relief shall be subject to the
provisions of this Agreement, the United States Arbitration Act, 9
U.S.C. 1-16 et. seq. ("USAA"), the ABA-AAA Code of Ethics for
Arbitrators in Commercial Disputes, MCI Tariff FCC No. 1, substantive
law, and the Communications Act of 1934, 47 U.S.C. 151 et. seq. The
Arbitrator's decision shall follow the plain meaning of the relevant
documents, and shall be final and binding.
(d) MCI and the Customer agree to undertake all reasonable steps to
expedite the arbitration process.
(e) Notwithstanding any other provision of this Agreement,
interpretation and construction of this Paragraph shall be governed by
the USAA. MCI and the Customer further agree that judgment may be
entered upon the award in any court having jurisdiction thereof, and
that all post-award proceedings shall be governed by the USAA.
13. Termination for Insolvency.
In the event Customer becomes or is declared insolvent or
bankrupt, is the subject of any proceeding related to its liquidation,
insolvency or for the appointment of a receiver or similar officer for
it, makes an assignment for the benefit of all or substantially all of
its creditors, or enters into an agreement for the composition,
extension, or readjustment of all or substantially all of its
obligations, MCI may, by giving seven (7) business days written notice
thereof to Customer, terminate this Agreement without liability or
obligation, in whole or in part, as of a date specified in such notice
of termination.
MCI CONFIDENTIAL
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<PAGE> 61
14. Term.
The Ramp Period under this Agreement shall begin on April 1,
1996, provided Customer executes this Agreement on or before March 31,
1996 and shall continue for twelve (12) months. Alternatively, the Ramp
Period shall begin on the first day of the first full month following
the execution of this Agreement by MCI ("Effective Date") and shall
continue for twelve (12) months. The service term shall begin on the
first day of the thirteenth (13th) consecutive monthly billing period
and will continue for a period of thirty (30) months thereafter
("Service Term"). In the event Customer's CIC is not 80% loaded as
identified in Paragraph 2(g) above, MCI and Customer shall promptly meet
to discuss the extension of the Ramp Period. In the event the Ramp
Period is extended, the Service Term shall commence upon the completion
of the revised Ramp Period. Nothing contained herein, however, shall
modify or be deemed to modify MCI's right to terminate this Agreement
either as provided herein, or as authorized in Section B-11.01 of the
Tariff, immediately upon notice to Customer if Customer fails or refuses
to provide alternative or additional security requested pursuant to
Section B-7.04 of the Tariff, or to terminate provision of service for
any other cause as provided for in Section B-11.01 of the Tariff or as
otherwise provided for in this Agreement. Upon expiration of the Service
Term, Customer shall receive tariffed rates less applicable tariff
discounts for services hereunder.
15. Termination at Will.
During the first six (6) months of the Ramp Period, either party
may terminate this Agreement without liability by giving the other party
thirty (30) days written notice. However, if the first six (6) months of
the Ramp Period expires without such notice being given, this Agreement
shall remain in full force and effect.
16. Expiration of Term.
Unless the Service Term has been extended in writing by the
parties, upon expiration of the Service Term or termination of this
Agreement, Customer shall be fully subject to all the terms and
conditions, including standard tariffed rates, set forth in the Tariff
for MCI service(s) received by Customer after such expiration.
17. Termination Liability.
If Customer terminates this Agreement during the Service Term or
MCI terminates this Agreement during the Service Term for Customer's
breach, Customer will pay MCI within thirty
MCI CONFIDENTIAL
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<PAGE> 62
(30) days of the effective date of such termination an amount equal to
fifteen percent (15%), of the aggregate of Customer's remaining Monthly
Commitments, or a pro rata portion thereof for any partial month, for
each month remaining in the Service Term after termination. In addition
to the above liability for early termination, Customer shall pay the
termination liability for early termination of all tariffed discount
plans in which the Customer has enrolled. Customer shall also pay
termination charges associated with any applicable product
subcommitments contained in this Agreement. Customer shall also repay
any installation credits or payments received pursuant to Paragraph 8
herein.
18. Nondisclosure.
Customer shall not disclose to any third party during the
Service Term, or during the three (3) year period thereafter, any of the
terms and conditions set forth in this Agreement unless such disclosure
is lawfully required by any federal governmental agency or is otherwise
required to be disclosed by law or is necessary in any proceeding
establishing rights and obligations under this Agreement. MCI reserves
the right to terminate this Agreement immediately upon delivering
written notice to Customer of any unpermitted third party disclosure
hereunder.
19. Notices.
Notices to be given pursuant to this Agreement shall be in
writing, delivered personally or by facsimile, telex, telegram, MCI
Mail, professional courier or certified, registered or express mail,
postage prepaid to the respective addresses set forth herein (or at such
other addresses as shall be given in writing by either party to the
other). All notices, requests, demands or communications shall be deemed
effective upon the earlier of: (a) the date such notice has been
received; or (b) the next calendar day if sent by facsimile, telex,
telegram or MCI Mail; or (c) the third calendar day after delivery to a
professional courier service; or (d) five (5) calendar days after
deposit with the United States Postal Service if sent by certified or
registered mail, return receipt requested.
If to MCI:
MCI Telecommunications Corporation
205 North Michigan Avenue
Suite 3200
Chicago, Illinois 60601
ATTN: Legal Affairs Department
FACSIMILE NUMBER: 312-819-6745
MCI CONFIDENTIAL
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<PAGE> 63
If to Customer:
Long Distance Direct, Inc.
1 Blue Hill Plaza
Pearl River, New York 10965
ATTN: Steven Lampert, Chief Executive Officer
FACSIMILE NUMBER: 914-620-1889
20. Letter of Agency.
Customer shall appoint MCI as its agent in the Letter of Agency
attached hereto and incorporated herein as Attachment 1.
21. Surcharge Exemption.
When applicable, Customer shall certify that any special access
lines used in connection with services under this Agreement terminate in
a device not capable of interconnecting MCI's service with the local
exchange network and thus are surcharge exempt from the special access
surcharge.
22. Tax Exemption.
When applicable, Customer shall certify that it is exempt from
federal, state, and/or local taxes.
23. Predominant Carrier.
(a) Customer agrees to use MCI as its carrier for at least eighty
percent (80%) of Customer's needs for services as measured by revenue
that are either MCI services or interexchange carrier services during
the Service Term provided that this condition shall not: (i) require any
termination of an existing contract not terminable by Customer; or (ii)
prevent Customer from obtaining at any time service(s) not available
from MCI at certain locations.
(b) After the Effective Date of this Agreement, but not more than once
semi-annually, MCI may request, and Customer shall promptly provide to
MCI in writing or in a machine readable format as specified by MCI,
Customer records, data and invoices pertaining to its total long
distance telecommunications usage for the most recent six (6) month
period preceding the request. MCI may review this information for the
sole purpose of determining Customer's compliance with the predominant
carrier provision herein, or as it may be amended by the parties.
(c) In each monthly billing period of the Service Term in which Customer
fails to satisfy the predominant carrier requirement set forth herein,
Customer shall not be entitled
MCI CONFIDENTIAL
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<PAGE> 64
to any of the postalized rates set forth in this Agreement and
Customer's use of MCI service(s) shall be discounted that month solely
pursuant to the applicable tariffed MCI discount rate, if any,
associated with Customer's actual usage level for that monthly billing
period.
24. Governing Law.
This Agreement, including all matters relating to the validity,
construction, performance and enforcement thereof, shall be governed by
the laws of the State of New York without giving reference to its
principles of conflicts of law, except to the extent the Communications
Act of 1934, as amended, and as interpreted and applied by judicial and
regulatory authorities including the Federal Communications Commission,
applies.
25. Assignment.
This Agreement shall be binding on Customer and its respective
successors and assigns. Customer may not assign this Agreement, whether
by operation of law or otherwise, without the prior written consent of
MCI and any unpermitted attempted assigned shall be void. MCI may
terminate this Agreement without liability on ten (10) business days
written notice in the event that Customer undergoes a merger involving a
change of control, or divests itself of all or a substantial portion of
its telecommunications business or undergoes a change of fifty one
percent (51%) or more of its ownership or management or leverage or sale
occurs involving fifty one percent (51%) or more of Customer's assets or
Customer's base.
26. No Waiver.
No waiver of any of the provisions of this Agreement shall be
binding unless it is in writing and signed by both parties. The failure
of either party to insist on the strict enforcement of any provision of
this Agreement shall not constitute a waiver of any provision and all
terms shall remain in full force and effect.
27. Length of Offer; Entire Agreement; Amendments.
This offer shall remain open and be capable of being accepted by
Customer until MARCH 29, 1996. Any and all prior or contemporaneous
offers, agreements, representations and understandings made to Customer,
whether written or oral, shall be superseded by this offer. Exclusive of
any tariff modifications initiated by MCI, once this Agreement has been
executed, any amendments hereto must be made in writing and signed by
both parties.
MCI CONFIDENTIAL
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<PAGE> 65
IN WITNESS WHEREOF, the parties hereto each acting with proper authority have
executed this Agreement.
MCI TELECOMMUNICATIONS CORPORATION
By: /s/ Jon McGuire
--------------------------
Jon McGuire
Vice President,
Title: Business Markets
-----------------------
Date: 3/26/96
------------------------
LONG DISTANCE DIRECT, INC.
By:
---------------------------
(Signature)
Title: President
-----------------------
Date: 3/14/96
------------------------
MCI CONFIDENTIAL
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<PAGE> 66
EXHIBIT A
CARRIER NETWORK SERVICES
INTERNATIONAL RATES
<TABLE>
<CAPTION>
PEAK OFF PEAK
COUNTRY 1ST 18 Sec. Add'l 6 Sec. 1st 18 Sec. Add'l 6 Sec.
- ------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Antigua 0.3188 0.1063 0.2496 0.0832
Argentin 0.3024 0.1008 0.2440 0.0813
Austral 0.2018 0.0673 0.2018 0.0673
Austria 0.2739 0.0913 0.2133 0.0711
Bahamas 0.2189 0.0730 0.2189 0.0730
Bahrain 0.5288 0.1763 0.4003 0.1334
Banglad 0.7943 0.2648 0.5165 0.1722
Barbad 0.3013 0.1000 0.2362 0.0787
Belgium 0.3261 0.1087 0.3212 0.1071
Belize 0.4200 0.1400 0.3570 0.1190
Bermuda 0.2240 0.0747 0.1751 0.0584
Bolivia 0.4480 0.1493 0.3517 0.1172
Brazil 0.2831 0.0944 0.2570 0.0857
BrVirgIs 0.3615 0.1205 0.3069 0.1023
Caymanls 0.3518 0.1173 0.2752 0.0917
Chile 0.3539 0.1180 0.2710 0.0903
China 0.7366 0.2455 0.5542 0.1847
Colombia 0.3013 0.1004 0.2567 0.0856
Cos Rica 0.3611 0.1204 0.2906 0.0969
CzechRep 0.3970 0.1323 0.3212 0.1071
Denmark 0.3366 0.1122 0.2710 0.0903
Dom Rep 0.2894 0.0965 0.2320 0.0773
Ecuador 0.4000 0.1333 0.3248 0.1083
Egypt 0.4942 0.1647 0.3706 0.1235
El Salva 0.3461 0.1154 0.2792 0.0931
Finland 0.3558 0.1186 0.3490 0.1163
France 0.1637 0.0546 0.1637 0.0546
Germany 0.1827 0.0609 0.1827 0.0609
Greece 0.3866 0.1289 0.3278 0.1093
Grenada 0.3432 0.1144 0.2911 0.0970
Guam 0.5188 0.1729 0.4183 0.1394
Guatema 0.5091 0.1697 0.4429 0.1476
Haiti 0.3276 0.1092 0.2867 0.0956
Hondur 0.4213 0.1404 0.3339 0.1113
Hong Kg 0.1912 0.0637 0.1868 0.0623
Hungary 0.4266 0.1422 0.3339 0.1113
India 0.5832 0.1944 0.5417 0.1806
Indones 0.5933 0.1978 0.4664 0.1555
Ireland 0.3038 0.1013 0.3033 0.1011
Israel 0.3368 0.1123 0.2805 0.0935
Italy 0.2573 0.0858 0.2273 0.0758
Jamaica 0.3756 0.1252 0.2909 0.0970
Japan 0.1713 0.0571 0.1713 0.0571
Jordan 0.4687 0.1562 0.4687 0.1562
Korea 0.3046 0.1015 0.3046 0.1015
Kuwait 0.4467 0.1489 0.3767 0.1256
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 67
<TABLE>
<S> <C> <C> <C> <C>
Lebanon 0.7338 0.2446 0.6310 0.2103
Luxembg 0.3734 0.1245 0.2906 0.0969
Malays 0.5675 0.1892 0.4507 0.1502
Nether 0.1865 0.0622 0.1865 0.0622
NetAnt 0.3224 0.1075 0.2739 0.0913
New Zea 0.5527 0.1842 0.5464 0.1821
Nicarag 0.4276 0.1425 0.3344 0.1115
Nigeria 0.3942 0.1314 0.3324 0.1108
Norway 0.3159 0.1053 0.3159 0.1053
Pakist 0.7460 0.2487 0.5712 0.1904
Panama 0.3696 0.1232 0.2967 0.0989
Parag 0.4798 0.1599 0.3768 0.1256
Peru 0.4061 0.1354 0.3584 0.1195
Philip 0.5099 0.1700 0.4414 0.1471
Poland 0.4082 0.1361 0.3502 0.1167
Portug 0.4168 0.1389 0.3295 0.1098
Russia 0.5533 0.1844 0.4681 0.1560
SaudiAr 0.4205 0.1402 0.3547 0.1182
Singa 0.4786 0.1595 0.4786 0.1595
So Afr 0.3593 0.1198 0.2830 0.0943
Spain 0.2625 0.0875 0.2217 0.0739
Sweden 0.2942 0.0981 0.2942 0.0981
Switzer 0.1990 0.0663 0.1940 0.0647
Taiwan 0.3046 0.1015 0.3046 0.1015
Thailnd 0.5675 0.1892 0.4509 0.1503
Turkey 0.3983 0.1328 0.3366 0.1122
Ukraine 0.7132 0.2377 0.6034 0.2011
UK 0.1294 0.0431 0.1294 0.0431
Uruguay 0.4305 0.1435 0.3377 0.1126
U.A.E. 0.4461 0.1487 0.4461 0.1487
Venez 0.2185 0.0728 0.1866 0.0622
Vietnam 0.7360 0.2453 0.6723 0.2241
Yemen 0.5191 0.1730 0.4390 0.1463
Zaire 0.5180 0.1727 0.3885 0.1295
</TABLE>
MCI CONFIDENTIAL
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<PAGE> 68
EXHIBIT B
MCI FEATURE CARD SERVICE AND
ASSOCIATED ENHANCED SERVICES DISCOUNTS
A. MCI Feature Card Service Discounts.
1) Customer shall receive a thirty seven percent (37%) discount
on its usage of domestic interstate, domestic intrastate, and
international MCI Feature Card Service (only accessed by dialing an
MCI-provided 800 number other than (800) 950-1022 in accordance with
Section C-A.05, Footnote 2, of the Tariff or any successor tariffed
provision) as determined by Customer's MCI Feature Card Monthly Usage:
2) The following interstate MCI Feature Card surcharges shall be
charged on all direct dial MCI Feature Card calls.
<TABLE>
<CAPTION>
Direct
From To Dial
---- -- ----
<S> <C> <C>
United States U.S., Puerto Rico
("U.S.") and U.S. Virgin
Islands $0.25
Puerto Rico U.S. $0.25
U.S. Virgin U.S. $0.25
Islands
U.S., Puerto Rico Canada
and U.S. Virgin
Islands $0.25
U.S., Puerto Rico International Locations
and U.S. Virgin Other than Canada $1.25
Islands
Canada U.S., Puerto Rico and
U.S. Virgin Islands $1.00
Canada International Locations $1.25
</TABLE>
3) The above discounts shall apply only to Customer's usage
charges for domestic interstate MCI Feature Card Service provided
pursuant to the Tariff but not to charges for monthly recurring, MCI
Feature Card surcharges, installation, taxes or surcharges applicable to
MCI Service(s), Directory Assistance, and charges for local
access/egress services or facilities associated with MCI Feature Card
Service.
MCI CONFIDENTIAL
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<PAGE> 69
4) The above discounts for MCI Feature Card Service are in lieu
of any tariffed discounts including, without limitation, the discounts
for MCI Feature Card Service available under MCI VIP, MCI VIP Plus, MCI
MOD and MCI CAS Service.
5) For MCI Feature Card Service (only accessed by dialing an
MCI-provided 800 number other than (800) 950-1022), Customer shall pay
MCI for the fulfillment costs associated with Customer's usage of MCI
Feature Card Service plus pay MCI an administrative charge for handling
fulfillment in an amount equal to fifteen percent (15%) of the
fulfillment costs.
6) For MCI Feature Card Service (only accessed by dialing an
MCI-provided 800 number other than (800) 950-1022), MCI shall provide
the fraud detection procedures set forth in Exhibit C, attached hereto
and incorporated herein by reference. Customer shall be responsible for
all fraud associated with its usage of MCI Feature Card Service, except
as set forth in Exhibit C.
B. Discounts on Associated Feature Services.
1) Customer will be entitled to the following applicable
incremental discounts on Customer's usage of Enhanced Services (MCI
Messenger Service, *3 Flexible Routing for Voice Mail, Voice News
Network, Speed Dialing and Conference Calling accessed by use of the MCI
Feature Card) as determined by Customer's Enhanced Services Monthly
Usage (as defined below):
<TABLE>
<CAPTION>
Enhanced Services
Monthly Usage Discount
------------- --------
<S> <C>
$ 0 - $ 1,999 3%
2,000 - 49,999 12%
50,000 - 149,999 13%
150,000 - 249,999 14%
250,000 - 499,999 15%
500,000 - 749,999 16%
750,000 + 17%
</TABLE>
The above discounts shall apply only to Customer's usage of Enhanced
Services provided pursuant to MCI's standard terms and conditions for
such services, but not to charges for installation, taxes or surcharges,
and charges for local access/egress services or facilities associated
with Enhanced Services.
2) Enhanced Services Monthly Usage shall mean Customer's monthly
combined recurring and usage charges for Enhanced Services at standard
pricing but not including taxes (and gross receipts taxes), surcharges,
and any charges for MCI Tariff or state tariff services.
MCI CONFIDENTIAL
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<PAGE> 70
EXHIBIT C
MCI CONNECTION CARD FRAUD DETECTION PROCEDURES
All calling card calls will be validated by MCI to permit only those calls
authorized or facilitated by Long Distance Direct, Inc. or legitimate card
holders. MCI will, at the direction of Customer, preclude all calls utilizing
expired or terminated calling card numbers compared against an authorized list
provided by Customer and will be responsible for all fraudulent use,
unauthorized use, misuse, or abuse of calling cards occurring after MCI receives
actual notice of the expiration or termination of a calling card or receives
specifically detailed written notification concerning any card which has been
lost, stolen, compromised or which Customer has reason to believe is or may be
used fraudulently. MCI will deactivate a calling card within four (4) hours of
receipt by MCI's Consumer Markets Fraud Detection of a request by Customer.
In addition, all calling card calls will be monitored by MCI for fraudulent use,
unauthorized use, misuse or abuse on a twenty four (24) hour a day, seven (7)
days a week basis. MCI shall establish fraud prevention, detection and
minimization procedures so that fraudulent use arising from lost or stolen
calling cards and potential disruption to authorized card holders will be
minimized.
MCI will not hold the Customer responsible for "service fraud" associated with
the unauthorized use of an MCI calling card. "Service fraud" can best be
described as unauthorized use of an MCI calling card following the involuntary
theft or loss of a card which was not intentionally facilitated or impliedly
authorized by Customer or an authorized user. "Service fraud" often follows the
theft of a wallet, purse or briefcase, or sometimes is the result of "shoulder
surfing" (thieves observing/recording authorization codes) which occurs at
payphones located in airports, bus terminals, train stations and the like. MCI
shall not be responsible for losses caused by fraudulent information submitted
by a card holder in subscribing for calling card services or for usage which was
intentionally facilitated or impliedly authorized by an authorized user.
In the event that MCI is unable to contact Customer of suspected abuse of the
calling card, in order to minimize potential abuse, MCI will deactivate any
calling card which has exceeded established fraud detection parameters or which
MCI has reason to believe is or may be used fraudulently.
MCI CONFIDENTIAL
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<PAGE> 71
EXHIBIT D
USE OF NAME GUIDELINES
MCI has developed the following guidelines to aid MCI Carrier Network Services
customers in determining the proper use of MCI's name, logo, trademarks and
service marks and the proper characterization of the MCI/Reseller relationship.
Resellers are not authorized to use MCI's name, its trademarks, servicemarks or
logo in any manner including use in advertising, promotional materials,
stationery, business cards, billing and signage. For example, Resellers MAY NOT
make in words or in substance the following statements:
"Network services provided by MCI"
"Authorized/Endorsed/Sponsored/Approved by MCI"
"Authorized Provider of MCI Services"
"Affiliate, or partner, or co-marketer with MCI"
If resellers wish to make any reference to MCI, they may ONLY make the following
declarative statement:
"Reseller's services utilize the MCI network"
However, the following conditions apply to this statement:
- This statement may not be used in ANY manner that is likely to create
confusion or to give the impression that MCI sponsors, endorses, or is
in any way affiliated with the Reseller;
- This statement may only be used as a declarative statement in any
printed or oral communication and may not be used as a headline or in
any advertising slogan or banner. In order to use this statement, the
Reseller's company name must appear or be verbalized prominently in the
written or oral communication;
- The statement may only appear once in each written promotional or
advertising piece. The MCI name may not be used in the same type style
that MCI uses and must not otherwise resemble the MCI name and/or logo;
- In any event, whenever the statement above is used, the type size for
this verbiage as it appears in any printed material may not exceed 1/8
of one (1) inch and cannot be larger, bolder, or a different color or
type style than the adjacent text.
MCI CONFIDENTIAL
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<PAGE> 72
In summary, this policy means no Reseller may state explicitly or implicitly
that it:
- Is an authorized agent, reseller, partner or co-marketer with MCI; or
- Provides MCI services; or
- Is affiliated with, authorized, sponsored by, or endorsed by MCI; or
- Has a special relationship with MCI.
MCI is aggressive about protecting its trademark, service mark and corporate
name. In the past, we have not hesitated to bring appropriate legal action to
protect our rights and we shall continue to be vigilant to ensure that these
guidelines are followed.
MCI CONFIDENTIAL
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<PAGE> 73
EXHIBIT E
RELI
Customer and MCI will work together to implement Reseller Enhanced LEC Interface
Service ("RELI") that facilitates Customer's PIC changes at the appropriate LEC
in accordance with the respective responsibilities outlined in this Exhibit.
Customer understands and agrees that MCI will establish a reasonable
implementation schedule based on MCI's receipt and processing of all required
paperwork and the number of other pending RELI installs. Therefore, immediate
implementation of RELI may not be available and Customer will be advised of
MCI's expected implementation schedule. MCI shall provide RELI only for ANI's on
MCI Carrier Network Services.
PRICING
1. Customer shall pay MCI an initial non-recurring charge of Two Thousand
Dollars ($2,000) and a monthly recurring charge based on Customer's
monthly usage of MCI Carrier Network Services, determined as follows:
<TABLE>
<CAPTION>
Monthly Usage of MCI Monthly
Carrier Network Services Recurring Charge
------------------------ ----------------
<S> <C>
$ 0 - $100,000 $ 300
$100,001 - $200,000 $ 575
$200,001 - $300,000 $ 825
$300,001 - $400,000 $1,075
$400,001 - $500,000 $1,300
$500,001 + $1,500
</TABLE>
The above charges are only for ANI's provisioned on MCI's CNS platform
via RELI. These charges are exclusive of any applicable charges for LEC
services.
2. The charges set forth in Paragraph 1 above are for RELI via Network Data
Mover transmission to one or more of the following Bell Operating
Companies ("BOC's") or major independent telephone companies ("ITC's")
(hereinafter BOC's and ITC's shall be called "LECS") . For MCI provided
RELI to these LECs, Network Data Mover transmission must be used:
Bell South SouthWestern Bell PacBell
Nynex Bell Atlantic US West
Ameritech GTE Cincinnati Bell
SNET Sprint/United RTC
AllTel Nevada Bell
Customer understands and agrees that it will be fully responsible for
any set-up fees associated with its receipt of service hereunder that
are charged by the companies listed in Paragraph 2.
MCI CONFIDENTIAL
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<PAGE> 74
3. For those LEC's not listed in Paragraph 2, RELI service may
not be available.
4. Customer will provide at its expense its own internal hardware
and software needed for MCI RELI.
5. Customer understands that the pricing set forth above applies solely to
ANI loading to CICs which are routed to MCI and includes retransmission
of ANIs rejected by a LEC. The above pricing does not apply to non-MCI
CNS ANIs.
CUSTOMER RESPONSIBILITIES
- - Customer will be responsible for providing MCI with all necessary end
user information to process all PIC install/change requests. This
information includes, but is not limited to:
- End User Name
- End User Address
- End User Working Telephone Number (WTN)
- End User Billing Telephone Number (BTN)
- Service Request (i.e., 1+, 800 etc.)
- - Customer will handle rejects from the front-end edits made by MCI prior
to the order being sent to the LEC or SMS.
- - Customer will work with MCI to outline all technical interfaces between
Customer and MCI. Customer will provide a detailed overview of its
Systems and processes to MCI.
- - Customer will be responsible for reconciliation of ANIs in its database
against ANI information provided by MCI to Customer.
- - Customer will be responsible for resolving all records
rejected by the LECs and for informing MCI of the resolution.
- - Customer will be responsible for payment of all charges imposed by the
LECs for processing records, including but not limited to all PIC fees
and account maintenance charges.
- - Customer will provide MCI with quarterly forecasts of its CNS outbound
and inbound minutes of use. Such statistical information will be
detailed at the NPA or serving area level.
- - Customer will obtain, complete and deliver all documentation required to
establish communications with each LEC.
- - Customer will provide MCI with a complete and prioritized list
specifying the LECs with which Customer wants MCI to establish service
hereunder .
MCI CONFIDENTIAL
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<PAGE> 75
- - Customer will be responsible for updating, storing and maintaining its
files after they have been received from MCI via "CarrierBase", the
front-end Guided User Interface used by MCI Carrier Order Entry Hub to
process orders.
- - If Customer experiences problems with data received hereunder, Customer
is responsible for contacting the Carrier Order Entry Hub to initiate
re-delivery of the data.
- - After the RELI is tested and implemented for the Customer to a
particular LEC, Customer will utilize RELI for all PIC requests relating
to MCI CNS ANIs.
- - Once Customer starts using RELI for a particular LEC, Customer can only
submit PIC requests via RELI to that LEC. The LEC's only allow one
medium and source of transmission for PIC provisioning. Therefore
customers that perform PIC provisioning for ANI's on their
facilities-based network can not use RELI for CNS PIC provisioning with
the same LEC.
MCI RESPONSIBILITIES
- - MCI will be responsible for implementing and managing the LEC interface
process, other than Customer's internal costs incurred in performing its
responsibilities in connection with this process.
- - Order Entry processing will occur in MCI's Carrier Order Entry
Hub in Atlanta.
- - MCI's Carrier Order Entry Hub will notify Customer of any MCI,
Third Party Vendor, or LEC system impairments or limitations.
MCI and Third Party Vendor system impairments or limitations
will be communicated to Customer within forty-eight (48) hours
of the occurrence. LEC system impairments or limitations will
be communicated within forty-eight (48) hours of receipt of
MCI notification. Customer understands and agrees that MCI
has no liability for delayed network data mover transmissions
resulting from any MCI, Third Party Vendor or LEC system
impairments or limitations.
- - MCI will provide Customer the following reports via electronic
media:
Report Time Interval
------ -------------
Pending BOC Action Weekly
Aged Reject Report Weekly
MCI CONFIDENTIAL
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<PAGE> 76
- - MCI CarrierBase will maintain copies of LEC interaction
services files for up to five (5) business days after they are
sent to Customer. All such files will be purged by MCI after
five (5) business days. MCI will respond to any requests for
file retransmission received within such (5) business day
period within forty eight (48) hours of MCI's receipt of the
request.
LIMITATION OF LIABILITY
MCI's total liability to Customer arising from its provisioning of RELI
under this Exhibit E shall be limited to the lesser of (a) Customer's
proven direct damages or (b) the total amount paid by Customer to MCI
for RELI during the one (1) month period prior to the event giving rise
to the cause of action. The foregoing limitation applies to all causes
of actions and claims, including without limitation breach of contract,
breach of warranty, negligence, strict liability, misrepresentation and
other torts. Further, no cause of action which arose more than one (1)
year prior to the institution of a legal proceeding alleging such cause
of action may be asserted by either party against the other.
MCI CONFIDENTIAL
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<PAGE> 77
ATTACHMENT 1
LETTER OF AGENCY
ATTENTION: Concerned Local Operating Companies, AT&T and other
Common Carriers and All Equipment Vendors
The undersigned appoints MCI Telecommunications Corporation or any of its
affiliated companies ("MCI") as agent for the purpose of ordering, in connection
with MCI's provision of service to the undersigned, changes in and/or
maintenance on specific telecommunications service that you provide to the
undersigned including, without limitation, removing, adding to or rearranging
such telecommunications service.
You are hereby released from any and all liability for making pertinent
information available to MCI and for following MCI's instructions with respect
to any changes to or maintenance on the undersigned's telecommunications
service. You may deal directly with MCI on all matters pertaining to
telecommunications service and should follow instructions with respect thereto.
This authorization will remain in effect until modified or rescinded in writing
by the undersigned.
Signed this 13 day of March, 1996.
BY:
/s/
- ----------------------------------
Authorized Customer Signature
President
- ----------------------------------
Title
Long Distance Direct. Inc.
- ----------------------------------
Company Name
MCI CONFIDENTIAL
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<PAGE> 78
ATTACHMENT 2
MCI CARRIER OPERATOR SERVICES
Customer is interested in buying MCI Carrier Operator Services for resale and
MCI is interested in providing such services to Customer. In order to accomplish
those purposes the parties hereby agree as follows:
1. Operator Services.
(a) "Operator Service Calls" mean long distance calls dialed with the
0+, 01+ or 00- dialing pattern (and excluding calls dialed with the
950-XXXX and 800 dialing patterns):
(b) Customer shall not use any service mark or trademark of MCI or refer
to MCI in connection with any service provided hereunder without the
prior written approval of MCI.
(c) Call Originating Identification Information. MCI must receive
electronic call origination identification ANI information for each call
carried hereunder. If the Originating Site uses Feature Group D local
access service, the required call origination identification information
is automatically supplied by the local exchange company. If the
Originating Site uses a type of local access service other than Feature
Group D local access service, the Originating Site shall cause
electronic call origination identification information (in a form
acceptable to MCI) to be supplied to MCI at the initiation of each call.
(d) Emergency Calls.
(1) Each Originating Site shall configure its system so that 911
emergency calls, where available, and similar emergency calls, will
be automatically routed to the appropriate party or clearing house
without the intervention of MCI. Emergency calls which do reach a
MCI operator shall be handled in accordance with MCI standard
operating procedures.
(2) If Customer or MCI provides an emergency number database,
Customer agrees to indemnify and hold MCI harmless from any and all
claims, damages, fines, penalties and any other liabilities
(including attorney fees) arising out of the inaccuracy of any
information or the inadequacy of any procedure or personnel.
(e) Private Payphones.
(1) Private payphone lines must be classed as "07" COCOT.
MCI CONFIDENTIAL
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<PAGE> 79
(2) All payphones must have Billed Number Screening ("BNS"), if
available. If BNS is not available, the Customer will be
responsible for calls billed to any lines without BNS.
(3) Unless otherwise permitted by law, all 0- calls must be passed
to the Local Exchange Carrier ("LEC").
(4) Payphones must not block 950-XXXX or 1-800-XXX-XXXX calls.
(5) All payphones must have "011" blocking at the central office, if
available. If international blocking is not available, or if
Customer chooses not to block "011" calls, then Customer assumes
responsibility for any international fraud.
(6) For Premises Telephones located in condominiums, Customer shall
be liable for all charges attributable to the failure of
Customer to secure screening which prevents 1+ 10XXX domestic
and international dialing and which indicates to operators that
the telephone is restricted to prohibit billing to the original
ANI.
(7) Customer shall be responsible for any fraud resulting from its
purchase and use of MCI Carrier Operator Services.
(f) Compliance. Customer will comply with applicable federal, state
and local laws and regulations, including without limitation,
laws and regulations relating to operator service during the
term of this Agreement.
(g) Authority.
(1) Customer warrants that it is authorized to select the operator
services carrier for the telephones served by Customer pursuant to
this Agreement. Customer agrees that if any other party makes any
claims against MCI for commissions from such telephones, Customer
will be responsible for any such claim. Customer shall indemnify MCI
and hold MCI harmless from any loss, cost or expense resulting from
such claim and will pay MCI's reasonable attorney's fees resulting
from any such claim.
(2) If Customer is an agent of the premises owner or telephone owner
for the Premises Telephones, Customer shall obtain the written
agreement of each premises owner and telephone owner for each
Premises Telephone authorizing Customer to select the operator
service carrier for the Premises Telephones and Customer will submit
a copy of such authorization to MCI upon request.
MCI CONFIDENTIAL
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<PAGE> 80
MCI may take steps to confirm compliance with this provision,
including, without limitation, contacting premises owners and
telephone owners whose telephones are submitted by Customer.
(h) Liability.
Except in cases involving proved willful or wanton misconduct, MCI's
liability to Customer is limited to its obligation to provide
service as described herein. MCI SHALL NOT BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE LOSS OR
DAMAGE OF ANY KIND, INCLUDING LOST PROFITS (WHETHER OR NOT MCI WAS
AWARE OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE), BY REASON OF ANY
ACT OR OMISSION IN ITS PERFORMANCE UNDER THIS AGREEMENT. Customer
shall indemnify and hold MCI harmless against any and all claims,
losses, liabilities, damages, costs or expenses arising out of or
related to this Agreement and shall pay MCI's reasonable attorney's
fees resulting from any such claim.
2. Rates. The rates in the following schedule shall be charged on
Customer's usage of MCI Carrier Operator Services. The automated rate
will be charged from the time a call reaches a node until the call is
terminated. The live rate will be charged in addition to automated rates
for the portion of each call that is handled by a live operator.
<TABLE>
<CAPTION>
Automated Live
Monthly Attempts Rate/Sec. Rate/Sec.
---------------- --------- ---------
<S> <C> <C>
0 - 50,000 $0.00059 $0.01291
50,001 - 100,000 $0.00058 $0.01272
100,001 - 200,000 $0.00056 $0.01253
200,001 - 500,000 $0.00054 $0.01234
500,001 - 1,000,000 $0.00053 $0.01215
1,000,001 - 1,500,000 $0.00051 $0.01196
1,500,000 + $0.00049 $0.01177
</TABLE>
For calls terminated by MCI, Customer shall pay MCI an additional charge
for call termination rated at Customer's domestic interstate
non-dedicated outbound rate specified in Paragraph 4(a) of the Agreement
based on an eighteen (18) second minimum and rounded to six (6) second
increments.
3. Rate Quotes. If Customer has provided the appropriate rate information,
MCI will provide real-time rate quotes to callers. However, Customer
shall indemnify MCI and hold MCI harmless from any and all claims,
damages, fines, penalties or other liabilities (including attorney fees)
arising from the inaccuracy of any information or the inadequacy of any
procedures or personnel.
MCI CONFIDENTIAL
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<PAGE> 81
4. Customer Service. Customer agrees that all customer service calls (i.e.,
billing disputes, troubles, general inquiries) shall be routed to
Customer's customer service via a Customer-provided 800 number.
5. Language Assistance. Customer agrees that if, on a monthly basis, calls
utilizing MCI Carrier Operator Services language assistance exceed
thirty percent (30%), Customer shall pay two times the Tariff rate for
all calls exceeding thirty percent (30%).
6. Brand. Customer agrees that it will resell MCI Carrier Operator Services
in its own name only.
7. Service Delivery. Customer agrees that it will receive and deliver all
MCI Carrier Operator Services calls from/to one of the three (3) MCI
automated nodes via an MCI TDS-1.5 or TDS-45 circuit.
8. Billing. Customer agrees to be responsible for all end-user billing for
operator services and further agrees that if MCI provides rating and/or
recording services for billing, Customer shall indemnify and hold MCI
harmless from any and all claims, damages, fines, penalties or other
liabilities (including attorney fees) arising from the inaccuracy of any
information or the inadequacy of any procedures or personnel.
9. Forecasting. Customer agrees to provide a written monthly forecast for
automated and live MCI Carrier Operator Services to be received by MCI
no later than ten (10) days prior to the beginning of each month.
10. Force Majeure. If because of force majeure, MCI is unable wholly or in
part to carry out any of its obligations under this Agreement, such
obligations shall be suspended for the duration of the event of force
majeure. During the continuance of such force majeure, MCI shall incur
no liability by reason of its failure to perform the obligation so
suspended, provided, however, that the disabling effect of such force
majeure shall be eliminated as soon as and to the extent reasonably
possible. The term "force majeure" as used herein shall include switch,
radio or cable failure, cable cut, acts of God, riots, insurrection,
war, labor dispute, fire, flood, explosion, orders or acts of military
or civil authority, and any other cause beyond MCI's reasonable control.
11. Complete Agreement. This is the entire agreement of the parties with
respect to its subject matter and supersedes all prior agreements and
understandings, whether written or oral, concerning the subject matter.
This Agreement cannot be amended, or assigned by Customer, except by a
written agreement signed by both parties.
MCI CONFIDENTIAL
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<PAGE> 1
Exhibit 10.5
LONG DISTANCE DIRECT HOLDINGS, INC.
1995 STOCK OPTION PLAN
1. Purpose; Effectiveness of the Plan.
A. The purpose of this Plan is to advance the interests of the Company
and its stockholders by helping the Company obtain and retain the services of
employees, officers, consultants, and directors, upon whose judgment, initiative
and efforts the Company is substantially dependent, and to provide those persons
with further incentives to advance the interests of the Company.
B. This Plan will become effective on the date of its adoption by the
Board, provided the Plan is approved by the stockholders of the Company
(excluding holders of shares of Stock issued by the Company pursuant to the
exercise of options granted under this Plan) within twelve months before or
after that date. If the Plan is not so approved by the stockholders of the
Company, any options granted under this Plan will be rescinded and will be void.
This plan will remain in effect until it is terminated by the Board or the
Committee (as defined hereafter) under section 9 hereof, or October 10, 2005,
whichever is earlier, except that no ISO (as defined herein) will be granted
after the tenth anniversary of the date of this Plan's adoption by the Board.
This Plan will be governed by, and construed in accordance with, the laws of the
State of New York.
2. Certain Definitions.
Unless the context otherwise requires, the following defined terms
(together with other capitalized terms defined elsewhere in this Plan) will
govern the construction of this Plan, and of any stock option agreements entered
into pursuant to this Plan:
A. "10% Stockholder" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions set forth in
Section 424(d) of the Code at the time he or she is granted an Option, stock
possessing more than ten percent (10%) of the total combined voting power or
value of all classes of stock of the Company and/or of its subsidiaries;
B. "1933 Act" means the Federal Securities Act of 1933, as amended;
C. "Board" means the Board of Directors of the Company;
D. "called for under an Option," or words to similar effect, means
issuable pursuant to the exercise of an Option;
<PAGE> 2
E. "Code" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to refer to Sections of
the Code as enacted at the time of this Plan's adoption by the Board and as
subsequently amended, or to any substantially similar successor provisions of
the Code resulting from recodification, renumbering or otherwise);
F. "Committee" means a committee of two or more Disinterested Directors,
appointed by the Board, to administer and interpret this Plan; provided that the
term "Committee" will refer to Board during such times as no Committee is
appointed by the Board;
G. "Company" means Long Distance Direct Holdings, Inc., a Nevada
corporation;
H. "Disability" has the same meaning as "permanent and total
disability," as defined in Section 22(e)(3) of the Code;
I. "Disinterested Director" means a member of the Board who is not
during the period of one year prior to his or her service as an administrator of
the Plan, or during the period of such service, granted or awarded Stock,
options to acquire Stock, or similar equity securities of the Company under this
Plan or any similar plan of the Company;
J. "Eligible Participants" means persons who, at a particular time, are
employees, officers, consultants, or directors of the Company or its
subsidiaries;
K. "Fair Market Value" means, with respect to the Stock and as of the
date an ISO is granted hereunder, the market price per share of such Stock
determined by the Committee, consistent with the requirements of Section 422 of
the Code and to the extent consistent therewith, as follows:
i. If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value will be equal to closing price
reported by the applicable composite-transactions report for such date;
ii. If the Stock was traded over-the-counter on the date in
question and was classified as a national market issue, then the Fair
Market Value will be equal to the last-transaction price quoted by the
NASDAQ system for such date;
iii. If the Stock was traded over-the-counter on the date in
question but was not classified as a national market issue, then the
Fair Market Value will be equal to the average of the last reported
representative bid and asked prices quoted by the NASDAQ system for such
date; and
2
<PAGE> 3
iv. If none of the foregoing provisions is applicable, then the
Fair Market Value will be determined by the Committee in good faith on
such basis as it deems appropriate.
L. "ISO" has the same meaning as "incentive stock option," as defined in
Section 422 of the Code;
M. "Just Cause Termination" means a termination by the Company of an
Optionee's employment by and/or service to the Company (or if the Optionee is a
director, removal of the Optionee from the Board by action of the stockholders
or, if permitted by applicable law and the by-laws of the Company, the other
directors), in connection with the good faith determination of the Company's
board of directors (or of the Company's stockholders if the Optionee is a
director and the removal of the Optionee from the Board is by action of the
stockholders, but in either case excluding the vote of the Optionee if he or she
is a director or a stockholder) that the Optionee has engaged in any acts
involving dishonesty or moral turpitude or in any acts that materially and
adversely affect the business, affairs or reputation of the Company or its
subsidiaries;
N. "NSO" means any option granted under this Plan whether designated by
the Committee as a "non-qualified stock option," a "non-statutory stock option"
or otherwise, other than an option designated by the Committee as an ISO, or any
option so designated but which, for any reason, fails to qualify as an ISO
pursuant to Section 422 of the Code and the rules and regulations thereunder;
O. "Option" means an option granted pursuant to this Plan entitling the
option holder to acquire shares of stock issued by the Company pursuant to the
valid exercise of the option;
P. "Option Agreement" means an agreement between the Company and an
Optionee, in form and substance satisfactory to the Committee in its sole
discretion, consistent with this Plan;
Q. "Option Price" with respect to any particular Option means the
exercise price at which the Optionee may acquire each share of the Option Stock
called for under such Option;
R. "Option Stock" means Stock issued or issuable by the Company pursuant
to the valid exercise of an Option;
S. "Optionee" means an Eligible Participant to whom Options are granted
hereunder, and any transferee thereof pursuant to a Transfer authorized under
this Plan;
3
<PAGE> 4
T. "Plan" means this 1995 Stock Option Plan of the Company;
U. "QDRO" has the same meaning as "qualified domestic relations order"
as defined in Section 414(p) of the Code;
V. "Stock" means shares of the Company's Common Stock, $.001 par value;
W. "subsidiary" has the same meaning as "Subsidiary Corporation" as
defined in Section 424(f) of the Code;
X. "Transfer," with respect to Option Stock, includes, without
limitation, a voluntary or involuntary sale, assignment, transfer, conveyance,
pledge, hypothecation, encumbrance, disposal, loan, gift, attachment or levy of
such Option Stock, including without limitation an assignment for the benefit of
creditors of the Optionee, a transfer by operation of law, such as a transfer by
will or under the laws of descent and distribution, an execution of judgment
against the Option Stock or the acquisition of record or beneficial ownership
thereof by a lender or creditor, a transfer pursuant to a QDRO, or to any decree
of divorce, dissolution or separate maintenance, any property settlement, any
separation agreement or any other agreement with a spouse (except for estate
planning purposes) under which a part or all of the shares of Option Stock are
transferred or awarded to the spouse of the Optionee or are required to be sold;
or a transfer resulting from the filing by the Optionee of a petition for
relief, or the filing of an involuntary petition against such Optionee, under
the bankruptcy laws of the United States or of any other nation.
3. Eligibility.
The company may grant Options under this Plan only to persons who are
Eligible Participants as of the time of such grant. Subject to the provisions of
sections 4(d), 5 and 6 hereof, there is no limitation on the number of Options
that may be granted to an Eligible Participant.
4. Administration.
(a) Committee. The Committee, if appointed by the Board, will administer
this Plan. If the Board, in its discretion, does not appoint such a Committee,
the Board itself will administer this Plan and take such other actions as the
Committee is authorized to take hereunder; provided that the Board may take such
actions hereunder in the same manner as the Board may take other actions under
the Company's articles of incorporation and by-laws generally.
(b) Authority and Discretion of Committee. The Committee will have full
and final authority in its discretion, at any time and from time to time,
subject only to the
4
<PAGE> 5
express terms, conditions and other provisions of the Company's articles of
incorporation, by-laws and this Plan, and the specific limitations on such
discretion set forth herein:
(i) to select and approve the persons who will be granted
Options under this Plan from among the Eligible Participants, and to
grant to any person so selected one or more Options to purchase such
number of shares of Option Stock as the Committee may determine;
(ii) to determine the period or periods of time during which
Options may be exercised, the Option Price and the duration of such
Options, and other matters to be determined by the Committee in
connection with specific Option grants and Option Agreements as
specified under this Plan;
(iii) to interpret this Plan, to prescribe, amend and rescind
rules and regulations relating to this Plan, and to make all other
determinations necessary or advisable for the operation and
administration of this Plan; and
(iv) to delegate all or a portion of its authority under
subsections (i) and (ii) of this section 4(b) to one or more directors
of the Company who are executive officers of the Company, but only in
connection with Options granted to Eligible Participants who are not
subject to the reporting and liability provisions of Section 16 of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, and subject to such restrictions and limitations
(such as the aggregate number of shares of Option Stock called for by
such Options that may be granted) as the Committee may decide to impose
on such delegate directors.
(c) Designation of Options. Except as otherwise provided herein, the
Committee will designate any Option granted hereunder either as an ISO or as an
NSO. To the extent that the Fair Market Value (determined at the time the Option
is granted) of Stock with respect to which all ISOs are exercisable for the
first time by any individual during any calendar year (pursuant to this Plan and
all other plans of the Company and/or its subsidiaries) exceeds $100,000, such
option will be treated as an NSO. Notwithstanding the general eligibility
provisions of section 3 hereof, the Committee may grant ISOs only to persons who
are employees of the Company and/or its subsidiaries.
(d) Option Agreements. Options will be deemed granted hereunder only
upon the execution and delivery of an Option Agreement by the Optionee and a
duly authorized officer of the Company. Options will not be deemed granted
hereunder merely upon the authorization of such grant by the Committee.
5
<PAGE> 6
5. Shares Reserved for Options.
(a) Option Pool. The aggregate number of shares of Option Stock that may
be issued pursuant to the exercise of Options granted under this Plan will not
exceed one million (1,000,000) (the "Option Pool"), provided that such number
will be increased by the number of shares of Option Stock that the Company
subsequently may reacquire through repurchase or otherwise. Shares of Option
Stock that would have been issuable pursuant to Options, but that are no longer
issuable because all or part of those Options have terminated or expired, will
be deemed not to have been issued for purposes of computing the number of shares
of Option Stock remaining in the Option Pool and available for issuance.
(b) Adjustments Upon Changes in Stock. In the event of any change in the
outstanding Stock of the Company as a result of a stock split, reverse stock
split, stock dividend recapitalization, combination or reclassification,
appropriate proportionate adjustments will be made in: (i) the aggregate number
of shares of Option Stock in the Option Pool that may be issued pursuant to the
exercise of Options granted hereunder; (ii) the Option Price and the number of
shares of Option Stock called for in each outstanding Option granted hereunder;
and (iii) other rights and matters determined on a per share basis under this
Plan or any Option Agreement hereunder. Any such adjustments will be made only
by the Board, and when so made will be effective, conclusive and binding for all
purposes with respect to this Plan and all Options then outstanding. No such
adjustments will be required by reason of the issuance or sale by the Company
for cash or other consideration of additional shares of its Stock or securities
convertible into or exchangeable for shares of its Stock.
6. Terms of Stock Option Agreements.
Each Option granted pursuant to this Plan will be evidenced by an
agreement (an "Option Agreement") between the Company and the person to whom
such Option is granted, in form and substance satisfactory to the Committee in
its sole discretion, consistent with this Plan. Without limiting the foregoing,
each Option Agreement (unless otherwise stated therein) will be deemed to
include the following terms and conditions:
(a) Covenants of Optionee. Nothing contained in this Plan, any Option
Agreement or in any other agreement executed in connection with the granting of
an Option under this Plan will confer upon any Optionee any right with respect
to the continuation of his or her status as an employee of, consultant or
independent contractor to, or director of, the Company or its subsidiaries.
(b) Vesting Periods. Except as otherwise provided herein, each Option
Agreement may specify the period or periods of time within which each Option or
portion thereof will first become exercisable (the "Vesting Period") with
respect to the total number
6
<PAGE> 7
of shares of Option Stock called for thereunder (the "Total Award Option
Stock"). Such Vesting Periods will be fixed by the Committee in its discretion,
and may be accelerated or shortened by the Committee in its discretion.
(c) Exercise of the Option.
(i) Mechanics and Notice. An Option may be exercised to the
extent exercisable (1) by giving written notice of exercise to the Company,
specifying the number of full shares of Option Stock to be purchased and
accompanied by full payment of the Option Price thereof and the amount of
withholding taxes pursuant to subsection 6(c)(ii) below; and (2) by giving
assurances satisfactory to the Company that the shares of Option Stock to be
purchased upon such exercise are being purchased for investment and not with a
view to resale in connection with any distribution of such shares in violation
of the 1933 Act; provided, however, that in the event the Option Stock called
for under the Option is registered under the 1933 Act, on in the event resale of
such Option Stock without such registration would otherwise be permissible, this
second condition will be inoperative if, in the opinion of counsel for the
Company, such condition is not required under the 1933 Act, or any other
applicable law, regulation or rule of any governmental agency.
(ii) Withholding Taxes. As a condition to the issuance of the
shares of Option Stock upon full or partial exercise on an NSO granted under
this Plan, the Optionee will pay to the Company in cash, or in such other form
as the Committee may determine in its discretion, the amount of the Company's
tax withholding liability required in connection with such exercise. For
purposes of this subsection 6(c)(ii), "tax withholding liability" will mean all
federal and state income taxes, social security tax, and any other taxes
applicable to the compensation income arising from the transaction required by
applicable law to be withheld by the Company.
(d) Payment of Option Price. Each Option Agreement will specify the
Option Price with respect to the exercise of Option Stock thereunder, to be
fixed by the Committee in its discretion, but in no event will the Option Price
for an ISO granted hereunder be less than the Fair Market Value (or, in case the
Optionee is a 10% Stockholder, one hundred ten percent (110%) of such Fair
Market Value) of the Option Stock at the time such ISO is granted. The Option
Price will be payable to the Company in United States dollars in cash or by
check or, such other legal consideration as may be approved by the Committee, in
its discretion.
(e) Termination of the Option. Except as otherwise provided herein,
each Option Agreement will specify the period of time, to be fixed by the
Committee in its discretion, during which the Option granted therein will be
exercisable, not to exceed
7
<PAGE> 8
ten years from the date of grant in the case of an ISO (the "Option Period");
provided that the Option Period will not exceed five years from the date of
grant in the case of an ISO granted to a 10% Stockholder. To the extent not
previously exercised, each Option will terminate upon the expiration of the
Option Period specified in the Option Agreement; provided, however, that each
such Option will terminate, if earlier: (i) ninety days after the date that the
Optionee ceases to be an Eligible Participant for any reason, other than by
reason of death or disability or a Just Cause Termination; (ii) twelve months
after the date that the Optionee ceases to be an Eligible Participant by reason
of such person's death or disability; or (iii) immediately as of the date that
the Optionee ceases to be an Eligible Participant by reason of a Just Cause
Termination. In the event of a sale of all or substantially all of the assets of
the Company, or a merger or consolidation or other reorganization in which the
Company is not the surviving corporation, or in which the Company becomes a
subsidiary of another corporation (any of the foregoing events, a "Corporate
Transaction"), then notwithstanding anything else herein, the right to exercise
all then outstanding Options will vest immediately prior to such Corporate
Transaction and will terminate immediately after such Corporate Transaction;
provided, however, that if the Board, in its sole discretion, determines that
such immediate vesting of the right to exercise outstanding Options is not in
the best interests of the Company, then the successor corporation must agree to
assume the outstanding Options or substitute therefor comparable options of such
successor corporation or a parent or subsidiary of such successor corporation.
(f) Options Nontransferable. No ISO will be transferable by the Optionee
otherwise than by will or the laws of descent and distribution.
(g) Qualification of Stock. The right to exercise an Option will be
further subject to the requirement that if at any time the Board determines, in
its discretion, that the listing, registration or qualification of the shares of
Option Stock called for thereunder upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental regulatory
authority, is necessary or desirable as a condition of or in connection with the
granting of such Option or the purchase of shares of Option Stock thereunder,
the Option may not be exercised, in whole or in part, unless and until such
listing, registration, qualification, consent or approval is effected or
obtained free of any conditions not acceptable to the Board, in its discretion.
(h) Additional Restrictions or Transfer. By accepting Options and/or
Option Stock under this Plan, the Optionee will be deemed to represent, warrant
and agree as follows:
(i) Securities Act of 1933. The Optionee understands that the
shares of Option Stock have not been registered under the 1933 Act, and
that such shares are not freely tradeable and must be held indefinitely
unless such shares are either
8
<PAGE> 9
registered under the 1933 Act or an exemption from such registration is
available. The Optionee understands that the Company is under no
obligation to register the shares of Option Stock.
(ii) Other Applicable Laws. The Optionee further understands
that Transfer of the Option Stock requires full compliance with the
provisions of all applicable laws.
(iii) Investment Intent. Unless a registration statement is in
effect with respect to the sale of Option Stock obtained through
exercise of Options granted hereunder: (1) Upon exercise of any Option,
the Optionee will purchase the Option Stock for his or her own account
and not with a view to distribution within the meaning of the 1933 Act,
other than as may be effected in compliance with the 1933 Act and the
rules and regulations promulgated thereunder; (2) no one else will have
any beneficial interest in the Option Stock; and (3) he or she has no
present intention of disposing of the Option Stock at any particular
time.
(i) Compliance with Law. Notwithstanding any other provision of this
Plan, Options may be granted pursuant to this Plan, and Option Stock may be
issued pursuant to the exercise thereof by an Optionee, only after there has
been compliance with all applicable federal and state securities laws, and all
of the same will be subject to this overriding condition. The Company will not
be required to register or qualify Option Stock with the Securities and Exchange
Commission or any State agency.
(j) Stock Certificates. Certificates representing the Option Stock
issued pursuant to the exercise of Options will bear all legends required by law
and necessary to effectuate this Plan's provisions. The Company may place a
"stop transfer" order against shares of the Option Stock until all restrictions
and conditions set forth in this Plan and in the legends referred to in this
section 6(j) have been complied with.
(k) Notices. Any notice to be given to the Company under the terms of an
Option Agreement will be addressed to the Company at its principal executive
office, Attention: Corporate Secretary, or at such other address as the Company
may designate in writing. Any notice to be given to an Optionee will be
addressed to the Optionee at the address provided to the Company by the
Optionee. Any such notice will be deemed to have been duly given if and when
enclosed in a properly sealed envelope, addressed as aforesaid, registered and
deposited, postage and registry fee prepaid, in a post office or branch post
office regularly maintained by the United States Government.
(l) Other Provisions. The Option Agreement may contain such other terms,
provisions and conditions, including such special forfeiture conditions, rights
of repurchase, rights of first refusal and other restrictions on Transfer of
Option Stock issued upon
9
<PAGE> 10
exercise of any Options granted hereunder, not inconsistent with this Plan, as
may be determined by the Committee in its sole discretion.
7. Proceeds from Sale of Stock.
Cash proceeds from the sale of shares of Option Stock issued from time
to time upon the exercise of Options granted pursuant to this Plan will be added
to the general funds of the Company and as such will be used from time to time
for general corporate purposes.
8. Modification, Extension and Renewal of Options.
Subject to the terms and conditions and within the limitations of this
Plan, the Committee may modify, extend or renew outstanding Options granted
under this Plan, or accept the surrender of outstanding Options (to the extent
not theretofore exercised) and authorize the granting of new Options in
substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, however, no modification of any Option will,
without the consent of the holder of the Option, alter or impair any rights or
obligations under any Option theretofore granted under this Plan.
9. Amendment and Discontinuance.
The Board may amend, suspend or discontinue this Plan at any time or
from time to time; provided that no action of the Board will cause ISOs granted
under this Plan not to comply with Section 422 of the Code unless the Board
specifically declares such action to be made for that purpose and provided
further that no such action may, without the approval of the stockholders of the
Company, materially increase (other than by reason of an adjustment pursuant to
section 5(b) hereof) the maximum aggregate number of shares of Option Stock in
the Option Pool that may be issued under Options granted pursuant to this Plan
or materially increase the benefits accruing to Plan participants or materially
modify eligibility requirements for the participants. Moreover, no such action
may alter or impair any Option previously granted under this Plan without the
consent of the holder of such Option.
10. Plan Compliance with Rule 16b-3.
With respect to persons subject to Section 16 of the Securities Exchange
Act of 1934, transactions under this plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the
extent any provision of the plan or action by the plan administrators fails so
to comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the plan administrators.
10
<PAGE> 11
11. Copies of Plan.
A copy of this Plan will be delivered to each Optionee at or before the
time he or she executes an Option Agreement.
* * *
Date Plan Adopted by Board of Directors: October 12, 1995
Date Plan Approved by Stockholders: October 12, 1995
11
<PAGE> 1
LIST OF SUBSIDIARIES
EXHIBIT 21
The Company has the following subsidiaries, all of which are wholly
owned by the Company:
Long Distance Direct, Inc., a New York corporation
Long Distance Direct Marketing, Inc., a New York corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LONG
DISTANCE DIRECT HOLDINGS, INC. CONSOLIDATED STATEMENT OF OPERATIONS AND
CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO LONG
DISTANCE DIRECT HOLDINGS, INC. 10-KSB.
</LEGEND>
<CURRENCY> U S DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 207,666
<SECURITIES> 0
<RECEIVABLES> 1,267,052
<ALLOWANCES> 163,149
<INVENTORY> 0
<CURRENT-ASSETS> 1,404,798
<PP&E> 290,340
<DEPRECIATION> 129,203
<TOTAL-ASSETS> 1,627,725
<CURRENT-LIABILITIES> 4,890,044
<BONDS> 0
0
0
<COMMON> 3,798
<OTHER-SE> (3,266,117)
<TOTAL-LIABILITY-AND-EQUITY> 1,627,725
<SALES> 7,986,402
<TOTAL-REVENUES> 7,986,402
<CGS> 5,862,665
<TOTAL-COSTS> 519,411
<OTHER-EXPENSES> 2,797,070
<LOSS-PROVISION> 310,953
<INTEREST-EXPENSE> 371,226
<INCOME-PRETAX> (1,874,923)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,874,923)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,874,923)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> (.55)
</TABLE>
