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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, 1997.
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE TRANSITION PERIOD FROM __________ TO __________.
COMMISSION FILE NO. 0-22591
LONG DISTANCE DIRECT HOLDINGS, INC.
(Name of small business issuer in its charter)
NEVADA 33-0323376
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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: Common Stock
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. / /
The issuer had revenues of $8,452,731 for the fiscal year ended December 31,
1997.
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, 1998, was approximately $4,950,000.
As of May 31, 1998, 9,350,924 shares of Common Stock, $.001 par value, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Long Distance Direct Holdings, Inc., (the "Company"), which was
formerly known as Golden Ark Inc.,was originally formed as a "blank-check"
company (a company formed specifically to seek a merger or acquisition candidate
with whom it can merge or whom it can acquire). Golden Ark, Inc. became a public
company on August 28, 1989 and remained 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 Golden Ark Inc. 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.
After its acquisition of LDDI, Golden Ark, Inc. changed its name to
Long Distance Direct Holdings, Inc. ("LDD Holdings"). In May, 1996, LDDH
Holdings formed Long Distance Direct Marketing, Inc., a New York corporation
("LDDM"), as a wholly-owned subsidiary for the purpose of producing and
marketing a televised infomercial designed to recruit additional independent
sales representatives. References herein to the Company, to LDDI or to LDDM
shall mean LDD Holdings, LDDI and LDDM 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
LDDI 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 and
residential subscribers. All of the services sold by the Company are currently
provided by MCI Telecommunications Corporation ("MCI") and AT&T Corporation
("AT&T"). The Company, through its LDDI subsidiary, has agreements with MCI and
AT&T to purchase a minimum 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 signs up
customers and provisions them onto the network of MCI or AT&T, which provide the
actual transmission service. 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 its existing
telephone numbers and incurs no expense in making the decision to switch to the
services of the Company.
The Company is in default under its contract with MCI for failing to
pay underutilization charges of approximately $736,000 and $929,000 as of
December 31, 1997 and May 31, 1998, respectively, under its existing minimum
purchase obligations. The Company is also in default under its MCI contract for
non payment of fees for telephone services in the approximate amounts of $2.6
million and $4.0 million as of December 31, 1997 and May 31, 1998, respectively.
The Company believes that it was prevented from meeting its minimum
purchase obligations in part because up to 20,000 new customers acquired by the
Company since January 1, 1997 and processed through MCI were confirmed to LDDI's
service but, due to software problems at MCI, were not, in practice, activated
onto the Company's network. The Company has been in extensive discussions with
MCI to resolve these operational and financial problems. From an operational
point of view, MCI has assured the Company that its software difficulties have
been rectified and that all current and future
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accounts sent to MCI for provisioning to the Company's network will be processed
correctly.
MCI has a contractual right to terminate the Company's service for
non-payment which, if exercised, would result in a loss of telephone service to
the Company's customer base and would materially adversely affect the Company's
ability to continue its operations. The Company is currently sending daily
payments to MCI to prevent interruption of service and is also seeking alternate
carriers to supplement its arrangement with MCI. Although the Company is
currently negotiating the terms of a payment plan and other changes to the
contract, as described below, there can be no assurance that MCI will continue
such negotiations or that MCI will not terminate service for non-payment and
seek to enforce its lien on the Company's receivables and other assets.
MCI and the Company have reached an agreement in principle which is
currently in the process of being formalized under which the Company will forgo
the benefit of its unbilled revenue from the new customers MCI failed to
activate onto the Company's network (which has therefore been excluded from the
Company's 1997 revenues) in return for, (i) the waiver by MCI of the entire
amount of the Company's liability for underutilization charges (approximately
$736,000 as of December 31, 1997 and $929,000 as of May 31, 1998) under its
existing minimum purchase obligations, (ii) a material reduction in the
Company's minimum purchase obligations over the nine months following
formalization of the revised agreement (anticipated to take effect in the second
quarter of 1998), (iii) certain performance credits under the new minimum
purchase obligations, (iv) reductions in prices charged to the Company by MCI
for telephone services which the Company could not otherwise expect to achieve
without an increase in its minimum purchase obligations and (v) the issuance by
the Company of a promissory note to MCI, to be guaranteed by one or more of the
Company's principal shareholders, for the payment over 24 months of the balance
outstanding of the Company's liability to MCI for usage of the latter's services
(approximately $4.0 million as of May 31, 1998) after the waiver of all
liability for failure to meet existing minimum purchase obligations. There can
be no assurance that the proposed arrangements with MCI will be consummated on
the terms described or at all, nor can there be any assurance that if
consummated, the Company will be able to make timely payments on its proposed
promissory note to MCI or otherwise fulfill its obligations to MCI.
In April, 1998, the Company requested that AT&T terminate its contract
and AT&T has agreed in principle to release the Company from its current
contractual obligations and to waive all penalties for failure to meet minimum
purchase requirements (approximately $2,600,000 for 1997) and termination
liabilities upon discharge of the Company's outstanding liability to AT&T for
telephone services (approximately $500,000 at December 31, 1997). The Company
has promised to pay the $500,000 liability to AT&T in twelve equal payments
pursuant to a non-interest bearing promissory note that is to be personally
guaranteed by two of the Company's officers. There can be no assurance that the
proposed arrangement with AT&T will be consummated on the terms described above
or at all, nor can there be any assurance that the Company will be able to make
timely payments on its proposed promissory note to AT&T. Should the Company fail
to make timely payments on its proposed promissory note to AT&T or otherwise be
in default under its proposed arrangement with AT&T, the Company may also be
liable for the entire amount of all shortfall penalties proposed to be waived by
AT&T. The Company has agreed with AT&T that any customers which the Company has
not migrated off the AT&T network by April, 1998, could be transferred by AT&T
to its own network. As of June, 1998 the Company still had approximately 1,700
customers on the AT&T network which AT&T has not yet transferred to its own
network. Should the Company fail to migrate these customers, their service will
be interrupted or AT&T will transfer such customers to its own network.
Both MCI and AT&T hold liens on the Company's receivables and assets in
lieu of security deposits.
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MARKETING AND SALES
The Company markets its services utilizing various channels of
distribution. Historically, the Company has marketed its services through three
methods typically employed by sellers and resellers of telephone services: field
sales, outbound telemarketing, and direct mail. Beginning in the fourth quarter
of 1996, the Company began to change its strategy by adding other marketing
techniques. In particular, the Company entered into a number of agreements with
third parties under certain of which those parties will be primarily
responsible, both financially and operationally, for marketing the Company's
telecommunications services to their members or customers. The Company, in
conjunction with Guthy-Renker Distribution, Inc., began marketing through a
televised marketing program designed to increase its independent sales force. In
January 1997, the Company signed a mutually exclusive agreement with National
Benefits Consultants, LLC ("NBC"), a company in alliance with Deloitte & Touche
LLP, under which NBC will market the Company's telecommunications services to
audit clients of Deloitte & Touche LLP and other commercial entities. During the
first quarter of 1998, the Company entered into marketing agreements with
Popular Club Plan ("PCP"), a subsidiary of J. Crew Group, Inc., New Media
Telecommunications, Inc. ("NMTI") and various network marketing companies,
direct response marketers and affinity groups pursuant to which these entities
have agreed to market the Company's services to their customers or members in
consideration for commissions based upon revenues generated by these marketing
programs. In order to respond to inquiries generated by these marketing
programs, the Company has begun to establish its own in-house telemarketing
operation. These marketing programs represent the key element in the Company's
strategy to achieve growth in revenue and customer base, but there can be no
assurance that this growth will be achieved.
TELEVISED MARKETING PROGRAM
Historically, the Company has obtained customer orders through three
separate methods typically employed by sellers and resellers of telephone
services: field sales, telemarketing and direct mail. At the outset, the Company
employed the field sales method exclusively. Although this method was
successful, and generated sales characterized by lower bad debt and customer
attrition levels than, for example, telemarketing or direct mail, it had as
principal drawbacks the facts that (i) the recruitment of independent sales
representatives proved a time-consuming and expensive procedure and (ii) the
Company, in common with other resellers of telephone services, experienced a
high level of turnover amongst its representatives.
In order to procure the advantages of sales generated by independent
representatives without the drawback of high turnover of personnel, the Company
conceived the idea of recruiting independent representatives in large numbers
through paid television programming, and to mitigate the cost of recruitment by
requiring the new representatives to pay a modest sum to purchase a sales kit
and the right to become independent sales representatives of the Company. The
method chosen to achieve this objective was the infomercial, a paid television
program used extensively by the direct marketing industry.
To this end, the Company, through its wholly-owned subsidiary, Long
Distance Direct Marketing Inc, entered into a contract in May 1996, with
Guthy-Renker Distribution Inc. ("Guthy-Renker"), an infomercial producer and
promoter in the United States, to produce and market a thirty minute infomercial
selling the right to become an independent sales representative of the Company.
Under this contract, the Company was responsible for financing the cost of
production of the infomercial program, while Guthy-Renker was responsible for
financing both the cost of media and the costs of fulfilling the orders procured
by the infomercial. The Company entered into a new contract with Guthy-Renker
Corporation ("GRC") dated October 1, 1997 which provides for the marketing and
distribution of the Company's services by GRC through direct response
programming including a second infomercial produced by GRC. Under this new
contract, which supersedes the prior contract, (i) GRC is responsible for
financing the cost of production of the second infomercial, the cost of media
and the cost of fulfilling the orders procured by the second infomercial; (ii)
the Company is obligated to pay GRC a
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royalty of 5% (subject to adjustment in the event of material changes affecting
the rates charged by the Company's telecommunications providers or other costs
incurred by the Company in providing its services) of cash receipts, net of
sales, excise or similar taxes, from long distance telephone billings to
customers generated by the second infomercial, and a royalty of 2% of cash
receipts, net of sales, excise and similar taxes, from long distance telephone
billings to customers generated by the first infomercial; (iii) in any month in
which GRC has introduced at least 9,000 new customers to the Company, the
Company is obligated to make a royalty payment to GRC in an amount of not less
than $30,000; (iv) the Company is obligated to grant GRC an option to purchase,
at a price of $2.00 per share, a number of shares of the Company's Common Stock
equal to a percentage (determined by reference to the proportion that revenues
from customers introduced to the Company by GRC bear to the Company's total
revenues for the period immediately preceding the date on which GRC determines
that the calculation is to be made) of the total number of shares of Common
Stock outstanding (including as outstanding for this purpose, shares issuable
upon exercise or conversion of all options, warrants or convertible securities
then outstanding and exercisable at an exercise price not in excess of the then
current market price of the Company's Common Stock) as of the date on which the
calculation is to be made; (v) the option is not exercisable for at least 18
months after the commencement of the new contract, except in certain specified
events, the principal of which is the acquisition of the Company by a third
party; and (vi) the Company is obligated to grant registration rights to GRC
with respect to the shares of Common Stock issuable upon exercise of the option
granted to GRC.
The Company test marketed the first infomercial in late 1996 and rolled
it out in January, 1997. This infomercial generated approximately $2.5 million
in usage revenue in 1997 but partially as a result of the software problems
within MCI described above did not generate the level of revenue anticipated by
management. The second infomercial, the format of which was different than the
first infomercial, was test marketed in September, 1997 but did not generate
positive results and was not rolled out.
The new contract with GRC allowed the Company to produce and finance
its own infomercial if the GRD-produced infomercial failed to generate positive
results. As a result, the Company financed and produced a third infomercial -
the format of which is similar to that of the first infomercial - which first
aired in May of 1998. There can be no assurance that this infomercial will
generate results similar to those of the first infomercial. In addition, there
can be no assurance that the Company will have sufficient capital to promote the
third infomercial.
NATIONAL BENEFITS CONSULTANTS
In January 1997, the Company signed an agreement with National Benefits
Consultants, LLC ("NBC"), a company in alliance with Deloitte & Touche LLP,
under which NBC agreed to market the Company's telecommunications services to
audit clients of Deloitte & Touche LLP and other commercial entities. NBC was
established in order to review costs and expenses incurred by clients of
Deloitte & Touche LLP, initially in the medical expenses field but subsequently
on a wider basis, and to make recommendations for alternate sourcing of certain
products and services so as to reduce the cost burden on those clients.
The agreement with NBC (the "NBC Agreement"), which is mutually
exclusive and which runs to December 31, 2001, provides that LDDI will supply a
full range of telecommunications services to companies and businesses introduced
to it by NBC. In respect of billings to such companies and businesses, NBC is
entitled to compensation not exceeding 10% of cash receipts therefrom, net of
taxes. Additionally, the Company granted NBC an option to purchase up to 20% of
the Company's total outstanding shares (calculated on a fully diluted basis
subject to certain specified exceptions) at a price of $3.00 per share as of the
date the option was granted, which price was subsequently reduced to $1.00 per
share pursuant to an amendment to the NBC Agreement dated May 14, 1998. The
actual percentage that may be purchased under this option will be determined by
reference to the proportion that revenues from customers introduced
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by NBC bear to LDDI's total revenues for the twenty four months prior to
exercise of the option, provided however, that the right to exercise the option
has been immediately vested as to 10% of the Company's total outstanding shares
(calculated on a fully diluted basis subject to certain specified exceptions),
pursuant to the amendment to the NBC Agreement, subject to the requirement that
it must be exercised within 24 months of such vesting. The balance of the option
may not be exercised prior to thirty months from the date of the agreement
except in certain specified circumstances, the principal of which is any
acquisition of the Company by a third party. In January 1997, LDDI entered into
a referral agreement expiring December 31, 2001 with NBC whereby LDDI will
receive a percentage compensation from NBC for those LDDI customers who purchase
NBC services. There can be no assurance that NBC will be successful in selling
LDDI's services pursuant to the agreement.
SERVICES PROVIDED
AT&T
Under its contract with AT&T, the Company is authorized to sell
outbound and inbound long distance service. The Company intends to terminate its
contract with AT&T on or before June 30, 1998 and to migrate its customers to
MCI or other service providers in order to obtain more favorable pricing. See
"Arrangements with Providers."
MCI
Under its contract with MCI, 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. Under the calling card arrangements, customers may access the
Company's network either through an 800-number or through "zero Plus" dialing.
Provisioning of customers onto the MCI network is done directly by the Company
in conjunction with the local exchange carriers.
The MCI contract permits resale to both the commercial and the
residential markets. Furthermore, the pricing of the MCI contract makes
residential sales a realistic and financially attractive proposition. Finally,
the Company is able 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.
The Company is currently in default under its MCI contract and is
currently negotiating a payment plan and certain changes to such contract. See
"Arrangements with Providers."
SUPPLY OF SERVICE
Neither the outbound service nor the inbound service provided on the
MCI network 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 its 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 various sources of new orders, 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
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consultant and has recently enhanced its systems department in anticipation of
increased levels of sales. This database records and tracks all new sales
activity to enable monthly commission statements to be generated, and to respond
to all personnel questions. Additionally, the database records and implements
all activity from order entry through submission of orders to the local exchange
carriers to production of the data needed to effect monthly accounting
reconciliations. 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
the local exchange carriers, enabling LDDI to respond systematically and
promptly to the reports generated by 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.
The Company entered into an agreement with Digital Communications of
America Inc. ("DCA") in April, 1996 under which DCA provides billing services to
the Company in respect of MCI service. The Company has also signed an agreement
with MCI which allows the Local Exchange Carrier to bill and collect on behalf
of the Company. 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
marketing partners, 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
MCI
On March 1, 1996 the Company, through its LDDI subsidiary, signed an
individually negotiated contract 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 contract, which was amended in September 1996,
February, 1997, and April, 1997, superseded a prior contract signed August 1995
under which MCI was unable to provide service as a result of software problems
between MCI and the local exchange carriers. This new contract, which requires
higher minimum purchase levels than the prior contract but affords better
prices, including more favorable pricing on international usage, was subject to
an 18 month ramp period commencing April, 1996 followed by a 30 month service
period. The objective of the ramp period was to afford the Company time to build
up its customer base at the beginning of the contract term. During the first
eight months of the ramp period, the Company had no minimum purchase
obligations. During the ninth through twelfth months, the Company was obliged to
purchase $250,000 of usage per month; during the thirteenth through fifteenth
months, $500,000; during the sixteenth through eighteenth month, $750,000; and
during the thirtieth month service period $1,000,000 per month. Under the MCI
contract, the Company was liable
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to be charged for shortfall in an amount equal to 15% of the difference between
the Company's actual monthly usage and its monthly purchase obligations.
The Company is in default under its contract with MCI for failing to
pay underutilization charges of approximately $736,000 and $929,000 as of
December 31, 1997 and May 31, 1998, respectively, under its existing minimum
purchase obligations. The Company is also in default under its MCI contract for
non payment of fees for telephone services in the approximate amounts of $2.6
million and $4.0 million as of December 31, 1997 and May 31, 1998, respectively.
The Company believes that it was prevented from meeting its minimum
purchase obligation in part because up to 20,000 new customers acquired by the
Company since January 1, 1997 and processed through MCI were confirmed to LDDI's
service but, due to software problems at MCI, were not, in practice, activated
onto the Company's network. The Company has been in extensive discussions with
MCI to resolve these operational and financial problems. From an operational
point of view, MCI has assured the Company that its software difficulties have
been rectified and that all current and future accounts sent to MCI for
provisioning to the Company's network will be processed correctly.
MCI has a contractual right to terminate the Company's service for
non-payment which, if exercised, would result in a loss of telephone service to
the Company's customer base and would materially adversely affect the Company's
ability to continue its operations. The Company is currently sending daily
payments to MCI to prevent interruption of service and is also seeking alternate
carriers to supplement its arrangement with MCI. Although the Company is
currently negotiating the terms of a payment plan and other changes to the
contract, as described below, there can be no assurance that MCI will continue
such negotiations or that MCI will not terminate service for non-payment and
seek to enforce its lien on the Company's receivables and other assets.
MCI and the Company have reached an agreement in principle which is
currently in the process of being formalized under which the Company will forgo
the benefit of its unbilled revenue from the new customers MCI failed to
activate onto the Company's network (which has therefore been excluded from the
Company's 1997 revenues) in return for, (i) the waiver by MCI of the entire
amount of the Company's liability for underutilization charges (approximately
$736,000 as of December 31, 1997 and $929,000 as of May 31, 1998) under its
existing minimum purchase obligations, (ii) a material reduction in the
Company's minimum purchase obligations over the nine months following
formalization of the revised agreement (anticipated to take effect in the second
quarter of 1998), (iii) certain performance credits under the new minimum
purchase obligations, (iv) reductions in prices charged to the Company by MCI
for telephone services which the Company could not otherwise expect to achieve
without an increase in its minimum purchase obligations and (v) the issuance by
the Company of a promissory note to MCI, to be guaranteed by one or more of the
Company's principal shareholders, for the payment over 24 months of the balance
outstanding of the Company's liability to MCI for usage of the latter's services
(approximately $4.0 million as of May 31, 1998) after the waiver of all
liability for failure to meet existing minimum purchase obligations. There can
be no assurance that the proposed arrangements with MCI will be consummated on
the terms described or at all, nor can there be any assurance that if
consummated, the Company will be able to make timely payments on its proposed
promissory note to MCI or otherwise fulfill its obligations to MCI.
AT&T
In April, 1998, the Company requested that AT&T terminate its contract
and AT&T has agreed in principle to release the Company from its current
contractual obligations and to waive all penalties for failure to meet minimum
purchase requirements (approximately $2,600,000 for 1997) and termination
liabilities upon discharge of the Company's outstanding liability to AT&T for
telephone services (approximately $500,000 at December 31, 1997). The Company
has promised to pay the $500,000 liability to AT&T in twelve equal payments
pursuant to a non-interest bearing promissory note that is to
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be personally guaranteed by two of the Company's officers. There can be no
assurance that the proposed arrangement with AT&T will be consummated on the
terms described above or at all, nor can there be any assurance that the Company
will be able to make timely payments on its proposed promissory note to AT&T.
Should the Company fail to make timely payments on its proposed promissory note
to AT&T or otherwise be in default under its proposed arrangement with AT&T, the
Company may also be liable for the entire amount of all shortfall penalties
proposed to be waived by AT&T. The Company has agreed with AT&T that any
customers which the Company has not migrated off the AT&T network by April,
1998, could be transferred by AT&T to its own network. As of June, 1998 the
Company still had approximately 1,700 customers on the AT&T network which AT&T
has not yet transferred to its own network. Should the Company fail to migrate
these customers, their service will be interrupted or AT&T will transfer such
customers to its own network.
Both MCI and AT&T hold liens on the Company's receivables and assets in
lieu of security deposits.
CUSTOMERS
At March 31, 1998, the Company had over 50,000 active billing
customers. Customers generated by the Company's marketing strategies have no
particular geographic bias. A majority of the Company's customers are
residential customers and the balance are commercial businesses.
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 such as customized billing,
teleconferencing, calling cards and prepaid calling cards. 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. Resellers which sell in
competition with the Company include Long Distance Discount Services, LCI
International, Inc., U.S.Tel Inc., Excel Communications, 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. Management has 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 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.
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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 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. 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.
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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.
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 for other long-distance carriers of the
District Court's preliminary
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injunction against MCI 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.
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 interexchange 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 time 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
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<PAGE> 13
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 a majority of the states
where it 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. The Company plans to obtain the
required certification in each state to provide local service.
EMPLOYEES
At March 31, 1998, the Company had 42 employees, of whom 40 are full
time and 2 are part-time. Of these 42 employees, 18 are responsible for order
entry, customer service and operations, 14 are responsible for accounting and
credit control, 5 are responsible for marketing support, 4 are responsible for
general management and administration and 1 is responsible for maintaining the
computer system. If the Company is successful in its proposed marketing
programs, as to which there can be no assurance, management envisages that there
will be a need for a continuing increase in the number of its employees.
In addition to its employees, the Company has a total of approximately
3,800 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. The Company's televised marketing
program has generated substantially all of these independent sales
representatives.
ITEM 2. DESCRIPTION OF PROPERTY
The Company operates out of a 10,700 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 December, 2000 with annual
rent of $192,834 rising to $214,260 commencing January 1999.
ITEM 3. LEGAL PROCEEDINGS
The State of New York Department of Taxation and Finance filed two
separate warrants dated May 23, 1994 and January 11, 1994, respectively, against
the Company evidencing judgement liens for uncontested tax liabilities in the
amounts of $10,449.21 and $5,238.61, respectively. The Company negotiated the
payment of these liabilities with the Department with monthly payments being
made over a 24 month period ending July 1997, both of which have been paid in
full.
The Department has filed an additional warrant dated June 23, 1997
against the Company evidencing a judgment lien for uncontested tax liabilities
in the amount of $87,227. The Company has negotiated another 24 month payment
plan with the Department as to this new tax liability which commenced in August,
1997.
There are no other legal proceedings or claims, threatened or pending,
against the Company except as disclosed herein.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
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, and there is a significant number of days or weeks when there has been
no trading activity at all.
The following table reflects the high and low bid prices of the
Company's Common Stock as reported by the OTC Bulletin Board from January 1,
1996 to June 15, 1998. Such prices are inter-dealer quotations without retail
mark-ups, mark-downs or commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
1996
<S> <C> <C>
First Quarter $3.00 $3.00
Second Quarter $6.00 $3.00
Third Quarter $6.00 $4.50
Fourth Quarter $5.00 $2.00
1997
First Quarter $4.25 $2.00
Second Quarter $3.38 $0 25
Third Quarter $2.50 $1.00
Fourth Quarter $1.63 $0.06
1998
First Quarter $ .8125 $.375
Second Quarter (Through June 15) $1.8125 $ .50
</TABLE>
As of May 31, 1998, there were approximately 293 shareholders of record
of the Company's Common Stock. On May 31, 1998, the closing bid price for the
Company's Common Stock was $.875.
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.
During the fiscal year ended December 31, 1997, the Company sold
securities that were not registered under the Securities Act of 1933, other than
unregistered sales made in reliance on Regulation S, as follows:
In January, 1997, the Company granted an option to National Benefits
Consultants, LLC to purchase up to 20% of the Company's Common Stock at $3.00
per share. The option was granted pursuant to Section 4(2) of the Securities Act
of 1933 and Regulation D promulgated thereunder.
In January, 1997, the Company granted an option to Rowland W. Day to
purchase, at an exercise price of $3.00 per share, 350,000 shares of Common
Stock. The option was granted pursuant to Section 4(2) of the Securities Act of
1933 and Regulation D promulgated thereunder.
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In March, 1997, the Company issued 85,000 shares of Common Stock to
Capital Growth International, L.L.C. or nominee for investment banking services.
The shares were issued pursuant to Section 4(2) of the Securities Act of 1933
and Regulation D promulgated thereunder.
In an offering that terminated on April 17, 1997, the Company sold
1,529,491 shares of Common Stock at a price of $2.00 per share. The offering was
made on behalf of the Company by Cruttenden Roth Incorporated as placement
agent. The shares were issued to a limited number of accredited investors. The
issuance of such shares was exempt from registration under the Securities Act of
1933 pursuant to Section 4(2) thereof and Regulation D promulgated thereunder.
The Company also issued to the placement agent, as a portion of its
compensation, warrants to purchase, at a price of $2.00 per share, up to 152,950
shares of Common Stock. The placement agents' warrants were issued pursuant to
Section 4(2) of the Securities Act of 1933 and Regulation D promulgated
thereunder.
In October, 1997, the Company granted an option to Guthy-Renker
Corporation to purchase, at an exercise price of $2.00 per share, a number of
shares of the Company's Common Stock equal to a percentage (determined by
reference to the proportion that revenues from customers introduced to the
Company by GRC bear to the Company's total revenues for the period immediately
preceding the date on which GRC determines that the calculation is to be made)
of the total number of shares of Common Stock outstanding (including as
outstanding for this purpose, shares issuable upon exercise or conversion of all
options, warrants or convertible securities then outstanding and exercisable at
an exercise price not in excess of the then current market price of the
Company's Common Stock) as of the date on which the calculation is to be made.
The option was granted pursuant to Section 4(2) of the Securities Act of 1933
and Regulation D promulgated thereunder.
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. Factors that could cause actual results to differ are: the Company's
ability to obtain sufficient funds to finance near term and long term working
capital needs; the Company's ability to satisfy its past due and future
obligations to MCI in order to maintain the right to resell MCI services; the
Company's ability to satisfy its past due obligations to AT&T; the Company's
ability to sell at profitable rates; the Company's ability to collect its
outstanding receivables; the Company's ability to manage a rapid increase in its
customer database; competition in the long distance telecommunications industry;
ability of the Company's marketing strategies to develop sufficient levels of
revenue to sustain growth; customer attrition; federal and state regulation of
the telecommunications industry; the Company's ability to manage its information
systems for rapid growth; and retention of key personnel.
GENERAL
LDDI 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 and
residential subscribers. All of the services sold by the Company in 1997 were
provided by MCI Telecommunications Corporation("MCI") and AT&T Corporation
("AT&T"). In April, 1998, the Company requested that AT&T terminate its contract
and AT&T has agreed in principle to release the Company from its current
contractual obligations and to waive all shortfall penalties and termination
liabilities upon discharge of the Company's outstanding liability to AT&T
(approximately $500,000 at December 31, 1997). The
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Company is in the process of migrating all of its customers to MCI to obtain
more favorable pricing.
The Company is in default under its contract with MCI for failing to
pay underutilization charges of approximately $736,000 and $929,000 as of
December 31, 1997 and May 31, 1998, respectively, under its minimum purchase
obligations. The Company is also in default under its MCI contract for non
payment of fees for telephone services in the approximate amounts of $2,600,000
and $4,000,000 as of December 31, 1997 and May 31, 1998, respectively.
The Company believes that it was prevented from meeting its minimum
purchase obligation in part because up to 20,000 new customers acquired by the
Company since January 1, 1997 and processed through MCI were confirmed to LDDI's
service but, due to software problems at MCI, were not, in practice, activated
onto the Company's network. The Company has been in extensive discussions with
MCI to resolve these operational and financial problems. From an operational
point of view, MCI has assured the Company that its software difficulties have
been rectified and that all current and future accounts sent to MCI for
provisioning to the Company's network will be processed correctly.
MCI has a contractual right to terminate the Company's service for
non-payment which, if exercised, would result in a loss of telephone service to
the Company's customer base and would materially adversely affect the Company's
ability to continue its operations. The Company is currently sending daily
payments to MCI to prevent interruption of service and is also seeking alternate
carriers to supplement its arrangement with MCI. Although the Company is
currently negotiating the terms of a payment plan and other changes to the
contract, as described below, there can be no assurance that MCI will continue
such negotiations or that MCI will not terminate service for non-payment and
seek to enforce its lien on the Company's receivables and other assets.
MCI and the Company have reached an agreement in principle which is
currently in the process of being formalized under which the Company will forgo
the benefit of its unbilled revenue from the new customers MCI failed to
activate onto the Company's network ( which has therefore been excluded from the
Company's 1997 revenues) in return for, (i) the waiver by MCI of the entire
amount of the Company's liability for underutilization charges of approximately
$736,000 and $929,000 as of December 31, 1997 and May 31, 1998, respectively,
under its existing minimum purchase obligations, (ii) a material reduction in
the Company's minimum purchase obligations over the nine months following
formalization of the revised agreement (anticipated to take effect in the second
quarter of 1998), (iii) certain performance credits under the new minimum
purchase obligations, (iv) reductions in prices charged to the Company by MCI
for telephone services which the Company could not otherwise expect to achieve
without an increase in its minimum purchase obligations and (v) the issuance by
the Company of a promissory note to MCI, to be guaranteed by one or more of the
Company's principal shareholders, for the payment over 24 months of the balance
outstanding of the Company's liability to MCI for usage of the latter's services
(approximately $4,000,000 as of May 31, 1998) after the waiver of all liability
for failure to meet existing minimum purchase obligations. There can be no
assurance that the proposed arrangements with MCI will be consummated on the
terms described or at all, nor can there be any assurance that if consummated,
the Company will be able to make timely payments on its proposed promissory note
to MCI or otherwise fulfill its obligations to MCI.
In April, 1998, the Company requested that AT&T terminate its contract
and AT&T has agreed in principle to release the Company from its current
contractual obligations and to waive all penalties for failure to meet minimum
purchase requirements (approximately $2,600,000 for 1997) and termination
liabilities upon discharge of the Company's outstanding liability to AT&T for
telephone services (approximately $500,000 at December 31, 1997). The Company
has promised to pay the $500,000 liability to AT&T in twelve equal payments
pursuant to a non-interest bearing promissory note that is to be personally
guaranteed by two of the Company's officers. There can be no assurance that the
proposed arrangement with AT&T will be consummated on the terms described
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above or at all, nor can there be any assurance that the Company will be able to
make timely payments on its proposed promissory note to AT&T. Should the Company
fail to make timely payments on its proposed promissory note to AT&T or
otherwise be in default under its proposed arrangement with AT&T, the Company
may also be liable for the entire amount of all shortfall penalties proposed to
be waived by AT&T. The Company has agreed with AT&T that any customers which the
Company has not migrated off the AT&T network by April, 1998, could be
transferred by AT&T to its own network. As of June, 1998 the Company still had
approximately 1,700 customers on the AT&T network which AT&T has not yet
transferred to its own network. If the Company fails to migrate these customers,
their service will be interrupted or AT&T will transfer such customers to its
own network.
Both MCI and AT&T hold liens on the Company's receivables and assets in
lieu of security deposits.
The Company markets its services utilizing various channels of
distribution. Historically, the Company has marketed its services through three
methods typically employed by sellers and resellers of telephone services: field
sales, outbound telemarketing, and direct mail. Beginning in the fourth quarter
of 1996, the Company began to change its strategy by adding other marketing
techniques. In particular, the Company entered into a number of agreements with
third parties under certain of which those parties will be primarily
responsible, both financially and operationally, for marketing the Company's
telecommunications services to their members or customers. The Company
test-marketed a televised marketing program in conjunction with Guthy-Renker
Distribution, Inc. ("GRD"), which it rolled out in January, 1997, to increase
its independent sales force. Although this program generated $2,500,000 in usage
revenue in 1997, it did not generate the level of revenue anticipated by
management. The Company revised its agreement with GRD under which GRD produced
and financed a second infomercial with a different format. This GRD-produced
infomercial generated disappointing results. The revised agreement allows the
Company to produce and finance its own infomercial if the GRD-produced
infomercial fails to generate positive results. As a result, the Company
financed and produced a third infomercial - the format of which is similar to
that of the first infomercial - which first aired in May of 1998. There can be
no assurance that this new Company-produced infomercial will generate results
similar to those of the first infomercial. In addition, there can be no
assurance that the Company will have sufficient capital to promote the new
Company-produced infomercial.
In January 1997, the Company signed a mutually exclusive agreement with
National Benefits Consultants, LLC ("NBC"), a company in alliance with Deloitte
& Touche LLP, under which NBC will market the Company's telecommunications
services to audit clients of Deloitte & Touche LLP and other commercial
entities. In 1997, the Company's arrangement with NBC generated approximately
$400,000 in billed telephone service.
In 1998, the Company entered into marketing agreements with Popular
Club Plan ("PCP"), a subsidiary of J. Crew Group, Inc., New Media
Telecommunications, Inc. ("NMTI") and various network marketing companies,
direct response marketers and affinity groups pursuant to which these entities
will market the Company's services to their respective customers or members in
consideration for commissions based upon revenues generated by these marketing
programs. To date, revenue generated by these marketing programs has been
minimal. These marketing programs represent the key element in the Company's
strategy to achieve growth in revenue and customer base, but there can be no
assurance that such growth will be achieved.
Since the Company has not realized the level of revenue anticipated
from its marketing arrangements, the Company has taken steps to reduce its
operating costs by reducing its personnel and other costs.
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At December 31, 1997, the Company recorded a non-recurring charge of
$1,900,000 to write off its unrecoverable receivables from its customers and
record additional provision for bad debt. A significant portion of the write off
is attributable to the MCI software problems described above with respect to
customers who were eventually successfully migrated to LDDI's network. A
substantial number of these customers refused to pay because of the
inconvenience experienced by them in the migration. The Company decided to write
off these accounts at year end 1997 and will treat any subsequent collections as
income in 1998.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AS COMPARED
TO THE TWELVE MONTHS ENDED DECEMBER 31, 1996.
Gross revenues for the twelve months ended December 31, 1997 were
$8,500,000 as compared to $5,300,000 for the twelve months ended December 31,
1996. The increase in sales is attributable to revenue realized from the
Company's new televised marketing program and its agreement with National
Benefits Consultants, LLC ("NBC"). The Company's televised marketing program
generated $2,500,000 or 29 % of total revenue in billed telephone service and
$1,700,000 (before associated costs) or 20% of total revenue through the sale of
sales agent kits sold during the program . The Company's arrangement with NBC
generated $400,000 or 5% of total revenue in billed telephone service.
Gross revenues for the period ended September 30, 1997 included
unbilled revenue of approximately $1.8 million in respect of certain new
customers which were acquired by LDDI since January 1, 1997 and processed
through MCI and which formed a large portion of the customers who were generated
from the Company's televised marketing program. The accounts in question were
confirmed to LDDI's service but, due to software problems at MCI, the Company
had not received the benefit of these billings at September 30, 1997. MCI and
the Company have reached an agreement in principle which is currently in the
process of being formalized under which the Company will forgo the benefit of
such unbilled revenue (which has therefore been excluded from gross revenue at
December 31, 1997) in return for various accommodations described above.
The Company estimates that, when the nine month ramp period has expired
under the proposed new contract with MCI described above, in order to meet its
proposed new minimum purchase obligations, the Company must bill its customers
approximately $17,000,000 (annually) at the current gross profit margin level of
30%. Under the proposed new contract with MCI, the sales levels needed to meet
the Company's obligations to MCI would be $900,000 during the first quarter
following the inception date of the new contract; $1,300,000 during the second
quarter; $2,100,000 during the third quarter; and $17,000,000 (annually)
thereafter.
In May, 1996, the Company, through its wholly owned subsidiary, Long
Distance Direct Marketing, Inc. ("LDDM"), entered into an arrangement with
Guthy-Renker Distribution ("GRD"), an infomercial producer and promoter, to
produce and market a thirty minute infomercial selling the right to become an
independent sales representative of the Company. Under the contract with GRD,
the Company was responsible for financing any loss incurred from the sale of
sales agent kits sold pursuant to the infomercial. In the twelve months ended
December 31, 1997, the Company recorded losses from the sale of sales agent kits
amounting to $400,000.
In October, 1997, the Company entered into a new five-year agreement
with Guthy- Renker Corporation ("GRC"), the parent company of GRD. Under the new
agreement with GRC, a second infomercial with a different format was produced
and financed by GRC. This infomercial generated disappointing results. The new
agreement with GRC allows the Company to produce and finance its own infomercial
if the GRD-produced infomercial fails to generate positive results. As a result,
the Company financed and produced a third infomercial - the format of which is
similar to that of the first infomercial which first aired in May of 1998. There
can be no assurance that this Company-produced infomercial will generate results
similar to those of the first infomercial, nor can
18
<PAGE> 19
there be any assurance that the Company will have sufficient capital to promote
and support it.
In 1998, the Company entered into marketing agreements with Popular
Club Plan ("PCP"), a subsidiary of J. Crew Group, Inc., New Media
Telecommunications, Inc. ("NMTI") and various network marketing companies,
direct response marketers and affinity groups pursuant to which these entities
will market the Company's services to their respective customers or members in
consideration for commissions based upon revenues generated by these marketing
programs. To date, revenue generated from these marketing programs has been
minimal.
Gross profit was $1,600,000 and $1,600,000 for the twelve months ended
December 31,1997 and 1996, respectively. As a percentage of gross sales, the
gross profit margins for the twelve months ended December 31, 1997 and 1996 were
19 % and 30%, respectively. This decrease is mainly attributable to a loss of
$400,000 incurred with respect to the sale of sales agent kits sold pursuant to
the Company's first infomercial and decreased profit margins related to the
Company's arrangement with NBC. Revenue generated from the arrangement with NBC
yields a lower price per minute in comparison to the Company's other sources of
revenue.
Sales and marketing expenses (excluding the loss on the sale of sales
agent kits sold pursuant to the Company's first infomercial) were $300,000 and
$400,000 for the twelve months ended December 31, 1997 and 1996, respectively.
As a percentage of gross sales, sales and marketing expenses decreased from 8%
for the twelve months ended December 31, 1996 to 4 % for the twelve months ended
December, 1997. The percentage decrease is attributable to two factors: limited
expenditure on account acquisition from outbound telemarketing firms due to
concentration on other marketing strategies in 1997, in particular to the
relationships with third parties who are responsible for marketing the Company's
services; and increased sales levels in 1997 .
General and administrative expenses were $7,000,000 and $3,000,000 for
the twelve months ended December 31, 1997, and 1996, respectively. As a
percentage of gross sales, general and administrative expenses for the twelve
months ended December 31, 1997 and 1996 were 82% and 57%, respectively. At
December 31, 1997, the Company recorded a non-recurring charge of $1,900,000,
included in general and administrative expenses, to write off its unrecoverable
receivables from its customers and record additional provision for bad debt. The
Company also recorded $600,000 in bad debt accruals in the normal course of
business. A significant portion of the write off is attributable to the MCI
software problem described above with respect to customers who were eventually
successfully migrated to LDDI's network. A substantial number of these customers
refused to pay because of the inconvenience experienced by them in the
migration. The Company decided to write off these accounts at year end 1997 and
will treat any subsequent collections as income in 1998. Other factors which
contributed to the increase in general and administrative expenses are mainly
related to the Company's expansion of its resources in anticipation of increased
levels of sales, including payroll and related administrative costs, and legal
and accounting fees. In addition, costs were incurred in 1997 to purchase
additional insurance for Director's & Officer's liability coverage. In 1997, the
Company incurred heavier costs for regulatory compliance when compared to 1996
as a result of the Company's attempt to seek certification to provide local
service in each state. The Company incurred costs in 1997 to establish a
relationship with a public relations firm. Since the Company's new marketing
programs have not generated substantial revenue, management has begun to
decrease personnel and other operating costs.
Interest expense for the twelve months ended December 31, 1997 and 1996
was $0 and $700,000, respectively. In the third quarter of 1996, 150,000 shares
were granted to a shareholder of the Company in consideration for such
shareholder making a loan of $500,000 to the Company. Non-cash interest expense
in the amount of $495,000 was recorded as a result of this transaction. This
loan was converted to equity at September 30, 1996. In addition, for the nine
months ended September 30, 1996, interest expense related to accrued interest on
indebtedness of the Company in connection with a note incurred in relation to
the purchase of the partnership interest of two of the
19
<PAGE> 20
original limited partners in LDDLP, and various financing agreements entered
into to finance the Company's working capital requirements. The note payable
related to the partnership buyout was paid off in the third quarter of 1996 when
litigation was settled. In addition, a majority of the Company's outstanding
loans were converted to equity.
Interest income was $100,000 and $0 for the twelve months ended
December 31, 1997 and December 31, 1996, respectively. At December 31, 1997,
$68,000 was recorded with respect to interest receivable on loans in the
aggregate amount of $477,000 made by the Company to two officers.
The Company incurred a net loss of $5,500,000 for the twelve months
ended December 31, 1997 compared to a net loss of $2,400,000 for the twelve
months ended December 31, 1996. The year ended December 31, 1997 included a one
time charge of $1,900,000 to write off the Company's unrecoverable accounts
receivable from its customers and to record additional provision for bad debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company has sustained operating losses for each year of its
existence due to a lack of working capital to finance adequate levels of
marketing expenditure, insufficient revenues and other reasons. Since its
inception, the Company has financed its operational losses through debt and
equity placements and will need to continue to do so until revenues reach such
levels that enough working capital is generated from its operations. There can
be no assurance that the Company will realize this level of revenue.
The Company's expected expanded sales and marketing efforts could
result in significantly higher operating losses in the future. The Company's
trend of incurring operating losses is likely to continue until its revenues
reach certain levels materially higher than any achieved to date. There can be
no assurance that the Company will not continue to experience operating losses
in the future or that the Company's revenues will reach such levels.
Until the Company's revenues reach certain levels materially higher
than any achieved to date, as to which there can be no assurance, the Company
will be required to raise substantial additional amounts of capital from the
sale of its securities or through debt financing arrangements to finance its
operations. There can be no assurance that additional financing will be
available on acceptable terms, if at all.
The Company is in the process of raising debt financing in a private
offering that has not been registered under the Securities Act of 1933 in order
to meet short term capital requirements. The Company is seeking to raise up to
$1,500,000 from a limited group of selected accredited investors and has raised
approximately $500,000 since the private offering commenced in February, 1998.
The proceeds of the debt financing to date have been used to fund the Company's
marketing ventures and for working capital purposes. There can be no assurance
that the Company will be able to raise any debt financing in excess of the
$500,000 received to date, or that any other financing will be available on
acceptable terms or at all.
ITEM 7. FINANCIAL STATEMENTS
[To be provided by Adelman, Katz and Mond.]
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE> 21
PART III
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 as of May 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven L. Lampert 48 President Chief Executive Officer and
Chairman of the Board
Michael D. Preston 52 Chief Financial Officer and Vice President
-- Finance, Secretary and Director
Clair Alpert 55 Vice President -- Administration
Lori Colin 39 Controller
Andrea Grossman 34 Vice President -- Marketing
Conrad J. Morris 65 Director
</TABLE>
Steven L. Lampert is a founder of the Company and has been the Chief
Executive Officer since January 1994. He has served as President of the Company
since it commenced operations in December 1991. Prior to founding the Company,
Mr. Lampert served as President of Comtec, Inc., a New York-based
telecommunications corporation, from November 1985 through November 1991. Prior
to 1985, Mr. Lampert served as director of telecommunications for NBC and for
Corning Labs (formerly Metpath). Mr. Lampert has served as a director of the
Company since December 1991.
Michael D. Preston is a founder of the Company and has been the Vice
President -- Finance and Chief Financial Officer of the Company since January
1994. Prior to this period, Mr. Preston was retained as a consultant to the
Company commencing in December 1991. Mr. Preston has served as a director of the
Company 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 U.K. business publishing company (1977 to September
1995; and served as Deputy Chairman from 1990 to September 1994); Broad Street
Group PLC, a publicly-held U.K. public relations and marketing services firm
(June 1977 to March 1991); Frank Usher Holdings PLC, a publicly-held U.K.
clothing manufacturer (1989 to 1990); Cadiz Land Corporation (1983 to 1987). Mr.
Preston is a United Kingdom Chartered Accountant.
Clair Alpert has been the Vice President -- Administration of the
Company since October 1993. Ms. Alpert served as Controller of the Company from
April 1992 to October 1993. Prior to joining the Company, 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 the Company since October 1993.
Prior to joining the Company, 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 the Company
since May 1993. Ms. Grossman served as the Director of Marketing of the Company
from October 1992 to May 1993. Prior to joining the Company, 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.
Conrad J. Morris is a United Kingdom businessman with extensive
investment and management experience in both the United Kingdom and the United
States. Business Systems Consultants Limited, an investment company registered
in Liberia and
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<PAGE> 22
beneficially owned by Mr. Morris' two adult daughters, is a significant investor
in the Company. He was appointed a director of the Company in November 1996.
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, 1995, 1996 and 1997, 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 1997 received total
annual salary and bonus exceeding $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
SECURITIES
NAME AND ANNUAL COMPENSATION UNDERLYING
PRINCIPAL YEAR ENDING OTHER ANNUAL OPTIONS
POSITION DEC. 31, SALARY BONUS COMPENSATION SARS(#)
-------- -------- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Steven Lampert, 1995 $150,000 -- $ 10,689(1) 250,000(2)
President 1996 $150,000 -- $ 11,745(1) 350,000(3)
1997 $150,000 -- $ 12,299(1) 0
Michael Preston, 1995 $125,000 -- $ 7,122(1) 250,000(4)
Chief Financial 1996 $125,000 -- $ 9,092(1) 350,000(5)
Officer 1997 $125,000 -- $ 9,123(1) 0
</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 350,000 Shares at a price of $3.30 per Share were
granted to Mr. Lampert under the Company's 1995 Stock Option Plan.
(4) 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.
(5) Options to purchase 350,000 Shares at a price of $3.30 per Share were
granted to Mr. Preston under the Company's 1995 Stock Option Plan.
No executive officer named in the Summary Compensation Table above was
granted any stock options during the fiscal year ended December 31, 1997.
The following table sets forth for each person the fiscal year-end
value of unexercised options:
22
<PAGE> 23
AGGREGATED OPTION EXERCISES IN
FISCAL YEAR ENDED DECEMBER 31, 1997 AND OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF
SHARES UNDERLYING UNEXERCISED UNEXERCISED IN THE MONEY
ACQUIRED ON VALUE OPTIONS AT 12/31/97 OPTIONS AT 12/31/97(1)
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven Lampert 250,000 $943,750 350,000 0 $0 0
Michael Preston 250,000 $943,750 350,000 0 $0 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 December 31, 1997 as reported by the OTC Bulletin Board, minus
the exercise price.
STOCK OPTION PLAN
The Company has adopted a stock option plan (the "Stock Option Plan")
for its officers, directors, employees and consultants and has reserved a total
of 2,000,000 shares of Common Stock to be issued upon exercise of options
granted under the Stock Option Plan. As of March 31, 1998, options to purchase
1,000,000 shares at an exercise price of approximately $.001 per share and
options to purchase 1,000,000 shares at an exercise price of $3.30 per share had
been granted, of which 830,000 had been exercised by such date.
The Stock Option Plan will be administered by the Board. Subject to the
provisions of the Stock Option Plan, the Board 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 Board 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 Stock. In the discretion of the Board, the option exercise price may
be paid in cash or in Common Shares or other property having a fair market value
on the date of exercise equal to the option 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.
EMPLOYMENT CONTRACTS
The Company has not entered into any written or formal contract with
any of the above-named executive officers.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten
23
<PAGE> 24
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Messrs. Lampert, Preston & Morris officers and/or directors of the
Company, Messrs. Rowland W. Day II and Julian Levy, former directors of the
Company, and Business Systems Consultants Limited, the holder of more than 10%
of the Company's outstanding shares of Common Stock, failed to timely file Forms
3 with the Securities and Exchange Commission pursuant to Section 16(a) of the
Securities Exchange Act of 1934 (the "Exchange Act") to report their ownership
of shares of the Company's Common Stock at the time the Company's Common Stock
was registered under Section 12(g) of the Exchange Act.
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, 1998 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 PERCENTAGE
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
------------------- ------------------ --------
<S> <C> <C>
Steven L. Lampert 1,637,065(1) 16.9%
8 Lady Godiva Way
New City, N.Y. 10956
Michael D. Preston 1,679,020(2) 17.2%
8 Oak Hill Park Mews
London NW3 7LH
England
Conrad Morris 0 --
Business Systems Consultants, Ltd 1,566,469(3) 16.8%
P.O. Box 222
31-33 Le Pollet
St. Peter Port
Gurnsey GYI 4J6
Channel Islands
All directors and officers 5,052,854(4) 49.5%
as a group (6 persons)
</TABLE>
(1) Includes 350,000 shares issuable upon the exercise of outstanding
options.
(2) Includes 410,000 shares issuable upon the exercise of outstanding
options.
(3) Business Systems Consultants, Ltd. (BSC) is an investment company
registered in Liberia. BSC is beneficially owned by two adult daughters
of Conrad Morris, a director of the Company. Mr. Morris acts as an
advisor to but has no beneficial interest in BSC.
(4) Includes 860,000 shares issuable upon exercise of outstanding options,
and the 1,566,469 shares owned by BSC.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company made loans during 1997 to Messrs. Steven Lampert and
Michael Preston, officers and directors of the Company, in the aggregate amounts
of $447,000 and $30,000, respectively. The loans, which bear interest at the
rate of 8% per annum, are
24
<PAGE> 25
evidenced by promissory notes with a three year maturity date. Interest on the
loans is payable semi-annually. As of December 31, 1997, interest on the loans
to Messrs. Lampert and Preston in the amounts of approximately $67,500 and $500,
respectively, was due and payable.
On November 1, 1997 the Company entered into a loan agreement with
Business Systems Consultants Limited ("BSC"), pursuant to which BSC has loaned
$309,000 to the Company. BSC owns more than 10% of the Company's outstanding
Common Stock and one of the Company's directors, Conrad Morris, acts as an
advisor to BSC. Under the terms of the loan agreement, BSC now has the right to
convert the loan into shares of the Company's Common Stock at a price per share
of $.50 or the average bid price of the Company's shares for 10 business days
prior to March 1, 1998, whichever is lower. The loan is due and payable on
demand. The loan has been secured by a lien on the Company's receivables and a
pledge by each of Messrs. Steven Lampert and Michael Preston of 300,000 of the
shares of the Company's Common stock owned by each of them.
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 was evidenced by a secured promissory note (the "Wingmead Note"), and bore
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 first
floating lien on all of its assets. In addition, pursuant to the terms of a
guaranty dated August 25, 1994 between Wingmead and Mr. Preston, a Director and
Chief Financial Officer of the Company, Mr. 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.
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 bore interest at a rate per annum equal to the Prime Rate plus
.5%. Principal and interest on the BONY Note was 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.
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 Messrs. Lampert and Preston personally guaranteed the payments,
when due, of all amounts owing by the Company to BONY, which obligation was
represented by the BONY Note.
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 was subsequently
extended to November 8, 1996, at which time it was paid in full. 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 repayment by the Company of the BONY Note. On
November 18, 1996, Wingmead purchased 166,667 shares of the Company's Common
Stock for $500,000 cash.
25
<PAGE> 26
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 bore 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 concluded 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 plus accrued interest were repaid during 1995.
Holders of the balance of the Series A 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 was secured by the Loan
Agreement dated August 25, 1994 between the Company, Wingmead and Michael
Preston, and was personally guaranteed by Michael Preston and Steven Lampert,
bore 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 after the agreement.
In August, 1996 Michael Preston paid Wingmead a total of $229,329.86,
representing $110,000 of the Second Wingmead loan together with accrued interest
and certain fees due to Wingmead, in consideration of Wingmead's granting to Mr.
Preston the benefit of Wingmead's interest in all such amounts owing by the
Company. Wingmead had previously converted the balance of the principal due into
30,000 shares of the Company's Common Stock at the price of $3.00 per share,
prior to December 31, 1995. On November 18, 1996, the Company repaid Mr. Preston
the full amount paid by him to Wingmead for the debt owed to Wingmead by the
Company.
SHAREHOLDER LOANS
The Company entered into an agreement with Business Systems
Consultants, Ltd. ("BSC") in March, 1996, pursuant to which BSC agreed to loan
$500,000 to the Company. The agreement provided that BSC may convert all (but
not less than all ) of the loan into shares of the Company's Common Stock at a
price of $3.30 per share at any time prior to the earlier of December 31, 1996
or the date on which the Company's Common Stock is listed for trading on NASDAQ.
As consideration for the loan, the Company agreed to issue 150,000 shares of
Common Stock to BSC and to pay BSC a fee equal to 1.5% of the first $50 million
of revenues and 1% of revenues in excess of $50 million received by the Company
from the customer billings generated by sales representatives recruited via the
infomercial produced by Guthy-Renker during the first two years any revenue is
received from such infomercial. In August, 1996, BSC elected to convert the
entire amount of the loan to equity.
The Company entered into agreements with Business Systems Consultants,
Ltd. ("BSC") and Michael Preston on August 1, 1996, pursuant to which BSC and
Mr. Preston agreed to loan $350,000 and $150,000, respectively, to the Company.
The loans bore interest at the rate of 12% per annum and were repayable within
60 days after receipt
26
<PAGE> 27
of the loan proceeds. The agreements provided that the loans may be converted
into shares of the Company's Common Stock at a price of $2.50 per share. As
additional consideration for the loans, the Company agreed to issue to BSC and
Mr. Preston, for each seven day period during which the loans were outstanding,
1,250 shares of Common Stock and 535 shares of Common Stock, respectively, but
not less than 5,000 shares and 2,140 shares, respectively. In addition, if the
loans were not repaid prior to September 30, 1996, BSC and Mr. Preston have the
option, exercisable at any time within 12 months after such repayment date, to
purchase, at a price of $2.50 per share, 140,000 shares and 60,000 shares,
respectively. In November 1996 BSC elected to convert the full amount of its
loan into shares of the Company's Common Stock at a price of $2.50 per share.
The loan from Mr. Preston was repaid in November 1996.
BUY OUT AGREEMENT
Pursuant to the terms of an agreement (the "Buy Out Agreement") dated
April 6, 1993 by and among Steven L. Lampert ("Lampert"), Michael D. Preston
("Preston" and collectively with Lampert, the "Buyers"), Michael Miller
("Miller"), Jeffrey Schwartz ("Schwartz" and collectively with Miller, the
"Sellers"), LDDLP, LDDI and several inactive entities (collectively with LDDLP
and LDDI, the "Entities"), the Buyers, who are officers and directors of the
Company, purchased in equal proportions all of the interests of the Sellers in
the Entities (the "Buy Out"). At the closing of the Buy Out, the Buyers paid the
Sellers an aggregate of $500,000.
In connection with the Buy Out, LDDLP obligated itself under the Buy
Out Agreement (i) to pay the Sellers an aggregate of $250,000 for their
covenants not to compete with the business of LDDLP, (ii) to pay JAMI Marketing
Services, Inc. ("JAMI"), an affiliate of the Sellers, $303,333.34, with respect
to and in cancellation of an office facilities and equipment agreement and in
consideration of services rendered, and (iii) to pay to the Sellers an aggregate
of $80,000 with respect to their capital and current accounts with LDDLP
(collectively, the "LDDLP Obligations").
In addition, the Sellers were entitled to receive Contingent Event
Payments of up to an aggregate of $750,000 upon the occurrence of (a) the sale
by either of the Buyers of all or a majority of his interests in any Entity, (b)
the sale by any Entity of all or substantially all of its assets, or (c) the
distribution (excluding compensation payments to Lampert or Preston in amounts
not exceeding $187,500 and $150,000, respectively, per year) by any Entity of
cash or property to either of the Buyers (collectively the "Contingent Events").
The Buyers were responsible for Contingent Event Payments, except in the case of
an asset sale by an Entity, in which case the Entity was responsible to the
Sellers but the Buyers were obligated to reimburse the Entity to the extent the
net proceeds of such sale were distributed to the Buyers.
A dispute arose with respect to the Buy Out Agreement and in February,
1996, LDDLP and the Buyers filed a lawsuit against the Sellers seeking
compensatory and punitive damages. The Sellers subsequently filed a separate
lawsuit against LDDLP and the Buyers to exercise their rights to receive payment
under the Buy Out Agreement and to exercise their remedies under the security
agreement with respect thereto.
On September 19, 1996, the Company, the Buyers, LDDI and LDDLP entered
into an agreement (the "Settlement Agreement") with the Sellers and JAMI to
settle the pending litigation (the "Litigation"). In accordance with the terms
of the Settlement Agreement, the Company paid Sellers $500,000 in settlement of
the Litigation and as full satisfaction of all remaining obligations under the
Buy Out Agreement, including the Contingent Event Payments; the parties signed
and delivered mutual general releases; and the Litigation was dismissed with
prejudice.
RELATIONSHIP WITH ALBERDALE & CO.
Michael Preston, an officer, director and principal shareholder of the
Company, owns a 33.3% interest in Alberdale & Co., a British investment firm
whose associate company, Alberdale Partners Limited, received compensation in
connection with the sale
27
<PAGE> 28
of the Company's securities in a private placement completed in November 1996 in
which Capital Growth International, LLC acted as the Company's placement agent.
ARRANGEMENTS WITH CAPITAL GROWTH INTERNATIONAL, LLC
In August 1996, the Company entered into a Placement Agreement with
Capital Growth International, LLC ("CGI") pursuant to which the Company agreed,
among other things, (i) to use its best efforts to cause the election to the
Company's Board of Directors of a person designated by CGI and reasonably
acceptable to the Company for a period of up to three years (CGI designated
Julian Levy who was elected to the Board in November, 1996 and resigned in May,
1998); (ii) to retain CGI as a financial advisor for two years and to compensate
CGI at the rate of $2,500 per month; and (iii) for a period of 24 months after
the completion of the private placement, to provide CGI with the first
opportunity to negotiate and the right of first refusal with respect to any debt
or equity financings the Company may undertake during such period.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) List of Exhibits:
<S> <C>
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., and Steven
Lampert, Michael Preston, Jeffrey Schwartz, Michael Miller and JAMI
Marketing Services, Inc.*
10.2 Amended Lease Agreement for Suite 1430, 1 Blue Hill Plaza, Pearl
River, New York 10965, dated December, 1996.**
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.*(Spade)
10.6 Agreement with Guthy-Renker Corporation dated as of
October 1, 1997 regarding the marketing and
distribution of an infomercial.***
10.7 Agreement with Schulberg MediaWorks, Inc. dated June 10, 1996
regarding the production of an infomercial.**
10.8 Agreement with Kaire International, Inc dated
November, 1996 and extension thereof dated December,
1996 regarding supply of telecommunications
services.**
10.9 Agreement with National Benefits Consultants, LLC
dated January, 1997 regarding supply of
telecommunications services.**
10.10 Agreement with AT&T dated February, 1997 for supply of long distance
telephone service for resale.**
10.11 Amendment to MCI Agreement dated September 23, 1996**
10.12 Amendment to MCI Agreement dated February 4, 1997***
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C>
10.13 Amendment to MCI Agreement dated April 25, 1997***
10.14 Addendum to MCI Agreement dated January 7, 1997***
10.15 Agreement with Credit Education Center, L.L.C. dated August, 1997***
10.16 Agreement between Popular Club Plan and Long Distance Direct, Inc.
dated February 12, 1998.
10.17 Agreement between New Media Telecommunications, Inc. and Long
Distance Direct, Inc. dated February 25, 1998.
10.18 Addendum to Agreement between New Media Telecommunications, Inc. and
Long Distance Direct, Inc. dated February 20, 1998.
10.19 Loan Agreement with Business Systems Consultant Limited dated
November 1, 1997.
10.20 Amendment to Agreement with National Benefits
Consultants LLC dated May 14, 1998.
21 List of Subsidiaries.**
23.1 Consent of Adelman, Katz & Mond, L.L.P.
27 Financial Data Schedule.
</TABLE>
*Incorporated by reference to the Company's Form 10-K/A dated November 7, 1996
filed with the Commission on November 7, 1996.
**Incorporated by reference to the Company's Registration Statement on Form SB-2
filed with the Commission on December 17, 1996, and Amendment No. 1 thereto
filed with the Commission on March 25, 1997.
***Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 333-31563) filed with the Commission on July 18, 1997 and
amendment numbers 1 and 2 thereto filed with the Commission on September 25,
1997 and October 14, 1997, respectively.
*(Spade)A compensatory plan or arrangement.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter
ended December 31, 1997:
29
<PAGE> 30
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 19, 1998 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.
<TABLE>
<S> <C>
/s/ Steven Lampert June 19, 1998
- -------------------------------------------
Steven Lampert, President
(Principal Executive Officer)
and Director
/s/ Michael Preston June 19, 1998
- -------------------------------------------
Michael Preston, Chief Financial Officer
(Principal Accounting Officer) and Director
/s/ Conrad Morris June 19, 1998
- -------------------------------------------
Conrad Morris, Director
</TABLE>
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.
30
<PAGE> 31
LONG DISTANCE DIRECT HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
ACCOMPANYING INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1997
<PAGE> 32
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 6-17
<PAGE> 33
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. and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
each of the two years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial position of Long Distance Direct
Holdings, Inc. and Subsidiaries as of December 31, 1997, and the result of its
operations and its cash flows for each of the two years in the period ended
December 31, 1997 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 experienced significant
recurring losses from operations and has an accumulated deficit, both of which
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.
As discussed in Note 5, the Company did not meet certain minimum purchase
requirements with it's suppliers.
New York, N.Y.
June 18, 1998
<PAGE> 34
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, 1997
<TABLE>
<S> <C>
CURRENT ASSETS
Cash $ 50,447
Accounts receivable, net of allowance for doubtful accounts
of $1,205,230 (Note 5) 1,725,556
Prepaid expenses 220,050
------------
Total Current Assets 1,996,053
------------
PROPERTY AND EQUIPMENT (Note 5)
Furniture and equipment 208,819
Computer equipment and software 516,579
Leasehold improvements 127,335
------------
852,733
Less: accumulated depreciation 312,495
------------
540,238
------------
OTHER ASSETS
Notes receivable - officers (Note 10) 563,598
Security deposits 100,213
Prepaid marketing costs (Note 5) 262,744
------------
Total Other Assets 926,555
------------
$ 3,462,846
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable - related party (Note 6) $ 309,929
Accounts payable 4,138,448
Accrued expenses 273,356
Sales taxes payable 270,802
Excise taxes payable (Note 5) 148,142
------------
Total Current Liabilities 5,140,677
------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 5)
STOCKHOLDERS' DEFICIT
Common stock - par value $.001 per share;
authorized 30,000,000 shares 8,967
Additional paid in capital 10,924,848
Accumulated deficit (12,611,646)
------------
Total Stockholders' Deficit (1,677,831)
------------
$ 3,462,846
============
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE> 35
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
REVENUES $ 8,452,731 $ 5,319,923
CUSTOMER REBATES AND REFUNDS 8,588 9,686
----------- -----------
NET REVENUES 8,444,143 5,310,237
COST OF SERVICES 6,794,287 3,650,162
----------- -----------
Gross Profit 1,649,856 1,660,075
----------- -----------
OPERATING EXPENSES
Sales and marketing 322,539 379,670
General and administrative 6,961,000 2,941,725
----------- -----------
Total Operating Expenses 7,283,539 3,321,395
----------- -----------
LOSS FROM OPERATIONS (5,633,683) (1,661,320)
----------- -----------
OTHER EXPENSE (INCOME)
Interest expense 1,164 748,711
Interest income (89,988) (8,795)
----------- -----------
Total Other Expense (Income) (88,824) 739,916
----------- -----------
NET LOSS ($5,544,859) ($2,401,236)
----------- ===========
BASIC LOSS PER SHARE OF COMMON STOCK ($ .66) ($ .54)
=========== ===========
DILUTED LOSS PER SHARE OF COMMON STOCK ($ .66) ($ .54)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE> 36
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Additional Paid Accumulated
Shares Amount in Capital Deficit
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance - January 1, 1996 3,797,835 $ 3,798 $ 1,429,434 ($ 4,665,551)
Par value assigned to shares of common
stock issued net, of expenses of
a$ 1,084,251 2,799,991 2,800 7,047,986 --
Net loss - December 31, 1996 -- -- -- (2,401,236)
------------ ------------ ------------ ------------
Balance - December 31, 1996 6,597,826 6,598 8,477,420 (7,066,787)
Par value assigned to shares of common
stock issued, net of expenses of
a$ 436,109 2,369,491 2,369 2,447,428 --
Net loss - December 31, 1997 -- -- -- (5,544,859)
------------ ------------ ------------ ------------
Balance - December 31, 1997 8,967,317 $ 8,967 $ 10,924,848 ($12,611,646)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE> 37
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($5,544,859) ($2,401,236)
----------- -----------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 118,918 64,372
Accrued interest receivable (86,822) -0-
Amortization of deferred marketing costs 276,078 -0-
Financing expenses -0- 584,263
Provision for doubtful accounts 2,594,061 222,754
Forgiveness of interest -0- (55,000)
Changes in assets and liabilities:
Accounts receivable (3,193,630) (244,837)
Other current assets 203,359 (173,930)
Other assets 29,410 (67,833)
Accounts payable 2,684,652 (884,878)
Accrued expenses (80,325) (154,893)
Sales and excise taxes payable (71,772) (212,427)
----------- -----------
Total Adjustments to Net Loss 2,473,929 (922,409)
----------- -----------
Net Cash Used in Operating Activities (3,070,930) (3,323,645)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (346,979) (215,414)
Deferred marketing costs (37,800) (501,022)
----------- -----------
Net cash used in investing activities (384,779) (716,436)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 309,929 -0-
Payment of notes payable -0- (500,000)
Payment of related party loans (216,041) (319,979)
Proceeds from common stock issuances 2,885,906 6,692,915
Payment of private placement costs (436,109) (1,078,050)
----------- -----------
Net Cash Provided by Financing Activities 2,543,685 4,794,886
----------- -----------
NET (DECREASE) INCREASE IN CASH (912,024) 754,805
CASH - Beginning of year 962,471 207,666
----------- -----------
CASH - End of year $ 50,447 $ 962,471
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE> 38
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BUSINESS
The consolidated financial statements consist of the accounts of Long
Distance Direct Holdings, Inc. ("LDDH") and its wholly owned
subsidiaries, as follows: Long Distance Direct, Inc. ("LDDI") and Long
Distance Direct Marketing, Inc. ("LDDM") 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 loss per share data has
been restated to give retroactive recognition to the recapitalization.
The Company is a non-facilities based reseller of outbound and inbound
long-distance telephone, teleconferencing, cellular long-distance and
calling card services to commercial and residential customers. All of the
services sold by the Company through December 31, 1997 were provided by
AT&T and MCI. The Company signs up customers and provisions them onto the
networks of AT&T and MCI, which provide the actual transmission of
service. The Company does not own or lease any telephone equipment or
participate in the call completion process.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Allowance for Doubtful Accounts
Accounts receivable are net of allowance for doubtful accounts of
$1,205,230 as of December 31, 1997. The Company estimates an allowance
based upon various factors, including collection experience, credit risk
and industry standards. Bad debt expense was $2,594,061 and $222,754 for
1997 and 1996, respectively.
- 6 -
<PAGE> 39
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenues, Collections and Cost Recognition
Revenues are recognized as service is provided to the Company's customers.
The Company's customers make payments directly to the Company through a
lock-box account. Costs are recognized based on monthly network usage
billings received from AT&T and MCI.
Accounting Estimates
The preparation of consolidated 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. Depreciation and
amortization expense was $118,918 and $64,372 for the years ended December
31, 1997 and 1996, respectively.
Private Placement Costs
Costs incurred in connection with private placements of common stock are
recorded as a reduction in additional paid in capital.
Weighted Average of Common Shares
Earnings per share are based on the weighted average number of shares
outstanding (8,394,693 in 1997 and 4,467,972 in 1996). The assumed
exercise of stock options and warrants are anti-dilutive and therefore is
not considered a common stock equivalent.
Direct-Response Advertising
Direct response advertising consists of prepaid marketing costs for the
Company's infomercial advertising campaign (see Note 5). The costs of
direct-response advertising are capitalized and amortized over the period
during which future benefits are expected to be received, i.e., four
years, with approximately 94% to be amortized over the first two (2)
years. Amortization of direct-response advertising was $276,078 and $-0-
in 1997 and 1996, respectively. Other advertising costs are expensed as
incurred.
- 7 -
<PAGE> 40
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Direct-Response Advertising (continued)
Capitalized direct-response advertising costs, which are included in
prepaid marketing costs, consist of the following as of December 31, 1997:
<TABLE>
<S> <C>
Cost $538,822
Accumulated amortization 276,078
--------
$262,744
--------
</TABLE>
Preferred Stock
The Company's Articles of Incorporation authorizes the issuance of
10,000,000 shares of preferred stock, $0.001 par value and provide that
the rights, preferences and privileges, of the preferred stock shall be
determined by the Board of Directors. The Board of Directors has not taken
any action to determine the rights, preferences or privileges of the
preferred stock nor has any preferred stock been issued. There are no
present plans to issue any shares of preferred stock.
Long-Lived Assets
The Company adopted Financial Accounting Standards No. 121(FAS 121)
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" in 1997. Adoption of FAS 121 did not have an
effect on the Company's consolidated financial position or operating
results.
Stock-Based Compensation
The Company accounts for its stock-based compensation plans using the
methods prescribed in Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Statement of Accounting
Standards SFAS No. 123, "Accounting for Stock-Based Compensation", allows
companies to record stock-based compensation plans at fair value. The
Company has elected to continue accounting for stock-based compensation in
accordance with APB No. 25, but complies with the required disclosures
under SFAS No. 123 (see Note 7).
- 8 -
<PAGE> 41
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings Per Share
The Company adopted SFAS No. 128, "Earnings per Share" (EPS) during 1997.
This statement replaces the presentation of primary earnings per share
with basic earnings per share, and also requires presentation of diluted
earnings per share. Basic earnings per share EPS is computed by dividing
income or loss available to common shareholders by the weighted average
number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company. The assumed exercise and conversion of
stock options and warrants are anti-dilutive and are not considered a
common stock equivalent. Therefore, basic EPS is the same as diluted EPS
for 1997 and 1996.
The following table illustrates the calculation of basic EPS for the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Weighted Average Per
Loss No. of Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Year ended December 31, 1997
Loss $(5,544,859) 8,394,693
Basic EPS ($.66)
====
Year ended December 31, 1996
Loss $(2,401,236) 4,467,972
Basic EPS ($.54)
====
</TABLE>
Other Recent Pronouncements
In 1997 Financial Accounting Standards No. 130 (FAS 130), "Reporting
Comprehensive Income" was issued and is effective for fiscal years
beginning after December 15, 1997. The Company will comply with the
requirements of FAS 130 in 1998.
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 an accumulated deficit of $12,611,646
at December 31, 1997.
- 9 -
<PAGE> 42
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
3. BASIS OF PRESENTATION (continued)
In addition, the Company is in default under its contracts with AT&T and
MCI. Such defaults could result in a termination of the Company's carrier
agreements with AT&T and MCI. Additionally, the Company is seeking to
terminate its contract with AT&T subsequent to year end (see Note 5).
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.
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:
- Planned placements of debt and equity during 1998.
- Televised marketing program to attract direct subscribers to the
Company's network.
- Televised marketing program to recruit additional independent sales
representatives.
- Strategic alliances for targeted marketing programs.
- Reduction of operating costs through reduction of personnel and other
costs.
4. PRIVATE PLACEMENTS
The Company sold approximately 1,529,491 and 1,311,001 shares of common
stock through private placements during the years ended December 31, 1997
and 1996, respectively, at prices ranging between $2.00 and $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 called for minimum
purchase commitments of $2,400,000 on a semi-annual basis and $4,800,000
on an annual basis. The agreement also required minimum purchases with
respect to new business usage of $240,000 on a semi-annual basis and
$480,000 on an annual basis.
In February 1997, the Company signed a four-year agreement with AT&T,
effective March 1, 1997, that superseded the contract dated September 1,
1995. The Company's minimum quarterly purchase commitment is $1,200,000 in
years one to three and increases to $1,475,000 in the fourth year. Failure
to achieve the minimum will require payment of the amount of the
shortfall. The agreement is not renewable.
- 10 -
<PAGE> 43
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
5. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
Contingent Liability to AT&T - Failure to Meet Minimum Purchase
Obligations
As discussed above, the previous agreement with AT&T called for certain
minimum usage by the Company. The Company did not meet such minimum usage
requirements as of December 31, 1996 and 1997. The 1996 shortfall (the
difference between actual usage and the minimum requirement) asserted by
AT&T was approximately $2,300,000. On February 6, 1997, the Company
entered into a release and settlement agreement with AT&T whereby the
Company would be released from the entire $2,300,000 obligation subject to
certain conditions, which include payment by the Company of a total of
$320,000 over a six (6) month period starting January 1, 1997. The Company
made all of the payments required towards this balance. These financial
statements do not include a provision for the shortfall amount.
The 1997 shortfall asserted by AT&T is approximately $2,600,000. In April,
1998 the Company requested a termination of its contract with AT&T. The
Company has requested that AT&T waive the 1997 shortfall upon payment by
the Company of the Company's outstanding liability for telephone services,
approximately $805,000, as of June 1998. The Company and AT&T have orally
agreed and are in the process of finalizing a formal agreement to release
the company from all shortfall liabilities upon the payment of $805,000 in
twelve equal monthly payments pursuant to a non-interest bearing
promissory note that is to be personally guaranteed by two of the
Company's officers and principal stockholders. These financial statements
do not include a provision for the shortfall amount.
Carrier Agreement with MCI - Minimum Commitments
On March 1, 1996, the Company entered into an agreement with MCI under
which the Company is authorized to resell various MCI services. This
agreement superseded a prior agreement dated August 1, 1995 under which
MCI was unable to provide service.
In September of 1996, the Company signed an amendment to its contract with
MCI which extends the initial ramp period and consequently, the term of
the original contract. The amended contract affords the Company an
eighteen (18) month ramp period, commencing April 1, 1996, followed by a
thirty (30) month service period. During the first eight months of the
ramp period, the Company has no minimum purchase obligations. During the
ninth through twelfth months, the Company is obliged to purchase $250,000
of services per month; during the thirteenth through fifteenth month
$500,000; during the sixteenth through eighteenth month, $750,000; 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 (15) percent of the difference between the amount used and
the respective minimum monthly requirement.
- 11 -
<PAGE> 44
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
5. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
Carrier Agreement with MCI - Minimum Commitments (continued)
The Company is in default under its contract with MCI for failing to pay
underutilization charges of approximately $736,000 as of December 31, 1997
and for non-payment of charges for telephone services of approximately
$2.6 million. Subsequent to year-end, MCI and the Company entered an oral
agreement, which is in process of being formalized whereby MCI will waive
the underutilization charges, subject to certain conditions, including the
issuance by the Company of a promissory note to MCI to be guaranteed by
one or more of the Company's principal stockholders. The note would
require payment over a 24 month period of all outstanding charges for
telephone usage as of May 31, 1998 (approximately $4,000,000). These
financial statements do not include a provision for the shortfall amount.
Both AT&T and MCI have liens on the accounts receivable and other assets
of Long Distance Direct, Inc.
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. The Company has expended $538,822 during 1997 and 1996
for production and origination costs, with all media and fulfillment
expenditures being borne by its joint venture partner. All such costs have
been capitalized and are being amortized over the estimated useful life
(Note 2). In October 1997, the Company entered into a new contract which
provides for the marketing and distribution of the Company's services.
Under the new agreement, which supercedes the old agreement, the Company
is obligated to pay royalties subjected to certain minimums based on the
introduction of customers to the Company.
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 has made the required payments
under the plan.
The Department has filed an additional warrant dated June 23, 1997 against
the Company evidencing a judgement lien for uncontested tax liabilities.
The Company has negotiated another 24 month payment plan which commenced
August 1997.
- 12 -
<PAGE> 45
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
5. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
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 entered into an installment agreement with the
Internal Revenue Service for the payment of such taxes. The agreement
required monthly payments of $34,000 until the total liability, including
taxes and interest had 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. As of September 1996, the Company had made all of
its payments under the payment plan but has not received a final
determination from the Internal Revenue Service as to the satisfaction of
its liability under this agreement. As of December 31, 1997, the Company
is in arrears for tax due for the third and fourth quarters of 1997.
Leases
The Company conducts its operations in leased facilities under a
noncancellable operating lease expiring in 2000. The Company also leases
automobiles and equipment under noncancellable operating leases expiring
in 2001. The minimum rental commitments under operating leases are as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1998 $289,704
1999 289,880
2000 273,779
2001 5,952
--------
Total Minimum Payments Required $859,315
========
</TABLE>
Rent expense charged to operations was $208,080 and $91,688 for the years
ended December 31, 1997 and 1996, respectively.
6. NOTE PAYABLE - RELATED PARTY
Pursuant to a loan agreement dated November 1, 1997, the Company may
borrow up to $350,000 from a principal stockholder of the Company. The
note is secured by a lien on the Company's accounts receivable and a
pledge by the other principal stockholders of the shares of the Company's
common stock owned by each of them. The note is convertible into common
shares of the Company. The note is non-interest bearing. The balance of
the note as of December 31, 1997 is $309,929.
- 13 -
<PAGE> 46
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
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.
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 Company 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 Company, 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.
A summary of stock option activity for the years ended December 31, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
Number of Option Price
Options Per Share
------- ---------
<S> <C> <C>
Outstanding, December 31, 1995 1,000,000 $.001
Granted 1,100,000 $2.50 - $3.30
Exercised 10,000 $.001
Cancelled -0-
Outstanding, December 31, 1996 1,990,000
Granted 350,000 $3.00
Exercised 615,000 $.001
Cancelled -0-
Outstanding, December 31, 1997 1,725,000
</TABLE>
In addition to the options issued under the Stock Option Plan, the Company
granted an additional 105,000 options to purchase shares to certain
parties.The weighted average fair value at the dates of the grants for
options granted during 1997 and 1996 was $0.742 and $0.726 per option,
respectively. The fair value of options at the date of grant was estimated
using the Black-Scholes model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997 1996
--------- -------
<S> <C> <C>
Expected Life 10 years 10 years
Interest Rate 6.6% 6.0%
Volatility 10% 10%
Dividend Yield None None
</TABLE>
- 14 -
<PAGE> 47
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
8. INCOME TAXES
At December 31, 1997, the Company had net operating loss carryforwards for
financial and U.S. Federal income tax purposes of approximately
$9,350,000, which are available to offset future taxable income and begin
to expire in the year 2007. The utilization of such losses against future
profits may be limited, dependent on ownership changes in the Company,
therefore no amounts have been recorded for a net deferred tax asset as of
December 31, 1997.
Deferred taxes have not been recorded since temporary differences,
consisting 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>
1997 1996
-------- -------
<S> <C> <C>
Cash paid during the year for interest $1,164 $ 119,588
Conversions of debt to equity -0- 1,350,000
Financing and other expenses paid in stock -0- 584,263
Liabilities paid in stock -0- 100,407
Assets acquired for stock -0- 156,250
</TABLE>
10. RELATED PARTY TRANSACTIONS
Notes Receivable - Officers
Notes receivable from officers represents amounts loaned to officers who
are also principal shareholders of the Company. The notes are unsecured
and are due in full at various dates in the years 1999 and 2000. Interest
is payable semi-annually, at 8% per annum. As of December 31, 1997
interest income of approximately $68,000 was recorded.
Placement Fees
An officer, director and principal shareholder of the Company has a 33.3%
interest in an investment firm whose affiliate received fees in connection
with the sale of the Company's securities in a private placement.
11. OUTSTANDING WARRANTS
At December 31, 1997, there are warrants outstanding to purchase 991,038
shares of the Company's common stock at prices ranging from $3.00 to $4.00
per share. The warrants become exercisable at various dates through 1999.
- 15 -
<PAGE> 48
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
12. 401(K) PLAN
The Company maintains a 401(K) plan that covers all eligible employees.
The Company matches a percentage of employee contributions, up to a set
percentage of compensation, as stated in the plan. The provision for this
plan was $1,841 in 1997 and none in 1996.
13. OPTIONS
The Company has granted options to two (2) firms which provide marketing
services to the Company. Under the terms of these options, such firms can
acquire shares of the Company at various prices, based in part upon the
amount of revenues generated as a result of the marketing efforts.
14. SUBSEQUENT EVENTS
Termination of AT&T Agreement
The Company is currently negotiating with AT&T, one of its two long
distance telecommunications service providers, to terminate its contract.
Under the terms of the tentative agreement, the company promises to pay to
AT&T the amount of $805,000 as of June 1998, over twelve equal monthly
payments. The note is to be personally guaranteed by two of the officers
of the Company. The note is non-interest bearing. In consideration
thereof, AT&T will release the Company from its current contract, and upon
receipt of payment, will waive all minimum usage requirements for
subsequent years (see Note 5).
New Tentative Agreement with MCI
The company is currently renegotiating its existing contract with MCI, its
other long distance telecommunications service provider. The tentative
agreement calls for minimum monthly usage, a termination liability of 15%
of the Company's remaining monthly usage requirement for each month
remaining in the service term, a waiver of under-utilization charges from
prior years in the amount of $736,000, and a signing bonus credit of
$150,000 and an overutilization bonus of $550,000 to be applied against
future billings (see Note 5).
Debt Placement
The Company borrowed $500,000 from private investors after year end. These
loans are evidenced by secured promissory notes bearing interest at 15%
per annum, payable monthly. The notes are due within one year.
Additionally, each note contains two warrants, which entitles the holder
to purchase 10,000 shares of common stock at a specified price. The
warrants expire during 2001.
- 16 -
<PAGE> 49
LONG DISTANCE DIRECT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
15. CONCENTRATIONS OF RISK
The Company is negotiating with AT&T to terminate its contract as a
provider of long distance telecommunication services that the company
resells to its customers (see Note 14). In addition, the Company is
currently renegotiating its contract with MCI, its other provider of long
distance telecommunications services. The Company is pursuing alternative
carriers to supplement its arrangement with MCI. AT&T and MCI are
currently the sole providers of the long distance telecommunications
services that the Company resells to its customers. The future business of
the Company will be entirely dependent upon the use of the MCI networks or
any future provider of service. Changes in tariffs, regulations, or
policies by MCI, or the Company's failure to maintain or renew, or a
termination of, such agreements would materially adversely affect the
Company's financial condition and could result in a cessation of
operations by the Company.
The Company's customers are commercial businesses and residences and are
not concentrated in any particular geographic area of the United States.
- 17 -
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
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., and Steven
Lampert, Michael Preston, Jeffrey Schwartz, Michael Miller and JAMI
Marketing Services, Inc.*
10.2 Amended Lease Agreement for Suite 1430, 1 Blue Hill Plaza, Pearl
River, New York 10965, dated December, 1996.**
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.*(Spade)
10.6 Agreement with Guthy-Renker Corporation dated as of October 1, 1997
regarding the marketing and distribution of an infomercial.***
10.7 Agreement with Schulberg MediaWorks, Inc. dated June 10, 1996
regarding the production of an infomercial.**
10.8 Agreement with Kaire International, Inc dated November, 1996 and
extension thereof dated December, 1996 regarding supply of
telecommunications services.**
10.9 Agreement with National Benefits Consultants, LLC
dated January, 1997 regarding supply of
telecommunications services.**
10.10 Agreement with AT&T dated February, 1997 for supply of long distance
telephone service for resale.**
10.11 Amendment to MCI Agreement dated September 23, 1996.**
10.12 Amendment to MCI Agreement dated February 4, 1997.***
10.13 Amendment to MCI Agreement dated April 25, 1997.***
10.14 Addendum to MCI Agreement dated January 7, 1997.***
10.15 Agreement with Credit Education Center, L.L.C. dated August,
1997.***
10.16 Agreement between Popular Club Plan and Long Distance Direct, Inc.
dated February 12, 1998.
10.17 Agreement between New Media Telecommunications, Inc. and Long
Distance Direct, Inc. dated February 25, 1998.
10.18 Addendum to Agreement between New Media Telecommunications, Inc. and
Long Distance Direct, Inc. dated February 20, 1998.
10.19 Loan Agreement with Business Systems Consultants Limited dated
November 1, 1997.
10.20 Amendment to Agreement with National Benefits Consultants LLC dated
May 14, 1998.
</TABLE>
<PAGE> 51
<TABLE>
<S> <C>
21 List of Subsidiaries.**
23.1 Consent of Adelman, Katz & Mond, L.L.P.
27 Financial Data Schedule.
</TABLE>
*Incorporated by reference to the Company's Form 10-K/A dated November 7, 1996
filed with the Commission on November 7, 1996.
**Incorporated by reference to the Company's Registration Statement on Form SB-2
filed with the Commission on December 17, 1996, and Amendment No. 1 thereto
filed with the Commission on March 25, 1997.
***Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 333-31563) filed with the Commission on July 18, 1997 and
amendment numbers 1 and 2 thereto filed with the Commission on September 25,
1997 and October 14, 1997, respectively.
*(Spade)A compensatory plan or arrangement.
<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
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<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
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<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
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<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
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<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.
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<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
Agreement Between Popular Club Plan and Long Distance Direct, Inc.
This AGREEMENT, made and entered into on this 12th day of February, 1998
by and between Popular Club Plan, a subsidiary of J. Crew Group, Inc.
(hereinafter referred to as "PCP") with its address at 22 Lincoln Place,
Garfield, New Jersey and Long Distance Direct, Inc., (hereinafter referred to as
"LDDI") with its principal place of business at One Blue Hill Plaza, Pearl
River, New York 10965.
WITNESSETH:
WHEREAS, the parties wish to enter into an agreement whereby PCP will
market the telecommunications services provided by LDDI and referenced to below
to persons to whom PCP has access.
NOW, THEREFORE, in consideration of the promises and of the covenants
contained herein and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto mutually agree
as follows:
1. PCP will undertake to market LDDI's long distance telephone, voice
mail, paging and prepaid cellular services, and will electronically deliver
orders for services to LDDI in a mutually agreeable format. There shall be no
minimum number of customer service orders that PCP is obligated to deliver to
LDDI. Furthermore, there shall be no maximum number of customer service orders
that PCP is permitted to deliver to LDDI.
2. LDDI shall bill the customers introduced to it by PCP fees and rates
for services as set out below. The per minute usage rates for interstate,
inbound
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services, international telephone services and intrastate telephone services and
the commissions that LDDI must pay to PCP based on such rates are set forth in
Schedule A attached hereto and made a part hereof. The rates for voice mail,
paging and cellular services, together with the commissions payable to PCP, are
set out respectively in Schedule B, C and D attached hereto. All customers
introduced to LDDI by PCP who subscribe to LDDI's services shall in such respect
and for the purposes only of the services to be provided pursuant to the terms
of paragraph 1 hereof be deemed customers of LDDI and not of PCP, in
consideration whereof LDDI shall not market additional services to such
customers or make such customer names available to third parties without the
written consent of PCP. LDDI shall establish accounts for such customers, shall
attempt to provision all customer submitted to it by PCP for service and shall
provide services to such customers in compliance with its normal terms of
business and federal, state and local laws, rules and regulations. LDDI shall
indemnify, defend and hold harmless PCP, its successors, assigns, and related
entities from any demands, claims, liabilities or costs arising out of LDDI's
provision of services to customers and any acts or omissions related thereto.
3. A. In consideration of PCP referring customers to LDDI, LDDI shall pay
to PCP the commissions specified in Schedules A, B, C and D.
B. Within fifteen days (15) after the close of each calendar
month of the term of this Agreement and for so long as commissions are payable
to PCP under the terms of this Agreement following termination thereof, LDDI
will account for and remit to PCP the commissions earned by PCP for the
previous month. The
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commissions due to PCP shall be based on payments, net of taxes, actually
received by LDDI during such month for services provided to customers referred
to LDDI by PCP. All payments received from customers referred to LDDI by PCP
shall be allocated first to old balances outstanding and then prorata to
services billed unless otherwise agreed in writing. LDDI shall be solely
responsible for, and PCP shall not have responsibility for, any failure of
customers referred to LDDI by PCP to pay for services rendered to them by LDDI.
PCP hereby undertakes not to submit for service any customer of PCP whose
account shall have been charged off by PCP. LDDI shall have the right to
discontinue service to any customer introduced by PCP whose account with LDDI
shall have remained unpaid for more than sixty days following the due date of
the statement/invoice, and for the purposes of this Agreement any such account
shall be deemed to be a bad debt. LDDI will make reasonable efforts to collect
such debts including, but not limited to, a dunning message on the statement at
30 days following the original statement/invoice in question, a dunning notice
sent via first class mail, at least two outbound telephone call attempts during
different day or evening times to make contact with the customer to obtain a
promise to pay, and a final disconnect notice sent via first class mail. In the
event that the level of bad debt incurred by LDDI in respect of customers
introduced by PCP shall exceed seven and one half percent (7.5%) of total
monthly billings at the end of any three consecutive months, LDDI shall not be
obliged to provide service to additional customers submitted to it by PCP. In
such event, however, LDDI shall continue to provide service to those customers
previously introduced by PCP whose accounts are paid within sixty days following
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<PAGE> 4
the date of invoice. The bad debt ratio for a particular month will be
calculated as follows: denominator: charges in such month to customers;
numerator: amount of these same charges remaining uncollected after two billing
cycles and net of amounts collected through LDDI's collection efforts and net
of any amounts which customer has reasonably demonstrated to LDDI as having
been billed in error.
C. Accompanying LDDI's monthly payments of commissions to PCP shall
be a report in electronic form detailing all activity for each customer for whom
PCP receives a commission. Such report shall fully itemize customer usage of
each type of service and its payment history. Also included with the monthly
payment will be a vintage analysis, i.e. each month's current activity billed
versus dollars collected in each subsequent month..
D. Payments of commissions shall be remitted to PCP by check
delivered to PCP at such place as is designated by PCP in writing or by wire
transfer of funds to a bank account designated by PCP and shall be deemed made
when received. Any payment of commissions not made within fifteen (15) days of
the due date shall bear interest at the rate of one and one quarter percent
(1.25%) per month from the date due until the date paid. Notwithstanding that
such interest accrues if payment is not made within the time period specified
above, PCP may hold LDDI in breach of the agreement if LDDI fails to make
payments within the time period specified above and terminate the Agreement.
Such termination shall not affect PCP's right to receive residual income as set
forth in Paragraph 3.E below or in Paragraph 6 below.
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<PAGE> 5
E. All revenue payable to PCP pursuant to this Agreement shall
continue for as long as the customers referred to LDDI by PCP subscribe to the
services of LDDI or any of its affiliates or assigns. These payments shall be
due notwithstanding the termination of this Agreement for any reason.
4. LDDI will bear all costs of the provision of services to customers
referred by PCP including but not limited to billing, customer services via
dedicated toll-free telephone number, and technical support. PCP shall have no
responsibility for billing customers, providing service to customers or
technical support. LDDI shall indemnify and defend PCP from any and all claims
on liability arising out of LDDI's provision of service. LDDI will be
responsible for paying any compensation to Affinity Marketing and will hold PCP
harmless from any claims for compensation from Affinity Marketing provided that
(i) PCP shall within ten business days of notification of any actual or
potential claim notify LDDI in writing of any such actual or potential claim and
immediately furnish to LDDI copies of all pertinent papers received by PCP
regarding any claim or action against or loss by PCP that may reasonably be
expected to involve indemnification under this paragraph (ii) LDDI shall have
the right to review any and all claims or actions as they arise out of this
Agreement and direct, control, or assist the actions of PCP in settling or
defending any claim or action that may involve indemnification under this
paragraph. In the event that PCP fails either to notify LDDI of any claim or
action in accordance with the terms of this paragraph or to permit LDDI to
conduct any such action in the manner set forth above, LDDI shall have the right
to terminate this Agreement and shall not be liable for any indemnification
under this paragraph.
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<PAGE> 6
5. It is acknowledged that the rates for service charged to customers
under Schedule A, and the commissions thereon payable to PCP, are based on rates
for interstate traffic currently payable by LDDI to MCI Telecommunications
Corporation ("MCI") of $0.086 for peak traffic and $0.076 for off-peak traffic
(as such terms are defined in MCI's tariffs filed with the Federal
Communications Commission) ("the current rates"). If during the term of this
Agreement LDDI shall negotiate and obtain from MCI lower rates than the current
rates, LDDI shall forthwith so notify PCP. In respect of the first ten percent
(10%) of such rate reduction, the benefit thereof shall accrue to LDDI. In
respect of all rate reductions in excess of ten percent of the current rates,
LDDI and PCP shall together first determine whether all, part or none of such
rate reduction shall be passed on to customers introduced to LDDI under this
Agreement ("the PCP customers") in the form of lower rates for service. In the
case that PCP and LDDI agree to pass on all or part of the reduction above 10%
to customers, the amount remaining after lowering the cost to customers will be
distributed between PCP and LDDI as follows: (i) PCP's compensation will be
adjusted to an amount per transaction as compared with the percentage under the
current pricing so that the revenue retained by PCP after amounts passed on to
its Club Secretaries in the form of free shopping credits does not decline as
rates are reduced (ii) the amount remaining after the adjustment needed to give
effect to (i) above shall accrue for the benefit of LDDI and PCP equally (iii)
PCP's entitlement hereby shall be calculated monthly and deemed to be additional
commission payable to PCP in accordance with the terms of paragraph 3 above. In
the case that PCP and LDDI do not agree to pass on any reduction to customers,
the amount of the price reduction above 10% shall accrue for
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<PAGE> 7
the benefit of LDDI and PCP equally. PCP's entitlement thereby shall be
calculated monthly and deemed to be additional commission payable to PCP in
accordance with the terms of paragraph 3 above.
6. The term of this Agreement shall be for an initial period of two (2)
years from the date hereof.
7. Termination for cause: A. This Agreement may be terminated by either
party, upon written notice to the other, in the event of fraud or any other
uncured breach of the terms of this Agreement by the other party. B. Each party
agrees to give written notice to the other of any alleged defaults or breaches
of this Agreement by such other party and of any notices of defaults, suits,
actions or governmental proceedings relating to such other party's performance
under this Agreement. The party to which such written notice is given shall have
thirty (30) days to cure such default or breach ("the Cure Period"). If the
default or breach is not cured to the reasonable satisfaction of the notifying
party within the Cure Period, such party may terminate this Agreement forthwith
by giving written notice in accordance with A above, which notice shall be
effective upon receipt. C. The obligations of each party under this Agreement
shall survive the receipt of notice of termination as provided herein.
8. Following the termination of the Agreement for whatever reason PCP will
not for a period of twenty-four (24) months solicit the accounts of customers
introduced to LDDI for the purpose of providing them directly or indirectly with
other long distance telephone or voice mail services provided that commission on
all continuing billings to such customers is paid to PCP in accordance with the
provisions of paragraph 3 above. However, this provision shall not prohibit
PCP's
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<PAGE> 8
solicitation of customers other than those customers previously introduced by
PCP to LDDI and currently served by LDDI at time of termination. Nothing in this
paragraph shall be construed to limit LDDI's obligation to pay the residual
income referred to above.
9. PCP may supply inserts to LDDI to be placed into LDDI's telephone
service bills sent to customers by LDDI each month. LDDI shall place such
inserts in its bills, provided that PCP shall be responsible for the costs of
providing such inserts to LDDI and shipping them to LDDI. LDDI agrees to print
marketing messages from PCP on the telephone service bills submitted by LDDI to
its customers. In the event that LDDI is charged a stuffing fee by the billing
company that it employs for inserts provided to it by PCP, LDDI may charge PCP
for such stuffing fee at cost. PCP acknowledges that the stuffing fee currently
charged by its billing company is at the rate of $0.07 per sheet inserted. LDDI
agrees to print marketing messages and written inserts from PCP not exceeding
six (6) lines in length on the telephone service bills submitted by LDDI to PCP
customers at no cost to PCP.
10. LDDI shall provide PCP with a script to market LDDI's services to
potential customers. LDDI shall make sure such script is in compliance with all
Federal, State, and Local laws, rules and regulation. PCP reserves the right to
approve or disapprove any such scripts. LDDI and PCP will arrange for their
respective customer service departments to undergo cross-training in respect of
the LDDI services to be marketed by PCP. LDDI will review any and all marketing
materials related to the provision of service pursuant to this Agreement with
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<PAGE> 9
specific reference to compliance with applicable Federal and State laws and
local laws, rules and regulations if so requested by PCP.
11. LDDI shall be responsible for monitoring all telephone usage for
customers referred to it pursuant to this Agreement. PCP makes no
representations with respect to the willingness or ability to pay for telephone
usage of customers referred to LDDI, but shall not knowingly market LDDI's
services to any customers who have accounts which have been charged off by PCP.
12. Both during the term of this Agreement and following termination of
the agreement for whatever reason, LDDI will not market to customers referred by
PCP any non-long distance services other than those contemplated under this
Agreement without the express written consent of PCP.
13. It is hereby agreed that PCP shall have the right upon five business
days' notice and during regular business hours to audit at its own expense all
aspects of LDDI's activities relating to the performance of its obligations
hereunder including, without limitation, the handling of all revenue generated
from customers introduced to LDDI by PCP.
14. The terms of this contract and the information exchanged between the
parties in the normal course of business shall be strictly confidential and
neither LDDI nor PCP shall, save as required by law or statute, communicate any
details of, or in any way divulge, any information to any third party without
the prior written consent of the other party. Neither LDDI or PCP shall, during
the term of this Agreement or at any time thereafter, communicate, divulge or
use for the benefit of itself or any other person, partnership, association,
corporation or entity any
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<PAGE> 10
confidential information, knowledge or know-how concerning the operation,
products, service, policies, procedures or customers related to LDDI or PCP.
15. This Agreement shall be binding on the parties and their respective
successors and assigns but neither party shall have the power to assign any of
its rights and obligations under the Agreement (except for assignments to the
parent corporation of such party or to any subsidiary or affiliate of such
parent) without the prior written consent of the other party which shall not be
unreasonably withheld.
16. This Agreement contains the entire agreement between LDDI and PCP,
supersedes any and all prior and/or contemporaneous agreements, representations,
and understandings of the parties, whether written or oral relating to the
subject matter hereof.
17. If any provision or term of this Agreement or its application to any
entity or circumstance shall be held by a court of competent jurisdiction to be
invalid or unenforceable, the remainder of this Agreement shall not be affected,
and each provision of this Agreement shall be enforced to the fullest extent
permitted by law. The parties expressly acknowledge and represent that they have
had a full and fair opportunity to retain independent counsel and are not
relying upon the advice of professional persons, or firms retained by the other
party. Furthermore, the parties acknowledge and agree that this agreement shall
not be construed against the drafter as each party has had a full and fair
opportunity to contribute to the drafting of this Agreement.
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18. No failure to exercise, and no delay in exercising any right, power or
privilege hereunder shall operate as a waiver thereof. No waiver of any breach
of any provisions shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision. No extension of time or performances
of any obligations or other acts hereunder shall be deemed to be an extension of
time for performance of any other obligation or any other act hereunder.
19. The parties to this Agreement understand and agree that this Agreement
may not be altered, amended, modified or otherwise changed in any respect or
particular whatsoever except by a writing duly executed by the parties and/or
their duly authorized representatives.
20. This Agreement shall not become binding upon the parties hereto until
it has been signed by the duly authorized officers of both parties. This
Agreement may be signed in counterpart.
21. The term of this Agreement shall be automatically extended for
successive one year periods unless one party shall give notice to the other at
least ninety (90) days prior to then current expiration date of the term of its
intention not to extend the term.
/s/ [Illegible] /s/ [Illegible] 2/13/98
- ----------------------------------- ------------------------------------
Long Distance Direct Holdings, Inc. Popular Club Plan, Inc.
SVP - Marketing
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<PAGE> 12
SCHEDULE A.1
TELECOMMUNICATIONS SERVICES, RATES AND FEES
1. Usage Rates. LDDI shall charge customers introduced by PCP the following
rates for all usage and in respect thereof PCP shall be entitled to
receive as a commission the percentage on such rates (GP%) shown against
each such rate. In the period from April, 1998 through March, 1999 all
percentages referred to hereunder shall be increased by one percentage
point.
a. Switched 1 + and 800:
(1) Interstate: Interstate usage shall be charged at the following
rates:
Residential outbound: $0.109 per minute (GP% = 20%)
Residential inbound: $0.129 per minute (GP% = 20%)
(2) Intrastate outbound: Intrastate outbound usage shall be
charged based on the rates set out in Schedule A.1(a)
(3) Intrastate inbound: Intrastate inbound usage shall be charged
based on the rates set out in Schedule A.1(b)
(4) International: International usage shall be charged based on
the rates set out in Schedule A.1(c)
(5) Off-Shore (Alaska, US Virgin Islands and Puerto Rico):
$0.25 per minute (GP% = 20%).
(6) Domestic Directory Assistance: $0.95 per call (GP% = 20%)
(b) Calling Card
(1) Interstate: $0.08 plus the applicable interstate switched rate
as determined pursuant to the terms set forth in Section
1.a.(1) of this Exhibit 1.1 (GP% = 20%), plus a per call
charge of $0.25 (GP on per call charge = 20%).
(2) Intrastate: $0.08 per minute plus the applicable intrastate
switched rate as determined pursuant to the terms set forth in
Section 1.a.(2) of this Exhibit 1.1, plus a per call
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charge of $0.25 (GP% on rates as per relevant Schedule; GP% on
per call charge = 20%).
(3) International: $0.08 plus the international switched rates as
determined pursuant to the terms set forth in Section 1.a.(4)
of this Exhibit 1.1, plus a per call charge of $1.50 (GP% on
rates as per relevant Schedule; GP% on per call charge = 20%).
(4) Off-Shore (Alaska, US Virgin Islands and Puerto Rico): $0.35
per minute (GP% = 20%) plus a per call charge of $0.35 (GP% on
rates as per relevant Schedule; GP% on per call charge = 20%).
(5) Directory Assistance: $0.95 per call (GP% = 20%)%) plus a per
call charge of $0.25 (GP% on charge and on per call charge =
20%).
c. Connection Card - Special Feature Rates
*0 = Operator Services
$0.95 = Directory Assistance (domestic) inc. Puerto Rico and
U.S.V.I.
$1.00 = Directory Assistance in Canada
$6.94 = International Directory Assistance List A
$7.94 = International Directory Assistance List B
$0.75 = Direct Connect/Station-to-Station
$3.50 = Direct Connect/Station-to-Station
** International List A Includes Bermuda, country code 809 and the
following countries:
Australia
Austria
Finland
France
Germany
13
<PAGE> 14
Mexico
New Zealand
Netherlands
Spain
Switzerland
United Kingdom
** International List B includes all other international countries
*1 = Voice News Network:
$0.29/minute
*2 = Conference Calling:
$2.50 set up fee (per participant, other than customer)
Usage rates per bridgeport:
<TABLE>
<CAPTION>
Weekday Weekend
------- -------
<S> <C> <C>
Domestic calls: $0.45 $0.25
Calls to Canada: $0.85 $0.65
Calls to Mexico $0.90 $0.70
</TABLE>
Calls to Int'l locations (except Canada and Mexico)
The rate period and rates specified in Sections C-3.072 and C-3.073,
respectively, will apply (Tariff FCC No. 1).
Weekday is defined as Mon 12:00 a.m. CST to Fri 11:59 p.m. CST
Weekend is defined as 12:00 a.m. CST Saturday through 11:59 p.m. CST
Sunday.
*4 =Message Store & Forward
<TABLE>
<CAPTION>
MESSAGE TYPE FEATURE ORIG TERM RATE P/MIN
- ------------ ------- ---- ---- ----------
<S> <C> <C> <C> <C>
Message to 50 US States *41 Domestic Domestic $ 1.75
Zone 1 & 2 Domestic $ 5.50
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Message to Can/PR/USVI *42 Domestic Zone 1 $ 2.00
Zone 1 & 2 Domestic $ 5.50
Message to Int'l/Mexico *43 Domestic Zone 2 $ 5.00
Zone 1 & 2 Domestic $ 8.50
Broadcast-Up to 5 *44 Domestic Domestic $ 7.00
Zone 1 & 2 Domestic $ 7.50
Broadcast-Up to 10 *45 Domestic Domestic $13.00
Zone 1 & 2 Domestic $25.00
Broadcast-Up to 20 *46 Domestic Domestic $23.00
Zone 1 & 2 Domestic $50.00
Message Status *47 Domestic N/A NO CHGE
Zone 1 & 2 N/A NO CHGE
</TABLE>
KEY: Domestic = 50 US States
Zone 1 = Canada, PR, USVI
Zone 2 = All international locations + Mexico
*9 = Speed dialing:
No charge
GP% on all above = 20%
2. Miscellaneous Charges: All other direct charges not otherwise listed
herein imposed by an underlying carrier, LEC or other third party as a
result of the activity under this Agreement, including, but not limited
to, fines and PIC dispute charges, shall be billed directly to PCP Where
such fines or PIC dispute charges are (i) not recovered from the customer
and (ii) incurred as a result of negligence or wilful default on the part
of PCP. PCP shall not be responsible for access charges and transport fees
incurred by LDDI.
THIS EXHIBIT MAY BE AMENDED FROM TIME TO TIME TO REFLECT RATE
CHANGES AND ADDITIONAL SERVICES IN ACCORDANCE WITH SECTION 19 OF
THIS AGREEMENT.
15
<PAGE> 16
LDDI/PCP INTRASTATE RATES
<TABLE>
<CAPTION>
---------------------------
OUTBOUND
---------------------------
PCP CUSTOMER GP% SCHEDULE A.1(a)
- ----------------------------------------
- ----------------------------------------
<S> <C> <C> <C>
ALA 0.0952 0.1190 20.00
- ----------------------------------------
ARIZ 0.1512 0.1890 20.00
- ----------------------------------------
ARK 0.1512 0.1890 20.00
- ----------------------------------------
CA 0.0712 0.0890 20.00
- ----------------------------------------
COL 0.1912 0.2390 20.00
- ----------------------------------------
CONN 0.1032 0.1290 20.00
- ----------------------------------------
DEL 0.0872 0.1090 20.00
- ----------------------------------------
FLA 0.1432 0.1790 20.00
- ----------------------------------------
GA 0.0952 0.1190 20.00
- ----------------------------------------
HAWAII 0.2000 0.2500 20.00
- ----------------------------------------
IDAHO 0.1912 0.2390 20.00
- ----------------------------------------
IL 0.0952 0.1190 20.00
- ----------------------------------------
IND 0.1112 0.1390 20.00
- ----------------------------------------
IOWA 0.1672 0.2090 20.00
- ----------------------------------------
KAN 0.1992 0.2490 20.00
- ----------------------------------------
KENT 0.1672 0.2090 20.00
- ----------------------------------------
LA 0.1192 0.1490 20.00
- ----------------------------------------
ME 0.3992 0.4990 20.00
- ----------------------------------------
MD 0.1272 0.1590 20.00
- ----------------------------------------
MA 0.1032 0.1290 20.00
- ----------------------------------------
MICH 0.1192 0.1490 20.00
- ----------------------------------------
MINN 0.1592 0.1990 20.00
- ----------------------------------------
MISS 0.1352 0.1690 20.00
- ----------------------------------------
MO 0.2152 0.2690 20.00
- ----------------------------------------
MONT 0.1672 0.2090 20.00
- ----------------------------------------
NEB 0.2232 0.2790 20.00
- ----------------------------------------
NEV 0.1032 0.1290 20.00
- ----------------------------------------
NH 0.1672 0.2090 20.00
- ----------------------------------------
NJ 0.1192 0.1490 20.00
- ----------------------------------------
NM 0.1912 0.2390 20.00
- ----------------------------------------
NY 0.1512 0.1890 20.00
- ----------------------------------------
NC 0.1752 0.2190 20.00
- ----------------------------------------
ND 0.1992 0.2490 20.00
- ----------------------------------------
OH 0.1032 0.1290 20.00
- ----------------------------------------
OK 0.1352 0.1690 20.00
- ----------------------------------------
ORE 0.1272 0.1590 20.00
- ----------------------------------------
PA 0.1432 0.1790 20.00
- ----------------------------------------
RI 0.1592 0.1990 20.00
- ----------------------------------------
SC 0.1512 0.1890 20.00
- ----------------------------------------
SD 0.2152 0.2690 20.00
- ----------------------------------------
TENN 0.1672 0.2090 20.00
- ----------------------------------------
TX 0.1752 0.2190 20.00
- ----------------------------------------
UTAH 0.1352 0.1690 20.00
- ----------------------------------------
VT 0.1752 0.2190 20.00
- ----------------------------------------
VA 0.1592 0.1990 20.00
- ----------------------------------------
WASH 0.1672 0.2090 20.00
- ----------------------------------------
WV 0.1672 0.2090 20.00
- ----------------------------------------
WIS 0.1272 0.1590 20.00
- ----------------------------------------
WY 0.1832 0.2290 20.00
- ----------------------------------------
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
-------------------------------------------
INTRASTATE
-------------------------------------------
INBOUND INBOUND
-------------------------------------------
LDDI PCP GP% CUSTOMER GP% SCHEDULE A.1(b)
- --------------------------------------------------------
- --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALA 0.0876 0.1112 16.98 0.1390 20.00
- --------------------------------------------------------
ARIZ 0.1359 0.1752 17.94 0.2190 20.00
- --------------------------------------------------------
ARK 0.1172 0.1512 17.99 0.1890 20.00
- --------------------------------------------------------
CA 0.0625 0.0792 16.89 0.0990 20.00
- --------------------------------------------------------
COL 0.1720 0.2152 16.08 0.2690 20.00
- --------------------------------------------------------
CONN 0.0952 0.1192 16.11 0.1490 20.00
- --------------------------------------------------------
DEL 0.0624 0.0792 16.97 0.0990 20.00
- --------------------------------------------------------
FLA 0.1304 0.1592 14.47 0.1990 20.00
- --------------------------------------------------------
GA 0.0808 0.1032 17.36 0.1290 20.00
- --------------------------------------------------------
HAWAII 0.1675 0.2072 15.32 0.2590 20.00
- --------------------------------------------------------
IDAHO 0.1665 0.2072 15.72 0.2590 20.00
- --------------------------------------------------------
IL 0.0816 0.1032 16.74 0.1290 20.00
- --------------------------------------------------------
IND 0.0980 0.1192 14.23 0.1490 20.00
- --------------------------------------------------------
IOWA 0.1508 0.1912 16.90 0.2390 20.00
- --------------------------------------------------------
KAN 0.1820 0.2312 17.02 0.2890 20.00
- --------------------------------------------------------
KENT 0.1520 0.1912 16.40 0.2390 20.00
- --------------------------------------------------------
LA 0.0864 0.1112 17.84 0.1390 20.00
- --------------------------------------------------------
ME 0.4040 0.4792 12.55 0.5990 20.00
- --------------------------------------------------------
MD 0.1098 0.1352 15.15 0.1690 20.00
- --------------------------------------------------------
MA 0.0832 0.1032 15.50 0.1290 20.00
- --------------------------------------------------------
MICH 0.0932 0.1192 17.45 0.1490 20.00
- --------------------------------------------------------
MINN 0.1388 0.1752 16.62 0.2190 20.00
- --------------------------------------------------------
MISS 0.0976 0.1192 14.50 0.1490 20.00
- --------------------------------------------------------
MO 0.1940 0.2392 15.12 0.2990 20.00
- --------------------------------------------------------
MONT 0.1420 0.1752 15.16 0.2190 20.00
- --------------------------------------------------------
NEB 0.2068 0.2552 15.17 0.3190 20.00
- --------------------------------------------------------
NEV 0.0776 0.0952 14.79 0.1190 20.00
- --------------------------------------------------------
NH 0.1512 0.1912 16.74 0.2390 20.00
- --------------------------------------------------------
NJ 0.0995 0.1272 17.41 0.1590 20.00
- --------------------------------------------------------
NM 0.1704 0.2152 16.65 0.2690 20.00
- --------------------------------------------------------
NY 0.1350 0.1672 15.39 0.2090 20.00
- --------------------------------------------------------
NC 0.1556 0.1992 17.51 0.2490 20.00
- --------------------------------------------------------
ND 0.1804 0.2232 15.34 0.2790 20.00
- --------------------------------------------------------
OH 0.0952 0.1192 16.11 0.1490 20.00
- --------------------------------------------------------
OK 0.1300 0.1592 14.67 0.1990 20.00
- --------------------------------------------------------
ORE 0.1152 0.1432 15.64 0.1790 20.00
- --------------------------------------------------------
PA 0.1269 0.1592 16.24 0.1990 20.00
- --------------------------------------------------------
RI 0.1532 0.1912 15.90 0.2390 20.00
- --------------------------------------------------------
SC 0.1320 0.1672 16.84 0.2090 20.00
- --------------------------------------------------------
SD 0.1880 0.2312 14.95 0.2890 20.00
- --------------------------------------------------------
TENN 0.1476 0.1832 15.55 0.2290 20.00
- --------------------------------------------------------
TX 0.1615 0.1992 15.13 0.2490 20.00
- --------------------------------------------------------
UTAH 0.1136 0.1432 16.54 0.1790 20.00
- --------------------------------------------------------
VT 0.1588 0.1992 16.22 0.2490 20.00
- --------------------------------------------------------
VA 0.1520 0.1912 16.40 0.2390 20.00
- --------------------------------------------------------
WASH 0.1496 0.1912 17.41 0.2390 20.00
- --------------------------------------------------------
WV 0.1120 0.1432 17.43 0.1790 20.00
- --------------------------------------------------------
WIS 0.0916 0.1112 14.10 0.1390 20.00
- --------------------------------------------------------
WY 0.1392 0.1752 16.44 0.2190 20.00
- --------------------------------------------------------
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
---------------------------
LDDI/PCP INTRASTATE RATES
---------------------------
INBOUND
---------------------------
PCP CUSTOMER GP% SCHEDULE A.1(b)
- -----------------------------------------
- -----------------------------------------
<S> <C> <C> <C>
ALA 0.1112 0.1390 20.00
- -----------------------------------------
ARIZ 0.1752 0.2190 20.00
- -----------------------------------------
ARK 0.1512 0.1890 20.00
- -----------------------------------------
CA 0.0792 0.0990 20.00
- -----------------------------------------
COL 0.2152 0.2690 20.00
- -----------------------------------------
CONN 0.1192 0.1490 20.00
- -----------------------------------------
DEL 0.0792 0.0990 20.00
- -----------------------------------------
FLA 0.1592 0.1990 20.00
- -----------------------------------------
GA 0.1032 0.1290 20.00
- -----------------------------------------
HAWAII 0.2072 0.2590 20.00
- -----------------------------------------
IDAHO 0.2072 0.2590 20.00
- -----------------------------------------
IL 0.1032 0.1290 20.00
- -----------------------------------------
IND 0.1192 0.1490 20.00
- -----------------------------------------
IOWA 0.1912 0.2390 20.00
- -----------------------------------------
KAN 0.2312 0.2890 20.00
- -----------------------------------------
KENT 0.1912 0.2390 20.00
- -----------------------------------------
LA 0.1112 0.1390 20.00
- -----------------------------------------
ME 0.4792 0.5990 20.00
- -----------------------------------------
MD 0.1352 0.1690 20.00
- -----------------------------------------
MA 0.1032 0.1290 20.00
- -----------------------------------------
MICH 0.1192 0.1490 20.00
- -----------------------------------------
MINN 0.1752 0.2190 20.00
- -----------------------------------------
MISS 0.1192 0.1490 20.00
- -----------------------------------------
MO 0.2392 0.2990 20.00
- -----------------------------------------
MONT 0.1752 0.2190 20.00
- -----------------------------------------
NEB 0.2552 0.3190 20.00
- -----------------------------------------
NEV 0.0952 0.1190 20.00
- -----------------------------------------
NH 0.1912 0.2390 20.00
- -----------------------------------------
NJ 0.1272 0.1590 20.00
- -----------------------------------------
NM 0.2152 0.2690 20.00
- -----------------------------------------
NY 0.1672 0.2090 20.00
- -----------------------------------------
NC 0.1992 0.2490 20.00
- -----------------------------------------
ND 0.2232 0.2790 20.00
- -----------------------------------------
OH 0.1192 0.1490 20.00
- -----------------------------------------
OK 0.1592 0.1990 20.00
- -----------------------------------------
ORE 0.1432 0.1790 20.00
- -----------------------------------------
PA 0.1592 0.1990 20.00
- -----------------------------------------
RI 0.1912 0.2390 20.00
- -----------------------------------------
SC 0.1672 0.2090 20.00
- -----------------------------------------
SD 0.2312 0.2890 20.00
- -----------------------------------------
TENN 0.1832 0.2290 20.00
- -----------------------------------------
TX 0.1992 0.2490 20.00
- -----------------------------------------
UTAH 0.1432 0.1790 20.00
- -----------------------------------------
VT 0.1992 0.2490 20.00
- -----------------------------------------
VA 0.1912 0.2390 20.00
- -----------------------------------------
WASH 0.1912 0.2390 20.00
- -----------------------------------------
WV 0.1432 0.1790 20.00
- -----------------------------------------
WIS 0.1112 0.1390 20.00
- -----------------------------------------
WY 0.1752 0.2190 20.00
- -----------------------------------------
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
LDDI/PCP RATES
INTERNATIONAL TRAFFIC - SWITCHED SCHEDULE A.1(C)
PCP GP % CUSTOMER
<S> <C> <C> <C>
AFGHANISTAN 2.4400 20.00 3.05
ALBANIA 2.6400 20.00 3.30
ALGERIA 1.5200 20.00 1.90
AMERICAN SAMOA 1.7280 20.00 2.16
ANDORRA 0.7600 20.00 0.95
ANGOLA 2.2960 20.00 2.87
ANGUILLA 0.8560 20.00 1.07
ANTARCTICA - CASEY 3.4000 20.00 4.25
ANTARCTICA - SCOTT 2.8720 20.00 3.59
ANTIGUA 0.8240 20.00 1.03
ARGENTINA 0.8400 20.00 1.05
ARMENIA 2.0000 20.00 2.50
ARUBA 0.9280 20.00 1.16
ASCENSION ISLANDS 1.9200 20.00 2.40
AUSTRALIA 0.2800 20.00 0.35
AUSTRIA 0.7840 20.00 0.98
AZERBAIJAN 2.0000 20.00 2.50
BAHAMAS 0.5040 20.00 0.63
BAHRAIN 1.4320 20.00 1.79
BANGLADESH 2.0720 20.00 2.59
BARBADOS 0.9280 20.00 1.16
BELARUS 2.0000 20.00 2.50
BELGIUM 0.4160 20.00 0.52
BELIZE 1.3600 20.00 1.70
BENIN 1.4960 20.00 1.87
BERMUDA 0.6400 20.00 0.80
BHUTAN 3.1680 20.00 3.96
BOLIVIA 1.2080 20.00 1.51
BOSNIA & HERZEGOVINA 1.3600 20.00 1.70
BOTSWANA 1.5600 20.00 1.95
BRAZIL 0.7200 20.00 0.90
BRITISH VIRGIN ISLANDS 0.8560 20.00 1.07
BRUNEI 1.8640 20.00 2.33
BULGARIA 1.4000 20.00 1.75
BURKINA FASO 2.0800 20.00 2.60
BURMA/MYANMAR 2.6960 20.00 3.37
BURUNDI 2.7360 20.00 3.42
CAMBODIA 2.2240 20.00 2.78
CAMEROON 1.4320 20.00 1.79
CANADA 0.2000 20.00 0.25
CAPE VERDE IS. 1.7920 20.00 2.24
CAYMAN IS. 0.8400 20.00 1.05
CENTRAL AFRICAN REP. 3.3600 20.00 4.20
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CHAD REPUBLIC 3.4800 20.00 4.35
CHILE 0.9280 20.00 1.16
CHINA 1.1600 20.00 1.45
CHRISTMAS ISLAND 2.8720 20.00 3.59
COCOS-KELLING ISLAND 1.7520 20.00 2.19
COLOMBIA 1.0000 20.00 1.25
CONGO 2.2800 20.00 2.85
COOK ISLANDS 3.5200 20.00 4.40
COSTA RICA 0.8560 20.00 1.07
COTE D'IVOIRE 2.1200 20.00 2.65
CROATIA 1.2160 20.00 1.52
CUBA 2.3600 20.00 2.95
CYPRUS 1.2160 20.00 1.52
CZECH REPUBLIC 1.1440 20.00 1.43
DENMARK 0.4080 20.00 0.51
DIEGO GARCIA 2.6480 20.00 3.31
DJIBOUTI. 2.2000 20.00 2.75
DOMINICA 1.0000 20.00 1.25
DOMINICAN REPUBLIC 0.8320 20.00 1.04
ECUADOR 0.9280 20.00 1.16
EGYPT 1.0800 20.00 1.35
EL SALVADOR 0.9280 20.00 1.16
EQUATORIAL GUINEA 3.5280 20.00 4.41
ERITREA 2.3360 20.00 2.92
ESTONIA 2.0000 20.00 2.50
ETHIOPIA 1.8160 20.00 2.27
FAEROE ISLANDS 1.3600 20.00 1.70
FALKLAND ISLANDS 2.8320 20.00 3.54
FIJI 2.1520 20.00 2.69
FINLAND 0.7120 20.00 0.89
FRANCE 0.2560 20.00 0.32
FRENCH ANTILLES 1.2000 20.00 1.50
FRENCH GUINEA 1.4800 20.00 1.85
FRENCH POLYNESIA 2.0400 20.00 2.55
GABON REPUBLIC 1.7200 20.00 2.15
GAMBIA 1.3600 20.00 1.70
GEORGIA, REPUBLIC OF 2.0000 20.00 2.50
GERMANY 0.2560 20.00 0.32
GHANA 1.0800 20.00 1.35
GIBRALTAR 1.4320 20.00 1.79
GILBERT ISLAND 1.8640 20.00 2.33
GREECE 0.7200 20.00 0.90
GREENLAND 1.4000 20.00 1.75
GRENADA 1.1440 20.00 1.43
GUADALOUPE 1.0160 20.00 1.27
GUAM 1.1440 20.00 1.43
GUATEMALA 0.8640 20.00 1.08
GUINEA 2.1600 20.00 2.70
GUINEA BISSAU 3.0800 20.00 3.85
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GUYANA 1.7920 20.00 2.24
HAITI 0.9280 20.00 1.16
HONDURAS 0.9280 20.00 1.16
HONG KONG 0.5920 20.00 0.74
HUNGARY 1.0000 20.00 1.25
ICELAND 0.9280 20.00 1.16
INDIA 1.0800 20.00 1.35
INDONESIA 1.5760 20.00 1.97
INMARSAT ATLANTIC OCEAN 11.9040 20.00 14.88
INMARSAT INDIAN OCEAN 11.9040 20.00 14.88
INMARSAT PACIFIC OCEAN 11.9200 20.00 14.90
INMARSAT WEST ATLANTIC 11.9040 20.00 14.88
IRAN 1.8640 20.00 2.33
IRAQ 1.6480 20.00 2.06
IRELAND 0.7920 20.00 0.99
ISRAEL 0.7760 20.00 0.97
ITALY 0.4000 20.00 0.50
IVORY COAST 1.5120 20.00 1.89
JAMAICA 0.8560 20.00 1.07
JAPAN 0.4400 20.00 0.55
JORDAN 1.4320 20.00 1.79
KAZAKHSTAN 2.0000 20.00 2.50
KENYA 1.4320 20.00 1.79
KIRIBATI 3.3600 20.00 4.20
KUWAIT 1.2880 20.00 1.61
KYRGYZSTAN 2.0000 20.00 2.50
LAOS 3.9600 20.00 4.95
LATVIA 1.9360 20.00 2.42
LEBANON 1.5760 20.00 1.97
LESOTHO 1.5760 20.00 1.97
LIBERIA 1.5120 20.00 1.89
LIBYA 2.0880 20.00 2.61
LIECHSTENSTEIN 0.7840 20.00 0.98
LITHUANIA 2.0000 20.00 2.50
LUXEMBOURG 0.8560 20.00 1.07
MACAO 1.8800 20.00 2.35
MACEDONIA, REPUBLIC OF 1.6240 20.00 2.03
MADAGASCAR 3.7200 20.00 4.65
MALAWI 1.5040 20.00 1.88
MALAYSIA 1.4320 20.00 1.79
MALDIVES 3.0000 20.00 3.75
MALI 2.1520 20.00 2.69
MALTA 1.5760 20.00 1.97
MARSHALL ISLANDS 1.9200 20.00 2.40
MAURETANIA 2.5200 20.00 3.15
MAURITIUS 2.3840 20.00 2.98
MAYOTTE ISLANDS 3.1440 20.00 3.93
MICRONESIA 2.1520 20.00 2.69
MOLDOVA 2.0000 20.00 2.50
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MONACO 0.6800 20.00 0.85
MONGOLIA 3.8000 20.00 4.75
MONTSERRAT 1.0720 20.00 1.34
MOROCCO 1.2800 20.00 1.60
MOZAMBIQUE 2.0720 20.00 2.59
MYANMAR 3.2320 20.00 4.04
NAMIBIA 1.5840 20.00 1.98
NAURU ISLANDS 3.8800 20.00 4.85
NEPAL 2.2000 20.00 2.75
NETHERLANDS 0.3040 20.00 0.38
NETHERLANDS ANTILLES 0.5440 20.00 0.68
NEVIS 1.0000 20.00 1.25
NEW CALEDONIA 1.7200 20.00 2.15
NEW ZEALAND 1.0720 20.00 1.34
NICARAGUA 1.3600 20.00 1.70
NIGER REPUBLIC 2.1200 20.00 2.65
NIGERIA 1.4320 20.00 1.79
NIUE 3.4880 20.00 4.36
NORFOLK ISLANDS 3.1360 20.00 3.92
NORTH KOREA 3.8800 20.00 4.85
NORWAY 0.8560 20.00 1.07
OMAN 2.0080 20.00 2.51
PAKISTAN 1.6480 20.00 2.06
PALAU 2.4640 20.00 3.08
PANAMA 0.8560 20.00 1.07
PAPUA NEW GUINEA 1.7040 20.00 2.13
PARAGUAY 1.5040 20.00 1.88
PERU 0.9280 20.00 1.16
PHILIPPINES 0.7840 20.00 0.98
POLAND 0.5600 20.00 0.70
PORTUGAL 0.9280 20.00 1.16
QATAR 1.3760 20.00 1.72
REUNION ISLANDS 2.1520 20.00 2.69
ROMANIA 1.8640 20.00 2.33
RUSSIA 1.1600 20.00 1.45
RWANDA 2.2000 20.00 2.75
SAIPAN 2.0320 20.00 2.54
SAN MARINO 1.0160 20.00 1.27
SAO TOME 2.1520 20.00 2.69
SAUDI ARABIA 1.2000 20.00 1.50
SENEGAL REPUBLIC 1.7840 20.00 2.23
SEYCHELLES ISLANDS 2.6080 20.00 3.26
SIERRA LEONE 2.1520 20.00 2.69
SINGAPORE 0.5280 20.00 0.66
SLOVAKIA 1.1440 20.00 1.43
SLOVENIA, REPUBLIC OF 1.5600 20.00 1.95
SOLOMON ISLANDS 2.6880 20.00 3.36
SOMALIA 4.9520 20.00 6.19
SOUTH AFRICA 0.6400 20.00 0.80
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SOUTH KOREA 0.5600 20.00 0.70
SRI LANKA 1.6480 20.00 2.06
ST. HELENA 2.6560 20.00 3.32
ST. KITTS 0.9280 20.00 1.16
ST. LUCIA 0.9280 20.00 1.16
ST. PIETRE & MIQUELON 0.8720 20.00 1.09
ST. VINCENT & GRENADINES 0.8640 20.00 1.08
SUDAN 2.9440 20.00 3.68
SURINAM 1.7920 20.00 2.24
SWAZILAND 1.5120 20.00 1.89
SWEDEN 0.2320 20.00 0.29
SWITZERLAND 0.2880 20.00 0.36
SYRIA 1.9360 20.00 2.42
TADZHIKISTAN 2.0000 20.00 2.50
TAIWAN 0.6320 20.00 0.79
TANZANIA 1.6480 20.00 2.06
THAILAND 1.5040 20.00 1.86
TOGO 1.7920 20.00 2.24
TONGA ISLANDS 2.2560 20.00 2.82
TRINIDAD AND TOBAGO 0.8880 20.00 1.11
TUNISIA 1.2400 20.00 1.55
TURKEY 1.2160 20.00 1.52
TURKMENISTAN 2.0000 20.00 2.50
TURKS & CAICOS ISLANDS 0.9280 20.00 1.16
TUVALU 4.1200 20.00 5.15
UGANDA 1.7200 20.00 2.15
UKRAINE 1.6560 20.00 2.07
UNITED ARAB EMIRATES 1.2720 20.00 1.59
UNITED KINGDOM 0.1840 20.00 0.23
URUGUAY 1.1440 20.00 1.43
UZBEKISTAN 2.0000 20.00 2.50
VANUATU 3.1040 20.00 3.88
VATICAN CITY 1.0000 20.00 1.25
VENEZUELA 0.6400 20.00 0.80
VIETNAM 1.6480 20.00 2.06
WALLIS & FUTUNA ISLANDS 2.6160 20.00 3.27
WESTERN SAMOA 1.8640 20.00 2.33
YEMEN ARAB REPUBLIC 1.2880 20.00 1.61
YUGOSLAVIA, REPUBLIC OF 1.5040 20.00 1.88
ZAIRE 1.3760 20.00 1.72
ZAMBIA 1.4320 20.00 1.79
ZIMBABWE 1.3600 20.00 1.70
ZANZIBAR 1.5760 20.00 1.97
Average GP % (unweighted) 20.00
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
PCP GP% CUSTOMER
Mexico Switched to Switched
- ---------------------------
<S> <C> <C> <C>
1 0.2800 20.00 0.35
2 0.3280 20.00 0.41
3 0.4160 20.00 0.52
4 0.5200 20.00 0.65
5 0.5920 20.00 0.74
6 0.7600 20.00 0.95
7 0.9200 20.00 1.15
8 0.9920 20.00 1.24
Average GP% (unweighted) 20.00
</TABLE>
Those ranges reflect the distance from the Mexican border to the destination in
Mexico.
<PAGE> 25
SCHEDULE A.2
SUPPORT SERVICES
1. Provisioning. Upon the receipt of complete and accurate information from PCP,
LDDI shall take the necessary steps to provision a customer on to LDDI's
service. Orders rejected by the LEC require substantial manual intervention and
work. LDDI will make a reasonable attempt to resolve the rejected order to
provision the requested services.
2. Billing. At its own expense, LDDI shall directly bill the customers by
printing, stuffing, sorting and mailing the invoices to the customers. Customer
invoices shall include PCP's logo and a statement that the service is provided
by LDDI.
3. Calling Card Fulfilment: Provider shall provide two (2) calling cards to each
customer at no charge to PCP, if so requested by PCP.
4. Customer Service. LDDI shall provide direct customer service to the customers
through an inbound 800/888 number unique to PCP. LDDI will answer this customer
service number with a mutually agreed upon script which is branded with PCP's
name or a message identifying PCP's role herein. PCP shall promptly provide LDDI
with any customer information requested by LDDI that is necessary to answer
customer inquiries relating to LDDI services. LDDI's Customer Service
Representatives ("CSRs") shall have the authority to issue credit to customers.
CSRs shall also have the authority to make changes, additions and deletions to
customer accounts and to terminate customer accounts.
6. Miscellaneous: In the event that PCP requests that LDDI provide a service not
specifically described herein, LDDI shall charge a fee for such services to be
determined on a case-by-case basis.
16
<PAGE> 26
THIS EXHIBIT MAY BE AMENDED FROM TIME TO TIME TO REFLECT RATE CHANGES AND
ADDITIONAL SERVICES IN ACCORDANCE WITH SECTION 19 OF THIS AGREEMENT.
SCHEDULE B
RATES TO BE AGREED BY ADDENDUM
17
<PAGE> 27
SCHEDULE C
RATES TO BE AGREED BY ADDENDUM
18
<PAGE> 28
SCHEDULE D
RATES TO BE AGREED BY ADDENDUM
19
<PAGE> 1
LONG DISTANCE DIRECT, INC.
TELECOMMUNICATIONS SERVICES AGREEMENT
THIS AGREEMENT made and entered into this 25th day of February, 1998, is by and
between Long Distance Direct, Inc. ("Provider"), a corporation organized and
existing under the laws of the State of New York, having its principal place of
business at 1 Blue Hill Plaza, Pearl River, New York 10965 and Customer, defined
as follows:
New Media Telecommunications, Inc.
- --------------------------------------------------------------------------------
Official Company Name
4225 Executive Square, Suite 1020, La Jolla, California 92037
- --------------------------------------------------------------------------------
Address
Corporation
- --------------------------------------------------------------------------------
Type of Business (e.g., Corporation, Partnership, Sole Proprietorship)
Delaware
- --------------------------------------------------------------------------------
State of Incorporation
33-048-9547
- --------------------------------------------------------------------------------
Federal Tax ID Number or Social Security Number
WHEREAS, Provider is a communications common carrier authorized by the
Federal Communications Commission and various State regulatory agencies to
provide telecommunications services to the public, Customer has elected to have
Provider provide to End Users enrolled by it Provider's network certain
customized telecommunications services, including customized rate schedules,
calling card platforms, billing services and customer service functions, and
Provider desires to provide such services subject to the terms and conditions
contained within this Agreement.
THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties hereby agree as follows:
1. AUTHORIZATION
Provider hereby grants to Customer a non-exclusive license to market and
sell the products and services listed in Exhibit 1.1 which is attached hereto
and incorporated herein by reference, and enroll new users ("End Users") for
such products and services, subject to the terms and conditions stated herein.
Provider [Initials illegible] Customer [Initials illegible]
1
<PAGE> 2
2. SERVICES BY PROVIDER
2.1 Telecommunications Services. Provider shall provide the products and
services to the End Users under the terms and conditions of service as set forth
in applicable Federal and State tariffs. Provider shall charge End Users the
fees and rates set forth in Exhibit 1.1 and supporting Exhibits for such
products and services and account to Customer in accordance with Section 3.2 for
the commission earned thereon (GP%) less the fees and costs set forth in Exhibit
2.2.
2.2 Support Services. Provider shall provide the support services, which
is attached hereto and incorporated herein by reference. Provider will charge
Customer the fees and rates set forth in Exhibit 2.2 for such services.
3. SERVICE FEES AND PAYMENT TERMS
3.1 Monthly Invoice to End Users. Provider shall invoice End User each
month based on the tariffed rates and fees established pursuant to the terms of
Section 2.1. These invoices shall direct End Users to remit payments to
Provider. Customer hereby agrees, covenants and warrants that it will not direct
any End User to remit payments to any person or location other than Provider.
3.2 Monthly Statement to Customer. Within two weeks from the day that End
User invoices are distributed, Provider shall forward a monthly statement (the
"Monthly Statement") to Customer. The Monthly Statement shall include charges
rendered by Provider to Customer for services provided under this Agreement at
the rates and fees set forth in Exhibits 1.1 and 2.2 (and any and all taxes
applicable thereto) and any and all commissions payable by Provider to Customer
pursuant to this Agreement, together with details of the amounts billed to End
Users on which such commissions shall have been calculated
3.3 Terms of Payment. Within thirty days of the date on which the Monthly
Statement is sent to Customer ("the Monthly Statement Date"), Provider shall pay
to Customer by wire transfer 50% of any sums owing thereunder by Provider to
Customer. The balance of any such sums owing shall be paid by Provider to
Customer as to 25% within 45 days of the Monthly Statement Date and as to the
remaining 25% within 60 days of the Monthly Statement Date. If the Monthly
Statement indicates that sums are due by Customer to Provider, Customer shall
pay such sums within thirty days of receipt of Monthly Statement.
3.4 Disputed Amounts. Except for mathematical errors on the face of the
Monthly Statement, all sums shown as payable thereunder shall be payable in full
subject to the provisions of Section 3.3. Thereafter, Customer shall have sixty
(60) days to submit billing disputes in writing to Provider. Provider shall have
thirty (30) days to respond to the dispute. If Provider determines that the
dispute is valid, appropriate adjustment will be made. If Provider denies the
request for adjustment,
Provider [Initials illegible] Customer [Initials illegible]
2
<PAGE> 3
Customer may escalate the dispute to a Provider executive above the level of
Vice President. Provider's final determination shall be sent to Customer within
thirty (30) days of such escalation by Customer. All billing disputes not
resolved by the parties will be determined pursuant to Section 8.12 of the
Agreement.
4. DUTIES OF CUSTOMER
4.1 Conformity with Laws. Customer shall perform its obligations under
this Agreement in accordance with applicable law and in a commercially
reasonable and businesslike manner, adhering to professional standards of
conduct.
4.2. Submission of Orders. Customer understands that its utilization of
letters of agency and associated order forms (collectively "LOA's") that meet
all regulatory requirements and compliance with legal requirements regarding
marketing practices is essential to the operation of its business and the
maintenance of Provider's good standing with the Local Exchange Carriers
("LEC's"), Federal Communications Commission ("FCC"), State Public Utilities
Commissions ("PUC's") and other entities. Accordingly, Customer hereby agrees to
utilize LOAs which have been mutually agreed upon by Provider and Customer. At a
minimum, these LOAs shall comply with all existing regulatory requirements, name
Provider as the carrier of record, and limit Provider's liability to any End
User pursuant to the limitations set forth in Provider's applicable Federal and
State tariffs, regardless of whether such End User's utilization of Provider's
services is international, interstate or intrastate. Customer shall submit LOAs
signed by prospective End Users to Provider for its acceptance and approval by
provider. In the event original executed LOAs are not provided to Provider by
Customer at the time of order submission, then Customer shall retain such
originals and make copies available to Provider, Customer shall be liable for
[any primary interexchange carrier ("PIC") fees that are charged to Provider
with respect to such End User, for any credits issued to such End User, and for]
any damages incurred by provider as a result of the utilization of an LOA not
approved in advance by Provider. Order submitted to Provider by Customer may be
reviewed at any time by Provider for accuracy and completeness. In Provider's
sole discretion, it if determines that the orders for service submitted by
Customer are not sufficiently accurate or complete to meet Provider quality
standards, then Provider may require Customer to conduct a Provider training
seminar on service orders for Customer personnel. The training session may be
held at a location designated by Customer. Provider reserves the right to charge
Customer at the rates then current for such training, including reasonable
travel expenses plus a daily charge for a training fee which shall not exceed
two hundred dollars ($200). In addition, if at any time during this Agreement
the percentage of orders submitted to Provider by Customer that are rejected by
LECs for any reason other than a PIC freeze is equal to or greater than ten
percent (10%), Provider reserves the right to conduct additional training
seminars for Customer at Customer's expense and to suspend accepting any orders
from Customer for a period until Customer has taken sufficient steps to correct
the actions resulting in the LEC rejects.
Provider [Initials illegible] Customer [Initials illegible]
3
<PAGE> 4
4.3 End User Selection. Provider hereby reserves the right to refuse to
enroll any End User tendered by Customer if in Provider's sole opinion End User
represents an unacceptable credit risk. Unless prohibited by law or other
contract, Provider shall, if so requested by Customer, be obliged to advise
Customer of appropriate credit information of End User whom Provider refuses to
enrol due to its claim that the End User re[presnts a significant credit risk.
No End User will be unreasonably denied access by Provider.
4.4 Customer Representation. Any and all statements or representations
made to third parties by Customer with respect to Provider and Customer's
relationship to Provider, the services or products Provider provides, or the
terms and conditions of this Agreement, must true, accurate, not misleading and
conform to and be consistent with the terms and conditions of this Agreement.
4.5 Marketing Materials. Any and all materials to be used by Customer in
its marketing activities under this Agreement, that have not been supplied by
Provider but have or should have Provider's name or logo, must be submitted to
Provider for approval at least seven (7) business days prior to use. Such
materials include, but are not limited to, telephone scripts, proposals, service
order forms and any and all other materials to be used in Customer's marketing
activities. Provider, in its sole discretion, may prohibit the use of any
materials that it determines do not accurately reflect Provider, the products
and services, the terms and conditions of this Agreement, or may adversely
affect its name, trade names, logos, service marks, trademarks, reputation or
business in general.
4.6 Ability to Perform. Provider and Customer each represents and warrants
to the other that it has not been requested to disclose to the other, or to use
on behalf of the other, any confidential information belonging to a third party,
nor will it use such information it may have on behalf of the other, there are
no restrictions imposed on it by third parties that would limit its ability to
perform its obligations under this Agreement, and neither it nor any of its
officers or principals have been convicted of a felony.
5. RELATIONSHIP
The parties acknowledge that Customer is an independent contractor and is
not a legal representative or agent of Provider for any purpose except as set
forth in this Agreement. Provider and Customer agree that their relationship
arising from this Agreement does not constitute or create a general agency,
joint venture, partnership, employment relationship or franchise between them.
Customer is not authorized to, and agrees that it will not make any warranties
or representations, or assume or create any other obligations, on Provider's
behalf, except with the prior written consent of Provider. In accordance
herewith, Customer shall maintain its own business offices, and Provider shall
in no respect, exercise any direct
Provider [Initials illegible] Customer [Initials illegible]
4
<PAGE> 5
supervision of Customer's activities. Neither Customer nor any employee or agent
of Customer who is compensated for services paid by Customer may directly or
indirectly, expressly or by implication, be construed as an employee of Provider
for any purpose, including, but not limited to, insurance benefits or tax
withholdings, levied or fixed by any city, state or federal governmental agency.
6. INDEMNIFICATION AND WARRANTIES
6.1 Customer Indemnification. Customer shall indemnify and hold Provider
harmless from any and all claims, damages, expenses, liabilities, losses or
judgments (collectively, "Claims") for or relating to any and all (i) injury or
loss of life to persons, (ii) damage to or loss of property, and (iii)
reasonable attorney fees and other costs of litigation incurred by Provider in
connection with any such Claims, caused in material part by Customer or its
employees or agents in connection with Customer's obligations stated herein, as
well as Customer's material omissions or misrepresentations or services provided
by Provider herein, regardless of the form of action. Except where solely caused
by Provider's willful misconduct, Customer shall defend on behalf of Provider
any suit brought against Provider for any such Claims and Customer shall
reimburse Provider for all reasonable attorney's fees and other costs of
litigation incurred in connection therewith promptly upon a presentation of a
statement therefor. If Customer fails to pay such fees and expenses as set forth
in this Section 6.1, then Provider shall have the right to invoice Customer for
said fees and expenses or offset and recover said fees and expenses from any
moneys due to Customer by Provider.
6.2 Provider Indemnification. Provider shall indemnify and hold Customer
harmless from any and all Claims for or relating to any and all (i) injury or
loss of life to persons, (ii) damage to or loss of property, and (iii)
reasonable attorney fees and other costs of litigation incurred by Customer in
connection with any such Claims, caused in material part by Provider or its
employees or agents in connection with Provider's obligations stated herein, as
well as Provider's material omissions or misrepresentations of services provided
herein. Except where solely caused by Customer's willful misconduct, Provider
shall defend on behalf of Customer any suit brought against Customer for any
such Claims and Provider shall reimburse Customer for all reasonable attorney's
fees and other costs of litigation incurred in connection therewith promptly
upon a presentation of a statement therefor.
6.3 Customer Warranty. Customer warrants that it has the authority to
select Provider to provide the services described herein and that this selection
does not and will not violate any other arrangement to which Customer is bound.
This warranty will survive the execution of this Agreement. Customer will
indemnify and hold Provider harmless from any loss, costs or expense including
cost of litigation, such as attorneys' fees, court costs, and other investigate
and legal
Provider [Initials illegible] Customer [Initials illegible]
5
<PAGE> 6
support personnel incurred by Provider in defending claims made by other with
respect to services provided under this Agreement.
6.4 Provider Warranty. PROVIDER WARRANTS THAT IT WILL USE ALL REASONABLE
EFFORTS TO MAINTAIN [ITS OVERALL NETWORK QUALITY]. THE QUALITY OF SERVICE
PROVIDED HEREUNDER SHALL BE CONSISTENT WITH TELECOMMUNICATIONS COMMON CARRIER
INDUSTRY STANDARDS, GOVERNMENT REGULATIONS AND SOUND BUSINESS PRACTICES.
PROVIDER MAKES NO OTHER WARRANTY, WHETHER EXPRESS, IMPLIED, OR STATUTORY, AS TO
THE DESCRIPTION, QUALITY, MERCHANTABILITY, COMPLETENESS OR FITNESS FOR ANY
PARTICULAR PURPOSE OF THE SERVICE OR THE LOCAL ACCESS OR AS TO ANY OTHER MATTER,
ALL OF WHICH WARRANTIES BY PROVIDER ARE HEREBY EXCLUDED AND DISCLAIMED.
6.5 Damages. IN NO EVENT WILL PROVIDER BE LIABLE TO CUSTOMER FOR ANY
INDIRECT, CONSEQUENTIAL, SPECIAL, PUNITIVE, OR ANY OTHER SIMILAR DAMAGES, OR FOR
ANY LOST PROFITS OF ANY KIND OR NATURE WHATSOEVER ARISING IN ANY MANNER FROM
THIS AGREEMENT AND THE PERFORMANCE OR NONPERFORMANCE OF OBLIGATIONS HEREUNDER.
CUSTOMER'S SOLE REMEDY WILL BE FOR THE TERMINATION OF THIS AGREEMENT AS PROVIDED
FOR IN SECTION 7 AND REIMBURSEMENT FOR ITS DIRECT DAMAGES. PROVIDER'S
OBLIGATIONS TO ANY END USER ARE LIMITED BY ITS ORDER FORMS, AGREEMENTS AND
APPLICABLE FEDERAL AND STATE TARIFFS.
6.6 Confidential Information. Customer and Provider hereby acknowledge and
agree that on and after the date of this Agreement for a period of two (2) years
following its termination, each party shall hold in the strictest confidence,
and shall not use or disclose to any person, firm or corporation (other than on
a need-to-know basis), without the written authorization of the other party, any
Confidential Information in its possession pertaining to the other party,
including, without limitation, End User account data, except as may be ordered
by a court of competent jurisdiction of a claim involving the subject matter of
such Confidential Information. As used in this Agreement, "Confidential
Information" means the terms and conditions contained in this Agreement,
including the consideration payable hereunder, and all information, documents
and materials not generally available to the public which have been provided by
one party to the other in connection with the transactions contemplated hereby
or which otherwise relate to, the Customers and End User accounts. The parties
further acknowledge that they are entering into this Agreement in good faith,
that their relationship has been and is expected to continue to be one or mutual
respect and good will, and that they shall continue to describe each other in a
manner consistent with the tenor of their relationship and shall at no time make
any statement or remark to any person, firm or entity inconsistent herewith.
Customer and Provider each acknowledge and agree that any breach of this Section
would cause the other party irreparable harm. Accordingly, the non-breaching
party may seek and obtain injunctive relief against
Provider [Initials illegible] Customer [Initials illegible]
6
<PAGE> 7
the breach or threatened breach of this Section 6.6, in addition to any other
remedies to which such party may be entitled at law or in equity. The provisions
of this Section 6.6 survive the termination of this Agreement.
6.7 Taxes. Except for those taxes assessed on the services provided to the
End Users by Provider, including without limitation sales, excise and utility
taxes, which will be reported and remitted to the applicable taxing authorities
by Provider, Customer assumes full responsibility, including without limitation
the preparation, distribution and filing of all forms, returns and reports
required by Federal, State and Local laws and regulations, for reporting all
Federal, State and Local taxes and other assessments, including without
limitation income, employment, property, and business and occupation taxes.
7. TERM AND TERMINATION
7.1 Term and Renewal. The term of this Agreement shall be for an initial
period of three (3) years from the date of execution by Provider ("Initial
Term"). Thereafter, upon the expiration of the Initial Term, this Agreement
shall be automatically renewed for additional one (1) year periods of time
("Renewal Terms") unless terminated pursuant to any of the provisions in Section
7.
7.2 Termination Upon Bankruptcy. If either party (i) for any reason ceases
to conduct business in the normal course; (ii) files (a) a general assignment
for the benefit of creditors, (b) a petition in bankruptcy, (c) a petition
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar arrangement under any statute, law or
regulation, or, (d) an answer admitting the material allegations of a petition
against it in any such proceedings; (iii) consents to or acquiesces in the
appointment of a custodian, trustee, receiver, or liquidator of it or all and
any substantial part of its assets or properties; (iv) through its shareholders
or partners shall take any action looking to its dissolution, winding-up or
liquidation; or (v) becomes subject to any order for relief entered against it
by a bankruptcy court or other court of competent jurisdiction, the other party
may immediately termination this Agreement upon written notice.
7.3 Termination for Regulatory Violation. As more fully described in
Section 4.2, Customer understands that Provider's good standing with the LECs,
FCC, PUCs and other entities is essential to its ability to provide services to
Customer, the End Users and Provider's other customers. Therefore, Customer
agrees, convenants and warrants that it shall comply with all legal and
regulatory requirements and the guidelines outlined in this Agreement. If
complaints are sustained against Customer, or against Provider as a result of
Customer's acts or omissions, by the LECs, FCC, PUCs or other entities, Provider
reserves the right to impose a charge of four hundred dollars ($400) or two
times any penalty imposed, whichever is greater, per complaint. Additionally, if
Provider determines that Customer has knowingly submitted to Provider an End
User for which the LOA was either forged or unethically obtained, for which
Customer is acting outside of
Provider [Initials illegible] Customer [Initials illegible]
7
<PAGE> 8
the rights granted under the LOA, or for which Customer is unable to provide an
original or suitable copy of the LOA, or if Provider determines, in its sole
discretion which shall be reasonably exercised, that Provider's FCC or PUC
certification or right to do business in any state is threatened as a result of
Customer's acts or omissions, then Provider may either immediately terminate
this Agreement upon written notice or suspend accepting any orders from Customer
for a period until Customer has taken action to correct such practices.
7.4 Termination for Lack of Performance. Provider may terminate this
Agreement upon thirty (30) days prior written notice to Customer if Customer
fails to meet the following minimum monthly usage requirements:
(i) at least fifty thousand dollars ($50,000) in total gross monthly
revenues (net of taxes) billed to the End Users by the end of the ninth
(9th) full month service has been in effect; and
(ii) at least one hundred thousand dollars ($100,000) in total gross
monthly revenues (net of taxes) billed to the End Users by the end of the
eighteenth (18th) full month service has been in effect.
7.5 Termination for Non-Payment. Subject to Section 7.7 below, either
party may immediately terminate this Agreement without notice if the other party
fails to make the required payments in the manner set forth in Section 3.3.
7.6 Termination for Intentional Breach. In the event of an intentional
breach of any term or condition of this Agreement by Customer, including without
limitation the covenant contained in Section 3.1, Provider may immediately
terminate this Agreement upon written notice.
7.7 Termination for Material Breach. In the event of a material breach of
any term or condition of this Agreement by either party, the non-breaching party
will provide the breaching party thirty (30) days written notice in which to
cure said breach, and if such breach is not cured within said thirty (30) day
period, this Agreement may be termination at the election of the non-breaching
party.
7.8 Termination Upon Rate Increase. If Provider's costs to provide service
under this Agreement either increase or are greater than the rates and fees
charged to Customer, Provider may, upon thirty (30) days prior written notice,
increase the rates and fees set forth in this Agreement or the Exhibits attached
hereto to a reasonable amount that covers such cost increase or costs to provide
service. In the event that Provider increases any of the rates and fees for the
services provided as specified herein, except as provided in Section 2.1 above,
and such increase shall result in an overall increase of five percent (5%) or
more in the amounts per minute or other unit of measurement charged against
revenue from End Users in determining commissions due to Customer in the Monthly
Statement as averaged over the previous three (3) months, then Customer may
terminate this
Provider [Initials illegible] Customer [Initials illegible]
8
<PAGE> 9
Agreement by providing thirty (30) days prior written notice. Customer must
provide such notice within sixty (60) days of receipt of Provider's notice to
Customer of the increase. Customer's failure to provide such notice within said
sixty (60) day period shall be conclusive evidence of its acceptance of the
increase and its determination not to terminate this Agreement under this
Section 7.8.
7.9 Termination Upon End of Term. Notwithstanding anything to the contrary
herein, Customer may terminate this Agreement upon sixty (60) days written
notice prior to the end of the Initial Term or any Renewal Term.
7.10 Put and Call Options. This Agreement provides Customer with the
opportunity to either receive payment for its interests under this Agreement or
obtain ownership of the End User accounts pursuant to the following terms and
conditions.
7.10.1 Option to Put. In the event of termination of this Agreement
by Provider pursuant to Section 7.2, 7.4, 7.5, 7.6 or 7.7 or by Customer
pursuant to Section 7.7, 7.8 or 7.9, Customer shall have the right to put its
interests under this Agreement in a continuing revenue stream to Provider
("Option to Put"), net of any amounts due and payable to Provider. In addition,
Customer shall have the Option to Put its interests relating to either the
commercial or residential End User base at any time without terminating this
Agreement in relation to the other End User base. If Customer chooses to
exercise its Option to Put under any of these circumstances (except for
termination by Provider pursuant to Section 7.3 or 7.6), Customer shall be
entitled to a Put Fee relating to its interests in the commercial and/or
residential End User base(s), to be determined as follows: At the time that
Customer exercises its Option to Put, Provider shall assign an Integrity
Quotient ("IQ") to each of four (4) factors in connection with the commercial
End User base based on the following matrix ("Matrix 1"):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Integrity Quotient 2 1 0 -1 TBD
- --------------------------------------------------------------------------------
Bad Debts <3% 3%-4% >4%-5% >5%-10% >10%
- --------------------------------------------------------------------------------
Revenue/End User >300 >$150-$300 >$100-$150 $25-S100 <$25
- --------------------------------------------------------------------------------
Attrition <2% 2%-4% >4%-5% >5%-10% >10%
- --------------------------------------------------------------------------------
Gross Margin >25% >18%-25% >13%-18% 10%-13% <10%
- --------------------------------------------------------------------------------
</TABLE>
and in connection with the residential End User base based on the following
matrix ("Matrix 2"):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Integrity Quotient 2 1 0 -1 TBD
- --------------------------------------------------------------------------------
Bad Debts <3.5% 3.5%-5.0% >5.0%-6.5% >6.5%-10% >10%
- --------------------------------------------------------------------------------
Revenue/End User >$50 >$30-$50 >$15-$30 $12-$15 <$12
- --------------------------------------------------------------------------------
Attrition <3% 3%-4% >4%-6% >6%-10% >10%
- --------------------------------------------------------------------------------
Gross Margin >25% >20%-25% >15%-20% 10%-15% <10%
- --------------------------------------------------------------------------------
</TABLE>
The factors used in assigning an IQ to each of the standards set forth in Matrix
1 and Matrix 2 are as follows: (1) Bad Debt shall be a percentage equal to the
total
Provider [Initials illegible] Customer [Initials illegible]
9
<PAGE> 10
revenues (net of taxes) billed to the End Users that have been written off by
Provider as uncollectable (i.e., End User accounts that are at least sixty (60)
days past due) during the previous six (6) months divided by the total gross
revenues (net of taxes) billed to the End Users during the previous six (6)
months; (2) Revenue/End User shall be a dollar amount equal to the average gross
monthly revenues (net of taxes) billed to the End Users enrolled in Provider's
services during the previous six (6) months; (3) Attrition shall be a percentage
equal to the average gross monthly revenues (net of taxes) of the End Users who
have left Provider's service or have so substantially reduced the level of
services utilized that it is deemed to be insignificant during the previous six
(6) months divided by the average gross monthly revenues (net of taxes) of all
End Users during the previous six (6) months; and (4) Gross Margin shall be a
percentage equal to the total gross revenues (net of taxes) billed to the End
Users during the previous six (6) months, reduced by the total revenues billed
to Customer during the previous six (6) months, and then divided by the total
gross revenues (net of taxes) billed to the End Users during the previous six
(6) months. Once an IQ is assigned to each of the standards, the IQ's are
totalled. The total IQ associated with the End User base is then used to
determine a multiple according to the following matrix ("Matrix 3"):
Average Gross Monthly Revenues Billed to the End Users (Net of Taxes)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------=------------------
Integrity Quotient Less than $50,000 - > $100,000 - > $250,000 > $1 Million More than
$50,000 $100,000 $250,000 - $1 Million - $1.5 Million $1.5 Million
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------=------------------
4 or more TBD 2 3 4 5 6
- --------------------------------------------------------------------------------=------------------
3 TBD 1.5 2 3 4 5
- --------------------------------------------------------------------------------=------------------
2 TBD 1 1.5 2 3 3
- --------------------------------------------------------------------------------=------------------
1 TBD 0.5 1 1.5 2 2
- --------------------------------------------------------------------------------=------------------
0 or less TBD TBD TBD TBD TBD TBD
- --------------------------------------------------------------------------------=------------------
</TABLE>
Based on Matrix 3, the applicable multiple is applied to the average gross
monthly revenues (net of taxes) billed to the commercial or residential End
Users during the previous six (6) months, and the resulting amount is the
corresponding Put Fee. However, in the event that (i) any one (1) of the four
(4) factors described above exceeds the limitations defined in the right column
headed "TBD" in Matrix 1 or Matrix 2, (ii) the average gross monthly revenue
(net of taxes) billed to the commercial or residential End Users is less than
$50,000 and/or the total IQ is zero (0) or less as noted in Matrix 3, or (iii)
Provider terminates this Agreement pursuant to Section 7.3 or 7.6 Provider shall
have the right and authority in its sole discretion to determine the amount of
the Put Fee relating to the commercial and/or the residential End User base. If
the Put Fee determined by Provider is not acceptable to Customer, Customer shall
have the right to exercise its Option to Call pursuant to Subsection 7.10.2.
Provider shall pay any Put Fee payable to Customer pursuant to this Subsection
7.10.1 in twelve (12) equal monthly payments.
7.10.2 Option to Call. In the event of termination of this
Agreement by Customer pursuant to Section 7.7, 7.8 or 7.9 or Customer's
declination of Provider's discretionary determination of the Put Fee under the
terms of Subsection 7.10.1 (provided that Customer is not otherwise in material
breach of any term or condition in this Agreement), Customer shall have the
right to call
Provider [Initials illegible] Customer [Initials illegible]
10
<PAGE> 11
the commercial and residential End User accounts from Provider ("Option to
Call"). Customer shall not have the right to exercise its Option to Call if this
Agreement is terminated for any reason other than described in this Subsection
7.10.2. If Customer chooses to exercise its Option to Call, Provider shall be
entitled to a Call Fee of five (5) times the average gross monthly revenues (net
of taxes) billed to the commercial and residential End Users during the previous
six (6) months. Customer can exercise its Option to Call only upon full payment
of the Call Fee and only if it has obtained the requisite certifications from
the FCC, PUCs and any and all other government agencies, or it wishes to
transfer the commercial and residential End User accounts to another fully
certified interexchange carrier ("IXC"). Customer, at its own expense, shall
take any and all actions necessary to accommodate the transfer of End User
accounts from Provider to Customer or the other IXC, as the case may be,
including, but not limited to, securing new LOAs in Customer's or the other
IXC's name, as the case may be, or obtain the requisite approvals from the FCC,
PUCs or other governmental agencies for a bulk transfer. Customer shall
indemnify and hold Provider harmless from any and all Claims for or relating to
Customer's failure to properly take the necessary actions to accommodate the
transfer of End User accounts. In the event that Customer exercises its Option
to Call under this Section 7.10.2, Provider shall not subsequently use the
proprietary information contained in its database to directly solicit End Users
away from Customer.
7.11 Disclosure and Payment of Employee and Agent Commissions Upon
Termination. Except in the case of Customer exercising its Option to Call
pursuant to Subsection 7.10.2, Customer shall disclose any and all existing
obligations Customer has to pay commissions and other fees to any and all
employees, agents and representatives of Customer immediately upon termination
of this Agreement. Unless otherwise agreed to by Provider, Customer shall remain
liable for any and all commissions and other fees that may become payable to any
employee, agent or representative after termination of this Agreement, and
Customer shall indemnify and hold Provider harmless from any and all Claims (as
defined in Section 6.1) for or relating to Customer's failure to pay such
commissions or other fees. If Provider agrees to assume any of Customer's
obligations to pay commissions and other fees to any of Customer's employees
agents and representatives after termination of this Agreement, Provider shall
have the right and authority to assign a reasonable current value to such
obligations and to reduce the amount of the Put Fee under Subsection 7.10.1 by
such value.
7.12 Removal of End Users Upon Termination. Except in the case of Customer
exercising its Option to Call pursuant to Subsection 7.10.2, Customer shall not
solicit any End User for any telecommunications services provided by other
telecommunications carriers where such services are at such time available from
Provider, remove any End User from Provider's service, or in any manner, under
any conditions whatsoever, change, alter or tamper with the existing End User
base during the term of this Agreement and for a period of two (2) years
following termination of this Agreement. Any person or entity having any direct
or
Provider [Initials illegible] Customer [Initials illegible]
11
<PAGE> 12
beneficial interest attributable to or from Customer shall be bound by the
provisions of this covenant, including, but not limited to, employees, agents,
representatives, directors, officers, shareholders, partners, relatives of any
of these persons, or any other such related person or entity ("Related Party").
In the event Customer or a Related Party breaches this covenant, Provider shall
have the right to recover the greater of (i) any and all Put Fee amounts paid to
Customer pursuant to Section 7.10.1 or (ii) six (6) times the average gross
monthly revenues (net of taxes) billed during the previous six (6) months to the
End Users removed from Provider's services. In addition, Provider shall have the
right to terminate payment of any remaining Put Fee amounts payable to Customer
pursuant to Subsection 7.10.1. The terms, conditions, warranties and covenants
set forth in this Section 7.12 shall survive the termination of this
Agreement.
7.13 Cessation of Use of Materials and Proprietary Information Upon
Termination. Upon termination of this Agreement for any reason, each party
hereto must immediately cease and desist from the use, if any, of all of the
other party's logos, trade names, service marks, trademarks, Proprietary
Information (including copies and summaries thereof), and marketing materials.
8. MISCELLANEOUS
8.1 Assignment. This Agreement shall be binding upon and shall move to
benefit the parties and their legal representatives, heirs and successors.
However, except as provided below, neither parties' interest in this Agreement
nor its rights, obligations or duties hereunder may be assigned or otherwise
transferred, either voluntarily or involuntarily, without the prior written
consent of the other party, which shall not be unreasonably withheld. Any such
attempted transfer shall be void and shall constitute a breach of this
Agreement. Customer's prior written consent shall not be required if Provider
sells its entire business or there is a change of control of Provider nor shall
Provider's prior written consent be required if Customer sells its entire
business or there is a change of control of Customer.
8.2 Notices. Any notice, statement, or other report required or permitted
by this Agreement must (I) be in writing and is deemed given on (a) the business
day or delivery if delivered personally, (b) the business day of transmission if
sent by facsimile and received before 2 p.m. recipient's time, (c) the third
business day following the date of deposit in the U.S. mail if mailed by
registered or certified mail, return receipt requested, postage prepaid, or (d)
the first business day following the date of deposit with the courier if sent
via a public or private express mail service for overnight delivery; and (ii)
addressed to the other party at the address set forth below, or at such other
address as either party may designate from time to time in writing in accordance
with this subsection.
If to Provider, addressed to:
Steven Lampert
Provider [Initials illegible] Customer [Initials illegible]
12
<PAGE> 13
President and CEO
Long Distance Direct, Inc
1 Blue Hill Plaza
Pearl River
NY 10965
Phone: (914) 620-0765
Fax: (914) 620-1889
If to Customer, addressed to:
New Media Telecommunications, Inc.
Attention: Jonathan Weisz, President
4225 Executive Square, Suite 1070
La Jolla, CA 92037
Phone: (619) 558-3333
Fax: (619) 558-3344
8.3 Governing Law. This Agreement shall be construed in accordance with
and be enforced by and under the laws of the State of New York, without recourse
to its conflict of laws. Except as otherwise provided in Section 8.12, venue for
any action concerning this Agreement shall be in the Rockland County, State of
New York, or the Federal courts located in Rockland County, New York.
8.4 Severability. The illegality or unenforceability of any provision or
portion of this Agreement does not affect the legality or enforceability of any
other provision or portion. If any provision or portion of this Agreement is
deemed illegal or unenforceable for any reason, there will be deemed to be made
such minimum change in such portion or provision as is necessary to make it
valid and enforceable and acceptable to the parties as so modified.
8.5 Entire Agreement. This Agreement sets forth the entire understanding
between the parties concerning the subject matter hereof, and supersedes all
prior negotiations and understandings with respect thereto. There are no
covenants, promises, agreements, conditions or understandings, either written or
oral, between the parties and relating to the subject matter of this Agreement
other than those set forth herein.
8.6 Opportunity to Participate in Drafting. The parties have had an equal
opportunity to participate in drafting of this Agreement and any exhibits
attached. No ambiguity shall be construed against any party based upon a claim
that that party drafted the applicable language.
8.7 Full Understanding. In executing this Agreement, each member of each
party fully, completely, and unconditionally acknowledges and agrees that it (a)
has consulted with, and had the advice and counsel of duly licensed and
competent attorney and that it has executed this Agreement after independent
Provider [Initials illegible] Customer [Initials illegible]
13
<PAGE> 14
investigation, voluntarily and without fraud, duress, or undue influence, and
(b) expressly consents that this Agreement be given full force and effect
according to each and every of its express terms and provisions.
8.8 Amendments: Waivers: Remedies. This Agreement, or any of its
provisions, may not be amended, or modified, and no provision may be waived,
unless such amendment, modification, or waiver is in writing and signed by the
party against whom enforcement is sought. The waiver of any breach or default
under this Agreement does not constitute the waiver of any other breach or
default, whether or not similar, nor any subsequent breach of the same
provision. The election by either party of any right or remedy contained in this
Agreement is not exclusive of any other rights or remedies in law or equity
other than as may be limited in this Agreement.
8.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which is an original, but all of which together shall
constitute one and the same instrument. The individuals signing this Agreement
represent and warrant that they are authorized to bind and do so bind the party
on behalf of which they are executing this Agreement. This Agreement is binding
on the parties and their respective successors and permitted assigns.
8.10 Force Majeure. If Provider's or Customer's performance of this
Agreement or any obligation hereunder is prevented, restricted or interfered
with by causes beyond its reasonable control including, but not limited to acts
of God, fire, explosion, vandalism, disruption in service by an underlying
carrier, LEC or other third party, material tariff amendments or cancellation,
storm or other similar occurrence, any law, order, regulation, direction, action
or request of the United States government or state or local governments, or of
any department, agency, commission, court, bureau, corporation or other
instrumentality of any one or more said governments, or of any civil or military
authority, or by national emergency, insurrection, riot, war, strike, lockout or
work stoppage or other labor difficulties, supplier, failure, shortage, breach
or delay (other than cause directly by the negligence of said party), then
Provider or Customer shall be excused from such performance on a day-to-day
basis to the extent of such prevention, restriction, or interference. Provider
or Customer shall use reasonable efforts under the circumstances to avoid or
remove such causes or nonperformance and shall proceed to perform with
reasonable dispatch whenever such causes are removed or cease.
8.11 Attorney Fees and Costs. In the event of any legal dispute between
the parties relating to the Agreement, including arbitration provided for in
Section 8.12, the most prevailing party shall be entitled to all costs and legal
expenses including, but not limited to, reasonable attorney fees, accounting
fees, court costs, expert witness fees and investigation expenses.
Provider [Initials illegible] Customer [Initials illegible]
14
<PAGE> 15
8.12 Arbitration. Unless otherwise provided for in this Agreement, any
dispute between Provider and Customer arising under this Agreement that is not
resolved between the parties shall be subject to arbitration in the City of
Dallas, State of Texas, pursuant to the rules then in effect of the American
Arbitration Association (or any other place or under any form of arbitration
mutually acceptable to Provider and Customer). The decision rendered by the
arbitrator shall be final and conclusive upon the parties in all respects and a
judgment thereon may be entered in the highest court of the forum so having
jurisdiction of the matter.
8.13 Authority to Execute. Each person executing this Agreement on behalf
of another person or organization represents and warrants to each member or all
other parties that he or she is fully authorized to execute and deliver this
Agreement on behalf of such person or organization. Each member of each party
represents and warrants to all members of all other parties that no consent of
any person not a party to this Agreement is necessary in order for this
Agreement to be fully and completely binding upon each member of the parties
hereto.
8.14 Captions. The captions and section numbers appearing in this
Agreement are inserted only as a matter of convenience, and shall not be used to
construe, defined, limit or describe the scope or intent of the provisions of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
* /s/ {ILLEGIBLE]
Long Distance Direct, Inc. New Media Telecommunications, Inc.
By: /s/ Michael Preston By: /s/ Jonathan Heisz
---------------------------- -------------------------------
Printed Name: Michael Preston Printed Name: Jonathan Heisz
Title: Vice President Title: President
Date: 2/25/98 Date: 2/20/98
* See addendum Feb 20th 1998 attached [ILLEGIBLE]
Provider [Initials illegible] Customer [Initials illegible]
15
<PAGE> 16
EXHIBIT 1.1
TELECOMMUNICATIONS SERVICES, RATES AND FEES
1. Usage Rates. Provider shall charge End Users the following rates for all
usage and in respect thereof Customer shall be entitled to receive as a
commission the percentage on such rates (GP%) shown against each such
rate:
a. Switched and dedicated 1 + and 800:
(1) Interstate: Interstate usage shall be charged based on two
separate rate sets relating to commercial and residential End
Users. When creating a new customer account, Customer shall
specify whether a given End User should be charged commercial
or residential rates.
Residential switched service
The applicable rates for residential switched interstate
service are as follows:
Residential outbound: $0.129 per minute (GP% = 31.4%)
Residential inbound: $0.139 per minute (GP% = 31.4%)
Commercial switched service - outbound
Customer may elect to market switched outbound service to
commercial customers at varying rates. The rates for
commercial interstate outbound service, and the applicable
commission percentages are as follows:
$0.099 per minute (6%)
$0.105 per minute (10%)
$0.109 per minute (14.5%)
$0.115 per minute (18%)
$0.119 per minute (22%)
Commercial dedicated service - outbound
Customer may also elect to market dedicated outbound service
to commercial customers. In such case, Customer may market at
any rate above Customer's "buy" price for such service, and
the commission percentage on such traffic will be calculated
as the difference between the "buy" price and the rate
actually charged to the End User, expressed as a percentage of
such rate. Customer's "buy" price shall be set at $0.06 per
minute.
Provider [Initials illegible] Customer [Initials illegible]
16
<PAGE> 17
In any month in which total billings in respect of dedicated
traffic from commercial End Users introduced by Customer
aggregates $10,000, Customer's "buy" price shall be reduced to
$0.058 per minute. End Users shall be responsible for all
installation and set-up costs associated with the provision of
dedicated service. End Users shall also be responsible for all
monthly recurring charges in connection with dedicated
service, save that where the End User has entered into a
contract with Provider for such service for a term of not less
than twelve months Provider agrees to waive such monthly
recurring charges in any month where End User has total
billable usage charges for dedicated service, excluding such
monthly recurring charges, of not less than $3,500.
Commercial switched service - inbound
Customer may elect to market switched inbound service to
commercial customers at varying rates. The rates for
commercial interstate inbound service, and the applicable
commission percentages are as follows:
$0.109 per minute (6%)
$0.115 per minute (10%)
$0.119 per minute (14.5%)
$0.129 per minute (22%)
Commercial dedicated service - inbound
Customer may also elect to market dedicated inbound service to
commercial customers. In such case, Customer may market at any
rate above Customer's "buy" price for such service, and the
commission percentage on such traffic will be calculated as
the difference between the "buy" price and the rate actually
charged to the End User, expressed as a percentage of such
rate. Customer's "buy" price shall be set at $0.065 per
minute. In any month in which total billings in respect of
dedicated traffic from commercial End Users introduced by
Customer aggregates $10,000, Customer's "buy" price shall be
reduced to $0.063 per minute. End Users shall be responsible
for all installation and set-up costs associated with the
provision of dedicated service. End Users shall also be
responsible for all monthly recurring charges in connection
with dedicated service, save that where the End User has
entered into a contract with Provider for such service for a
term of not less than twelve months Provider agrees to waive
such monthly recurring charges in any month where End User has
total billable usage
Provider [Initials illegible] Customer [Initials illegible]
17
<PAGE> 18
charges for dedicated service, excluding such monthly
recurring charges, of not less than $3,500.
(2) Intrastate outbound: Intrastate outbound usage shall be
charged based on two separate rate sets relating to commercial
and residential End Users. When creating a new customer
account, Customer shall be able to specify whether a given End
User should be charged commercial or residential rates. The
applicable rates for residential switched inbound service are
as follows:
Residential (applicable to the first 20,000 End Users): See
attached Schedule on Exhibit 1.2
Residential (applicable to End Users over 20,000): See
attached Schedule on Exhibit 1.3
Commercial - switched: See attached Schedule on Exhibit 1.4(a)
Commercial - dedicated: See attached Schedule on Exhibit
1.4(b)
(3) Intrastate inbound: Switched intrastate inbound usage shall be
charged based on one single rate set applicable to both
residential and commercial End Users without distinction. The
applicable rates are set forth on the attached Schedule on
Exhibit 1.5(a). The rates for dedicated inbound intrastate
usage are set forth on the attached Schedule on Exhibit
1.5(b).
(4) International: International usage shall be charged based on
two separate rate sets relating to commercial and residential
End Users. When creating a new customer account, Customer
shall specify whether a given End User should be charged
commercial or residential rates. The applicable rates are as
follows:
Residential (applicable to the first 20,000 End Users): See
attached Schedule on Exhibit 1.6
Residential (applicable to End Users over 20,000): See
attached Schedule on Exhibit 1.7
Commercial - switched: See attached Schedule on Exhibit 1.8(a)
Commercial -- dedicated: See attached Schedule on Exhibit
1.8(b)
Provider [Initials illegible] Customer [Initials illegible]
18
<PAGE> 19
(5) Off-Shore (Alaska, US Virgin Islands and Puerto Rico):
$0.25 per minute (GP% = 25%).
(6) Domestic Directory Assistance: $0.95 per call (GP% = 25%)
(b) Calling Card
(1) Interstate: $0.08 per minute plus the applicable interstate
switched rate as determined pursuant to the terms set forth in
Section 1.a.(1) of this Exhibit 1.1, plus a per call charge of
$0.25 (GP% on entire charge = 25%).
(2) Intrastate: $0.08 per minute plus the applicable intrastate
switched rate as determined pursuant to the terms set forth in
Section 1.a.(2) of this Exhibit 1.1, plus a per call charge
of $0.25 (GP% on rates as per relevant Schedule; GP% on per
call charge = 0%).
(3) International: $0.08 plus the international switched rates as
determined pursuant to the terms set forth in Section 1.a.(4)
of this Exhibit 1.1, plus a per call charge of $1.25 (GP% on
rates as per relevant Schedule; GP% on per call charge = 0%).
(4) Off-Shore (Alaska, US Virgin Islands and Puerto Rico): $0.35
per minute (GP% = 25%).
(5) Directory Assistance: $0.95 per call (GP% = 25%).
c. Connection Card - Special Feature Rates
*0 = Operator Services
$1.20 = Directory Assistance (domestic) inc. Puerto Rico and
U.S.V.I.
$1.25 = Directory Assistance in Canada
$8.75 = International Directory Assistance List A
$9.95 = International Directory Assistance List B
$1.00 = Direct Connect/Station-to-Station
Provider [Initials illegible] Customer [Initials illegible]
19
<PAGE> 20
$4.50 = Direct Connect/Station-to-Station
** International List A Includes Bermuda, country code 809 and the following
countries:
Australia
Austria
Finland
France
Germany
Mexico
New Zealand
Netherlands
Spain
Switzerland
United Kingdom
** International List B includes all other international countries
* 1 = Voice New Network:
$0.38/minute
* 2 = Conference Calling:
$3.50 set up fee (per participant, other than customer)
Usage rates per bridgeport:
<TABLE>
<CAPTION>
Weekday Weekend
------- -------
<S> <C> <C>
Domestic calls: $0.55 $0.35
Calls to Canada: $1.10 $0.80
Calls to Mexico $1.20 $1.20
Calls to Int'l locations (except Canada and Mexico)
</TABLE>
The rate period and rates specified in Sections C-3.072 and C-3.073,
respectively, will apply (Tariff FCC No. 1).
20
<PAGE> 21
Weekday is defined as Mon 12:00 a.m. CST to Fri 11:59 p.m. CST
Weekend is defined as 12:00 a.m. CST Saturday through 11:59 p.m. CST
Sunday.
*4 = Message Store & Forward
<TABLE>
<CAPTION>
MESSAGE TYPE FEATURE ORIG TERM RATE P/MIN
- ------------ ------- ---- ---- ----------
<S> <C> <C> <C> <C>
Message to 50 US States *41 Domestic Domestic $ 2.25
Zone 1 & 2 Domestic $ 7.25
Message to Can/PR/USVI *42 Domestic Zone 1 $ 2.75
Zone 1 & 2 Domestic $ 7.25
Message to Int'l/Mexico *43 Domestic Zone 2 $ 6.75
Zone 1 & 2 Domestic $ 10.75
Broadcast-Up to 5 *44 Domestic Domestic $ 8.75
Zone 1 & 2 Domestic $ 9.25
Broadcast-Up to 10 *45 Domestic Domestic $16.25
Zone 1 & 2 Domestic $31.25
Broadcast-Up to 20 *46 Domestic Domestic $28.75
Zone 1 & 2 Domestic $62.50
Message Status *47 Domestic N/A NO CHGE
Zone 1 &2 N/A NO CHGE
</TABLE>
KEY: Domestic = 50 US States
Zone 1 = Canada, PR, USVI
Zone 2 = All international locations + Mexico
*9 = Speed dialing:
No charge
(GP% on all special features = 20%)
2. Monthly Recurring Charges: Provider will also charge End Users the
following monthly recurring charges:
Provider [Initials illegible] Customer [Initials illegible]
21
<PAGE> 22
(a) Basic Monthly Fee: $1.95 (GP% = 0%); in the event that Customer is
able to charge a basic monthly fee in excess of $1,95, the excess
thereover shall accrue for the benefit of Customer.
(b) Toll Free Number: $5.00 per 800/888 number (GP% = 50%).
(C) Verified Account Codes: $10.00 per account (GP% = 50%).
3. Miscellaneous Charges: All other direct charges not otherwise listed
herein imposed by an underlying carrier, LEC or other third party as a
result of the activity under this Agreement, including, but not limited
to, fines and PIC dispute charges, shall be charged against commission due
to Customer. Customer shall not be responsible for access charges and
transport fees incurred by Provider.
THIS EXHIBIT MAY BE AMENDED FROM TIME TO TIME TO REFLECT RATE
CHANGES AND ADDITIONAL SERVICES.
Provider [Initials illegible] Customer [Initials illegible]
22
<PAGE> 23
LDDI/NMTI INTRASTATE RATES
EXHIBIT 1.2
<TABLE>
<CAPTION>
===================================================
1+ RESIDENTIAL
===================================================
---------------------------------------------------
NMTI CUSTOMER GP %
- ----------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------
ALA 0.0893 0.1190 25.00
- ----------------------------------------------------------------------
ARIZ 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
ARK 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
CA 0.0593 0.0790 25.00
- ----------------------------------------------------------------------
COL 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
CONN 0.0968 0.1290 25.00
- ----------------------------------------------------------------------
DEL 0.0968 0.1290 25.00
- ----------------------------------------------------------------------
FLA 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
GA 0.1043 0.1390 25.00
- ----------------------------------------------------------------------
HAWAII 0.1875 0.2500 25.00
- ----------------------------------------------------------------------
IDAHO 0.1643 0.2190 25.00
- ----------------------------------------------------------------------
IL 0.0743 0.0990 25.00
- ----------------------------------------------------------------------
IND 0.1043 0.1390 25.00
- ----------------------------------------------------------------------
IOWA 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
KAN 0.1568 0.2090 25.00
- ----------------------------------------------------------------------
KENT 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
LA 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
ME 0.2993 0.3990 25.00
- ----------------------------------------------------------------------
MD 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
MA 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
MICH 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
MINN 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
MISS 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
MO 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
MONT 0.1568 0.2090 25.00
- ----------------------------------------------------------------------
NEB 0.1493 0.1990 25.00
- ----------------------------------------------------------------------
NEV 0.0968 0.1290 25.00
- ----------------------------------------------------------------------
NH 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
NJ 0.0968 0.1290 25.00
- ----------------------------------------------------------------------
NM 0.1793 0.2390 25.00
- ----------------------------------------------------------------------
NY 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
NC 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
ND 0.1718 0.2290 25.00
- ----------------------------------------------------------------------
OH 0.0968 0.1290 25.00
- ----------------------------------------------------------------------
OK 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
ORE 0.1193 0.1590 25.00
- ----------------------------------------------------------------------
PA 0.1193 0.1590 25.00
- ----------------------------------------------------------------------
RI 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
SC 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
SD 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
TENN 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
TX 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
UTAH 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
VT 0.1568 0.2090 25.00
- ----------------------------------------------------------------------
VA 0.1193 0.1590 25.00
- ----------------------------------------------------------------------
WASH 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
WV 0.1568 0.2090 25.00
- ----------------------------------------------------------------------
WIS 0.1193 0.1590 25.00
- ----------------------------------------------------------------------
WY 0.1718 0.2290 25.00
- ----------------------------------------------------------------------
</TABLE>
<PAGE> 24
LDDI/NMTI INTRASTATE RATES
EXHIBIT 1.3
<TABLE>
<CAPTION>
===================================================
1+ RESIDENTIAL
===================================================
---------------------------------------------------
NMTI CUSTOMER GP %
- ----------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------
ALA 0.0893 0.1190 25.00
- ----------------------------------------------------------------------
ARIZ 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
ARK 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
CA 0.0668 0.0890 25.00
- ----------------------------------------------------------------------
COL 0.1493 0.1990 25.00
- ----------------------------------------------------------------------
CONN 0.0968 0.1290 25.00
- ----------------------------------------------------------------------
DEL 0.0968 0.1290 25.00
- ----------------------------------------------------------------------
FLA 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
GA 0.1043 0.1390 25.00
- ----------------------------------------------------------------------
HAWAII 0.1875 0.2500 25.00
- ----------------------------------------------------------------------
IDAHO 0.1643 0.2190 25.00
- ----------------------------------------------------------------------
IL 0.0818 0.1090 25.00
- ----------------------------------------------------------------------
IND 0.1043 0.1390 25.00
- ----------------------------------------------------------------------
IOWA 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
KAN 0.1568 0.2090 25.00
- ----------------------------------------------------------------------
KENT 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
LA 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
ME 0.3218 0.4290 25.00
- ----------------------------------------------------------------------
MD 0.1193 0.1590 25.00
- ----------------------------------------------------------------------
MA 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
MICH 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
MINN 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
MISS 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
MO 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
MONT 0.1568 0.2090 25.00
- ----------------------------------------------------------------------
NEB 0.1493 0.1990 25.00
- ----------------------------------------------------------------------
NEV 0.0968 0.1290 25.00
- ----------------------------------------------------------------------
NH 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
NJ 0.1043 0.1390 25.00
- ----------------------------------------------------------------------
NM 0.1793 0.2390 25.00
- ----------------------------------------------------------------------
NY 0.1193 0.1590 25.00
- ----------------------------------------------------------------------
NC 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
ND 0.1718 0.2290 25.00
- ----------------------------------------------------------------------
OH 0.0968 0.1290 25.00
- ----------------------------------------------------------------------
OK 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
ORE 0.1193 0.1590 25.00
- ----------------------------------------------------------------------
PA 0.1193 0.1590 25.00
- ----------------------------------------------------------------------
RI 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
SC 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
SD 0.1493 0.1990 25.00
- ----------------------------------------------------------------------
TENN 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
TX 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
UTAH 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
VT 0.1568 0.2090 25.00
- ----------------------------------------------------------------------
VA 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
WASH 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
WV 0.1568 0.2090 25.00
- ----------------------------------------------------------------------
WIS 0.1193 0.1590 25.00
- ----------------------------------------------------------------------
WY 0.1718 0.2290 25.00
======================================================================
</TABLE>
<PAGE> 25
LDDI/NMTI INTRASTATE RATES
EXHIBIT 1.4(a)
<TABLE>
<CAPTION>
===================================================
1+ COMMERCIAL
===================================================
---------------------------------------------------
NMTI CUSTOMER GP %
- ----------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------
ALA 0.0968 0.1290 25.00
- ----------------------------------------------------------------------
ARIZ 0.1493 0.1990 25.00
- ----------------------------------------------------------------------
ARK 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
CA 0.0713 0.0950 25.00
- ----------------------------------------------------------------------
COL 0.1643 0.2190 25.00
- ----------------------------------------------------------------------
CONN 0.1043 0.1390 25.00
- ----------------------------------------------------------------------
DEL 0.0968 0.1290 25.00
- ----------------------------------------------------------------------
FLA 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
GA 0.1043 0.1390 25.00
- ----------------------------------------------------------------------
HAWAII 0.1875 0.2500 25.00
- ----------------------------------------------------------------------
IDAHO 0.1793 0.2390 25.00
- ----------------------------------------------------------------------
IL 0.0893 0.1190 25.00
- ----------------------------------------------------------------------
IND 0.1043 0.1390 25.00
- ----------------------------------------------------------------------
IOWA 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
KAN 0.1793 0.2390 25.00
- ----------------------------------------------------------------------
KENT 0.1493 0.1990 25.00
- ----------------------------------------------------------------------
LA 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
ME 0.3368 0.4490 25.00
- ----------------------------------------------------------------------
MD 0.1193 0.1590 25.00
- ----------------------------------------------------------------------
MA 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
MICH 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
MINN 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
MISS 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
MO 0.1718 0.2290 25.00
- ----------------------------------------------------------------------
MONT 0.1568 0.2090 25.00
- ----------------------------------------------------------------------
NEB 0.1718 0.2290 25.00
- ----------------------------------------------------------------------
NEV 0.0968 0.1290 25.00
- ----------------------------------------------------------------------
NH 0.1493 0.1990 25.00
- ----------------------------------------------------------------------
NJ 0.1118 0.1490 25.00
- ----------------------------------------------------------------------
NM 0.1793 0.2390 25.00
- ----------------------------------------------------------------------
NY 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
NC 0.1493 0.1990 25.00
- ----------------------------------------------------------------------
ND 0.1793 0.2390 25.00
- ----------------------------------------------------------------------
OH 0.1043 0.1390 25.00
- ----------------------------------------------------------------------
OK 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
ORE 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
PA 0.1343 0.1790 25.00
- ----------------------------------------------------------------------
RI 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
SC 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
SD 0.1793 0.2390 25.00
- ----------------------------------------------------------------------
TENN 0.1493 0.1990 25.00
- ----------------------------------------------------------------------
TX 0.1493 0.1990 25.00
- ----------------------------------------------------------------------
UTAH 0.1268 0.1690 25.00
- ----------------------------------------------------------------------
VT 0.1643 0.2190 25.00
- ----------------------------------------------------------------------
VA 0.1493 0.1990 25.00
- ----------------------------------------------------------------------
WASH 0.1418 0.1890 25.00
- ----------------------------------------------------------------------
WV 0.1568 0.2090 25.00
- ----------------------------------------------------------------------
WIS 0.1193 0.1590 25.00
- ----------------------------------------------------------------------
WY 0.1718 0.2290 25.00
======================================================================
</TABLE>
<PAGE> 26
LDDI/NMTI INTRASTATE RATES
EXHIBIT 1.4(b)
<TABLE>
<CAPTION>
===================================================
1+ OUTBOUND
===================================================
---------------------------------------------------
NMTI CUSTOMER GP %
- ----------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------
ALA 0.0740 0.0870 15.00
- ----------------------------------------------------------------------
ARIZ 0.1097 0.1290 15.00
- ----------------------------------------------------------------------
ARK 0.0884 0.1040 15.00
- ----------------------------------------------------------------------
CA 0.0417 0.0490 15.00
- ----------------------------------------------------------------------
COL 0.1182 0.1390 15.00
- ----------------------------------------------------------------------
CONN 0.1097 0.1290 15.00
- ----------------------------------------------------------------------
DEL 0.0808 0.0950 15.00
- ----------------------------------------------------------------------
FLA 0.1012 0.1190 15.00
- ----------------------------------------------------------------------
GA 0.0714 0.0840 15.00
- ----------------------------------------------------------------------
HAWAII 0.1615 0.1900 15.00
- ----------------------------------------------------------------------
IDAHO 0.1148 0.1350 15.00
- ----------------------------------------------------------------------
IL 0.0587 0.0690 15.00
- ----------------------------------------------------------------------
IND 0.0842 0.0990 15.00
- ----------------------------------------------------------------------
IOWA 0.1097 0.1290 15.00
- ----------------------------------------------------------------------
KAN 0.1182 0.1390 15.00
- ----------------------------------------------------------------------
KENT 0.1063 0.1250 15.00
- ----------------------------------------------------------------------
LA 0.0842 0.0990 15.00
- ----------------------------------------------------------------------
ME 0.1913 0.2250 15.00
- ----------------------------------------------------------------------
MD 0.0757 0.0890 15.00
- ----------------------------------------------------------------------
MA 0.0799 0.0940 15.00
- ----------------------------------------------------------------------
MICH 0.0842 0.0990 15.00
- ----------------------------------------------------------------------
MINN 0.1182 0.1390 15.00
- ----------------------------------------------------------------------
MISS 0.0816 0.0960 15.00
- ----------------------------------------------------------------------
MO 0.1233 0.1450 15.00
- ----------------------------------------------------------------------
MONT 0.1012 0.1190 15.00
- ----------------------------------------------------------------------
NEB 0.1377 0.1620 15.00
- ----------------------------------------------------------------------
NEV 0.0757 0.0890 15.00
- ----------------------------------------------------------------------
NH 0.1182 0.1390 15.00
- ----------------------------------------------------------------------
NJ 0.0867 0.1020 15.00
- ----------------------------------------------------------------------
NM 0.1267 0.1490 15.00
- ----------------------------------------------------------------------
NY 0.0842 0.0990 15.00
- ----------------------------------------------------------------------
NC 0.1173 0.1380 15.00
- ----------------------------------------------------------------------
ND 0.1216 0.1430 15.00
- ----------------------------------------------------------------------
OH 0.0867 0.1020 15.00
- ----------------------------------------------------------------------
OK 0.0927 0.1090 15.00
- ----------------------------------------------------------------------
ORE 0.1114 0.1310 15.00
- ----------------------------------------------------------------------
PA 0.1037 0.1220 15.00
- ----------------------------------------------------------------------
RI 0.0757 0.0890 15.00
- ----------------------------------------------------------------------
SC 0.1012 0.1190 15.00
- ----------------------------------------------------------------------
SD 0.0918 0.1080 15.00
- ----------------------------------------------------------------------
TENN 0.1182 0.1390 15.00
- ----------------------------------------------------------------------
TX 0.1182 0.1390 15.00
- ----------------------------------------------------------------------
UTAH 0.1046 0.1230 15.00
- ----------------------------------------------------------------------
VT 0.1352 0.1590 15.00
- ----------------------------------------------------------------------
VA 0.1012 0.1190 15.00
- ----------------------------------------------------------------------
WASH 0.1241 0.1460 15.00
- ----------------------------------------------------------------------
WV 0.0927 0.1090 15.00
- ----------------------------------------------------------------------
WIS 0.0842 0.0990 15.00
- ----------------------------------------------------------------------
WY 0.1522 0.1790 15.00
======================================================================
</TABLE>
<PAGE> 27
LDDI/NMTI INTRASTATE RATES
EXHIBIT 1.5(a)
<TABLE>
<CAPTION>
===================================================
1+ INBOUND
===================================================
---------------------------------------------------
NMTI CUSTOMER GP %
- ----------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------
ALA 0.1095 0.1369 20.00
- ----------------------------------------------------------------------
ARIZ 0.1699 0.2124 20.00
- ----------------------------------------------------------------------
ARK 0.1465 0.1831 20.00
- ----------------------------------------------------------------------
CA 0.0781 0.0976 20.00
- ----------------------------------------------------------------------
COL 0.2150 0.2688 20.00
- ----------------------------------------------------------------------
CONN 0.1190 0.1488 20.00
- ----------------------------------------------------------------------
DEL 0.0780 0.0975 20.00
- ----------------------------------------------------------------------
FLA 0.1630 0.2038 20.00
- ----------------------------------------------------------------------
GA 0.1010 0.1263 20.00
- ----------------------------------------------------------------------
HAWAII 0.2094 0.2618 20.00
- ----------------------------------------------------------------------
IDAHO 0.2081 0.2601 20.00
- ----------------------------------------------------------------------
IL 0.1020 0.1275 20.00
- ----------------------------------------------------------------------
IND 0.1225 0.1531 20.00
- ----------------------------------------------------------------------
IOWA 0.1885 0.2356 20.00
- ----------------------------------------------------------------------
KAN 0.2275 0.2844 20.00
- ----------------------------------------------------------------------
KENT 0.1900 0.2375 20.00
- ----------------------------------------------------------------------
LA 0.1080 0.1350 20.00
- ----------------------------------------------------------------------
ME 0.5050 0.6313 20.00
- ----------------------------------------------------------------------
MD 0.1370 0.1713 20.00
- ----------------------------------------------------------------------
MA 0.1040 0.1300 20.00
- ----------------------------------------------------------------------
MICH 0.1165 0.1456 20.00
- ----------------------------------------------------------------------
MINN 0.1735 0.2169 20.00
- ----------------------------------------------------------------------
MISS 0.1220 0.1525 20.00
- ----------------------------------------------------------------------
MO 0.2425 0.3031 20.00
- ----------------------------------------------------------------------
MONT 0.1775 0.2219 20.00
- ----------------------------------------------------------------------
NEB 0.2585 0.3231 20.00
- ----------------------------------------------------------------------
NEV 0.0970 0.1213 20.00
- ----------------------------------------------------------------------
NH 0.1890 0.2363 20.00
- ----------------------------------------------------------------------
NJ 0.1244 0.1555 20.00
- ----------------------------------------------------------------------
NM 0.2130 0.2663 20.00
- ----------------------------------------------------------------------
NY 0.1688 0.2110 20.00
- ----------------------------------------------------------------------
NC 0.1945 0.2431 20.00
- ----------------------------------------------------------------------
ND 0.2255 0.2819 20.00
- ----------------------------------------------------------------------
OH 0.1190 0.1488 20.00
- ----------------------------------------------------------------------
OK 0.1625 0.2031 20.00
- ----------------------------------------------------------------------
ORE 0.1440 0.1800 20.00
- ----------------------------------------------------------------------
PA 0.1586 0.1983 20.00
- ----------------------------------------------------------------------
RI 0.1915 0.2394 20.00
- ----------------------------------------------------------------------
SC 0.1650 0.2063 20.00
- ----------------------------------------------------------------------
SD 0.2350 0.2938 20.00
- ----------------------------------------------------------------------
TENN 0.1845 0.2306 20.00
- ----------------------------------------------------------------------
TX 0.2019 0.2524 20.00
- ----------------------------------------------------------------------
UTAH 0.1420 0.1775 20.00
- ----------------------------------------------------------------------
VT 0.1985 0.2481 20.00
- ----------------------------------------------------------------------
VA 0.1900 0.2375 20.00
- ----------------------------------------------------------------------
WASH 0.1870 0.2338 20.00
- ----------------------------------------------------------------------
WV 0.1400 0.1750 20.00
- ----------------------------------------------------------------------
WIS 0.1145 0.1431 20.00
- ----------------------------------------------------------------------
WY 0.1740 0.2175 20.00
======================================================================
</TABLE>
<PAGE> 28
LDDI/NMTI INTRASTATE RATES
EXHIBIT 1.5(b)
<TABLE>
<CAPTION>
===================================================
1+ INBOUND
===================================================
---------------------------------------------------
NMTI CUSTOMER GP %
- ----------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------
ALA 0.0825 0.0970 15.00
- ----------------------------------------------------------------------
ARIZ 0.1182 0.1390 15.00
- ----------------------------------------------------------------------
ARK 0.0969 0.1140 15.00
- ----------------------------------------------------------------------
CA 0.0502 0.0590 15.00
- ----------------------------------------------------------------------
COL 0.1267 0.1490 15.00
- ----------------------------------------------------------------------
CONN 0.1182 0.1390 15.00
- ----------------------------------------------------------------------
DEL 0.0893 0.1050 15.00
- ----------------------------------------------------------------------
FLA 0.1097 0.1290 15.00
- ----------------------------------------------------------------------
GA 0.0714 0.0840 15.00
- ----------------------------------------------------------------------
HAWAII 0.1700 0.2000 15.00
- ----------------------------------------------------------------------
IDAHO 0.1233 0.1450 15.00
- ----------------------------------------------------------------------
IL 0.0672 0.0790 15.00
- ----------------------------------------------------------------------
IND 0.0927 0.1090 15.00
- ----------------------------------------------------------------------
IOWA 0.1182 0.1390 15.00
- ----------------------------------------------------------------------
KAN 0.1437 0.1690 15.00
- ----------------------------------------------------------------------
KENT 0.1148 0.1350 15.00
- ----------------------------------------------------------------------
LA 0.0927 0.1090 15.00
- ----------------------------------------------------------------------
ME 0.1998 0.2350 15.00
- ----------------------------------------------------------------------
MD 0.0842 0.0990 15.00
- ----------------------------------------------------------------------
MA 0.0884 0.1040 15.00
- ----------------------------------------------------------------------
MICH 0.0927 0.1090 15.00
- ----------------------------------------------------------------------
MINN 0.1267 0.1490 15.00
- ----------------------------------------------------------------------
MISS 0.0901 0.1060 15.00
- ----------------------------------------------------------------------
MO 0.1318 0.1550 15.00
- ----------------------------------------------------------------------
MONT 0.1097 0.1290 15.00
- ----------------------------------------------------------------------
NEB 0.1462 0.1720 15.00
- ----------------------------------------------------------------------
NEV 0.0842 0.0990 15.00
- ----------------------------------------------------------------------
NH 0.1267 0.1490 15.00
- ----------------------------------------------------------------------
NJ 0.0952 0.1120 15.00
- ----------------------------------------------------------------------
NM 0.1352 0.1590 15.00
- ----------------------------------------------------------------------
NY 0.0927 0.1090 15.00
- ----------------------------------------------------------------------
NC 0.1258 0.1480 15.00
- ----------------------------------------------------------------------
ND 0.1301 0.1530 15.00
- ----------------------------------------------------------------------
OH 0.0952 0.1120 15.00
- ----------------------------------------------------------------------
OK 0.1097 0.1290 15.00
- ----------------------------------------------------------------------
ORE 0.1199 0.1410 15.00
- ----------------------------------------------------------------------
PA 0.1122 0.1320 15.00
- ----------------------------------------------------------------------
RI 0.0842 0.0990 15.00
- ----------------------------------------------------------------------
SC 0.1097 0.1290 15.00
- ----------------------------------------------------------------------
SD 0.1003 0.1180 15.00
- ----------------------------------------------------------------------
TENN 0.1267 0.1490 15.00
- ----------------------------------------------------------------------
TX 0.1267 0.1490 15.00
- ----------------------------------------------------------------------
UTAH 0.1131 0.1330 15.00
- ----------------------------------------------------------------------
VT 0.1437 0.1690 15.00
- ----------------------------------------------------------------------
VA 0.1097 0.1290 15.00
- ----------------------------------------------------------------------
WASH 0.1326 0.1560 15.00
- ----------------------------------------------------------------------
WV 0.1012 0.1190 15.00
- ----------------------------------------------------------------------
WIS 0.0927 0.1090 15.00
- ----------------------------------------------------------------------
WY 0.1607 0.1890 15.00
======================================================================
</TABLE>
<PAGE> 29
LDDI/NMTI RATES
INTERNATIONAL TRAFFIC - SWITCHED: RESIDENTIAL EXHIBIT 1.6
<TABLE>
<CAPTION>
NMTI GP% CUSTOMER
<S> <C> <C> <C>
AFGHANISTAN 2.4400 20.00 3.05
ALBANIA 2.0080 20.00 2.51
ALGERIA 1.3600 20.00 1.70
AMERICAN SAMOA 1.7280 20.00 2.16
ANDORRA 0.6160 20.00 0.77
ANGOLA 2.2960 20.00 2.87
ANGUILLA 0.8560 20.00 1.07
ANTARCTICA - CASEY 2.8720 20.00 3.59
ANTARCTICA - SCOTT 2.8720 20.00 3.59
ANTIGUA 0.8240 20.00 1.03
ARGENTINA 0.7440 20.00 0.93
ARMENIA 1.6560 20.00 2.07
ARUBA 0.9280 20.00 1.16
ASCENSION ISLANDS 1.5920 20.00 1.99
AUSTRALIA 0.2480 20.00 0.31
AUSTRIA 0.7840 20.00 0.98
AZERBAIJAN 1.6560 20.00 2.07
BAHAMAS 0.5040 20.00 0.63
BAHRAIN 1.4320 20.00 1.79
BANGLADESH 2.0720 20.00 2.59
BARBADOS 0.9280 20.00 1.16
BELARUS 1.6560 20.00 2.07
BELGIUM 0.4160 20.00 0.52
BELIZE 1.3600 20.00 1.70
BENIN 1.4960 20.00 1.87
BERMUDA 0.6400 20.00 0.80
BHUTAN 3.1680 20.00 3.96
BOLIVIA 1.2080 20.00 1.51
BOSNIA & HERZEGOVINA 1.3600 20.00 1.70
BOTSWANA 1.4320 20.00 1.79
BRAZIL 0.7200 20.00 0.90
BRITISH VIRGIN ISLANDS 0.8560 20.00 1.07
BRUNEI 1.8640 20.00 2.33
BULGARIA 1.2240 20.00 1.53
BURKINA FASO 2.0800 20.00 2.60
BURMA/MYANMAR 2.6960 20.00 3.37
BURUNDI 2.7360 20.00 3.42
CAMBODIA 2.2240 20.00 2.78
CAMEROON 1.4320 20.00 1.79
CANADA 0.1440 20.00 0.18
CAPE VERDE IS. 1.7920 20.00 2.24
CAYMAN IS. 0.8400 20.00 1.05
CENTRAL AFRICAN REP. 3.2880 20.00 4.11
CHAD REPUBLIC 2.8000 20.00 3.50
CHILE 0.9280 20.00 1.16
CHINA 1.0560 20.00 1.32
CHRISTMAS ISLAND 2.8720 20.00 3.59
COCOS-KELLING ISLAND 1.7520 20.00 2.19
COLOMBIA 1.0000 20.00 1.25
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CONGO 1.7380 20.00 2.17
COOK ISLANDS 2.8720 20.00 3.59
COSTA RICA 0.8560 20.00 1.07
COTE D'IVOIRE 1.3760 20.00 1.72
CROATIA 1.2160 20.00 1.52
CUBA 1.1520 20.00 1.44
CYPRUS 1.2160 20.00 1.52
CZECH REPUBLIC 1.1440 20.00 1.43
DENMARK 0.4080 20.00 0.51
DIEGO GARCIA 2.6480 20.00 3.31
DJIBOUTI 2.1520 20.00 2.69
DOMINICA 1.0000 20.00 1.25
DOMINICAN REPUBLIC 0.8320 20.00 1.04
ECUADOR 0.9280 20.00 1.16
EGYPT 1.0800 20.00 1.35
EL SALVADOR 0.9280 20.00 1.16
EQUATORIAL GUINEA 3.5280 20.00 4.41
ERITREA 2.3360 20.00 2.92
ESTONIA 1.7200 20.00 2.15
ETHIOPIA 1.8160 20.00 2.27
FAEROE ISLANDS 1.3600 20.00 1.70
FALKLAND ISLANDS 2.8320 20.00 3.54
FIJI 2.1520 20.00 2.69
FINLAND 0.7120 20.00 0.89
FRANCE 0.2560 20.00 0.32
FRENCH ANTILLES 1.2000 20.00 1.50
FRENCH GUINEA 1.1440 20.00 1.43
FRENCH POLYNESIA 1.7520 20.00 2.19
GABON REPUBLIC 1.7200 20.00 2.15
GAMBIA 1.3600 20.00 1.70
GEORGIA, REPUBLIC OF 1.6560 20.00 2.07
GERMANY 0.2560 20.00 0.32
GHANA 1.0000 20.00 1.25
GIBRALTAR 1.4320 20.00 1.79
GILBERT ISLAND 1.8640 20.00 2.33
GREECE 0.7200 20.00 0.90
GREENLAND 1.1920 20.00 1.49
GRENADA 1.1440 20.00 1.43
GUADALOUPE 1.0160 20.00 1.27
GUAM 1.1440 20.00 1.43
GUATEMALA 0.8640 20.00 1.08
GUINEA 2.1600 20.00 2.70
GUINEA BISSAU 2.5920 20.00 3.24
GUYANA 1.7920 20.00 2.24
HAITI 0.9280 20.00 1.16
HONDURAS 0.9280 20.00 1.16
HONG KONG 0.3840 20.00 0.48
HUNGARY 1.0000 20.00 1.25
ICELAND 0.9280 20.00 1.16
INDIA 0.8160 20.00 1.02
INDONESIA 1.5760 20.00 1.97
INMARSAT ATLANTIC OCEAN 11.9040 20.00 14.88
INMARSAT INDIAN OCEAN 11.9040 20.00 14.88
INMARSAT PACIFIC OCEAN 11.9200 20.00 14.90
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INMARSAT WEST ATLANTIC 11.9040 20.00 14.88
IRAN 1.8640 20.00 2.33
IRAQ 1.6480 20.00 2.06
IRELAND 0.7920 20.00 0.99
ISRAEL 0.7760 20.00 0.97
ITALY 0.4000 20.00 0.50
IVORY COAST 1.5120 20.00 1.89
JAMAICA 0.8560 20.00 1.07
JAPAN 0.3520 20.00 0.44
JORDAN 1.4320 20.00 1.79
KAZAKHSTAN 1.6560 20.00 2.07
KENYA 1.4320 20.00 1.79
KIRIBATI 1.5120 20.00 1.89
KUWAIT 1.2880 20.00 1.61
KYRGYZSTAN 1.6560 20.00 2.07
LAOS 2.8960 20.00 3.62
LATVIA 1.9360 20.00 2.42
LEBANON 1.5760 20.00 1.97
LESOTHO 1.5760 20.00 1.97
LIBERIA 1.4320 20.00 1.79
LIBYA 2.0880 20.00 2.61
LIECHSTENSTEIN 0.7840 20.00 0.98
LITHUANIA 1.4800 20.00 1.85
LUXEMBOURG 0.8560 20.00 1.07
MACAO 1.5040 20.00 1.88
MACEDONIA, REPUBLIC OF 1.6240 20.00 2.03
MADAGASCAR 3.0320 20.00 3.79
MALAWI 1.5040 20.00 1.88
MALAYSIA 1.4320 20.00 1.79
MALDIVES 2.7680 20.00 3.46
MALI 2.1520 20.00 2.69
MALTA 1.5760 20.00 1.97
MARSHALL ISLANDS 1.6880 20.00 2.11
MAURETANIA 2.0080 20.00 2.51
MAURITIUS 2.1520 20.00 2.69
MAYOTTE ISLANDS 3.1440 20.00 3.93
MICRONESIA 2.1520 20.00 2.69
MOLDOVA 1.7920 20.00 2.24
MONACO 0.6160 20.00 0.77
MONGOLIA 2.7040 20.00 3.38
MONTSERRAT 1.0720 20.00 1.34
MOROCCO 1.2800 20.00 1.60
MOZAMBIQUE 2.0720 20.00 2.59
MYANMAR 3.2320 20.00 4.04
NAMIBIA 1.5040 20.00 1.88
NAURU ISLANDS 1.5040 20.00 1.88
NEPAL 2.0720 20.00 2.59
NETHERLANDS 0.3040 20.00 0.38
NETHERLANDS ANTILLES 0.5440 20.00 0.68
NEVIS 1.0000 20.00 1.25
NEW CALEDONIA 1.7200 20.00 2.15
NEW ZEALAND 1.0720 20.00 1.34
NICARAGUA 1.3600 20.00 1.70
NIGER REPUBLIC 1.8640 20.00 2.33
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NIGERIA 1.4320 20.00 1.79
NIUE 2.7360 20.00 3.42
NORFOLK ISLANDS 2.8720 20.00 3.59
NORTH KOREA 3.3760 20.00 4.22
NORWAY 0.8560 20.00 1.07
OMAN 2.0080 20.00 2.51
PAKISTAN 1.6480 20.00 2.06
PALAU 2.4640 20.00 3.08
PANAMA 0.8560 20.00 1.07
PAPUA NEW GUINEA 1.5040 20.00 1.88
PARAGUAY 1.5040 20.00 1.88
PERU 0.9280 20.00 1.16
PHILIPPINES 0.7040 20.00 0.88
POLAND 0.5600 20.00 0.70
PORTUGAL 0.9280 20.00 1.16
QATAR 1.3760 20.00 1.72
REUNION ISLANDS 2.1520 20.00 2.69
ROMANIA 1.8640 20.00 2.33
RUSSIA 0.8320 20.00 1.04
RWANDA 2.1040 20.00 2.63
SAIPAN 1.2880 20.00 1.61
SAN MARINO 1.0160 20.00 1.27
SAO TOME 2.1520 20.00 2.69
SAUDI ARABIA 1.2000 20.00 1.50
SENEGAL REPUBLIC 1.5760 20.00 1.97
SEYCHELLES ISLANDS 2.1520 20.00 2.69
SIERRA LEONE 2.1520 20.00 2.69
SINGAPORE 0.2560 20.00 0.32
SLOVAKIA 1.1440 20.00 1.43
SLOVENIA, REPUBLIC OF 1.4320 20.00 1.79
SOLOMON ISLANDS 1.6480 20.00 2.06
SOMALIA 4.9520 20.00 6.19
SOUTH AFRICA 0.6000 20.00 0.75
SOUTH KOREA 0.5600 20.00 0.70
SOUTH AFRICA 0.6000 20.00 0.75
SRI LANKA 1.8480 20.00 2.06
ST. HELENA 2.6560 20.00 3.32
ST. KITTS 0.9280 20.00 1.16
ST. LUCIA 0.9280 20.00 1.16
ST. PIETRE & MIQUELON 0.7840 20.00 0.98
ST. VINCENT & GRENADINES 0.8640 20.00 1.08
SUDAN 2.7280 20.00 3.41
SURINAM 1.7920 20.00 2.24
SWAZILAND 1.4320 20.00 1.79
SWEDEN 0.2080 20.00 0.26
SWITZERLAND 0.2880 20.00 0.36
SYRIA 1.9360 20.00 2.42
TADZHIKISTAN 1.6560 20.00 2.07
TAIWAN 0.4640 20.00 0.58
TANZANIA 1.6480 20.00 2.06
THAILAND 1.5040 20.00 1.88
TOGO 1.7920 20.00 2.24
TONGA ISLANDS 1.9360 20.00 2.42
TRINIDAD AND TOBAGO 0.8880 20.00 1.11
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TUNISIA 1.2400 20.00 1.55
TURKEY 1.2160 20.00 1.52
TURKMENISTAN 1.6580 20.00 2.07
TURKS & CAICOS ISLANDS 0.9280 20.00 1.16
TUVALU 3.5360 20.00 4.42
UGANDA 1.7200 20.00 2.15
UKRAINE 1.6560 20.00 2.07
UNITED ARAB EMIRATES 1.2160 20.00 1.52
UNITED KINGDOM 0.1840 20.00 0.23
URUGUAY 1.1440 20.00 1.43
UZBEKISTAN 1.6560 20.00 2.07
VANUATU 3.0160 20.00 3.77
VATICAN CITY 0.8160 20.00 1.02
VENEZUELA 0.6400 20.00 0.80
VIETNAM 1.8480 20.00 2.06
WALLIS & FUTUNA ISLANDS 2.6160 20.00 3.27
WESTERN SAMOA 1.8640 20.00 2.33
YEMEN ARAB REPUBLIC 1.2880 20.00 1.61
YUGOSLAVIA, REPUBLIC OF 1.5040 20.00 1.88
ZAIRE 1.3760 20.00 1.72
ZAMBIA 1.4320 20.00 1.79
ZIMBABWE 1.3600 20.00 1.70
ZANZIBAR 1.5760 20.00 1.97
Average GP% (unweighted) 20.00
<CAPTION>
NMTI GP% CUSTOMER
<S> <C> <C> <C>
TOP 25 COUNTRIES
AUSTRALIA 0.2480 20.00 0.31
BELGIUM 0.4160 20.00 0.52
CANADA 0.1440 20.00 0.18
CHINA 1.0560 20.00 1.32
DENMARK 0.4080 20.00 0.51
FRANCE 0.2560 20.00 0.32
GERMANY 0.2560 20.00 0.32
GREECE 0.7200 20.00 0.90
HONG KONG 0.3840 20.00 0.48
INDIA 0.8160 20.00 1.02
ISRAEL 0.7760 20.00 0.97
ITALY 0.4000 20.00 0.50
JAPAN 0.3520 20.00 0.44
NETHERLANDS 0.3040 20.00 0.38
PHILIPPINES 0.7040 20.00 0.88
POLAND 0.5600 20.00 0.70
RUSSIA 0.8320 20.00 1.04
SINGAPORE 0.2560 20.00 0.32
SOUTH AFRICA 0.6000 20.00 0.75
SOUTH KOREA 0.5600 20.00 0.70
SOUTH AFRICA 0.6000 20.00 0.75
SWEDEN 0.2080 20.00 0.26
SWITZERLAND 0.2880 20.00 0.36
TAIWAN 0.4640 20.00 0.58
UNITED KINGDOM 0.1840 20.00 0.23
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average GP% (unweighted) 20.00
<CAPTION>
NMTI GP% CUSTOMER
<S> <C> <C> <C>
Mexico Switched to Switched
1 0.2560 20.00 0.32
2 0.2960 20.00 0.37
3 0.4160 20.00 0.52
4 0.5120 20.00 0.64
5 0.5840 20.00 0.73
6 0.6480 20.00 0.81
7 0.6880 20.00 0.86
8 0.6960 20.00 0.90
Average GP% (unweighted) 20.00
</TABLE>
Those ranges reflect the distance from the Mexican border to the destination in
Mexico.
<PAGE> 35
LDDI/NMTI RATES
INTERNATIONAL TRAFFIC - SWITCHED RESIDENTIAL EXHIBIT 1.7
<TABLE>
<CAPTION>
NMTI GP% CUSTOMER
<S> <C> <C> <C>
AFGHANISTAN 2.2875 25.00 3.05
ALBANIA 2.4750 25.00 3.30
ALGERIA 1.4250 25.00 1.90
AMERICAN SAMOA 1.6200 25.00 2.16
ANDORRA 0.7125 25.00 0.95
ANGOLA 2.1525 25.00 2.87
ANGUILLA 0.8025 25.00 1.07
ANTARCTICA - CASEY 3.1875 25.00 4.25
ANTARCTICA - SCOTT 2.6925 25.00 3.59
ANTIGUA 0.7725 25.00 1.03
ARGENTINA 0.7875 25.00 1.05
ARMENIA 1.8750 25.00 2.50
ARUBA 0.8700 25.00 1.16
ASCENSION ISLANDS 1.8000 25.00 2.40
AUSTRALIA 0.2625 25.00 0.35
AUSTRIA 0.7350 25.00 0.98
AZERBAIJAN 1.8750 25.00 2.50
BAHAMAS 0.4725 25.00 0.63
BAHRAIN 1.3425 25.00 1.79
BANGLADESH 1.9425 25.00 2.59
BARBADOS 0.8700 25.00 1.16
BELARUS 1.8750 25.00 2.50
BELGIUM 0.3900 25.00 0.52
BELIZE 1.2750 25.00 1.70
BENIN 1.4025 25.00 1.87
BERMUDA 0.6000 25.00 0.80
BHUTAN 2.9700 25.00 3.96
BOLIVIA 1.1325 25.00 1.51
BOSNIA & HERZEGOVINA 1.2750 25.00 1.70
BOTSWANA 1.4625 25.00 1.95
BRAZIL 0.6750 25.00 0.90
BRITISH VIRGIN ISLANDS 0.8025 25.00 1.07
BRUNEI 1.7475 25.00 2.33
BULGARIA 1.3125 25.00 1.75
BURKINA FASO 1.9500 25.00 2.60
BURMA/MYANMAR 2.5275 25.00 3.37
BURUNDI 2.5650 25.00 3.42
CAMBODIA 2.0850 25.00 2.78
CAMEROON 1.3425 25.00 1.79
CANADA 0.1875 25.00 0.25
CAPE VERDE IS. 1.6800 25.00 2.24
CAYMAN IS. 0.7875 25.00 1.05
CENTRAL AFRICAN REP. 3.1500 25.00 4.20
CHAD REPUBLIC 3.2625 25.00 4.35
CHILE 0.8700 25.00 1.16
CHINA 1.0875 25.00 1.45
CHRISTMAS ISLAND 2.6925 25.00 3.59
COCOS-KELLING ISLAND 1.6425 25.00 2.19
COLOMBIA 0.9375 25.00 1.25
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CONGO 2.1375 25.00 2.85
COOK ISLANDS 3.3000 25.00 4.40
COSTA RICA 0.8025 25.00 1.07
COTE D'IVOIRE 1.9875 25.00 2.65
CROATIA 1.1400 25.00 1.52
CUBA 2.2125 25.00 2.95
CYPRUS 1.1400 25.00 1.52
CZECH REPUBLIC 1.0725 25.00 1.43
DENMARK 0.3825 25.00 0.51
DIEGO GARCIA 2.4825 25.00 3.31
DJIBOUTI 2.0625 25.00 2.75
DOMINICA 0.9375 25.00 1.25
DOMINICAN REPUBLIC 0.7800 25.00 1.04
ECUADOR 0.8700 25.00 1.16
EGYPT 1.0125 25.00 1.35
EL SALVADOR 0.8700 25.00 1.16
EQUATORIAL GUINEA 3.3075 25.00 4.41
ERITREA 2.1900 25.00 2.92
ESTONIA 1.8750 25.00 2.50
ETHIOPIA 1.7025 25.00 2.27
FAEROE ISLANDS 1.2750 25.00 1.70
FALKLAND ISLANDS 2.6550 25.00 3.54
FIJI 2.0175 25.00 2.69
FINLAND 0.6675 25.00 0.89
FRANCE 0.2400 25.00 0.32
FRENCH ANTILLES 1.1250 25.00 1.50
FRENCH GUINEA 1.3875 25.00 1.85
FRENCH POLYNESIA 1.9125 25.00 2.55
GABON REPUBLIC 1.6125 25.00 2.15
GAMBIA 1.2750 25.00 1.70
GEORGIA, REPUBLIC OF 1.8750 25.00 2.50
GERMANY 0.2400 25.00 0.32
GHANA 1.0125 25.00 1.35
GIBRALTAR 1.3425 25.00 1.79
GILBERT ISLAND 1.7475 25.00 2.33
GREECE 0.6750 25.00 0.90
GREENLAND 1.3125 25.00 1.75
GRENADA 1.0725 25.00 1.43
GUADALOUPE 0.9525 25.00 1.27
GUAM 1.0725 25.00 1.43
GUATEMALA 0.8100 25.00 1.08
GUINEA 2.0250 25.00 2.70
GUINEA BISSAU 2.8875 25.00 3.85
GUYANA 1.6800 25.00 2.24
HAITI 0.8700 25.00 1.16
HONDURAS 0.8700 25.00 1.16
HONG KONG 0.5550 25.00 0.74
HUNGARY 0.9375 25.00 1.25
ICELAND 0.8700 25.00 1.16
INDIA 1.0125 25.00 1.35
INDONESIA 1.4775 25.00 1.97
INMARSAT ATLANTIC OCEAN 11.1600 25.00 14.88
INMARSAT INDIAN OCEAN 11.1600 25.00 14.88
INMARSAT PACIFIC OCEAN 11.1750 25.00 14.90
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INMARSAT WEST ATLANTIC 11.1600 25.00 14.88
IRAN 1.7475 25.00 2.33
IRAQ 1.5450 25.00 2.06
IRELAND 0.7425 25.00 0.99
ISRAEL 0.7275 25.00 0.97
ITALY 0.3750 25.00 0.50
IVORY COAST 1.4175 25.00 1.89
JAMAICA 0.8025 25.00 1.07
JAPAN 0.4125 25.00 0.55
JORDAN 1.3425 25.00 1.79
KAZAKHSTAN 1.8750 25.00 2.50
KENYA 1.3425 25.00 1.79
KIRIBATI 3.1500 25.00 4.20
KUWAIT 1.2075 25.00 1.61
KYRGYZSTAN 1.8750 25.00 2.50
LAOS 3.7125 25.00 4.95
LATVIA 1.8150 25.00 2.42
LEBANON 1.4775 25.00 1.97
LESOTHO 1.4775 25.00 1.97
LIBERIA 1.4175 25.00 1.89
LIBYA 1.9575 25.00 2.61
LIECHSTENSTEIN 0.7350 25.00 0.98
LITHUANIA 1.8750 25.00 2.50
LUXEMBOURG 0.8025 25.00 1.07
MACAO 1.7625 25.00 2.35
MACEDONIA, REPUBLIC OF 1.5225 25.00 2.03
MADAGASCAR 3.4875 25.00 4.65
MALAWI 1.4100 25.00 1.88
MALAYSIA 1.3425 25.00 1.79
MALDIVES 2.8125 25.00 3.75
MALI 2.0175 25.00 2.69
MALTA 1.4775 25.00 1.97
MARSHALL ISLANDS 1.8000 25.00 2.40
MAURETANIA 2.3625 25.00 3.15
MAURITIUS 2.2350 25.00 2.98
MAYOTTE ISLANDS 2.9475 25.00 3.93
MICRONESIA 2.0175 25.00 2.69
MOLDOVA 1.8750 25.00 2.50
MONACO 0.6375 25.00 0.85
MONGOLIA 3.5625 25.00 4.75
MONTSERRAT 1.0050 25.00 1.34
MOROCCO 1.2000 25.00 1.60
MOZAMBIQUE 1.9425 25.00 2.59
MYANMAR 3.0300 25.00 4.04
NAMIBIA 1.4850 25.00 1.98
NAURU ISLANDS 3.6375 25.00 4.85
NEPAL 2.0625 25.00 2.75
NETHERLANDS 0.2850 25.00 0.38
NETHERLANDS ANTILLES 0.5100 25.00 0.68
NEVIS 0.9375 25.00 1.25
NEW CALEDONIA 1.6125 25.00 2.15
NEW ZEALAND 1.0050 25.00 1.34
NICARAGUA 1.2750 25.00 1.70
NIGER REPUBLIC 1.9875 25.00 2.65
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NIGERIA 1.3425 25.00 1.79
NIUE 3.2700 25.00 4.38
NORFOLK ISLANDS 2.9400 25.00 3.92
NORTH KOREA 3.6375 25.00 4.85
NORWAY 0.8025 25.00 1.07
OMAN 1.8825 25.00 2.51
PAKISTAN 1.5450 25.00 2.06
PALAU 2.3100 25.00 3.08
PANAMA 0.8025 25.00 1.07
PAPUA NEW GUINEA 1.5975 25.00 2.13
PARAGUAY 1.4100 25.00 1.88
PERU 0.8700 25.00 1.16
PHILIPPINES 0.7350 25.00 0.98
POLAND 0.5250 25.00 0.70
PORTUGAL 0.8700 25.00 1.16
QATAR 1.2900 25.00 1.72
REUNION ISLANDS 2.0175 25.00 2.69
ROMANIA 1.7475 25.00 2.33
RUSSIA 1.0875 25.00 1.45
RWANDA 2.0625 25.00 2.75
SAIPAN 1.9050 25.00 2.54
SAN MARINO 0.9525 25.00 1.27
SAO TOME 2.0175 25.00 2.69
SAUDI ARABIA 1.1250 25.00 1.50
SENEGAL REPUBLIC 1.6725 25.00 2.23
SEYCHELLES ISLANDS 2.4450 25.00 3.26
SIERRA LEONE 2.0175 25.00 2.69
SINGAPORE 0.4950 25.00 0.66
SLOVAKIA 1.0725 25.00 1.43
SLOVENIA, REPUBLIC OF 1.4625 25.00 1.95
SOLOMON ISLANDS 2.5200 25.00 3.36
SOMALIA 4.6425 25.00 6.19
SOUTH AFRICA 0.6000 25.00 0.80
SOUTH KOREA 0.5250 25.00 0.70
SRI LANKA 1.5450 25.00 2.06
ST. HELENA 2.4900 25.00 3.32
ST. KITTS 0.8700 25.00 1.16
ST. LUCIA 0.8700 25.00 1.16
ST. PIETRE & MIQUELON 0.8175 25.00 1.09
ST. VINCENT & GRENADINES 0.8100 25.00 1.08
SUDAN 2.7600 25.00 3.68
SURINAM 1.6800 25.00 2.24
SWAZILAND 1.4175 25.00 1.89
SWEDEN 0.2175 25.00 0.29
SWITZERLAND 0.2700 25.00 0.36
SYRIA 1.8150 25.00 2.42
TADZHIKISTAN 1.8750 25.00 2.50
TAIWAN 0.5925 25.00 0.79
TANZANIA 1.5450 25.00 2.06
THAILAND 1.4100 25.00 1.88
TOGO 1.6800 25.00 2.24
TONGA ISLANDS 2.1150 25.00 2.82
TRINIDAD AND TOBAGO 0.8325 25.00 1.11
TUNISIA 1.1625 25.00 1.55
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TURKEY 1.1400 25.00 1.52
TURKMENISTAN 1.8750 25.00 2.50
TURKS & CAICOS ISLANDS 0.8700 25.00 1.16
TUVALU 3.8625 25.00 5.15
UGANDA 1.6125 25.00 2.15
UKRAINE 1.5525 25.00 2.07
UNITED ARAB EMIRATES 1.1925 25.00 1.59
UNITED KINGDOM 0.1725 25.00 0.23
URUGUAY 1.0725 25.00 1.43
UZBEKISTAN 1.8750 25.00 2.50
VANUATU 2.9100 25.00 3.88
VATICAN CITY 0.9375 25.00 1.25
VENEZUELA 0.6000 25.00 0.80
VIETNAM 1.5450 25.00 2.06
WALLIS & FUTUNA ISLANDS 2.4525 25.00 3.27
WESTERN SAMOA 1.7475 25.00 2.33
YEMEN ARAB REPUBLIC 1.2075 25.00 1.61
YUGOSLAVIA, REPUBLIC OF 1.4100 25.00 1.88
ZAIRE 1.2900 25.00 1.72
ZAMBIA 1.3425 25.00 1.79
ZIMBABWE 1.2750 25.00 1.70
ZANZIBAR 1.4775 25.00 1.97
Average GP% (unweighted) 25.00
<CAPTION>
NMTI GP% CUSTOMER
<S> <C> <C> <C>
TOP 25 COUNTRIES
AUSTRALIA 0.2625 25.00 0.35
BELGIUM 0.3900 25.00 0.52
CANADA 0.1875 25.00 0.25
CHINA 1.0875 25.00 1.45
DENMARK 0.3825 25.00 0.51
FRANCE 0.2400 25.00 0.32
GERMANY 0.2400 25.00 0.32
GREECE 0.6750 25.00 0.90
HONG KONG 0.5550 25.00 0.74
INDIA 1.0125 25.00 1.35
ISRAEL 0.7275 25.00 0.97
ITALY 0.3750 25.00 0.50
JAPAN 0.4125 25.00 0.55
NETHERLANDS 0.2850 25.00 0.38
PHILIPPINES 0.7350 25.00 0.98
POLAND 0.5250 25.00 0.70
RUSSIA 1.0875 25.00 1.45
SINGAPORE 0.4950 25.00 0.66
SOUTH AFRICA 0.6000 25.00 0.80
SOUTH KOREA 0.5250 25.00 0.70
SWEDEN 0.2175 25.00 0.29
SWITZERLAND 0.2700 25.00 0.36
TAIWAN 0.5925 25.00 0.79
UNITED KINGDOM 0.1725 25.00 0.23
Average GP% (unweighted) 25.00
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
NMTI GP% CUSTOMER
Mexico Switched to Switched
<S> <C> <C> <C>
1 0.2625 25.00 0.35
2 0.3075 25.00 0.41
3 0.3900 25.00 0.52
4 0.4875 25.00 0.65
5 0.5550 25.00 0.74
6 0.7125 25.00 0.95
7 0.8625 25.00 1.15
8 0.9300 25.00 1.24
Average GP% (unweighted) 25.00
</TABLE>
Those ranges reflect the distance from the Mexican border to the destination in
Mexico.
<PAGE> 41
LDDI/NMTI RATES
INTERNATIONAL TRAFFIC - SWITCHED: COMMERCIAL EXHIBIT 1.8(a)
<TABLE>
<CAPTION>
NMTI GP% CUSTOMER
<S> <C> <C> <C>
AFGHANISTAN 2.5163 25.00 3.36
ALBANIA 2.7225 25.00 3.63
ALGERIA 1.5675 25.00 2.09
AMERICAN SAMOA 1.7820 25.00 2.38
ANDORRA 0.7838 25.00 1.05
ANGOLA 2.3678 25.00 3.16
ANGUILLA 0.8828 25.00 1.18
ANTARCTICA - CASEY 3.5063 25.00 4.68
ANTARCTICA - SCOTT 2.9618 25.00 3.95
ANTIGUA 0.8498 25.00 1.13
ARGENTINA 0.8663 25.00 1.16
ARMENIA 2.0625 25.00 2.75
ARUBA 0.9570 25.00 1.28
ASCENSION ISLANDS 1.9800 25.00 2.64
AUSTRALIA 0.2888 25.00 0.39
AUSTRIA 0.8085 25.00 1.08
AZERBAIJAN 2.0625 25.00 2.75
BAHAMAS 0.5198 25.00 0.69
BAHRAIN 1.4768 25.00 1.97
BANGLADESH 2.1368 25.00 2.85
BARBADOS 0.9570 25.00 1.28
BELARUS 2.0625 25.00 2.75
BELGIUM 0.4290 25.00 0.57
BELIZE 1.4025 25.00 1.87
BENIN 1.5428 25.00 2.06
BERMUDA 0.6600 25.00 0.88
BHUTAN 3.2670 25.00 4.36
BOLIVIA 1.2458 25.00 1.66
BOSNIA & HERZEGOVINA 1.4025 25.00 1.87
BOTSWANA 1.6088 25.00 2.15
BRAZIL 0.7425 25.00 0.99
BRITISH VIRGIN ISLANDS 0.8828 25.00 1.18
BRUNEI 1.9223 25.00 2.56
BULGARIA 1.4438 25.00 1.93
BURKINA FASO 2.1450 25.00 2.86
BURMA/MYANMAR 2.7803 25.00 3.71
BURUNDI 2.8215 25.00 3.76
CAMBODIA 2.2935 25.00 3.06
CAMEROON 1.4688 25.00 1.97
CANADA 0.2063 25.00 0.28
CAPE VERDE IS. 1.8480 25.00 2.46
CAYMAN IS. 0.8663 25.00 1.16
CENTRAL AFRICAN REP. 3.4650 25.00 4.62
CHAD REPUBLIC 3.5888 25.00 4.79
CHILE 0.9570 25.00 1.28
CHINA 1.1963 25.00 1.60
CHRISTMAS ISLAND 2.9618 25.00 3.95
COCOS-KELLING ISLAND 1.8068 25.00 2.41
COLOMBIA 1.0313 25.00 1.38
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CONGO 2.3513 25.00 3.14
COOK ISLANDS 3.6300 25.00 4.84
COSTA RICA 0.8828 25.00 1.18
COTE D'IVOIRE 2.1863 25.00 2.92
CROATIA 1.2540 25.00 1.67
CUBA 2.4338 25.00 3.25
CYPRUS 1.2540 25.00 1.67
CZECH REPUBLIC 1.1798 25.00 1.57
DENMARK 0.4208 25.00 0.56
DIEGO GARCIA 2.7308 25.00 3.64
DJIBOUTI 2.2688 25.00 3.03
DOMINICA 1.0313 25.00 1.38
DOMINICAN REPUBLIC 0.8580 25.00 1.14
ECUADOR 0.9570 25.00 1.28
EGYPT 1.1138 25.00 1.49
EL SALVADOR 0.9570 25.00 1.28
EQUATORIAL GUINEA 3.6383 25.00 4.85
ERITREA 2.4090 25.00 3.21
ESTONIA 2.0625 25.00 2.75
ETHIOPIA 1.8728 25.00 2.50
FAEROE ISLANDS 1.4025 25.00 1.87
FALKLAND ISLANDS 2.9205 25.00 3.89
FIJI 2.2193 25.00 2.96
FINLAND 0.7343 25.00 0.98
FRANCE 0.2840 25.00 0.35
FRENCH ANTILLES 1.2375 25.00 1.65
FRENCH GUINEA 1.5263 25.00 2.04
FRENCH POLYNESIA 2.1038 25.00 2.81
GABON REPUBLIC 1.7738 25.00 2.37
GAMBIA 1.4025 25.00 1.87
GEORGIA, REPUBLIC OF 2.0625 25.00 2.75
GERMANY 0.2640 25.00 0.35
GHANA 1.1138 25.00 1.49
GIBRALTAR 1.4768 25.00 1.97
GILBERT ISLAND 1.9223 25.00 2.58
GREECE 0.7425 25.00 0.99
GREENLAND 1.4438 25.00 1.93
GRENADA 1.1798 25.00 1.57
GUADALOUPE 1.0478 25.00 1.40
GUAM 1.1798 25.00 1.57
GUATEMALA 0.8910 25.00 1.19
GUINEA 2.2275 25.00 2.97
GUINEA BISSAU 3.1763 25.00 4.24
GUYANA 1.8480 25.00 2.46
HAITI 0.9570 25.00 1.28
HONDURAS 0.9570 25.00 1.28
HONG KONG 0.6105 25.00 0.81
HUNGARY 1.0313 25.00 1.38
ICELAND 0.9570 25.00 1.28
INDIA 1.1138 25.00 1.49
INDONESIA 1.6253 25.00 2.17
INMARSAT ATLANTIC OCEAN 12.2760 25.00 16.37
INMARSAT INDIAN OCEAN 12.2760 25.00 16.37
INMARSAT PACIFIC OCEAN 12.2925 25.00 16.39
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INMARSAT WEST ATLANTIC 12.2760 25.00 16.37
IRAN 1.9223 25.00 2.56
IRAQ 1.6995 25.00 2.27
IRELAND 0.8168 25.00 1.09
ISRAEL 0.8003 25.00 1.07
ITALY 0.4125 25.00 0.55
IVORY COAST 1.5593 25.00 2.08
JAMAICA 0.8828 25.00 1.18
JAPAN 0.4538 25.00 0.61
JORDAN 1.4768 25.00 1.97
KAZAKHSTAN 2.0625 25.00 2.75
KENYA 1.4768 25.00 1.97
KIRIBATI 3.4650 25.00 4.62
KUWAIT 1.3283 25.00 1.77
KYRGYZSTAN 2.0625 25.00 2.75
LAOS 4.0838 25.00 5.45
LATVIA 1.9965 25.00 2.66
LEBANON 1.6253 25.00 2.17
LESOTHO 1.6253 25.00 2.17
LIBERIA 1.5593 25.00 2.08
LIBYA 2.1533 25.00 2.87
LIECHSTENSTEIN 0.8085 25.00 1.08
LITHUANIA 2.0625 25.00 2.75
LUXEMBOURG 0.8828 25.00 1.18
MACAO 1.9388 25.00 2.59
MACEDONIA, REPUBLIC OF 1.6748 25.00 2.23
MADAGASCAR 3.8363 25.00 5.12
MALAWI 1.5510 25.00 2.07
MALAYSIA 1.4768 25.00 1.97
MALDIVES 3.0938 25.00 4.13
MALI 2.2193 25.00 2.96
MALTA 1.6253 25.00 2.17
MARSHALL ISLANDS 1.9800 25.00 2.64
MAURETANIA 2.5988 25.00 3.47
MAURITIUS 2.4585 25.00 3.28
MAYOTTE ISLANDS 3.2423 25.00 4.32
MICRONESIA 2.2193 25.00 2.96
MOLDOVA 2.0625 25.00 2.75
MONACO 0.7013 25.00 0.94
MONGOLIA 3.9188 25.00 5.23
MONTSERRAT 1.1055 25.00 1.47
MOROCCO 1.3200 25.00 1.76
MOZAMBIQUE 2.1368 25.00 2.85
MYANMAR 3.3330 25.00 4.44
NAMIBIA 1.6335 25.00 2.18
NAURU ISLANDS 4.0013 25.00 5.34
NEPAL 2.2688 25.00 3.03
NETHERLANDS 0.3135 25.00 0.42
NETHERLANDS ANTILLES 0.5610 25.00 0.75
NEVIS 1.0313 25.00 1.38
NEW CALEDONIA 1.7738 25.00 2.37
NEW ZEALAND 1.1055 25.00 1.47
NICARAGUA 1.4025 25.00 1.87
NIGER REPUBLIC 2.1863 25.00 2.92
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NIGERIA 1.4768 25.00 1.97
NIUE 3.5970 25.00 4.80
NORFOLK ISLANDS 3.2340 25.00 4.31
NORTH KOREA 4.0013 25.00 5.34
NORWAY 0.8828 25.00 1.18
OMAN 2.0708 25.00 2.76
PAKISTAN 1.6995 25.00 2.27
PALAU 2.5410 25.00 3.39
PANAMA 0.8828 25.00 1.18
PAPUA NEW GUINEA 1.7573 25.00 2.34
PARAGUAY 1.5510 25.00 2.07
PERU 0.9570 25.00 1.28
PHILIPPINES 0.8085 25.00 1.08
POLAND 0.5775 25.00 0.77
PORTUGAL 0.9570 25.00 1.28
QATAR 1.4190 25.00 1.89
REUNION ISLANDS 2.2193 25.00 2.96
ROMANIA 1.9223 25.00 2.56
RUSSIA 1.1963 25.00 1.60
RWANDA 2.2688 25.00 3.03
SAIPAN 2.0955 25.00 2.79
SAN MARINO 1.0478 25.00 1.40
SAO TOME 2.2193 25.00 2.96
SAUDI ARABIA 1.2375 25.00 1.65
SENEGAL REPUBLIC 1.8398 25.00 2.45
SEYCHELLES ISLANDS 2.6895 25.00 3.59
SIERRA LEONE 2.2193 25.00 2.96
SINGAPORE 0.5445 25.00 0.73
SLOVAKIA 1.1798 25.00 1.57
SLOVENIA, REPUBLIC OF 1.6088 25.00 2.15
SOLOMON ISLANDS 2.7720 25.00 3.70
SOMALIA 5.1068 25.00 6.81
SOUTH AFRICA 0.6600 25.00 0.88
SOUTH KOREA 0.5775 25.00 0.77
SRI LANKA 1.6995 25.00 2.27
ST. HELENA 2.7390 25.00 3.65
ST. KITTS 0.9570 25.00 1.28
ST. LUCIA 0.9570 25.00 1.28
ST. PIETRE & MIQUELON 0.8993 25.00 1.20
ST. VINCENT & GRENADINES 0.8910 25.00 1.19
SUDAN 3.0360 25.00 4.05
SURINAM 1.8480 25.00 2.46
SWAZILAND 1.5593 25.00 2.08
SWEDEN 0.2393 25.00 0.32
SWITZERLAND 0.2970 25.00 0.40
SYRIA 1.9965 25.00 2.66
TADZHIKISTAN 2.0625 25.00 2.75
TAIWAN 0.6518 25.00 0.87
TANZANIA 1.6995 25.00 2.27
THAILAND 1.5510 25.00 2.07
TOGO 1.8480 25.00 2.46
TONGA ISLANDS 2.3265 25.00 3.10
TRINIDAD AND TOBAGO 0.9158 25.00 1.22
TUNISIA 1.2788 25.00 1.71
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TURKEY 1.2540 25.00 1.67
TURKMENISTAN 2.0625 25.00 2.75
TURKS & CAICOS ISLANDS 0.9570 25.00 1.28
TUVALU 4.2488 25.00 5.67
UGANDA 1.7738 25.00 2.37
UKRAINE 1.7078 25.00 2.28
UNITED ARAB EMIRATES 1.3118 25.00 1.75
UNITED KINGDOM 0.1898 25.00 0.25
URUGUAY 1.1798 25.00 1.57
UZBEKISTAN 2.0625 25.00 2.75
VANUATU 3.2010 25.00 4.27
VATICAN CITY 1.0313 25.00 1.38
VENEZUELA 0.6600 25.00 0.88
VIETNAM 1.6995 25.00 2.27
WALLIS & FUTUNA ISLANDS 2.6978 25.00 3.60
WESTERN SAMOA 1.9223 25.00 2.56
YEMEN ARAB REPUBLIC 1.3283 25.00 1.77
YUGOSLAVIA, REPUBLIC OF 1.5510 25.00 2.07
ZAIRE 1.4190 25.00 1.89
ZAMBIA 1.4768 25.00 1.97
ZIMBABWE 1.4025 25.00 1.87
ZANZIBAR 1.6253 25.00 2.17
Average GP% (unweighted) 25.00
<CAPTION>
NMTI GP% CUSTOMER
<S> <C> <C> <C>
TOP 25 COUNTRIES
AUSTRALIA 0.2888 25.00 0.39
BELGIUM 0.4290 25.00 0.57
CANADA 0.2063 25.00 0.28
CHINA 1.1963 25.00 1.60
DENMARK 0.4208 25.00 0.56
FRANCE 0.2640 25.00 0.35
GERMANY 0.2640 25.00 0.35
GREECE 0.7425 25.00 0.99
HONG KONG 0.6105 25.00 0.81
INDIA 1.1138 25.00 1.49
ISRAEL 0.8003 25.00 1.07
ITALY 0.4125 25.00 0.55
JAPAN 0.4538 25.00 0.61
NETHERLANDS 0.3135 25.00 0.42
PHILIPPINES 0.8085 25.00 1.08
POLAND 0.5775 25.00 0.77
RUSSIA 1.1963 25.00 1.60
SINGAPORE 0.5445 25.00 0.73
SOUTH AFRICA 0.6600 25.00 0.88
SOUTH KOREA 0.5775 25.00 0.77
SWEDEN 0.2393 25.00 0.32
SWITZERLAND 0.2970 25.00 0.40
TAIWAN 0.6518 25.00 0.87
UNITED KINGDOM 0.1898 25.00 0.25
Average GP% (unweighted) 25.00
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
NMTI GP% CUSTOMER
<S> <C> <C> <C> <C>
Mexico Switched to Switched
1 0.2888 25.00 0.39
2 0.3383 25.00 0.45
3 0.4290 25.00 0.57
4 0.5363 25.00 0.72
5 0.6105 25.00 0.81
6 0.7838 25.00 1.05
7 0.9488 25.00 1.27
8 1.0230 25.00 1.36
Average GP% (unweighted) 25.00
</TABLE>
Those ranges reflect the distance from the Mexican border to the destination in
Mexico.
<PAGE> 47
EXHIBIT 1.8(b)
LDDI/NMTI RATES
INTERNATIONAL TRAFFIC - DEDICATED
<TABLE>
<CAPTION>
NMTI GP% CUSTOMER
<S> <C> <C> <C>
AFGHANISTAN 2.4400 20.00 3.05
ALBANIA 2.6400 20.00 3.30
ALGERIA 1.5200 20.00 1.90
AMERICAN SAMOA 1.7280 20.00 2.16
ANDORRA 0.7600 20.00 0.95
ANGOLA 2.1200 20.00 2.65
ANGUILLA 0.8560 20.00 1.07
ANTARCTICA - CASEY 3.4000 20.00 4.25
ANTARCTICA - SCOTT 2.8720 20.00 3.59
ANTIGUA 0.7600 20.00 0.95
ARGENTINA 0.8160 20.00 1.02
ARMENIA 2.0000 20.00 2.50
ARUBA 0.7600 20.00 0.95
ASCENSION ISLANDS 1.9200 20.00 2.40
AUSTRALIA 0.2800 20.00 0.35
AUSTRIA 0.6400 20.00 0.80
AZERBAIJAN 2.0000 20.00 2.50
BAHAMAS 0.3840 20.00 0.48
BAHRAIN 1.1600 20.00 1.45
BANGLADESH 1.6960 20.00 2.12
BARBADOS 0.7600 20.00 0.95
BELARUS 2.0000 20.00 2.50
BELGIUM 0.4840 20.00 0.58
BELIZE 1.1600 20.00 1.45
BENIN 1.3200 20.00 1.65
BERMUDA 0.6000 20.00 0.75
BHUTAN 3.1680 20.00 3.96
BOLIVIA 1.0800 20.00 1.35
BOSNIA & HERZEGOVINA 1.3600 20.00 1.70
BOTSWANA 1.5600 20.00 1.95
BRAZIL 0.6880 20.00 0.86
BRITISH VIRGIN ISLANDS 0.7600 20.00 0.95
BRUNEI 1.8640 20.00 2.33
BULGARIA 1.4000 20.00 1.75
BURKINA FASO 2.0800 20.00 2.60
BURMA/MYANMAR 2.6960 20.00 3.37
BURUNDI 2.7360 20.00 3.42
CAMBODIA 2.2240 20.00 2.78
CAMEROON 1.2800 20.00 1.60
CANADA 0.1520 20.00 0.19
CAPE VERDE IS. 1.7920 20.00 2.24
CAYMAN IS. 0.7600 20.00 0.95
CENTRAL AFRICAN REP. 3.3600 20.00 4.20
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CHAD REPUBLIC 3.4800 20.00 4.35
CHILE 0.6800 20.00 0.85
CHINA 1.1600 20.00 1.45
CHRISTMAS ISLAND 2.8720 20.00 3.59
COCOS-KELLING ISLAND 1.7520 20.00 2.19
COLOMBIA 0.9200 20.00 1.15
CONGO 2.2800 20.00 2.85
COOK ISLANDS 3.5200 20.00 4.40
COSTA RICA 0.7600 20.00 0.95
COTE D'IVOIRE 2.1200 20.00 2.65
CROATIA 1.2800 20.00 1.60
CUBA 2.3600 20.00 2.95
CYPRUS 1.1600 20.00 1.45
CZECH REPUBLIC 0.7200 20.00 0.90
DENMARK 0.4080 20.00 0.51
DIEGO GARCIA 2.6480 20.00 3.31
DJIBOUTI 2.2000 20.00 2.75
DOMINICA 0.7600 20.00 0.95
DOMINICAN REPUBLIC 0.7600 20.00 0.95
ECUADOR 0.9280 20.00 1.16
EGYPT 1.0240 20.00 1.28
EL SALVADOR 0.9280 20.00 1.16
EQUATORIAL GUINEA 3.5280 20.00 4.41
ERITREA 2.3360 20.00 2.92
ESTONIA 2.0000 20.00 2.50
ETHIOPIA 1.7200 20.00 2.15
FAEROE ISLANDS 1.2800 20.00 1.60
FALKLAND ISLANDS 2.8320 20.00 3.54
FIJI 2.1520 20.00 2.69
FINLAND 0.4640 20.00 0.58
FRANCE 0.2240 20.00 0.28
FRENCH ANTILLES 1.2000 20.00 1.50
FRENCH GUINEA 1.4800 20.00 1.85
FRENCH POLYNESIA 2.0400 20.00 2.55
GABON REPUBLIC 1.7200 20.00 2.15
GAMBIA 1.0800 20.00 1.35
GEORGIA, REPUBLIC OF 2.0000 20.00 2.50
GERMANY 0.2560 20.00 0.32
GHANA 1.0800 20.00 1.35
GIBRALTAR 1.4320 20.00 1.79
GILBERT ISLAND 1.8640 20.00 2.33
GREECE 0.7200 20.00 0.90
GREENLAND 1.4000 20.00 1.75
GRENADA 0.9200 20.00 1.15
GUADALOUPE 1.0160 20.00 1.27
GUAM 0.9200 20.00 1.15
GUATEMALA 0.8400 20.00 1.05
GUINEA 2.0800 20.00 2.60
GUINEA BISSAU 3.0800 20.00 3.85
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GUYANA 1.3200 20.00 1.65
HAITI 0.8800 20.00 1.10
HONDURAS 0.9280 20.00 1.16
HONG KONG 0.5520 20.00 0.69
HUNGARY 0.8800 20.00 1.10
ICELAND 0.8800 20.00 1.10
INDIA 1.0800 20.00 1.35
INDONESIA 1.2400 20.00 1.55
INMARSAT ATLANTIC OCEAN 11.9040 20.00 14.88
INMARSAT INDIAN OCEAN 11.9040 20.00 14.88
INMARSAT PACIFIC OCEAN 11.9200 20.00 14.90
INMARSAT WEST ATLANTIC 11.9040 20.00 14.88
IRAN 1.8640 20.00 2.33
IRAQ 1.6480 20.00 2.06
IRELAND 0.5200 20.00 0.65
ISRAEL 0.7760 20.00 0.97
ITALY 0.4400 20.00 0.55
IVORY COAST 1.5120 20.00 1.89
JAMAICA 0.8560 20.00 1.07
JAPAN 0.4000 20.00 0.50
JORDAN 1.3200 20.00 1.65
KAZAKHSTAN 2.0000 20.00 2.50
KENYA 1.3520 20.00 1.69
KIRIBATI 3.3600 20.00 4.20
KUWAIT 1.1600 20.00 1.45
KYRGYZSTAN 2.0000 20.00 2.50
LAOS 3.9600 20.00 4.95
LATVIA 1.9360 20.00 2.42
LEBANON 1.4800 20.00 1.85
LESOTHO 1.5760 20.00 1.97
LIBERIA 1.1600 20.00 1.45
LIBYA 2.0880 20.00 2.61
LIECHSTENSTEIN 0.7840 20.00 0.98
LITHUANIA 2.0000 20.00 2.50
LUXEMBOURG 0.6000 20.00 0.75
MACAO 1.8800 20.00 2.35
MACEDONIA, REPUBLIC OF 1.6240 20.00 2.03
MADAGASCAR 3.7200 20.00 4.65
MALAWI 1.5040 20.00 1.88
MALAYSIA 0.7600 20.00 0.95
MALDIVES 3.0000 20.00 3.75
MALI 2.1520 20.00 2.69
MALTA 1.5760 20.00 1.97
MARSHALL ISLANDS 1.9200 20.00 2.40
MAURETANIA 2.5200 20.00 3.15
MAURITIUS 2.3840 20.00 2.98
MAYOTTE ISLANDS 3.1440 20.00 3.93
MICRONESIA 2.1520 20.00 2.69
MOLDOVA 2.0000 20.00 2.50
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MONACO 0.6800 20.00 0.85
MONGOLIA 3.8000 20.00 4.75
MONTSERRAT 1.0720 20.00 1.34
MOROCCO 1.2800 20.00 1.60
MOZAMBIQUE 2.0720 20.00 2.59
MYANMAR 3.2320 20.00 4.04
NAMIBIA 1.5840 20.00 1.98
NAURU ISLANDS 3.8800 20.00 4.85
NEPAL 2.2000 20.00 2.75
NETHERLANDS 0.2800 20.00 0.35
NETHERLANDS ANTILLES 0.5200 20.00 0.65
NEVIS 1.0000 20.00 1.25
NEW CALEDONIA 1.7200 20.00 2.15
NEW ZEALAND 0.6000 20.00 0.75
NICARAGUA 1.0800 20.00 1.35
NIGER REPUBLIC 2.1200 20.00 2.65
NIGERIA 1.0400 20.00 1.30
NIUE 3.4880 20.00 4.36
NORFOLK ISLANDS 3.1360 20.00 3.92
NORTH KOREA 3.8800 20.00 4.85
NORWAY 0.3840 20.00 0.48
OMAN 1.9600 20.00 2.45
PAKISTAN 1.5600 20.00 1.95
PALAU 2.4840 20.00 3.08
PANAMA 0.8560 20.00 1.07
PAPUA NEW GUINEA 1.7040 20.00 2.13
PARAGUAY 1.3200 20.00 1.65
PERU 0.8800 20.00 1.10
PHILIPPINES 0.7840 20.00 0.98
POLAND 0.5600 20.00 0.70
PORTUGAL 0.7200 20.00 0.90
QATAR 1.3200 20.00 1.65
REUNION ISLANDS 2.1520 20.00 2.69
ROMANIA 1.4000 20.00 1.75
RUSSIA 1.1600 20.00 1.45
RWANDA 2.2000 20.00 2.75
SAIPAN 2.0320 20.00 2.54
SAN MARINO 1.0160 20.00 1.27
SAO TOME 2.1520 20.00 2.69
SAUDI ARABIA 1.2000 20.00 1.50
SENEGAL REPUBLIC 1.7840 20.00 2.23
SEYCHELLES ISLANDS 2.6080 20.00 3.26
SIERRA LEONE 1.8800 20.00 2.35
SINGAPORE 0.4800 20.00 0.60
SLOVAKIA 1.1440 20.00 1.43
SLOVENIA, REPUBLIC OF 1.5600 20.00 1.95
SOLOMON ISLANDS 2.6880 20.00 3.36
SOMALIA 4.9520 20.00 6.19
SOUTH AFRICA 0.6400 20.00 0.80
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SOUTH KOREA 0.5600 20.00 0.70
SPAIN
SRI LANKA 1.5600 20.00 1.95
ST. HELENA 2.6560 20.00 3.32
ST. KITTS 0.8800 20.00 1.10
ST. LUCIA 0.8800 20.00 1.10
ST. PIETRE & MIQUELON 0.8720 20.00 1.09
ST. VINCENT & GRENADINES 0.8400 20.00 1.05
SUDAN 2.9440 20.00 3.68
SURINAM 1.7200 20.00 2.15
SWAZILAND 1.5120 20.00 1.89
SWEDEN 0.2320 20.00 0.29
SWITZERLAND 0.2640 20.00 0.33
SYRIA 1.9040 20.00 2.38
TADZHIKISTAN 2.0000 20.00 2.50
TAIWAN 0.6000 20.00 0.75
TANZANIA 1.4400 20.00 1.80
THAILAND 1.0800 20.00 1.35
TOGO 1.7200 20.00 2.15
TONGA ISLANDS 2.2560 20.00 2.82
TRINIDAD AND TOBAGO 0.8400 20.00 1.05
TUNISIA 1.2400 20.00 1.55
TURKEY 0.9200 20.00 1.15
TURKMENISTAN 2.0000 20.00 2.50
TURKS & CAICOS ISLANDS 0.8800 20.00 1.10
TUVALU 4.1200 20.00 5.15
UGANDA 1.3200 20.00 1.65
UKRAINE 1.2000 20.00 1.50
UNITED ARAB EMIRATES 0.7600 20.00 0.95
UNITED KINGDOM 0.1840 20.00 0.23
URUGUAY 1.0000 20.00 1.25
UZBEKISTAN 2.0000 20.00 2.50
VANUATU 3.1040 20.00 3.88
VATICAN CITY 1.0000 20.00 1.25
VENEZUELA 0.5600 20.00 0.70
VIETNAM 1.4800 20.00 1.85
WALLIS & FUTUNA ISLANDS 2.6160 20.00 3.27
WESTERN SAMOA 1.8640 20.00 2.33
YEMEN ARAB REPUBLIC 1.1600 20.00 1.45
YUGOSLAVIA, REPUBLIC OF 1.5040 20.00 1.88
ZAIRE 1.3200 20.00 1.65
ZAMBIA 1.4000 20.00 1.75
ZIMBABWE 1.1600 20.00 1.45
ZANZIBAR 1.5760 20.00 1.97
Average GP% (unweighted) 20.00
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
PCP GP % CUSTOMER
<S> <C> <C> <C>
Mexico Switched to Switched
1 0.2640 20.00 0.33
2 0.3040 20.00 0.38
3 0.3600 20.00 0.45
4 0.4800 20.00 0.60
5 0.5440 20.00 0.68
6 0.7440 20.00 0.93
7 0.8800 20.00 1.10
8 0.9600 20.00 1.20
Average GP% (unweighted) 20.00
</TABLE>
Those ranges reflect the distance from the Mexican border to the destinatio
<PAGE> 53
EXHIBIT 2.2
SUPPORT SERVICES
1. Provisioning. Upon receipt of complete and accurate information from
Customer, Provider shall take the necessary steps to provision an End User
on to Provider's service. Orders rejected by the LEC require substantial
manual intervention and work. At the request of Customer, Provider will
make a reasonable attempt to resolve the rejected order (unless the order
was rejected due to a PIC freeze or cancellation) to provision the
requested services. For each rejected order worked to activation by
Provider, Provider shall charge Customer $2.00 to be offset against
commission due to Customer.
2. Billing. Provider shall directly bill the End Users by printing,
stuffing, sorting and mailing the invoices to the End Users. End User
invoices shall include the Customer logo and a statement that the service
is provided by Provider. Provider shall bear all charges in relation to
such service, save that Customer shall be responsible for the costs of
postage in relation thereto, such costs to be recovered by Provider by
offset against commission due to Customer.
3. Calling Card Fulfilment: Provider shall charge Customer a fee of $1.15
per each calling card established for and provided and mailed to End
Users, such charge to be offset against commission due to Customer. Where
Customer provides and mails a calling card to the End User, Provider shall
charge Customer a fee of $0.35 for establishing such card.
4. Customer Service. Provider shall provide direct customer service to the
End Users through an inbound 800/888 number unique to Customer. Provider
will answer this customer service number with a mutually agreed upon
script which is branded with Customer's name or a message identifying
Customer's role herein. Customer shall promptly provide Provider with any
End User information requested by Provider that is necessary to answer End
User inquiries. Provider's Customer Service Representatives ("CSRs") shall
have the authority to issue credit to End Users. CSRs shall also have the
authority to make changes, additions and deletions to End User accounts
and to terminate End User accounts. In
Provider /s/ [Illegible] Customer /s/ [Illegible]
--------------- ---------------
23
<PAGE> 54
addition, if approved by Customer, CSRs shall have the authority to sell
add-on services to the End Users, and Provider shall pay Customer a
commission for such add-on sales in an amount to be determined on a case
by case basis.
5. Sales Agent Commissions: Customer will supply Provider with its sales
agent commission rate structure and all tracking and other information
necessary to enable Provider to provide Customer with information to
discharge Customer's obligations to its sales agents. Provider will supply
Customer with information regarding such obligations on a monthly basis,
based on cash received from End Users, in electronic file format,
sufficient to enable Customer to produce monthly commission statements and
checks for its sales agents.
6. Miscellaneous: In the event that Customer requests that Provider
provide a service not specifically described herein, Provider shall charge
a fee for such services to be determined on a case-by-case basis.
THIS EXHIBIT MAY BE AMENDED FROM TIME TO TIME TO REFLECT RATE CHANGES AND
ADDITIONAL SERVICES.
Provider /s/ [Illegible] Customer /s/ [Illegible]
--------------- ---------------
24
<PAGE> 1
ADDENDUM TO AGREEMENT
THIS ADDENDUM TO AGREEMENT ("Addendum") is made as of February 20, 1998
between NEW MEDIA TELECOMMUNICATIONS, INC., a Delaware corporation ("NMTI"), and
LONG DISTANCE DIRECT, INC., a New York corporation ("LDDI"), who agree as
follows:
1. FACT RECITALS.
This Addendum is made with reference to the following facts:
a. Telecommunications Services Agreement.
Concurrently with execution of this Addendum, NMTI and LDDI
have entered into that certain written Telecommunications Services Agreement of
even date herewith, the provisions of which whether attached hereto or not are
nonetheless incorporated herein by this reference (the "Agreement").
b. Purpose of Addendum.
The purpose of this Addendum is to add to, expand upon and
modify certain provisions of the Agreement. Whenever and wherever possible, the
Agreement and this Addendum are to be read to compliment each other; provided,
however, to the extent of a direct conflict, the provisions of this Addendum
shall control. As used herein, the word "Agreement" shall include the Agreement
as modified by this Addendum except as the context otherwise requires. Words and
phrases as used in this Addendum shall have the same meaning as set forth in the
Agreement except as otherwise expressly defined herein.
2. TERMINATION.
Notwithstanding the provisions of Section 7.10 of the Agreement, in
the event that NMTI should terminate the Agreement due to LDDI's nonpayment in
accordance with Section 7.5 of the Agreement and subject to the [ILLEGIBLE]
provisions of Section 7.7 of this Agreement, NMTI shall be entitled to move the
End Users to an alternate provider of NMTI's choice with no further compensation
being due to LDDI, LDDI agrees to fully cooperate therewith, and the same shall
not affect other rights and remedies available to NMTI due to LDDI's failure to
make payment.
3. ENTIRE AGREEMENT.
This Addendum and the Agreement contain the entire understanding
between the parties and supersedes any prior or contemporaneous written or oral
agreements between the parties. There are no representations, warranties,
agreements, arrangements, or understandings, oral or written, between the
parties relating to the subject matter of this Addendum and Agreement.
<PAGE> 2
4. COUNTERPARTS.
This Addendum may be signed in one (1) or more counterparts, each of
which shall constitute an original but all of which together shall be one (1)
and the same document.
LDDI: NMTI:
LONG DISTANCE DIRECT, NEW MEDIA TELECOM-
INC., MUNICATIONS, INC.
a New York corporation a California corporation
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
---------------------------- --------------------------
Its Vice President Jonathan Weisz, President
-2-
<PAGE> 1
[LONG DISTANCE DIRECT HOLDINGS, INC. LETTERHEAD]
Business System Consultants Limited
P.O. Box 222
31-33 Le Pollet
St. Peter Port
Guernsey GY1 4JG
November 1, 1997
Dear Sirs,
With reference to the loan of up to $350,000 which you are proposing to advance
to us, I am writing to confirm the terms on which this loan will be made:
1. If the loan has not been repaid by March 1, 1998, you will have the
option to convert the loan into shares of common stock in the Company at the
lower of 50 cents or the average bid price of the Company's shares on the
Electronic Bulletin Board for the ten business days prior to March 1, 1998.
2. As security for the loan, LDDH and its subsidiaries will grant you a
first charge on the Company's and its subsidiaries' receivables. In addition,
the loan will be secured by a limited guarantee by each of Steven Lampert and
Michael Preston in the amount of 300,000 shares out of their respective
holdings. This guarantee will be limited to such shares and will have no
recourse to their other personal assets.
3. If the loan is repaid on or before March 1, 1998, you will receive
interest at the rate of 25% per annum from the date of receipt of said monies
to the date of repayment, such interest to be paid in shares of the Company's
stock valued for such purposes at 75 cents per share.
<PAGE> 2
I trust that the above accords with your understanding of our agreement and I
look forward to receiving a signed copy of this letter by way of confirmation
thereof.
Yours faithfully,
LONG DISTANCE DIRECT HOLDINGS, INC.
By: /s/ Michael D. Preston
------------------------------
Michael D. Preston
Vice-President and Chief Financial Officer
Signed in Their Personal Capacities:
/s/ Michael D. Preston
------------------------------
Michael D. Preston
/s/ Steven L. Lampert
------------------------------
Steven L. Lampert
Acknowledged and Agreed to:
BUSINESS SYSTEMS CONSULTANTS LIMITED
By:
------------------------------
<PAGE> 1
[LONG DISTANCE DIRECT HOLDINGS, INC. LETTERHEAD]
Erik Watts
National Benefits Consultants, LLC
695 Town Center Drive, 4th Floor
Costa Mesa, CA 92626
May 14, 1998
Dear Erik,
Further to our telephone conversation this morning, I am writing to confirm our
intentions towards yourselves.
As you know, we are currently in discussions with a substantial ($1 billion
plus) public telecommunications company with a view to their taking a loan and
equity interest in LDDI and developing a strategic partnership for the
marketing by LDDI of various telecommunications and Internet services that they
provide. In that context, we have asked you to consider writing the letter of
comfort mentioned in the draft term sheet that we faxed you earlier today.
With regard to your option entitlements under the Agreement between NBC and
LDDI ("the Agreement"), and in consideration of your assistance in relation to
the above matter and subject to continuance in force of the Agreement, the
Board of Long Distance Direct Holdings, Inc agrees as follows:
1. the exercise price is hereby reduced to $1.00 (one dollar per share); and
2. there will be an immediate vesting of your option in an amount equal to 10%
of the Total Shares (as defined in the Agreement), such vesting to be on
account of the total number of shares purchasable by NBC pursuant to the
Agreement and to be contingent upon exercise of the vested options within
twenty four months of the date hereof.
We also agree that NBC and Deloitte & Touche will be brought financially up to
date out of the proceeds of the proposed equity and loan investment. In turn,
you have indicated that NBC will release the new business that you have
withheld pending resolution of the matters discussed above.
<PAGE> 2
Please sign and return to me a copy of this letter by way of confirmation of
the above.
With best personal regards,
Sincerely
/s/ Michael Preston
Michael Preston
Vice-President, CFO
/s/ Eric R. Watts
<PAGE> 1
Exhibit 23.1
[ADELMAN KATZ AND MOND, LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors
Long Distance Direct Holdings, Inc.
We hereby consent to the incorporation by reference in the Company's
Registration Statement on Form S-8 (Registration No. 333-09579) of our report
dated June 18, 1998, which includes an explanatory paragraph raising substantial
doubt about the Company's ability to continue as a going concern, appearing in
the Annual Report on Form 10-KSB of Long Distance Direct Holdings, Inc. as of
December 31, 1997 and for each of the years in the two-year period ended
December 31, 1997.
ADELMAN KATZ AND MOND, LLP
New York, NY
June 19, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LONG
DISTANCE DIRECT HOLDINGS, INC. COMBINED STATEMENT OF OPERATIONS AND BALANCE
SHEET AT 12/31/97, AND, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH LONG
DISTANCE DIRECT HOLDINGS, INC. FORM 10KSB FOR THE YEAR ENDED 12/31/97.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 50,447
<SECURITIES> 0
<RECEIVABLES> 2,930,786
<ALLOWANCES> 1,205,230
<INVENTORY> 0
<CURRENT-ASSETS> 1,996,053
<PP&E> 852,733
<DEPRECIATION> 312,495
<TOTAL-ASSETS> 8,462,846
<CURRENT-LIABILITIES> 5,140,677
<BONDS> 0
0
0
<COMMON> 8,967
<OTHER-SE> (1,686,798)
<TOTAL-LIABILITY-AND-EQUITY> 3,462,846
<SALES> 8,444,143
<TOTAL-REVENUES> 8,443,143
<CGS> 6,794,287
<TOTAL-COSTS> 322,539
<OTHER-EXPENSES> 4,366,939
<LOSS-PROVISION> 2,594,061
<INTEREST-EXPENSE> (85,824)
<INCOME-PRETAX> (5,544,859)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,544,859)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,544,859)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> 0.0
</TABLE>
